Why it matters: On May 22, 2017, the Supreme Court issued its decision in TC Heartland LLC v. Kraft Foods Group Brands LLC—rejecting long-standing Federal Circuit precedent and re-establishing stricter venue requirements for patent infringement litigation involving a domestic corporate defendant. As a result, patent plaintiffs may now be precluded from filing suit against many domestic corporations in what are perceived to be “favorable” jurisdictions, most notably the Eastern District of Texas (where upward of 40% of patent cases have recently been filed).
Detailed discussion: On May 22, 2017, the Supreme Court held that a domestic corporation “resides” only in its state of incorporation for purposes of the patent venue statute, 28 U.S.C. §1400(b). As a result, many domestic corporations will no longer be subject to suit for patent infringement in remote jurisdictions (where they are not incorporated and do not have a “regular and established place of business”). Many patent plaintiffs, especially those that still want to file suit in the Eastern District of Texas and/or that want to avoid certain jurisdictions due to cost or other considerations, may also significantly alter their litigation strategy—including their choice of which defendant(s) to sue.
Statutory scheme and prior case law: The patent venue statute, 28 U.S.C. §1400(b), provides that a civil action for patent infringement may be brought: (1) in a 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 Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957), the Supreme Court held that 28 U.S.C. §1400(b) was: (1) the sole and exclusive provision controlling venue in patent infringement actions, and (2) not supplemented or modified by any general venue provision. It therefore concluded that a domestic corporation “resides” only in its state of incorporation for purposes of the patent venue statute. In doing so, the Fourco court rejected the argument that 28 U.S.C. §1400(b) incorporated the broader definition of corporate “residence” contained in the general venue statute, 28 U.S.C. §1391(c).
Congress thereafter amended the general venue statute in 1988 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.” The Federal Circuit, in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), found this amendment to contain “exact and classic language of incorporation.” It therefore determined that 28 U.S.C. §1391(c), as amended, redefined the meaning of the term “resides” in 28 U.S.C. §1400(b) (i.e., venue would be proper against a corporate defendant in any judicial district in which the defendant was subject to personal jurisdiction), as both provisions fell within the same chapter.
Following VE Holding, no new developments occurred until Congress adopted the current version of 28 U.S.C. §1391 in 2011. Section 1391(a) now provides that “[e]xcept as otherwise provided by law…this section shall govern the venue of all civil actions brought in district courts of the United States…” And 28 U.S.C. §1391(c)(2), in turn, provides that “[f]or all venue purposes,” certain entities, “whether or not incorporated, shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question…”
Procedural History: TC Heartland LLC, an entity organized under Indiana law, was sued by Kraft Foods Group Brands LLC for patent infringement in the U.S. District Court for the District of Delaware. While TC Heartland shipped allegedly infringing products into Delaware (and was therefore subject to personal jurisdiction in Delaware), it was not registered to conduct business in Delaware. Nor did it have any meaningful local presence.
TC Heartland moved to dismiss the case or transfer venue to the Southern District of Indiana, arguing that venue was improper in Delaware. Citing Fourco’s holding that a corporation resides only in its state of incorporation for patent infringement suits, TC Heartland argued that it did not “reside” in Delaware under the first clause of the patent venue statute. It further argued that it had no “regular and established place of business” in Delaware under the second clause of 28 U.S.C. §1400(b).
The district court disagreed, finding that the 2011 amendments to 28 U.S.C. §1391 did not undo the Federal Circuit’s decision in VE Holding (i.e., venue was proper in Delaware, as TC Holding was subject to personal jurisdiction in Delaware). The Federal Circuit also subsequently denied TC Heartland’s petition for a writ of mandamus, concluding that the version of the patent venue statute construed in Fourco had effectively been amended…so that 28 U.S.C. §1391(c) now supplies the definition of “resides” in 28 U.S.C. §1400(b).
The Supreme Court decision: The Supreme Court reversed, holding that a domestic corporation “resides” only in its state of incorporation for purposes of the patent venue statute. The Court largely based its decision on two findings: (1) that Fourco was still controlling law (i.e., the patent venue statute had not been amended since that decision, and neither party had requested the Court to reconsider its earlier holding in that case), and (2) that Congress had not changed the meaning of 28 U.S.C. §1400(b) when it amended 28 U.S.C. §1391.
With respect to the latter, the Court specifically relied on the general proposition that Congress ordinarily provides a relatively clear indication of its intent to change the meaning of a statute in the text of the amended provision, as well as its observation that no such indication existed in 28 U.S.C. §1391. It also mentioned that there is now even less reason to read the provisions of the general venue statute into the patent venue statute than existed at the time of Fourco, as the current version of 28 U.S.C. §1391(a) expressly states that it does not apply when “otherwise provided by law.” Finally, the Court noted the lack of any indication that Congress, in 2011, had ratified the Federal Circuit’s decision in VE Holding (as Congress had, in fact, deleted the “under this chapter” language in 28 U.S.C. §1391(c) cited by the VE Holding court).
Limitations: Importantly, the Supreme Court expressly declined to address the effect, if any, of its decision on venue for: (1) foreign corporations, and (2) unincorporated entities. It also avoided any discussion concerning the scope of the second clause of the patent venue statute (i.e., a “regular and established place of business”)—a topic that has not been explored in detail since the Federal Circuit’s decision in VE Holding (and which many believe will become a source of intense litigation over the coming months and years).
Anticipated effects: As a result of TC Heartland, it is widely expected that the number of patent cases filed in certain judicial districts perceived to be “plaintiff-friendly” (most notably, the Eastern District of Texas) will likely decline, perhaps significantly, and that the number of patent cases filed in Delaware (a jurisdiction where many domestic entities are incorporated) will increase. A similar increase is also expected in jurisdictions where many domestic corporations have a “regular and established place of business” (e.g., California, New York, Illinois). Moreover, several commentators have suggested, given certain patent plaintiffs’ continued desire to sue in jurisdictions such as the Eastern District of Texas, that the number of cases filed against foreign corporations (which are not subject to TC Heartland) and domestic retailers (which have regular and established places of business throughout the country) will almost certainly increase—especially when the foreign corporation’s domestic subsidiary and/or the retailer’s supplier are not subject to suit in the plaintiff’s preferred jurisdiction.
Observations: While it is still early, lower courts appear to be applying TC Heartland retroactively, with several district courts requesting briefing on dismissal/transfer sua sponte. However, others have refused to dismiss/transfer pending cases (especially those filed months/years earlier), based on a finding that the defendant waived any objection to venue through its inaction. Also, as noted above, several district courts have already been asked to explore the outer boundaries of the second clause of the patent venue statute (i.e., a “regular and established place of business”).