Venue Shopping Used for Decades Has Been Curtailed

For the last 25 years, patent owners have taken advantage of a broad interpretation of venue rules to pursue infringement claims in more plaintiff-friendly jurisdictions, leading to infringement cases in jurisdictions that had minimal connections with the defendant. Earlier this week, in TC Heartland LLC v. Kraft Foods Group Brands LLC, 581 U.S. ___ (2017), the Supreme Court reversed the Federal Circuit’s broad interpretation of the venue rules, holding that a domestic corporation’s residence is limited to its State of Incorporation for patent infringement cases.

Delaware Likely To See Increase in Patent Infringement Cases

The Supreme Court’s decision in TC Heartland will have a significant impact on where patent infringement cases can be brought against domestic corporations. The Eastern District of Texas has become a favorite forum for many patent owners despite having minimal connections to accused infringers. In TC Heartland, the Supreme Court limited venue to (1) the accused infringer’s State of incorporation, or (2) where the accused infringer has committed acts of infringement and has a regular and established place of business. Forums such as the District of Delaware will likely see a significant increase in the number of patent infringement cases because many domestic corporations are incorporated in Delaware. Conversely, the Eastern District of Texas is likely to see a drastic reduction in the number of patent infringement cases brought in that forum.

Background of TC Heartland

“[I]f the error is common enough and long enough, the error becomes the law.” Well, that was until the Supreme Court ruled in TC Heartland that Congress’s 1988 and 2011 amendments to the general venue statute, 28 U.S.C. § 1391, did not modify its Fourco decision in 1957 addressing where proper venue lies for a patent infringement lawsuit brought against a domestic corporation. In TC Heartland, the Supreme Court reaffirmed its prior decisions that a domestic corporation “resides” only in its State of incorporation for purposes of the patent venue statute 28 U.S.C. § 1400(b). This 8-0 decision, authored by Justice Thomas, overruled decades of practice in which a plaintiff could bring a patent infringement lawsuit against a domestic corporation in any district in which the corporation was subject to personal jurisdiction. Even when those accused infringers did not have a “regular and established” place of business in the Eastern District of Texas, plaintiffs took advantage of the broad definition of venue in § 1391, with the backing of the Federal Circuit.

This case reached the Supreme Court after Kraft filed a patent infringement suit in the District of Delaware against its competitor TC Heartland, who ships allegedly infringing products into Delaware. TC Heartland is organized under Indiana law, is headquartered in Indiana, is not registered to conduct business in Delaware, and has no meaningful local presence in Delaware. Consequently, TC Heartland moved to transfer venue to a District Court in Indiana. Relying on the Supreme Court’s Fourco decision, TC Heartland argued that venue was improper in Delaware because it did not “resid[e]” in Delaware nor have a “regular and established place of business” in Delaware as required under § 1400(b). However, the District Court rejected these arguments, and the Federal Circuit denied TC Heartlands petition for a writ of mandamus, concluding that § 1391(c) supplies the definition of “resides” in §1400(b) because statutory amendments to § 1391 had effectively amended § 1400(b) as construed in Fourco. In its decision, the Federal Circuit reaffirmed its decision made in V.E. Holdings that the broad “reside” provisions in § 1391(c), as amended, apply to broaden § 1400(b). Under this reasoning, the Federal Circuit ruled the District of Delaware to be a proper venue because TC Heartland resided in Delaware under §1391(c), and as such, it also resided there under § 1400(b).

The Supreme Court’s Decision

The Supreme Court reversed the Federal Circuit. In doing so, the Court examined its prior holdings and the legislative histories of § 1391 and § 1400(b). In 1948, Congress recodified the patent venue statute as § 1400(b), which has remained unaltered to date. § 1400(b) provides that venue is appropriate either: (1) “in 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.” Like § 1400(b), its predecessor was enacted as a patent-specific venue statute in 1897, which the Supreme Court held in its Stonite decision to alone control venue in patent infringement proceedings and permitted suit in the district in which a defendant was an “inhabitant” or a district in which a defendant both maintained a “regular and established place of business” and committed an act of infringement. In subsequent holdings, the Supreme Court found the definition of “resides” to be the same as “inhabitant” as used in § 1400(b) and its predecessor patent venue statute.

The Supreme Court further examined amendments made to § 1391 in 1988 and 2011, and found those amendments to support its decision to limit venue in patent infringement actions to the provisions of § 1400(b). Notably, the Court found that Congress provided no clear indication of intent in the text of the 2011 amendment to § 1391 to change the meaning of § 1400(b), or an indication that Congress ratified the Federal Circuit’s V.E. Holdings decision. Rather, the Court found it telling that Congress added a caveat in the 2011 amendment to § 1391 that the general venue statute applied “[e]xcept as otherwise provided by law.”

Under this analysis, the Supreme Court reaffirmed its Fourco decision, again correcting the error that venue is proper in any district an accused infringing domestic corporation is subject to personal jurisdiction. Accordingly, the Supreme Court remanded this action leaving it to the lower court to sort out whether TC Heartland is, in fact, a domestic corporation subject to its present ruling.