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This Dog No Longer Hunts in Marshall: The Supreme Court Limits Patent Venue

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Today, in TC Heartland LLC v. Kraft Food Group Brands LLC,[1] the US Supreme Court held that, for purposes of the patent venue statute,[2] a domestic corporation “resides” only in its state of incorporation, and not wherever the corporation may be subject to personal jurisdiction.  In so ruling, the Court reaffirmed a prior holding that the patent venue statute “is the sole and exclusive provision controlling venue in patent infringement actions”.[3]

This decision is highly significant in patent cases because patent owners no longer will be able to indiscriminately sue alleged infringers and hold them hostage in perceived patentee-friendly locations, such as the Eastern District of Texas.  While many companies do business all over the US, including in East Texas, very few of those companies are incorporated there, or have regular and established places of business there.

TC Heartland revolved around interpretations of two venue statutes:  28 U.S.C. § 1391(c), which pertains to venue generally in federal district court actions, and 28 U.S.C. § 1400(b), which pertains specifically to venue in patent infringement actions.  28 U.S.C. § 1400(b) states, “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.” (emphasis added)

Judicial and Legislative History of § 1400(b) and § 1391(c)

In Fourco Glass Co. v. Transmirra Products Corp., the Supreme Court interpreted “resides” in 28 U.S.C. § 1400(b) to mean where the defendant was incorporated.[4]  The Court also held that § 1400(b) controlled venue in patent infringement actions.[5]

Congress amended § 1391 in 1988.  As a result of that amendment, § 1391(c) stated, “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”.  (emphasis added)  Section 1400(b) is part of the same “chapter” of the statute as § 1391(c).  After that 1988 amendment, patent litigants disputed whether § 1391(c) trumps § 1400(b).

In 1990, the Court of Appeals for the Federal Circuit in VE Holding Corp. v. Johnson Gas Appliance Co.,[6]  pointed to the language “under this chapter” at the beginning of § 1391(c), and held that the definition of “reside” in § 1391(c) also applied to § 1400(b).[7]

§ 1391(c) also said, “In a State which has more than one judicial district and in which a defendant that is a corporation is subject to personal jurisdiction at the time an action is commenced, such corporation shall be deemed to reside in any district in that State within which its contacts would be sufficient to subject it to personal jurisdiction if that district were a separate State”. This last statement made Texas companies like Dell Inc., which is based in a different part of Texas (and a different judicial district), subject to being sued in the Eastern District of Texas.

In 2011, Congress amended § 1391 again.  The first portion, § 1391(a), now is entitled “Applicability of section,” and states,

(a)       Applicability of section.  Except as otherwise provided by law

(1)       this section shall govern the venue of all civil actions brought in district courts of the United States; and

(2)       the proper venue for a civil action shall be determined without regard to whether the action is local or transitory in nature.

(emphasis added.)  The “for purposes of this chapter” language to which the Federal Circuit pointed in VE Holdings no longer appears in § 1391(c).

In another change in the 2011 amendments, the “multiple district” language that was in the 1988 version of § 1391(c) moved to § 1391(d).

The TC Heartland Litigation

In TC Heartland, the district court and the Federal Circuit held that the defendant (TC Heartland) could be sued in Delaware, even though the company was incorporated and headquartered in Indiana.  The Federal Circuit held again that the definition of “resides” in § 1391(c) applied to the same term in § 1400(b).[8]  The Federal Circuit did not believe that the amendments to § 1391 changed the applicability of the “resides” language in § 1391(c) to the same term in § 1400(b).[9]

The Supreme Court disagreed with the Federal Circuit’s reasoning.  As to the meaning of “resides,” the Court noted that Congress had not amended § 1400(b), though it had amended § 1391 at least twice.[10]  The Supreme Court held that the amendments to § 1391 did not modify the meaning of § 1400(b) as the Court interpreted it in Fourco.[11] Therefore, the Court concluded that Fourco’s holding, that a domestic corporation “resides” only in its State of incorporation for purposes of the patent venue statute, still holds.[12]

Because Congress did not amend § 1400(b) after Fourco, and because neither party asked the Court to overrule Fourco, the Court then looked at the question of whether Congress changed the meaning of § 1400(b) when Congress amended § 1391.[13]  In analyzing this question, the Court looked for “a relatively clear indication of [Congressional] intent in the text of the amended provision”.[14]

Noting the various amendments to § 1391 over the years, the Supreme Court observed that the 2011 amendment to § 1391 added the “Except as otherwise provided by law” language at the beginning, and removed the “for purposes of this chapter” language in § 1391(c).  The Court held that the added “savings clause” made explicit what the Fourco decision had found to be implicit.[15]  The Court also found that this amendment undermined the Federal Circuit’s rationale in VE Holding.[16]

In view of this, the Supreme Court had no trouble unanimously overruling the Federal Circuit (again), and holding that, “As applied to domestic corporations, “reside[nce]” in § 1400(b) refers only to the State of incorporation.”[17]

Takeaways

As noted at the beginning of this article, the Supreme Court holding in TC Heartland means that previously popular patent infringement jurisdictions such as the Eastern District of Texas will no longer be available.  The state of incorporation, and the identification of a regular and established place of business will be much more the focus for venue analysis.  Whether the District of Delaware, whose corporate laws have made that jurisdiction highly desirable for companies to incorporate, will experience a comparable disappearance of patent cases, remains to be seen.  In addition, the jury is out on whether favored tech company locations such as the Northern District of California, or more favorable tax jurisdictions in Texas such as the Northern District (Dallas) or the Western District (Austin) will see an upturn in patent litigation filings.  Or perhaps, coupled with the number of patent claims that the Patent Trial and Appeal Board has found invalid, the TC Heartland ruling will cause a further decrease in patent litigation filings overall.

[1]           2017 U.S. LEXIS 3213 (May 22, 2017).

[2]           28 U.S.C. § 1400(b).

[3]           2017 U.S. LEXIS 3213, *11-12 ((citing Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 229 (1957)).

[4]           Fourco, 353 U.S. at 226.

[5]           Id. at 229.

[6]           917 F.2d 1574 (Fed. Cir. 1990).

[7]           Id. at 1578.

[8]           In re TC Heartland LLC, 821 F.3d 1338 (Fed. Cir. 2016).

[9]           Id. at 1342-1343.

[10]         TC Heartland, 2017 U.S. LEXIS 3213 at *6.

[11]         Id. at *7.

[12]         Id.

[13]         Id. at *14.

[14]         Id. at *15.

[15]         Id. at *16.

[16]         Id. at *17.

[17]         Id. at *18.

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