United States: E.D. Texas's Loss Should Prove ITC's Gain

The Supreme Court's recent ruling in TC Heartland LLC v. Kraft Foods Group Brands LLC, 137 S. Ct. 1514, 122 U.S.P.Q.2d 1553 (2017), has quickly and dramatically reshaped the landscape for personal jurisdiction and venue in U.S. patent cases. As a result, the U.S. International Trade Commission, with its unique jurisdictional requirements, should now become an even busier forum for fast moving patent disputes.

In TC Heartland, the Supreme Court considered where proper venue lies for a patent infringement lawsuit brought against a domestic corporation. Id. at 1514-15. For many years, the U.S. Court of Appeals for the Federal Circuit has broadly construed the patent venue statute, 28 U.S.C. § 1400(b), incorporating into its definition the general venue statute's broader statutory definition of corporate residence. 28 U.S.C. § 1391(a), (c); see also VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 16 U.S.P.Q.2d 1614 (Fed. Cir. 1990). The result has been a gradual widening reach of the patent venue statute to draw corporate defendants into patent suits in jurisdictions favorable to plaintiffs—such as, famously, the U.S. District Court for the Eastern District of Texas—but to which the defendant corporation often has a tenuous connection. In TC Heartland, the Supreme Court found that the Federal Circuit's broad construction of corporate residency does not square with Congress's mandate in 28 U.S.C. § 1400(b), and that corporate "residency" for purposes of the patent venue statute is limited to the state of incorporation. 581 at 1514, citing Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 226, 113 U.S.P.Q. 234 (1957).

But if TC Heartland sounds the death knell for plaintiff-friendly venues such as the Eastern District of Texas, it also has the potential to balloon the court dockets in states with large numbers of corporate residents, such as Delaware and California. The District of Delaware and the Northern District of California, for example, already see large numbers of patent cases filed each year, and those numbers will likely grow even higher.

For many savvy and well-positioned plaintiffs, however, the alternative will be very clear. The ITC's jurisdiction for investigating patent infringement (and other unfair trade practices) derives not from the patent venue statute, but from the ITC's own governing statute, Section 337 of the Trade Act of 1930, codified at 19 U.S.C. § 1337. Whereas the patent venue statute is directed to determining personal jurisdiction over defendants, Section 337 investigations at the ITC are based upon subject matter jurisdiction, reaching anyone who has imported, sold for importation, or sold after importation, an article that infringes a valid and enforceable U.S. patent, regardless of where that person or corporation resides. 19 U.S.C. § 1337(B).

This is not the first time a high court decision will turn the gaze of patent owners away from district courts and toward the ITC. In 2006, the Supreme Court's decision in eBay Inc. v. MercExchange, LLC, 547 U.S. 388, 78 U.S.P.Q.2d 1577 (2006), raised the bar on plaintiffs seeking injunctive relief in district courts based on patent infringement. Not coincidentally, filings of new complaints in the ITC increased steadily in years following eBay as patent owners sought the equitable relief of exclusion orders available under the ITC's governing statute.

Another recent phenomenon—the extensive use of inter partes review proceedings before the Patent Trial and Appeal Board at the U.S. Patent and Trademark Office—has also likely contributed to a more recent rise in ITC filings. The ITC, unlike most federal district courts, does not typically stay Section 337 investigations pending the completion of IPR proceedings, even if the same patents and claims are at issue. In district court, the fast-moving IPR proceedings typically outpace the district court's schedule, leading busy district court judges to wait for the results of IPR proceedings before dedicating valuable time to complex patent cases. In contrast, the ITC has cited its statutory mandate to speedily resolve unfair trade issues as the basis for refusing to stay the rapid pace of Section 337 investigations in most situations. As a result, the ITC has become an even more attractive forum for patent owners wishing to keep pressure on potential infringers without having to await the results of IPR proceedings.

The ITC also allows a patentee to assert claims of infringement against a number of respondents in a single investigation. This feature became unique when the America Invents Act limited the joinder rules in district court. After TC Heartland, this feature becomes a distinct advantage because a patentee can pursue multiple infringers in a single ITC investigation, rather than filing district court complaints in several different district courts.

True, the ITC is not for everyone. There are additional threshold factors a patent holder must consider before choosing to file a complaint with the ITC. First, there must be an act of importation tied to the article accused of infringing the U.S. patent. Second, the ITC requires proof of "significant" or "substantial" investments (depending on the type of investment) in a U.S. domestic industry protected by the asserted patents. Third, although an ITC exclusion order is a powerful remedy, the ITC cannot award damages for patent infringement. Fourth, the very speed of an ITC investigation, often going to trial within nine months of filing, can make the ITC an expensive forum in which to file.

The threshold factors above are usually not insuperable barriers. For example, the vast majority of consumer electronics are imported, triggering the ITC's unique jurisdiction. Frequent defendants in the Eastern District of Texas, such as Samsung and Apple, have also appeared many times in the ITC as respondents, because the importation requirement can be easily met when the infringing product involves a global supply chain.

The domestic industry requirement is also not a major hurdle for a well-positioned patent owner with active manufacturing or research activities in the United States. Investments made in the U.S.—particularly those directed to plant, equipment, labor, engineering, and research and development tied to a product protected by the asserted patents—will typically clear the threshold test of demonstrating a domestic industry. Moreover, an increasing number of ITC complainants have chosen to rely on U.S. investments by licensees making licensed products. The Commission has recognized and accepted a complainant's reliance on investments by licensees when the investments are specifically allocated to articles practicing the patent. See, e.g., Certain Electronic Imaging Devices, Inv. No. 337-TA-850, Comm'n Op. at 3, 84-96 (April 21, 2014). As a result, many patent owners may have qualifying domestic industry investments.

The ITC is also distinguished from the district courts by the absence of damages. Under its governing statute, the ITC's principal remedy is equitable relief in the form of an exclusion order against products found to infringe a U.S. patent. An ITC exclusion order denies the maker of an infringing product access to the U.S. market, which is particularly valuable when U.S. manufacturing is not commercially feasible. The ITC will often also issue cease-and-desist orders to prevent the continued commerce in infringing products already in the U.S. While powerful as a trade tool, these equitable remedies cannot make a patentee whole for the financial damage infringement may have caused. Seeking ITC relief does not preclude seeking damages, however. Many patent holders file an ITC complaint at the same time as a district court case, to preserve a claim to damages. By statute, at 28 U.S.C. § 1659, a parallel district court case must be stayed upon request of a respondent pending a final decision in the ITC, but it preserves the ability to recover damages at a later date. While some patent owners may miss the potential for large jury verdicts sometimes available in a district court, the days of reliably plaintiff-friendly district courts may be gone with TC Heartland in any event.

Finally, the expense of an ITC case may be intimidating, particularly to small- and mid-sized companies without expansive litigation budgets. By consolidating a multi-year district court patent litigation into a 10-month period, costs can mount quickly, although they are typically less than a patentee might incur over the many years a district court case may drag on. Further, the leverage and attention that may be gained from filing in the ITC, and the expedient remedy that an administrative law judge may recommend within a year, often signal the immediate seriousness of a patent litigation in a way that a home-turf district court case may not for a defendant. While many ITC cases go all the way to trial, many also settle within the 16-month total investigation period, bringing relatively speedy resolution to matters that could otherwise drag on for years in district court.

Conversely, the ITC as an alternative forum to plaintiff-friendly district courts should not leave potential respondents despondent. Several features of ITC procedure, such as adjudication by a patent-savvy administrative law judge rather than a jury, the necessity for the complainant to prove domestic industry allegations in detail, and the participation of attorneys from the ITC's Office of Unfair Import Investigations in most investigations, may be seen as improvements over litigating in remote federal judicial districts with a reputation for patent-holder deference.

The full impact TC Heartland (and its eventual progeny) will have on the patent litigation landscape in the U.S. remains to be seen. But the friendly plains of the ITC may prove fertile ground for patent owners seeking a new and receptive forum outside the reach of the patent venue statute.

Originally published in BNA's Patent, Trademark & Copyright Journal

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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