What impact could the pending Supreme Court argument and decision in TC Heartland v. Kraft have on patent infringement litigation in the United States? With the oral argument scheduled for March 27, Doug Hallward-Driemeier, who leads Ropes & Gray’s Supreme Court and Appellate practice, along with Matt Rizzolo and Sam Brenner from the firm’s Intellectual Property Litigation practice offer their perspectives on the case and what it may mean for venue reform in intellectual property litigation.

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Transcript:

Hello, I am Matt Rizzolo IP litigation counsel in the Washington D.C. office of Ropes & Gray. Today I am joined by my colleagues Doug Hallward-Driemeier and Sam Brenner. Doug is a partner in the D.C. office of Ropes and Gray and chairs of the firm’s Appellate and Supreme Court practice. Sam is a senior IP litigation associate in Ropes & Gray’s Boston office.

In today’s Supreme Court preview podcast we are going to talk about the potential changes that may come from the judicial branch here in Washington D.C. Specifically, we’re going to talk about what many have called the most important patent case of the year: TC Heartland v. Kraft which is being argued on March 27. Sam I begin with you – what is this case is about? How did we get here?

Sam: Well Matt, this case is all about venue in patent infringement litigation. Venue refers to the geographic location or judicial district where a company may properly be sued for infringing a patent. The case goes all the way back to 2014 when TC Heartland was sued by Kraft in Delaware over three patents relating to concentrated liquid dispensers. TC Heartland, which is based in Indiana, argued that because it has no operation in Delaware and only a minimal percentage of its sales went to Delaware, the case should have been brought in Indiana instead. But both the Delaware Court and the Federal Circuit Court disagreed and TC Heartland filed the novel petition for certiorari that apparently caught the Supreme Court’s eyes.

Matt: Yeah, let’s talk a bit more about that. Doug, the Supreme Court doesn’t grant a lot of cert petitions, right? What do you think it was about TC Heartland’s petition with this case that may have led the Court to hear this appeal?

Doug: Well, that’s right Matt. The Supreme Court hears only about 80 cases per year and it receives approximately 100 times that many petitions for certiorari. So in a sense, every cert petition is a long shot. The court doesn’t provide specific reasons for granting a particular petition, but there are likely a couple different factors at play here. First, intellectual property cases such as this one do not fall on traditional or common ideological lines and because the Court has been sitting at eight members for a little over a year since the death of Justice Scalia, the Court has been taking more IP cases during that time perhaps because of the fact that they don’t fall along this judicial fault line. The second issue here is where a plaintiff can bring infringement cases has been the subject of great debate over the last several years nationwide. TC Heartland’s petition was supported by several amicus briefs filed by companies, trade associations, law professors, economists and even a former federal circuit judge.

Matt: The idea of venue reform for patent infringement cases is something definitely that has been raised at various times over the last decade – both in the run up to the 2011 America Invents Act and the more recent attempts at so-called patent reform. Sam, why is this?

Sam: Well in short, it’s because all roads lead to Texas and more specifically to the Eastern District of Texas, a largely rural district that since 2012 has been by far the most popular district for patent infringement cases. In 2015, for example, 44% of all patent cases filed in the U.S. were filed in this one district, Eastern District of Texas. The second most popular venue was the District of Delaware with 9% of cases.

Matt: And while a large number of companies are headquartered in Delaware, I am betting that in many cases the defendants in these patent cases don’t have much of a connection to East Texas and don’t want to have to defend against a patent case there right?

Sam: Yes, that’s right. The Eastern District of Texas has proven popular with patent plaintiffs for a number of reasons. First, it’s a relatively fast jurisdiction, so plaintiffs are often able to get to trial faster there than they would be able to in other places. And over the last 20 years, plaintiffs have on average been far more successful in prevailing in jury trials in East Texas than most other districts, and in recovering higher damages than they might in other districts as well. But beyond the ultimate resolution of the case, the judges in East Texas also employ local rules and manage cases in ways that defendants typically find disadvantageous. For example, the Eastern District requires defendants to make mandatory disclosures and document production early in the case, rarely grants summary judgment or motions to dismiss in favor of defendants, and also rarely issues stays of litigations pending Inter Partes Review proceedings. Plaintiffs are attracted to Texas by these sorts of factors because they can be used as leverage over defendants in settlement discussions.

Matt: But TC Heartland involves an Indiana company trying to get out of Delaware – at first glance, it does not seem to have anything to do with East Texas. Doug, what is the crux of the legal issue before the Supreme Court?

Doug: Well perhaps an irony of this case – but whether we are dealing with Delaware or Texas or elsewhere, venue does matter. The question before the Supreme Court here is whether patent infringement actions are governed at least in part by the general venue statute 28 U.S.C. § 1391, or whether instead this special patent venue statute, 28 U.S.C. § 1400(b), is the sole and exclusive provision governing venue in these sort of actions.

Matt: Ok, let’s break this down a bit. What does the special patent venue statute say?

Doug: Section 1400(b) says an action for patent infringement may be brought in either (1) the judicial district where the defendant resides, or (2) where the defendant has committed acts of infringement and has a “regular and established place of business.”

Matt: Leaving aside the second test for the moment, where exactly does a corporation accused of patent infringement “reside”?

Doug: Well, that is precisely the issue here. The Supreme Court has previously said that for purposes of Section 1400(b), a corporation “resides” in its state of incorporation only. But Section 1391, the general venue statute, says that an entity resides “in any judicial district in which such defendant is subject to the court’s personal jurisdiction,” which for most patent cases where the allegedly infringing products are sold nationwide, means virtually anywhere in the United States.

Matt: Sam, can you explain why courts would look to the so-called “general” venue statute if there is a special law that governs venue for patent cases?

Sam: Well for many years, they didn’t. In 1957, the Supreme Court ruled in Fourco Glass v. Transmirra that § 1400(b) is the sole and exclusive provision controlling venue in patent infringement actions, and that it is not to be supplemented by the provision of Section 1391. But in 1990, the Federal Circuit in a case called VE Holding v. Johnson Gas Appliance ruled that certain technical amendments made by Congress to the venue laws in 1988 changed the law so much that the Supreme Court’s ruling in Fourco Glass no longer applied. TC Heartland is now effectively arguing that the Federal Circuit wrongly decided VE Holding 27 years ago.

Matt: The oral argument won’t take place for another few weeks but you both read the briefs that have been filed – any predictions? In recent years, the Supreme Court has seemed to have an affinity for reversing the Federal Circuit.

Doug: Well I know that VE Holding has seemed settled laws from almost 30 years, but unchallenged law is not necessarily good law. In fact, in the recent Apple v. Samsung design patent case, the Supreme Court issued a decision that some think changed what had been settled law for over a century. It is interesting here because the Federal Circuit panel in the TC Heartland case was asking whether a more recent statutory amendment had overruled VE Holding. The Supreme Court, however, will be asking whether VE Holding was correct in the first place, and I suspect that the Supreme Court is going to be more guided by its own earlier decision in Fourco Glass.

Sam: I agree with Doug. I think there is at least a good chance that the Federal Circuit will be reversed. I think much of the commentary on the case seems to agree with both of us.

Matt: If the Supreme Court does reverse the Federal Circuit here, what are some of the implications that might have for patent litigation in the United States going forward?

Doug: At the very least, patent cases are likely to be re-distributed throughout the country and largely away from the Eastern District of Texas. Because companies could be sued where they are incorporated, and many are incorporated in Delaware, that district may actually see a rise in patent litigation. But 1400(b) also allows venue to lay where companies both have a “regular and established place of business” and have made infringing sales, so districts such as the Northern District of California, the Central District of California, and the Southern District of New York may also become more popular. And certainly “rocket docket” jurisdictions where companies may have a presence, such as the Eastern District of Virginia, could also see more litigation.

Sam: I think we’re also likely to see parties litigate the definition of “regular and established place of business,” which is something that was a contentious issue prior to the 1990 VE Holding decision. Modern issues relating to changes of technology might make this more of a tricky thing to figure out.

Matt: What about for the foreign companies who are neither incorporated in the U.S. nor maintain any place of business here? What consequences might a TC Heartland win have for them? For example, could there be no district at all where they could be sued for patent infringement? So perhaps a patent plaintiff might have to resort to the International Trade Commission to sue certain foreign entities?

Doug: Well, the Supreme Court previously held that venue for foreign companies is a unique issue even in patent cases, so even with the TC Heartland win, foreign companies not incorporated in the U.S. could still likely be sued in any district in which the courts have personal jurisdiction. But that is an interesting question and depending on how sweeping the Supreme Court’s ruling is in TC Heartland, it may have consequences even for foreign entities especially in light of some other recent Supreme Court decisions involving personal jurisdiction.

Matt: Before we wrap up, with oral argument not scheduled until March 27 and the opinion not likely until May or June, where does that leave patent litigants in the meantime? It seems like an awful lot of uncertainty whether you’re involved in a current patent case or planning to file a complaint?

Sam: For a plaintiff looking at filing a potential case in the next couple of months, I think the big question you have to ask is whether it makes sense to sue in a district where venue might not be appropriate under 1400(b). If the Supreme Court rules as many expect, your case might be dismissed for improper venue in just a few months. Notably, for cases involving multiple defendants – such as both customer and supplier – it may actually be difficult to identify a district where venue is proper for all defendants.

Doug: For defendants, it’s important to know that venue is an issue that can be waived. So defendants should be thinking about if and how they can challenge venue. Most often this is done on a motion to dismiss or in the answer, but if the case is at a relatively advanced stage, it may be more difficult to mount such a challenge. For defendants early in the case though, one potential strategy would be to file a motion to dismiss for improper venue – if the venue is actually improper under 1400(b) – and then ask the district court to stay the case and consideration of the motion until TC Heartland is decided.

Matt: Interesting considerations for sure. I am personally looking forward to seeing the oral argument. Unfortunately, that is all the time that we have here. Thank you Doug and thank you Sam for joining me in this interesting conversation. I am looking forward to having another Supreme Court preview podcast soon. In the meantime, thank you all for listening and please visit our Capital Insights page at www.ropesgray.com for more news and analysis and noteworthy issues arising out of Washington D.C.