Why it matters: Notable Federal Circuit decisions include:

  • On April 29, 2016, the Court handed down its much-anticipated decision in TC Heartland, declining to establish stricter venue rules for patent cases.
  • On March 31, 2016, the Court denied rehearing en banc of its controversial ClearCorrect ruling that the International Trade Commission has no authority to regulate electronically transmitted digital files because they do not constitute physical “articles” imported under the Tariff Act of 1930.
  • On March 23, 2016, the Court affirmed MAG Aerospace, finding that by hiring the original inventor of a patent, the accused infringer was estopped from challenging the patent’s validity.

Read on for a recap.

Detailed discussion (In re TC Heartland, LLC)

On April 29, 2016, the Federal Circuit issued its unanimous decision in In re TC Heartland, LLC, declining to establish stricter venue rules for patent cases and leaving existing venue selection jurisprudence intact. The opinion is considered a win for patent plaintiffs, including so-called patent trolls and non-practicing entities. The Court’s decision was anticipated after the panel indicated venue matters should be left to Congress, and en banc review would be required to overturn precedent. Ultimately, this issue may be destined for the Supreme Court.

Procedural History: We covered the TC Heartland case our April 2016 newsletter, but briefly, Kraft Food Group Brands LLC, a Delaware limited liability company (Kraft), sued TC Heartland, LLC, an Indiana limited liability company (Heartland), for patent infringement in the District of Delaware. Heartland moved to transfer the case to the Southern District of Indiana because Heartland “resided” in Indiana, had its “regular and established place of business” in Indiana, and 98% of Kraft’s claims arose out of activity allegedly conducted by Heartland in Indiana. The District of Delaware denied the motion, which led to Heartland’s petition for writ of mandamus with the Federal Circuit and the present decision.

Existing statutory scheme and Federal Circuit law: Venue in patent cases is currently governed by 28 U.S.C. § 1400(b) and 28 U.S.C. § 1391(c). The former, a statute specifically directed to patent cases, provides that venue is proper: (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. The latter, a general venue statute, provides that if an entity (e.g., a corporation) is a defendant in a civil lawsuit, that entity “resides” in any judicial district in which it is subject to the court’s personal jurisdiction with respect to the civil action in question. As a result, patent plaintiffs may generally sue corporate defendants in any district where they can establish personal jurisdiction.

For many years, U.S. Supreme Court precedent in Fourco Glass Co. v. Transmirra Products Corp. prohibited courts from supplementing the venue provisions of 28 U.S.C. § 1400(b) with the residency definitions set forth in 28 U.S.C. § 1391(c). However, Congress’ 1988 addition of “[f]or purposes of venue under this chapter…” to the beginning of 28 U.S.C. § 1391(c), and the 1990 Federal Circuit VE Holding Corp. v. Johnson Gas Appliance Co. interpreted this change as an expression of Congress’ intent that 28 U.S.C. § 1391(c) should, thereafter, be read in conjunction with 28 U.S.C. § 1400(b). TC Heartland unsuccessfully argued the 2011 amendments to 28 U.S.C. § 1391 overruled VE Holding and restricts a corporation’s residence to its place of incorporation.

The Federal Circuit’s decision: In its mandamus petition and in oral argument before the Federal Circuit on March 11, 2016, Heartland argued that VE Holding was overruled by the 2011 amendments to 28 U.S.C. § 1391. Heartland also argued the en banc Federal Circuit should review the VE Holding. In response, Kraft argued the new statutory language is at least as broad as the 1988 language, and that 28 U.S.C. § 1400(b) does not conflict with Section 1391 and, thus, does not satisfy the “otherwise provide” provision required in the new 28 U.S.C. § 1391(a).

In the April 29, 2016 unanimous opinion (Judge Kimberly A. Moore writing for the majority), the Federal Circuit denied Heartland’s mandamus petition. The Court found Heartland’s argument that Congress codified the Supreme Court’sFourco Glass decision in the 2011 amendments to 28 U.S.C. § 1391(c), thereby nullifying the Federal Circuit’s decision in VE Holding, to be “utterly without merit or logic.” Additionally, the Court proclaimed its 1994 Beverly Hills Fan Co. v. Royal Sovereign Corp. to be controlling precedent. In that case, the Court held that the “sufficient minimum contacts with forum” prong of the due process requirement was met where a non-resident defendant purposefully shipped accused products into the forum through an established distribution channel. The Court concluded that “Heartland’s arguments are foreclosed by our long standing precedent” and Heartland “has thus failed to show that its right to mandamus is clear and indisputable.”

Detailed discussion (ClearCorrect Operating, LLC v. International Trade Commission)

On March 31, 2016, the Federal Circuit denied en banc rehearing of its November 10, 2015 decision reversing the International Trade Commission (ITC) ruling that it had the authority to regulate electronically transmitted digital files (in this case dental imaging files) on the basis that such digital files are not “articles” that are imported as required by the governing Tariff Act of 1930.

Procedural history: Align Technology, Inc. (Align), an orthodontic appliance manufacturer, filed a complaint with the ITC against ClearCorrect Operating, LLC and its subsidiary ClearCorrect Pakistan (collectively ClearCorrect) for infringement of seven patents covering Align’s “aligners.” ClearCorrect “scans physical models of the patient’s teeth and creates a digital recreation of the patient’s initial tooth arrangement,” electronically transmits the digital recreations to its Pakistani subsidiary that, in turn generates “digital data models of intermediate tooth positions” and electronically transmits those models back to ClearCorrect in the United States. ClearCorrect then creates physical plastic models of the aligners in the U.S. according to the digital data models.

Align alleged before the ITC that ClearCorrect violated Section 337 of the Tariff Act of 1930 (§ 337) by unlawfully importing patent-infringing articles into the U.S. In May 2013, an ITC administrative law judge found that the ITC had authority to regulate ClearCorrect’s electronic transmissions and ordered ClearCorrect to cease and desist. In April 2014, the ITC upheld the initial determination of the administrative law judge in all respects. A number of organizations, including The Association of American Publishers and The Motion Picture Association of America, submitted amicus briefs in support of the ITC’s authority to regulate the “importation” of electronic transmissions. Both parties appealed to the Federal Circuit.

The Federal Circuit’s decision: On November 10, 2015, the Federal Circuit (majority opinion written by Chief Judge Sharon Prost with one concurrence and one dissent) reversed the ITC’s decision and remanded, finding that the ITC did not have jurisdiction over the case. After conducting a Chevron analysis used to determine if deference should be given to the government agency’s expertise, the Court held that that “the literal text [of Section 337] by itself, when viewed in context and with an eye towards the statutory scheme, is clear and thus answers the question at hand. ‘Articles’ [as used in Section 337] is defined as ‘material things,’ and thus does not extend to electronic transmission of digital data.” The Court indicated that only Congress, and not the courts, could expand Section 337 to include non-physical digital data.

Judge Pauline Newman dissented, opining that today’s culture is founded on:

[A]dvances in science and technology [and that] [t]he new technologies of the Information Age focus on computer-implemented methods and systems, whose applications of digital science provide benefits and conveniences not imagined in 1922 and 1930. Throughout this evolution, Section 337 served its statutory purpose of facilitating remedy against unfair competition, by providing for exclusion of imports that infringe United States intellectual property rights. Until today. The court today removes Section 337 protection from importations that are conducted by electronic transmission… The holding is contrary to Section 337, and conflicts with rulings of the Supreme Court, the Federal Circuit, the Court of Customs and Patent Appeals, the Court of International Trade, the International Trade Commission, the Customs authorities, and the Department of Labor.

On March 31, 2016, a 12-judge panel of the Federal Circuit decided 11-1 to perfunctorily deny rehearing en banc with no explanation. Three of the judges wrote a concurring opinion, while Judge Newman again provided the sole dissent.

Detailed discussion (MAG Aerospace Industries, Inc. v. B/E Aerospace, Inc.)

On March 23, 2016, the Federal Circuit unanimously affirmed a Central District of California ruling that assignor estoppel barred accused infringer B/E Aerospace, Inc. (B/E) from challenging the validity of plaintiff MAG Aerospace Industries, Inc.’s (MAG) asserted patents because B/E employed the original inventor named in those patents.

Procedural history: The patents at issue relate to the “quick repair of vacuum toilets such as those used in commercial airlines.” Each of the inventors assigned their rights in the asserted patents to their employer, who in turn assigned the patents to MAG. One of the inventors is currently employed with B/E, producing a competing product. In 2013, MAG sued B/E in the Central District of California, alleging direct and indirect infringement of the asserted patents, and B/E countersued on the basis of non-infringement and invalidity. MAG asserted the affirmative defense of assignor estoppel, and in December 2014, B/E moved for summary judgment of its non-infringement claims, and MAG moved for summary judgment of no invalidity on the basis of assignor estoppel. In January 2015, the Central District of California granted both motions for summary judgment, and both parties appealed to the Federal Circuit. While the Federal Circuit affirmed the grant of both summary judgment motions, the focus here is on the assignor estoppel issue.

The Federal Circuit’s decision: The Federal Circuit (majority opinion written by Chief Judge Prost) began by defining assignor estoppel as “an equitable remedy that prohibits an assignor of a patent, or one in privity with an assignor, from attacking the validity of that patent when he is sued for infringement by the assignee.” On the subject of privity, the Court quoted the Federal Circuit’s 1990 Shamrock Techs., Inc. v. Med. Sterilization, Inc. decision, explaining “‘[p]rivity, like the doctrine of assignor estoppel itself, is determined upon a balance of the equities.’”

The Court noted that the district court based its finding of privity in the underlying case on an analysis of the facts in conjunction with the eight factors identified in Shamrock Technologies: “(1) the assignor’s leadership role at the new employer; (2) the assignor’s ownership stake in the defendant company; (3) whether the defendant company changed course from manufacturing non-infringing goods to infringing activity after the inventor was hired; (4) the assignor’s role in the infringing activities; (5) whether the inventor was hired to start the infringing operations; (6) whether the decision to manufacture the infringing product was made partly by the inventor; (7) whether the defendant company began manufacturing the accused product shortly after hiring the assignor; and (8) whether the inventor was in charge of the infringing operation.” The district court properly considered the balance of factors in determining that B/E was in privity with the original inventor thus estopped.

Because the district court’s finding of privity was neither clearly erroneous nor an abuse of discretion, the Federal Circuit affirmed.

See here to read the Federal Circuit’s 4/29/16 opinion in In re TC Heartland, LLC. and here to read our article about the case in Manatt’s April 2016 newsletter entitled “On the Watch List: Federal Circuit to Decide Patent Venue Case.”

See here to read the Federal Circuit’s 3/31/16 denial of rehearing en banc and here to read the Federal Circuit’s 11/10/16 opinion in ClearCorrect Operating, LLC v. International Trade Commission.

See here to read the Federal Circuit’s 3/23/16 opinion in MAG Aerospace Industries, Inc. v. B/E Aerospace, Inc.