On May 22, 2017, the Supreme Court fundamentally narrowed patent venue by unanimously holding in TC Heartland that patent holders must follow the patent venue statute, 28 U.S.C. § 1400(b), which requires suing (1) “where the defendant resides,” or (2) “has committed acts of infringement” and where the defendant “has a regular and established place of business.” After TC Heartland, starting late 2017, the Federal Circuit began to clarify some aspects of the venue requirements in patent cases through mandamus petitions, such as In re Cray (standard for determining “regular and established place of business”) and In re Micron Tech. (new patent rules were a “change in the law” to eliminate waiver). This week, the Federal Circuit issued three decisions on mandamus petitions that further clarify unresolved issues on patent venue following last year’s seminal TC Heartland opinion. The orders generally continue the trend of limiting venue options and making it harder for plaintiffs to maintain jurisdiction in certain favorable patent hotbeds, except when suing foreign entities. Specifically, the Federal Circuit has determined:
- The plaintiff bears the burden of establishing proper venue once venue is challenged,
- An entity incorporated in a state with multiple judicial districts does not reside in each jurisdiction for venue purposes, and
- The patent venue provision of 28 U.S.C. § 1400(b) does not apply to foreign entities.
In re ZTE: If venue is challenged, plaintiff holds the burden of proving proper venue.
In 2017, American GNC sued ZTE USA for patent infringement in the Eastern District of Texas, and ZTE USA challenged the venue as improper under TC Heartland. The main dispute involved whether ZTE USA’s contract with a call center in the district—which included call center employees dedicated to ZTE USA calls—was a sufficient basis to find that ZTE had a regular and established business within the district. The district court found venue to be proper and denied ZTE USA’s motion to dismiss. Relying on Fifth Circuit law, the district court held that ZTE USA had “failed to meet its burden to show that it does not have a regular and established place of business in the District. ZTE USA petitioned for writ of mandamus and sought relief on the basis that the district court improperly placed the burden of proof on ZTE USA, not the plaintiff.
On May 14, 2018, the Federal Circuit granted ZTE USA’s petition, shifting the burden of persuasion on venue challenges to the plaintiffs. Realizing that it had never dealt with this issue, the Federal Circuit first looked to the law of other regional circuits before the formation of the Federal Circuit. The court recognized that each circuit placed the burden of proving proper venue upon the plaintiff, which the court found highly persuasive. Next, the court recognized that the venue statute in patent cases is intended to be more restrictive than the broad general venue provision. Thus, the Federal Circuit held that “Section 1400(b)’s intentional narrowness supports placing the burden of establishing proper venue on the Plaintiff.” The court also analogized a venue challenge to a challenge to personal jurisdiction, where the plaintiff bears the burden of proof. While acknowledging that the Federal Circuit generally defers to regional circuits for procedural law, the court further held that “whether venue is proper under § 1400(b) is an issue unique to patent law and is governed by Federal Circuit law.” Thus, the Federal Circuit’s decision that the plaintiff bears the burden of proving venue will apply to all patent cases going forward.
In re BigCommerce: An entity incorporated in a state with multiple judicial jurisdictions does not reside in each jurisdiction for venue purposes.
Two separate plaintiffs sued BigCommerce for patent infringement in the Eastern District of Texas before TC Heartland was decided. BigCommerce is incorporated in the State of Texas, and its registered office and headquarters are located in Austin, Texas—in the Western District of Texas. It was undisputed that BigCommerce has no place of business in the Eastern District of Texas. After the Supreme Court’s decision in TC Heartland, BigCommerce challenged venue as improper. The court held that venue was proper in the Eastern District of Texas because “a domestic corporation resides in the state of its incorporation and if that states contains more than one judicial district, the corporate defendants resides in each such judicial district.” BigCommerce subsequently petitioned for a writ of mandamus.
On May 15, the Federal Circuit granted BigCommerce mandamus relief, holding that a corporation does not “reside” in every judicial district in a multi-district state merely because it is incorporated in that state. The court first focused on the language of the venue statute—28 U.S.C. § 1400(b)—and determined the plain reading of “judicial district” meant “venue in only one particular judicial district in the state,” which is consistent with the statute’s structure and legislative history. Second, the court relied on Supreme Court precedent that at least indirectly stated that “a corporation incorporated in a multi-district state is not a resident of every district in the state.”
Respondents argued that the Federal Circuit’s narrow interpretation of venue will cause problems in determining proper venue in multi-district states. In particular, problems will arise when the defendant is incorporated in a state, but fails to maintain a principal office in that state. The Federal Circuit responded that the “natural default” is that the defendant resides in the district in which its registered office (from its corporate filings) is located. Thus, for the purposes of determining venue, the Federal Circuit held that the defendant “resides” only in “the single judicial district within that state where it maintains a principal place of business, or, failing that, the judicial district in which its registered office is located.”
In re HTC: Foreign defendants are out-of-luck in relying on TC Heartland to challenge venue.
In 2017, plaintiffs filed a patent infringement suit against HTC Corporation and HTC America in the District of Delaware. HTC Corporation is a Taiwanese entity with its principal place of business in Taiwan, and HTC America, its U.S. subsidiary, is incorporated in the state of Washington with a principal place of business in Seattle, Washington. Both HTC entities filed a motion to dismiss for improper venue, or, in the alternative, to transfer the case to the Western District of Washington. The district court found venue was proper for HTC Corporation, but improper for HTC America. HTC Corporation filed a petition for writ of mandamus seeking dismissal for improper venue under 28 U.S.C. § 1400(b). On May 9, 2018, the Federal Circuit emphatically denied HTC Corporation’s petition. To start, the court focused on decades-old Supreme Court jurisprudence that the patent venue provision does not apply to foreign entities, and that nothing has overruled that law. The Federal Circuit rejected HTC Corporation’s argument that the 2011 amendments to the general venue statutes somehow abrogated the longstanding alien-venue rule. The court also recognized—and HTC Corporation conceded—that HTC Corporation’s proposed interpretation of the law would create a venue gap for foreign defendants that have no regular or established place of business in the United States. Those foreign defendants “would be entirely exempt from patent infringement actions” because there would be no valid venue for a lawsuit. Taking this policy into account, the Federal Circuit maintained the alien-venue rule.
Potential Impact of the Federal Circuit’s Recent Opinions on Venue
These opinions addressed a number of outstanding questions on patent venue that arose with the Supreme Court’s TC Heartland decision. But none of the Federal Circuit’s positions were unexpected. These opinions continue a line of mandamus decisions by the Federal Circuit narrowing patent venue that started with In re Micron (no waiver of venue challenge) in late 2017. But none of these opinions should drastically affect venue or the number of filed patent lawsuits.
The change in the burden of proof in venue challenges will further curtail plaintiff’s attempts to maintain venue in “plaintiff-friendly” jurisdictions, particularly where the facts are disputed and there is not a clear-cut “regular or established place of business.” The increased difficulty of proving venue should continue the trend of plaintiff’s filing patent infringement lawsuits in the defendant’s state of incorporation (often Delaware) or principal place of business to avoid the venue fight. But for the major tech companies that already have a presence in these “plaintiff-friendly” jurisdictions, this opinion should have minimal effect. The In re BigCommerce decision covering multi-district states also should not have a drastic effect on venue. This decision essentially affects those companies incorporated in large states with patent-heavy jurisdictions, i.e., California and Texas. In those states, plaintiff can no longer pick its favorite forum simply because the company is incorporated in that same state. In Texas, this could particularly help tech companies in Austin and oilfield services companies in Houston avoid the Eastern District of Texas.
Out of the three opinions, In re HTC had the greatest potential to fundamentally change patent venue. But, with the Federal Circuit maintaining the alien-venue rule, essentially nothing changes venue-wise for foreign corporations. In its brief, HTC Corporation expressed concern that plaintiffs may avoid the new venue rules and forum-shop by suing only the foreign corporation, not the U.S. entity. Theoretically, this is an option for plaintiffs, but it does not obfuscate plaintiff’s burden to sue the proper infringing entity. If the foreign entity is not manufacturing, selling, offering to sell, importing, or using the invention in the United States, then the plaintiff will have trouble proving infringement. And this does not account for the increased difficulty and costs in obtaining discovery from a foreign corporation. Thus, theoretical concerns that plaintiffs will abuse the alien-venue rule to side-step U.S. subsidiaries should be tempered by the reality of the numerous challenges such suits face.
The cases discussed herein are: In re: HTC Corp., No. 2018-130 (Fed. Cir. May 9, 2018); In re: ZTE (USA) Inc., No. 2018-113 (Fed. Cir. May 14, 2018); and In re: BigCommerce, Inc., No. 2018-120 (Fed. Cir. May 15, 2018).