What High Court Will Consider in Patent Venue Case

January 4, 2017

Law360

Patent litigation in recent years has been concentrated in a few select districts, most notably the Eastern District of Texas.  In 2015, two-thirds of all patent cases were filed in five districts, with nearly half of the cases being filed in the Eastern District of Texas.[1]  The Supreme Court is set to hear a case that could significantly reduce this disproportionate concentration of patent cases.

On December 14, 2016, the Supreme Court granted certiorari to review the Federal Circuit’s interpretation of the patent venue statute in In re TC Heartland LLC, 821 F.3d 1338 (Fed. Cir. 2016).  This interpretation was first adopted by the Federal Circuit in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), and allows for proper venue for corporate defendants in any district where the defendant is subject to the court’s personal jurisdiction.  Many believe that this broad interpretation of the patent venue statute led to forum shopping and the concentration of patent cases in select venues seen today.[2]

The issue is whether the express definition of corporate residence in the general venue statute § 1391(c)—“any judicial district in which such defendant is subject to the court's personal jurisdiction with respect to the civil action in question”—should be incorporated into the patent venue statute § 1400(b).  The question that the Supreme Court will answer is “[w]hether 28 U.S.C. § 1400(b) is the sole and exclusive provision governing venue in patent infringement actions and is not to be supplemented by 28 U.S.C. § 1391(c).”[3]  This same issue was decided by the Supreme Court in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957), where the Supreme Court held that “§ 1400(b) is the sole and exclusive provision controlling venue in patent infringement actions, and that it is not to be supplemented by the provisions of [the general venue statute] 28 U.S.C. § 1391(c)” and that corporate residence under § 1400(b) can only be the place of incorporation.[4]

While this would seem to have settled the issue, Congress has since amended § 1391.  The Federal Circuit in VE Holding held that Fourco is no longer the law in light of a 1988 amendment to § 1391, which it held expressly requires that § 1400(b) incorporate the broad definition of corporate residence from § 1391(c).  The Petitioner in TC Heartland argues that subsequent amendments to § 1391 revert the definition of “corporate residence” to the place of incorporation as set forth in Fourco.  If the Supreme Court agrees, venues viewed as “plaintiff-friendly” may no longer be the hubs of patent litigation that they are today.

The Patent Venue Statute

The patent venue statute 28 U.S.C. § 1400(b) states that venue is proper in patent cases in two places: (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.”  The language has been essentially the same since 1897.[5]  Notably, § 1400(b) does not define “resides.”

In Fourco, the Supreme Court addressed the issue of “whether 28 U.S.C. § 1400(b) is the sole and exclusive provision governing venue in patent infringement actions, or whether that section is supplemented by 28 U.S.C. § 1391(c)” such that the definition of corporate residence from § 1391(c) would be incorporated into § 1400(b).[6]  At the time Fourco was decided, the general venue statute § 1391(c) recited: “A corporation may be sued in any judicial district in which it is incorporated or licensed to do business or is doing business, and such judicial district shall be regarded as the residence of such corporation for venue purposes,” thereby defining corporate residence as “any judicial district in which it is incorporated or licensed to do business or is doing business.”[7]  In Fourco, the defendant was a West Virginia corporation that was sued for patent infringement in the Southern District of New York.[8]  The defendant had not committed any acts of infringement in New York,[9] so venue could not be established under the second prong of § 1400(b).  The defendant did have a regularly established place of business in New York,[10] meaning that venue could be established under the first prong of § 1400(b) (“the judicial district where the defendant resides”), but only if “resides” was interpreted to include a regular place of business, as provided by § 1391(c) at that time.

The Supreme Court, however, held that, based on the legislative history of § 1400(b), corporate residence under § 1400(b) can mean only the state of incorporation.[11]  The court further held that “§ 1400(b) is the sole and exclusive provision controlling venue in patent infringement actions, and that it is not to be supplemented by the provisions of 28 U.S.C. § 1391(c).”[12]

In 1988, § 1391(c) was amended to recite: “For 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.”[13]  In VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), the Federal Circuit was presented with the issue of whether this amendment to § 1391(c) changed corporate residence for purposes of patent venue under Fourco.  The Federal Circuit held that, in light of the addition of “For purposes of venue under this chapter,” the definition of “resides” in § 1391(c) applied to the patent venue statute § 1400(b) because §§ 1391(c) and 1400(b) are in the same chapter.[14]  The Federal Circuit considered Fourco to no longer be good law because it was decided prior to the 1988 amendments to § 1391.[15]  Thus, VE Holding expanded venue in patent cases to “any judicial district in which it is subject to personal jurisdiction.”

In 2011, Congress amended § 1391(c) to change “For the purposes of venue under this chapter . . .” to “For all venue purposes . . .”.[16]  Congress simultaneously added a section to § 1391 entitled “Applicability of this section,” which set forth that § 1391 applied “[e]xcept as otherwise provided by law.”[17]

Heartland’s Argument for Restricting Patent Venue to Place of Incorporation

The Supreme Court will review the Federal Circuit’s decision in TC Heartland, which relied on VE Holding in holding that the definition of corporate residence from § 1391(c) should be read into § 1400(b). TC Heartland stemmed from a lawsuit brought by Kraft Foods Group Brands LLC (“Kraft”) against TC Heartland LLC (“Heartland”) in the U.S. District Court in Delaware alleging that Heartland’s liquid enhancer products infringed Kraft’s patents.  Heartland, which is incorporated and headquartered in Indiana and has no place of business in Delaware, moved to transfer the case to the Southern District of Indiana.[18]  The district court denied Heartland’s motion, relying on the Federal Circuit’s decision in VE Holding.[19]

Heartland petitioned the Federal Circuit for writ of mandamus directing the district court to transfer the case.  In its petition, Heartland contended that the 2011 amendment to § 1391 nullified the Federal Circuit’s decision in VE Holding because the Supreme Court’s decision in Fourco, that corporate residence was only the state of incorporation, was the “as otherwise provided by law” that excluded § 1400(b) from § 1391 applicability.[20]

The Federal Circuit denied Heartland’s petition for writ of mandamus.  The court rejected Heartland’s argument that Congress intended the 2011 amendment to § 1391 to cause the corporate residence definition in Fourco to apply to § 1400(b) because the Federal Circuit held in VE Holdings that Fourco ceased being the law in 1988.[21]  The court noted that legislative history before and after the 2011 amendment to § 1391 “repeatedly recognized that VE Holding is the prevailing law,” and that the 2011 amendments were not intended to change VE Holding.[22]

While not considered by the Federal Circuit, Heartland also argues in its Petition for Writ of Certiorari that defining residence in 28 U.S.C. § 1400(b) to be anywhere that a defendant has personal jurisdiction would be inconsistent with the use of “resident” in the related patent service of process statute, 28 U.S.C. § 1694.[23]  Heartland noted that before the enactment of §§ 1400(b) and 1694 in 1948, the patent venue statute and the patent service of process statute were closely related as the first and second sentences of § 48 of the 1911 Judiciary Act, and for this reason the term “reside” should have the same meaning in each.  Section 1694 authorizes service of process in patent infringement actions commenced “in a district where the defendant is not a resident but has a regular and established place of business.”[24]  In section 1694, therefore, “a regular and established place of business” is not sufficient to establish “residence.”  This is inconsistent with the Federal Circuit’s interpretation of “residence” in § 1400(b), which would include “a regular and established place of business.”[25]

Heartland also argued that “the Federal Circuit has exceeded its authority” in declaring that Fourco is no longer law because only the Supreme Court has the authority to overrule one of its precedents.[26]

At least one amici has noted that interpreting “residence” broadly in the first prong of § 1400(b) to be anywhere that a defendant is subject to personal jurisdiction may render superfluous the second prong of § 1400(b).[27]  The argument is that a defendant that “has committed acts of infringement and has a regular and established place of business” under the second prong of § 1400(b) would always be subject to personal jurisdiction.[28]  The Federal Circuit, however, has stated that the second prong would still have meaning for non-corporate defendants.[29]

Policy Considerations

Amicus briefs filed in support of Heartland at the Federal Circuit and at the Supreme Court argue that the broad interpretation of patent venue in VE Holding has had adverse effects.  These briefs argued that the Federal Circuit’s broad interpretation of the patent venue statute has resulted in forum shopping and a concentration of patent lawsuits in venues viewed as being plaintiff friendly, most notably the Eastern District of Texas.[30]  The amici argued that this places a disproportionate burden on smaller defendants and reduces pre-suit notice out of fear that declaratory judgments will be filed in defendant-friendly jurisdictions.[31]

While most policy arguments being presented appear to be in favor of more restrictions on patent venue, during oral arguments in TC Heartland Judge Moore suggested some benefit to having patent cases concentrated in only a few jurisdictions.  In particular, Judge Moore noted that patent cases are complex and those few venues that try most of the patent cases can be the most efficient at dealing with them.[32]  In addition, one amicus brief filed in favor of Kraft at the Federal Circuit argued that limiting residence to place of incorporation would result in a loophole allowing some foreign defendants to avoid patent lawsuits in the United States.[33]

The stage is set for the Supreme Court to weigh these policy considerations in light of the legal arguments set forth above, and to decide what will certainly be one of the most anticipated patent opinions in recent memory.

 

[1] Petition for Writ of Certiorari (No. 16-341) (hereinafter “Cert. Petition”) at 5.

[2] See, e.g., Cert. Petition at 16-23.

[3] https://www.supremecourt.gov/qp/16-00341qp.pdf.

[4] 353 U.S. at 226-29.

[5] See Act of March 3, 1897 (ch. 395, 29 Stat. 695) (reciting “inhabitant” instead of “resides”); Judiciary Act of 1948, 62 Stat. 936, 945 (1948).

[6] 353 U.S. at 222-24.

[7] Id. at 223.

[8] Id.

[9] Id.

[10] Id.

[11] Id. at 226-27.

[12] Id. at 229.

[13] Judicial Improvements and Access to Justice Act of 1988, Pub. L. No. 100-702, § 1013, 102 Stat. 4642, 4669 (1988) (emphasis added).

[14] 917 F.2d at 1578.

[15] Id. at 1579.

[16] Federal Courts Jurisdiction and Clarification Act of 2011, Pub. L. No. 112-63, § 202, 125 Stat. 758, 763 (2011).

[17] Id.

[18] TC Heartland LLC, 821 F.3d at 1340; Cert. Petition at 6.

[19] 821 F.3d at 1340.  Heartland also moved unsuccessfully to dismiss for lack of personal jurisdiction.  Id.  While Heartland also unsuccessfully appealed this issued to the Federal Circuit, Heartland did not petition for writ of certiorari on the issue of personal jurisdiction.

[20] Id. at 1341-42.

[21] Id. at 1342.

[22] Id. at 1343.

[23] Cert. Petition at 25.

[24] Emphasis added.

[25] Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 924 (2011) (listing  “domicile, place of incorporation, and principal place of business” as bases for personal jurisdiction)

[26] Cert. Petition at 14-15 (citing State Oil Co. v. Khan, 522 U.S. 3 (1997).

[27] Brief for Washington Legal Foundation as Amicus Curiae in Support of Petitioner (2016) (No. 16-341) at 13, n.4.

[28] Goodyear, 564 U.S. at 924.

[29] VE Holding, 917 F.2d at 1580, n.17.

[30] See, e.g., Brief for Acushnet Company et al. as Amici Curiae in Support of Petitioner, 2015 WL 8387461 (Fed. Cir. 2015) (No. 16-105).

[31] See, e.g., Id.; Brief for Electronic Frontier Foundation et al. as Amici Curiae in Support of Petitioner, 2015 WL 8387460 (Fed. Cir. 2015) (No. 16-105).

[32] Recording of 2016-0105 Oral Argument, at 23:20-25:50, available at, http://www.cafc.uscourts.gov/oral-argument-recordings/search/audio.html.

[33] Brief for Guy Fielder et al. as Amici Curiae in Support of Respondent, 2015 WL 7573474 (Fed. Cir. 2015) (No. 16-105).

“What High Court Will Consider in Patent Venue Case,” by S. Gregory Herrman was published in Law360 on January 4, 2017. To view the article online, please click here.

 

 

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