Seyfarth Synopsis: Venue in a patent litigation matter is limited to the state of incorporation for the alleged infringer or where the defendant has both committed acts of infringement and has a regular and established place of business.
Less than two months after oral argument, the Supreme Court issued a unanimous decision on Monday, May 22, 2017, in TC Heartland LLC v. Kraft Foods Group Brands LLC, uprooting long-standing precedent that allowed patent owners to sue anywhere there was personal jurisdiction over the infringer. According to the Supreme Court, venue in a patent infringement case actually is only proper in the state where the alleged infringer is incorporated or where the defendant has both committed acts of infringement and has a regular and established place of business.
By taking this stand, it is possible that the Supreme Court will prevail where the Federal Circuit and Congress have failed and curb “patent troll litigation” in patent-friendly district courts like the Eastern District of Texas by non-practicing entities (“NPEs”).
Evolution of Patent Venue Laws
The issue in TC Heartland can be traced back to the creation of a separate venue statute in 1897 for patent infringement cases. Prior to the amendments of 1897, patent litigation cases were treated just like any other federal matter for venue purposes.
Venue refers to the proper or most convenient location for a case or trial -- it is designed to keep litigation near the defendant or the site of the action that gave rise to the suit. In 1897, Congress approved a separate patent venue statute, which established that patent litigation is proper (1) where the alleged infringer was an “inhabitant” or (2) where the defendant both committed the act(s) of infringement and maintained a “regular and established place of business.” In 1948, Congress made a slight non-substantive revision to the patent venue statute, replacing “inhabit” with “resides.” Supreme Court decisions relating to the pre-1948 and post-1948 patent venue statute determined that the patent venue statute was the exclusive venue provision for patent infringement actions and that both “inhabit” and “resides” meant the place of incorporation of the alleged infringer. Stonite Products Co. v. Melvin Lloyd Co., 315 U.S. 561, 563-66 (1942); Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 224-229 (1957).
The 1948 patent venue statute, 28 U.S.C. § 1400(b), has not been modified since its enactment. It reads:
|28 U.S.C. § 1400(b): Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.|
In contrast to the patent venue statute, the generally applicable venue statute, 28 U.S.C. § 1391, has undergone more recent revisions. For example, in 1988, Congress expanded the location where a defendant can and should be sued. The general venue statute modified the definition of “resides” by expanding residence to include “any judicial district in which such defendant is subject to the court’s personal jurisdiction.” 28 U.S.C. § 1391(c). Personal jurisdiction can include places where the defendant has directed its actions, for example, where the product at issue is in the stream of commerce.
Two years after the 1988 amendment, the Federal Circuit evaluated whether the 1988 change to the general venue statute affected the patent-specific venue provision, 28 U.S.C. § 1400(b). In VE Holding Corp. v. Johnson Gas Appliance Co., the Federal Circuit held that the term “resides” in Section 1400(b) should be interpreted using the new definition of “resides” in Section 1391(c). The end result was to make venue proper for patent litigation anywhere the defendant is subject to personal jurisdiction rather than the more restricted definition of “resides” as the place of incorporation. VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990). The Supreme Court denied certiorari. Johnson Gas Appliance Co. v. VE Holding Corp., 499 U.S. 922 (1991).
Over the last 27 years, attorneys have associated VE Holding Corp. with an increase in forum shopping -- once venue became easier to establish, plaintiffs brought suit in places thought to provide advantages in terms of procedure, outcome, or otherwise. For example, VE Holding is said to have contributed to the rise of the Eastern District of Texas as a go-to district for patent owners. See, e.g., Alisha Kay Taylor, What does Forum Shopping in the Eastern District of Texas Mean for Patent Reform, 6 J. MARSHALL REV. INTELL. PROP. L. 570, 575-577 (2007) (available online here). The Eastern District of Texas offers streamlined patent litigation procedures and a reputation for patent holder wins. It is not a populous district, nor a place of incorporation or a principal place of business for most defendants. Recent statistics for this year, however, show that the Eastern District of Texas is the second most common forum for patent litigation disputes, trailing only inter partes review and post grant review proceedings before the Patent Trial and Appeal Board (PTAB). See, e.g., Pedram Samenl, Patexia Chart 34: Patent Litigation Down 26 Percent While IPR Up 22 Percent in Q1 of 2017, Patexia (April 12, 2017) (available online here).
After VE Holding, the Federal Circuit continued to field cases about patent venue. In light of the rise of “troll” litigation by NPEs filed in plaintiff-friendly forums, the Federal Circuit attempted to limit venue by finding that retaining jurisdiction under certain circumstances was an abuse of discretion. E.g., In re TS Tech United States Corp., 551 F.3d 1315 (Fed. Cir. 2008) (ordering transfer of case from the Eastern District of Texas to the Southern District of Ohio). Congress also repeatedly introduced bills specifically designed to limit patent venue in an attempt to curb NPE litigation; those bills were never passed. See, e.g., Venue Equity and Non-Uniformity Elimination Act of 2016, S. 2733, 114th Cong. (2015-2016).
The TC Heartland litigation allowed the Supreme Court a second chance to evaluate the merits of VE Holding Corp. (and their own opportunity to combat forum-shopping in patent litigation matters). In TC Heartland, Kraft Food Group Brands LLC (“Kraft”) brought suit against TC Heartland, LLC (“TC Heartland”) in the district court of Delaware. TC Heartland moved to dismiss the suit or at least transfer the case -- the company was incorporated in Indiana, maintained headquarters in Indiana, and less than 2% of the allegedly infringing product ended up in Delaware. See In re TC Heartland LLC, 821 F.3d 1338, 1340 (Fed. Cir. 2016). The Delaware district court denied the motion to dismiss or transfer venue, leading to an appeal to the Federal Circuit.
On appeal, the Federal Circuit addressed the effect of another set of amendments to the general venue statute made in 2011. At that time Congress, inter alia, added language in 28 U.S.C. § 1391(a), stating that the general venue statute applied “[e]xcept as otherwise provided by law.” Id. at 1341. According to TC Heartland, the additional language made the general venue statute inapplicable where other venue statutes existed, such as the patent venue statute of 28 U.S.C. § 1400(b). Id. The Federal Circuit rejected TC Heartland’s arguments, reaffirming the VE Holding Corp. precedent. According to the court, the patent venue statute did not define the term “resides” and thus looking to the general venue statute for guidance would not defy the “otherwise provided by law” language added in 2011. Id. at 1341-44.
By an 8-0 vote, the Supreme Court reversed the Federal Circuit’s In re TC Heartland decision, overturning the precedent of VE Holding Corp. In its place, the Supreme Court has determined that the term “resides” for purposes of the patent venue statute should be interpreted in accordance with the Supreme Court’s 1956 decision of Fourco: residence means the state of incorporation of the defendant. Under TC Heartland, plaintiffs alleging patent infringement must therefore file suit where the defendant resides (i.e., their state of incorporation) rather than wherever personal jurisdiction exists. Alternatively, a plaintiff can make use of the second location for venue provided by Section 1400(b): where the defendant has committed acts of infringement and has a regular and established place of business.
Effects of TC Heartland
TC Heartland is likely to shift patent litigation away from places like the Eastern District of Texas, where venue typically relied on very minimal ties to the district, and toward states such as Delaware, where many domestic corporations are incorporated.1 For defendants caught in troll litigation, the Supreme Court thus may have handed them the tools needed to transfer out of forums known for NPE activity.
Seyfarth will be closely monitoring the effects of TC Heartland in the coming months.
- Patent litigation venue is governed solely by 28 U.S.C. § 1400(b)
- For domestic corporations, venue in patent litigation is proper only (1) where the alleged infringer is incorporated or (2) where the alleged infringer has committed acts of infringement and has a regular and established place of business.