The Federal Circuit is currently considering a challenge to patent venue rules that could lead to dramatic shifts in where patent infringement actions are filed. On March 11, 2016, the Federal Circuit heard oral argument for In re Heartland, a case concerning a novel challenge to what constitutes proper venue in a patent infringement action.[1] Petitioner TC Heartland asks the court to reconsider, in light of recent statutory amendments, the applicability of a 1990 Federal Circuit decision that allows a patent infringement action to be brought in any district in which the defendant is subject to personal jurisdiction. If the Federal Circuit is ultimately persuaded by TC Heartland, patent assertion entities will no longer be able to flock to the most plaintiff-friendly forums to pursue their litigation campaigns.

Statutes and Case Law Governing Venue in Patent Infringement Actions

The core of TC Heartland's challenge involves the appropriate interpretation of, and interplay between, two statutes that currently determine proper venue for patent infringement actions:

  • 28 U.S.C. §1400(b): a venue statute specific to patent infringement actions;[2]
  • 28 U.S.C. §1391(c): a general venue statute that defines where a corporation resides for venue purposes.[3]

The Supreme Court first addressed this issue in Fourco Glass Co. v. Transmirra Products Corp.[4] At the time of the Fourco opinion, and to this day, §1400(b) allows a patent infringement action to be brought where (1) the defendant resides or (2) it has committed acts of infringement and has a regular and established place of business. A since amended §1391(c), however, allowed a corporation to be sued in any district in which it is "doing business."[5]

In Fourco, The Supreme Court held that §1400(b) is "the sole and exclusive provision governing venue in patent infringement actions" and "is not to be supplemented by . . . §1391(c)."[6] In a later decision, the Supreme Court further clarified that under Fourco, "the residence of a corporation for purposes of §1400(b) is its place of incorporation."[7] Thus, under the Fourco jurisprudence, a patent infringement action can only be brought against a corporation at its place of incorporation, or where a corporation has committed acts of infringement and has a regular and established place of business.[8]

However, in 1990, the Federal Circuit in VE Holding Corp. v. Johnson Gas Appliance Co. held that the 1988 amendments to §1391(c) overruled Fourco, allowing §1391(c) to now supplement §1400(b) in patent cases.[9]  The 1988 amended version of §1391(c) stated that a corporate defendant resides in any judicial district that has personal jurisdiction over the defendant "[f]or purposes of venue under this chapter."[10] The Federal Circuit held that "this chapter" included §1400(b), and thus §1391(c)'s broader definition of a corporation's place of residence applies to §1400(b).[11]

In 2011, Congress once again amended §1391 when it passed the Federal Courts Jurisdiction and Clarification Act of 2011.[12]  As detailed below, In re Heartland challenges the validity of VE Holding in light of the 2011 amendments, arguing that "resides" for the purposes of §1400(b) is once again limited to the place of incorporation and not any district where a corporate defendant is subject to personal jurisdiction.

TC Heartland Questions the Validity of VE Holding

TC Heartland, an Indiana limited liability company headquartered in Carmel, Indiana, manufactures and sells liquid water enhancers. In January 2014, Kraft Foods sued TC Heartland in the District of Delaware, alleging that TC Heartland's liquid water enhancers infringe Kraft Foods' patents.[13] After a Delaware district court denied TC Heartland's motion to dismiss for improper venue and to transfer the case to Indiana, TC Heartland filed a writ of mandamus urging the Federal Circuit to find that the 2011 amendments to §1391 overturned VE Holding's ruling.[14] Since then, four amicus briefs were filed – three in support of TC Heartland and one in support of plaintiff Kraft Foods and the sustaining validity of VE Holdings.

TC Heartland's primary argument is that the 2011 amendments establish that the venue rules in §1391 are "merely general default rules" and do not apply to special venue rules such as §1400(b).[15] In support, TC Heartland and amici highlight that the 2011 amendments repealed the statutory language the Federal Circuit relied on in VE Holding and included the exclusionary language missing from the 1988 version of §1391. The 2011 amendments added a new subsection, 1391(a) that states "[e]xcept as otherwise provided by law . . . [§1391] shall govern the venue of all civil actions brought in district courts."[16]  TC Heartland and the amici also emphasized that VE Holding has led to rampant forum shopping.[17]

On the other side, Kraft Foods argues that §1391(c)'s definition of corporate residence continues to apply to §1400(b) even after the 2011 amendments and, further, that the 2011 amendments actually broadened the scope of §1391(c).[18] Kraft Foods also notes that there is an absence of clear indication, either from the amended text itself or the legislative history, that §1400(b) is exempted from §1391(c). [19] As a result, such a broad change from the status quo was unlikely Congress's intent because Congress "does not . . . hide elephants in mouseholes."[20] Lastly, Kraft Foods argues that while VE Holding may have adverse policy consequences, such policy considerations should be addressed by legislators, not judges.[21]

It is unclear how the Federal Circuit will ultimately rule. However, during oral argument, the Federal Circuit panel, presided by Judges Moore, Linn and Wallach, appeared unconvinced with TC Heartland's positions.

Implications of In re Heartland

While Kraft Foods and TC Heartland dispute whether the case should be held in Indiana or Delaware, the outcome of this petition could have far-reaching implications for patent litigation strategy. VE Holding greatly expanded the range of permissible venues for patent litigation actions against corporate defendants.  Businesses that offer services or products nationwide are effectively subject to venue in any court of the patent owner's choosing. For instance, the Eastern District of Texas received 43.6% of all cases filed in 2015, which is over 30% higher than the next most popular district, the District of Delaware, at 9.3%.[22] 

If the Federal Circuit holds that the 2011 amendments are statutory changes that abrogated VE Holdings, it will cause a major shift in the distribution of patent cases in district courts. But in light of the panel's questioning during oral argument, it seems unlikely that the Federal Circuit will adopt TC Heartland's position.

It is worth noting that even if the Federal Circuit panel sides with Kraft Foods, there is still a possibility for en banc or Supreme Court review of the persisting validity VE Holding. In its petition, TC Heartland argued that VE Holding was wrongly decided but also acknowledged that it was an issue that should be re-examined en banc. That appears to be a stronger argument, which would avoid the more "attenuated" statutory interpretations that TC Heartland had to rely on.