Today, the Supreme Court clarified where a plaintiff can file suit in TC Heartland LLC v. Kraft Foods Group Brands LLC, concerning the venue statute for patent infringement actions, 28 U.S.C. § 1400(b). The Court held that, for purposes of § 1400(b), a domestic corporation “resides” only in its state of incorporation, upending nearly 30 years of precedent construing corporate “residence” much more broadly. The decision is expected to dramatically reduce forum shopping in popular venues, such as the U.S. District Court for the Eastern District of Texas.
Section 1400(b) provides that a plaintiff may bring a patent infringement action either in (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.” In 1957, the Supreme Court decided Fourco, 2 holding that, for purposes of § 1400(b), a domestic corporation “resides” only in its state of incorporation. In so holding, the Court rejected the argument that § 1400(b) incorporated the broader definition of corporate “residence” contained in the general venue statute, § 1391(c). In 1988, Congress amended § 1391(c) to provide that “[f]or purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced” (emphasis added). Soon thereafter, the Federal Circuit decided VE Holding, 3 and held that the amendment to § 1391(c) defined corporate “residence” for all statutes under the same “chapter,” including patent venue under § 1400(b). The Federal Circuit distinguished Fourco as relying on the statutory language prior to the 1988 amendment of § 1391(c).
Thus, for nearly 30 years since VE Holding, corporate defendants could be sued for patent infringement anywhere there was personal jurisdiction. For large corporations that sell products or services throughout the United States, the rule in VE Holding often meant that venue was permissible in nearly every judicial district.4 This led to forum shopping and the rise of certain venues deemed to be desirable for patentees. In recent years, the U.S. District Court for the Eastern District of Texas has stood out as a hotbed for patent cases, where venue was based upon the VE Holding rule. In 2016, the Eastern District of Texas presided over a third of the nation’s patent cases, with nearly a quarter of the nation’s patent cases assigned to a single judge: the Hon. Rodney Gilstrap.
Against this backdrop, in 2014, Kraft Foods sued TC Heartland, an Indiana corporation, for patent infringement in the District of Delaware. TC Heartland moved to dismiss the complaint, arguing that venue was improper there since it was neither incorporated nor headquartered in Delaware. The district court denied TC Heartland’s motion, finding venue appropriate under VE Holding because TC Heartland had shipped 2% of the allegedly infringing products to Delaware and was therefore subject to personal jurisdiction in the state.5 On appeal, the Federal Circuit affirmed and reaffirmed VE Holding.6
The Supreme Court, however, granted certiorari and unanimously reversed in an 8-0 decision.7 The Court reasoned that it interpreted § 1400(b) in Fourco, and that Congress had not changed the meaning of § 1400(b) when it amended § 1391(c). The version of the statute at issue in Fourco included similar language (“for venue purposes”) as the language in § 1391(c) applying for “purposes of venue under this chapter,” and the Court held that the phrasings are not materially different. Moreover, language in § 1391(c) states that it does not apply when “otherwise provided by law,” thereby directing to § 1400(b) for patent cases and therefore incorporating the Fourco holding that § 1400(b) contained its own meaning of “residence.” Finally, the Court also considered amendments made to § 1400(b) in 2011 and saw no indication that Congress ratified the Federal Circuit’s VE Holding decision in that amendment.
In the wake of TC Heartland, a domestic corporation can only be sued for patent infringement in its state of incorporation, or where it has allegedly infringed and has a “regular and established place of business.” Going forward, we expect to see litigation over what it means to have a “regular and established place of business,” which may well now be the broader prong of the venue analysis. After VE Holding, this issue was rarely raised because “resides” was so easily shown, but now litigants will look to earlier case law. In one pre-VE Holding case, Cordis, 8 the Federal Circuit interpreted the “regular and established” prong not to require a “fixed physical presence.” It remains to be seen whether Cordis is now good law, however, and what the contours of the “regular and established” prong are if a fixed physical presence is not required. If an expansive view of this prong prevails, it could limit the impact of TC Heartland.
From the perspective of the domestic corporate defendant, the new rule will reduce the available venues where it can be sued. In particular, we expect a reduction in the number of cases filed in the Eastern District of Texas. Corporations in existing patent litigation in a venue where they are not incorporated or have a regular and established place of business may seek to transfer venue, if it is desirable to do so, provided that they have not waived this right. Going forward, patent venue will be something to consider when deciding where to incorporate and establish offices, and may be a reason to operate through a U.S. subsidiary.
From the perspective of the patentee, the new rule makes it more difficult to sue multiple defendants in a single venue, a common tactic of non-practicing, patent assertion entities. Many large companies are incorporated in Delaware, which could lead to an increase in cases filed in the District of Delaware. But, to the extent a group of defendants has diverse residencies, the new rule could add to the logistical costs of bringing suit. As a result, we may see a rise in the number of cases referred to the Judicial Panel on Multidistrict Litigation for pretrial purposes. Yet, the MDL panel is not an equal substitute for the freedom to venue-shop that patentees had previously: there is no guarantee that the MDL panel will consolidate a given group of patent cases, and the MDL panel, not the plaintiff, decides where to consolidate them. Overall, these added costs may reduce the number of cases filed by non-practicing entities.