On Monday, a unanimous US Supreme Court in TC Heartland LLC v. Kraft Foods Group Brands LLC sharply limited venue for patent infringement cases, slashing the ability of patent plaintiffs to pick their forum—in particular, the Eastern District of Texas, where plaintiffs have increasingly chosen to file suit and where nearly half of all patent litigation takes place.
TC Heartland construed the patent venue statute, 28 U.S.C. § 1400(b), which allows suit where the defendant “resides” or “has committed acts of infringement and has a regular and established place of business.” The backdrop was the Federal Circuit’s 1990 decision in VE Holding Corp. v. Johnson Gas Appliance Co. There, the Federal Circuit construed the word “resides” as coextensive with the same word in the general venue statute, 28 U.S.C. § 1391(c)(2), which provides that a defendant corporation “resides” in “any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question.”
The facts that make TC Heartland so practically significant are found nowhere in Justice Thomas’ opinion. Because the Federal Circuit has exclusive appellate jurisdiction in patent cases, VE Holding’s broad venue rule—allowing suit wherever there is personal jurisdiction over the defendant—has afforded patent plaintiffs broad choice of forum in suits against corporate defendants. And increasingly, plaintiffs have chosen Texas’s Eastern District. By 2015, 43.6 percent of all patent cases were filed in that district. Compared with the national average, plaintiffs won more often (54 percent, against a national average of 33 percent), and won greater amounts (a median of $9.4 million, or nearly double the national average). See Christopher Barry, et al., 2016 Patent Litigation Study: Are we at an inflection point? (2016), http:// pwc.to/2qcuLb0 (PwC Study).
The landscape is now dramatically changed after the Supreme Court’s 8-0 opinion, which in a terse 10 pages—with Justice Gorsuch not participating—rejected three decades of Federal Circuit precedent. The Court grounded its holding in its 1957 decision in Fourco Glass Co. v. Transmirra Products Corp., which established two key points that prove the result in TC Heartland. First, Fourco held that the word "resides" in § 1400(b) subjects corporations to venue "only in their States of incorporation." Second, Fourco held that § 1400(b) is the "sole and exclusive provision controlling venue in patent infringment actions," and is "not to be supplemented by" resort to the general venue statute.
TC Heartland rejected the broad venue rule of VE Holding because the Federal Circuit imported principles from the general venue statute in precisely the way that Fourco had warned against. In 1988, after Fourco, Congress amended and broadened the general venue statute to provide that “[f]or purposes of venue under this chapter,” venue is proper wherever a defendant corporation is subject to personal jurisdiction. And because § 1400(b)’s patent venue provision is part of the same “chapter,” VE Holding concluded that this amendment abrogated Fourco’s narrow definition of “resides” and subjected patent venue to the same rules as general venue. In TC Heartland, however, the Supreme Court disagreed. It relied on the principle that, when a statute has received a “settled construction,” Congress ordinarily must “provide  a relatively clear indication of its intent” to alter this construction. The Court perceived no such clear indication in the post-1988 amendments to the general venue statute. At the time of Fourco, too, the general venue statute had applied “for venue purposes,” and so, the 1988 amendment on which the Federal Circuit relied did not materially change the statute that Fourco had already construed. Hence, Fourco’s interpretation—that for patent venue purposes, a corporation “resides” only in its place of incorporation and that rules from the general venue statute are inapplicable— continues to govern.
One effect of TC Heartland is clear. Plaintiffs’ choice of forum will be far narrower, and patent litigation in Texas’s Eastern District will sharply decline. Plaintiffs must either sue in the state of incorporation of a defendant corporation or where the defendant has both “committed acts of infringement” and “has a regular and established place of business.” 28 U.S.C. § 1400(b).
But it remains unclear whether TC Heartland will change the balance of power between patent plaintiffs and defendants or merely shift the location of the battlefield. A significant share of patent litigation is likely to flow to Delaware, where so many companies are incorporated. And one study has ranked the District of Delaware as more favorable to patent plaintiffs than the Eastern District of Texas, with plaintiffs succeeding less often (40 percent), but obtaining greater damages awards (a median of $17 million). PwC Study at 15. TC Heartland also expressly reserves decision on the venue rules for foreign corporations, which remain untouched by the Supreme Court’s opinion.