New Venue Considerations May Shape Patent Litigation after TC Heartland

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The Supreme Court issued its much-anticipated decision in TC Heartland LLC v. Kraft Foods Group Brands LLC, unanimously holding that, for the purpose of the patent venue statute 28 U.S.C. § 1400(b), “a domestic corporation ‘resides’ only in its State of incorporation.” The Court’s decision overruled the Federal Circuit’s decades-old precedent, which had allowed patent suits to be filed anywhere infringement had occurred. After this decision, a corporate defendant is subject to a patent suit only in a district where it is incorporated or where it “has committed acts of infringement and has a regular and established place of business.” Because this new standard narrows the available forums, it is a likely boon for accused infringers.

Federal Circuit’s 1990 Decision Expanded Scope of Venue

The patent venue statute in 28 U.S.C. § 1400(b) states that “[a]ny 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 the 1990 case VE Holding Corp. v. Johnson Gas Appliance Co., the Federal Circuit held that, because of certain 1988 statutory amendments that defined the word “resides” for the general venue statute, the meaning of “resides” in the patent venue statute had been impliedly amended. Applying that new standard meant that venue was proper anywhere that the defendant allegedly committed an act of infringement, significantly expanding the jurisdictions available for a plaintiff to file suit.

The facts of TC Heartland exemplified how few defendant contacts were necessary to establish venue under the VE Holding rule. Kraft Foods sued TC Heartland in the District of Delaware. TC Heartland has almost no contact with the State of Delaware. It is organized and headquartered in Indiana, and it maintains no meaningful business presence in Delaware. It did, however, ship allegedly infringing goods into Delaware. After the district court and Federal Circuit ruled those contacts were sufficient to establish venue, TC Heartland appealed to the Supreme Court.

Supreme Court’s TC Heartland Decision Restricts Patent Venue

The Supreme Court reversed, overruling VE Holding. After reviewing the history of the patent venue statute and related case law, it explained that a 1950s Supreme Court ruling, Fourco Glass Co. v. Transmirra Products Corp., “definitively and unambiguously held that the word ‘reside[nce]’ in § 1400(b) has a particular meaning as applied to domestic corporations: It refers only to the State of incorporation.” Congress’ later amendments to the general venue statute did not evidence an “inten[t] to alter the meaning of § 1400(b) as interpreted in Fourco.” Thus, “[a]s applied to domestic corporations, ‘reside[nce]’ in § 1400(b) refers only to the State of incorporation.”

Practical Implications for Patent Litigation

TC Heartland is expected to have an immediate impact on where—and perhaps whether—plaintiffs file future patent suits. Two related changes are widely expected. Plaintiffs will be unable to file and maintain many prospective cases in the Eastern District of Texas, which has consistently led the country in patent filings due to patent plaintiffs’ strong preference for the venue. The diminished importance of the Eastern District will be a significant change in the patent litigation landscape. Indeed, some plaintiffs may altogether forego filing suit after this change. But many other plaintiffs will likely opt to file new cases in the District of Delaware. Already a popular venue for patent litigation, Delaware is also where many entities are incorporated and thus “reside” under TC Heartland.

An equally important but less understood change will be the rise in prominence of the second clause of section 1400(b). Largely forgotten during the era of VE Holding, the second clause provides that venue is proper in a district where the defendant allegedly committed an act of infringement as long as the defendant also has a “regular and established place of business” in that district. Although this provision existed and was applied before the 1990 decision in VE Holding, courts have not grappled with applying the clause in almost three decades. Much in patent law and business generally has changed since then.

In regards to the second prong of the statute, one potential ramification may include suits against downstream retailers with places of business in patentee-favored districts such as the Eastern District of Texas, as patent holders try to get creative in keeping cases there. Also, in wake of TC Heartland, on May 26, 2017, Judge Gilstrap issued several orders sua sponte requesting additional briefing regarding pending motions to transfer venue in the Eastern District. Judge Gilstrap further ordered the parties in those cases to identify whether they needed venue related discovery to resolve the pending motions. If venue related discovery becomes the norm, it will necessarily increase litigation costs and could become additional leverage for early settlements.

It therefore remains to be seen how venue considerations will shape patent litigation after TC Heartland.Myriad issues are likely to arise in the application of the second clause, including what acts (such as in the case of divided infringement) are sufficient to constitute “acts of infringement” and what types of business activities constitute a “regular and established place of business.” As courts resolve those various issues, plaintiffs may begin to develop preferences for new favorable jurisdictions where, such as Delaware, greater numbers of defendants may be subject to venue in the district. Those new preferences will likely take many years to develop.