In a unanimous decision today, May 22, 2017, the Supreme Court ruled that a defendant may be sued for patent infringement only (1) in its state of incorporation or (2) where it has an established place of business and has committed acts of infringement. The case has been closely watched due to its potential impact on forum selection in patent cases—namely, whether patent infringement actions can be brought where there is personal jurisdiction over the defendant, e.g., in any district where defendant’s products are sold.
As a result of the Supreme Court’s decision, the Eastern District of Texas—long a magnet for patent infringement filings due to its pro-plaintiff reputation—will no longer be a proper venue for cases against companies whose only relationship to that district is based on the local sale or use of allegedly infringing products.
Statute and Caselaw
The case turned on the meaning of the term “resides” in the patent venue statute, 28 U.S.C. § 1400(b), which provides, “Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” (emphasis added). Section 1400 does not define the term “resides.”
The Supreme Court had previously addressed the meaning of “resides” in Fourco, where the court declined to read the broad definition of corporate “residence” in the general venue statute, § 1391(c), into the patent venue statute. Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957). Under the holding in Fourco, venue in a patent case against a corporate defendant was proper only if (1) the defendant was incorporated in that district or (2) the defendant committed acts of infringement in that district and had an established place of business there.
In 1988, Congress amended § 1391(c) to define residence “for purposes of venue under this chapter.” The amendment changed the definition of corporate “residence” from where the corporation is “incorporated or licensed to do business or is doing business” to “any judicial district in which it is subject to personal jurisdiction at the time the action is commenced.”
Later, the Federal Circuit in VE Holding held that this new definition applied to the patent venue statute, § 1400(b). VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574 (1990). As a result, a corporation could “reside” in any state in which the corporation was subject to personal jurisdiction, which could be more than one state.
In 2011, Congress again amended § 1391 to further broaden the definition of corporate “residence,” which applies “[f]or all venue purposes.” Under that amendment, § 1391 shall govern the venue in all civil actions in district courts of the United States “except as otherwise provided by law.”
Kraft v. TC Heartland
Against this backdrop of statutory amendments and caselaw, Kraft sued TC Heartland in Delaware, arguing that TC Heartland infringed its patents directed to containers and methods for dispensing concentrated liquids. Kraft is headquartered in Illinois and incorporated in Delaware—TC Heartland is headquartered in Indiana and operates under Indiana law. TC Heartland sought to transfer the case to Indiana, but its transfer motion was denied. Kraft Foods Grp. Brands LLC v. TC Heartland, LLC, No. 14–28–LPS, 2015 WL 5613160 (D.Del. Sept. 24, 2015).
On appeal to the Federal Circuit, TC Heartland argued that VE Holding should be re-examined en banc because it conflicts with the Supreme Court holding in Fourco. In re TC Heartland LLC, 821 F.3d 1338 (2016). TC Heartland argued that VE Holding has produced “enormous venue shopping opportunities in patent infringement actions.”
Kraft argued that the new language in § 1391(c) broadens the applicability of § 1400(b). According to Kraft, § 1400(b) does not conflict with § 1391, and therefore does not “otherwise provide” as stated in new § 1391(a). Kraft also argued that the policy concerns surrounding “forum shopping” are more properly addressed by Congress.
The Federal Circuit held that statutory amendments had effectively amended § 1400(b) as construed in Fourco and that § 1391(c) supplies the definition of “resides” in § 1400(b).
Supreme Court Opinion
The Supreme Court reversed the Federal Circuit, holding that for purposes of § 1400(b), a domestic corporation resides only in its State of incorporation.
The court first looked to the history of the relevant statutes. The court noted that it has held (and subsequently affirmed) that §1400(b) “is the sole and exclusive provision controlling venue in patent infringement actions, and . . . is not to be supplemented by . . . §1391(c).”
The court noted that Congress amended the general venue statute §1391(c) in 1988, and that “the only question . . . is whether Congress changed the meaning of §1400(b) when it amended §1391.” The court concluded that it had not: “In Fourco, this Court definitively and unambiguously held that the word ‘reside[nce]’ in §1400(b) has a particular meaning as applied to domestic corporations: It refers only to the State of incorporation.” The court agreed with Kraft’s argument that any changes to the meaning of the term are properly addressed by Congress: “Congress has not amended §1400(b) since Fourco, and neither party asks us to reconsider our holding in that case. When Congress intends to effect a change of that kind, it ordinarily provides a relatively clear indication of its intent in the text of the amended provision.” The court further noted that “[t]he current version of §1391 does not contain any indication that Congress intended to alter the meaning of §1400(b) as interpreted in Fourco.”
Moreover, the court reasoned that Fourco’s holding rests on even firmer footing due to §1391’s saving clause, which “expressly contemplates that certain venue statutes may retain definitions of ‘resides’ that conflict with its default definition.” The court concluded that the saving clause “makes explicit the qualification that this Court previously found implicit in the statute.”
Finally, the court reasoned that there is no indication that the 2011 amendments ratified the Federal Circuit’s decision in VE Holding. The court stated that VE Holding relied heavily on Congress’ decision in 1988 to replace “for venue purposes” with “[f]or purposes of venue under this chapter” in §1391(c), and in 2011 to delete “under this chapter,” which resulted in the current version of §1391(c) being worded almost identically to the original version of the statute.
Thus, the court concluded that, as applied to domestic corporations, “reside[nce]” in§1400(b) refers only to the State of incorporation.
For the past 30 years, patent infringement actions have been brought in any judicial district where a defendant is subject to personal jurisdiction based on downstream sales of accused products. This expansive interpretation of §1400(b) allowed defendants to be sued for alleged patent infringement in the Eastern District of Texas, even if the defendant was neither incorporated in Texas nor had any established place of business in that district. Under the Supreme Court’s ruling today, venue will lie for domestic corporations only (1) in their state of incorporation or (2) where the defendant has an established place of business and has committed acts of infringement. Ironically, TC Heartland, a case that ends in a transfer out of Delaware, will likely result in many more cases being filed in Delaware rather than the Eastern District of Texas because many patent defendants are incorporated in Delaware.
It is important to note, however, that this change comes with limitations, and not all defendants can hope to avoid the Eastern District of Texas altogether. The patent owner can bring suit in any district where the defendant has committed acts of infringement and has an established place of business. Thus, a defendant will not be able to avoid the Eastern District of Texas if it sells its products nationally (including the Eastern District of Texas) and has an office anywhere in the district.