In TC Heartland Decision, U.S. Supreme Court Changes the Landscape — and Possibly the Venue — of Patent Litigation

In a highly anticipated opinion, on May 22, 2017, the U.S. Supreme Court handed down its ruling on the TC Heartland LLC v. Kraft Foods Group Brands LLC patent infringement case. The Court was asked to consider, by TC Heartland, how to interpret the judicial district where a defendant “resides” for purposes of applying the patent venue statute. The Court held that a domestic corporation “resides” only in its state of incorporation for purposes of the patent venue statute. This outcome will have a profound effect on filing patent infringement suits.

Background

Since 1990, the U.S. Court of Appeals for the Federal Circuit has followed a rule whereby venue is proper in a patent infringement suit in any judicial district where the defendant is subject to the personal jurisdiction of the court in the district — effectively, anywhere a defendant made sales. Over the past 27 years, this has led to patent owners filing suits in districts considered “patent-owner-friendly,” such as the U.S. District Court for the Eastern District of Texas. With its faster docket, streamlined discovery proceedings and a favorable record of wins for patent owners, the Eastern District became a favorite of “forum-shopping” patent owners. In fact, in 2016, 36.4% of U.S. domestic patent infringement cases were filed in the Eastern District, approximately equal to the combined filings of all but four other districts. The U.S. District Court for the District of Delaware was a distant second at 10.1% of filings. 

In 2014, Kraft Foods filed a patent infringement suit in the District Court of Delaware against TC Heartland, a competitor that is organized under Indiana law and headquartered in Indiana but ships the allegedly infringing products into Delaware. TC Heartland moved to transfer venue to one of the U.S. district courts in Indiana, claiming that venue was improper in Delaware. TC Heartland argued that it did not “resid[e]” in Delaware and had no “regular and established place of business” in Delaware under the patent venue statute 28 U.S.C. §1400(b). The District Court of Delaware and the Federal Circuit both rejected this argument. TC Heartland appealed to the Supreme Court.

The patent venue statute, 28 U. S. C. §1400(b), provides 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.” An accompanying general venue statute, 28 U.S.C. §1391, provides that “[e]xcept as otherwise provided by law” and “[f]or all venue purposes,” a domestic corporation “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.” The Federal Circuit has relied on the incorporation of §1391 into §1400, and consistently held that venue was proper where a defendant was subject to the personal jurisdiction of the district court.

The Supreme Court reversed and held that for domestic corporations, “reside[nce]” in §1400(b) refers only to the “State of incorporation.” The Court decided that §1391, which the lower courts had relied upon, did not modify the meaning of §1400(b) as interpreted by an earlier Supreme Court case from 1957, which was still good law.

Going Forward: Venue as State of Incorporation

With the Supreme Court’s opinion in TC Heartland, patent owners will likely no longer be able to file serial lawsuits against multiple defendants in the Eastern District of Texas and hope for a quick settlement. Patent owners will have to seek out the district of incorporation for defendants. Patent-favorable “forum shopping” will become more difficult. 

This may affect companies incorporated in Delaware (some 66% of all publicly traded companies are registered there) and technology companies in Silicon Valley or elsewhere with no place of business in districts such as the Eastern District of Texas. There will likely be an upsurge in patent infringement cases filed in Delaware. 

Patent holders may also respond to the TC Heartland ruling by targeting different entities down the distribution chain. For example, instead of suing a supplier, they may pursue retailers that have an established place of business in either the Eastern District of Texas or another preferred forum. 

Place of Business

Patent owners may also now rely on the “established place of business” prong of the venue statute to file or maintain suits in preferred districts. Courts have not often relied on “place of business” to establish venue, given the broader former rule. Now, patent owners may litigate the issue by establishing evidence of a regular place of business activity in the district, perhaps supported by the presence of warehouses, depots or sales offices. Older Federal Circuit case law held that not even a fixed physical presence, such as an office or store, is required to establish a “place of business” in the district. Patent owners and defendants will likely revisit this issue in the future. 

National retailers with places of business across the country may not be affected as much, as the patent venue statute already covered them. It is unclear but unlikely at this point whether courts will adopt the Internet as an “established place of business,” though patent owners will likely attempt to litigate this interpretation. 
 
How Does This Affect Venue for Foreign Corporations?

The Supreme Court’s opinion explicitly pointed out that the ruling applied only to domestic corporations. The court did not address the implications of the decision for foreign corporations, and therefore the issue remains open. One possible response by patent owners will be to focus on suing foreign corporations (in particular, those that sell into the United States and have no established place of business in the country) in districts that were previously considered patent-friendly or advantageous, such as the Eastern District of Texas. 

Transfer of Venue for Existing Cases: How Do I Get Out?

For cases filed after the TC Heartland decision, the new venue rules will likely force patent owners to reconsider their strategies. For existing filed cases, the analysis is not so straightforward. 

It is likely that cases already set for trial or far into discovery will not be subject to venue transfer, regardless of the defendant’s state of incorporation. Cases in earlier stages, such as early pleadings or motion practice, may be more fertile for successful venue transfers, especially where the defendant has previously challenged venue as improper. In cases where the defendant has waived venue as a defense or acknowledged that venue is proper, transferring venue may present more of a challenge. However, defendants in those situations may still be able to argue that they could not have known there was a viable argument that venue was improper, until TC Heartland was handed down. 

Conclusion

Courts will be applying TC Heartland to existing and current cases, and interpreting its implications for the patent venue statute as a whole. New strategies and arguments may become available, as well as reevaluations of existing filing strategies. These decisions can be complicated — please contact a member of the Much Shelist Intellectual Property & Technology group if you have questions.

Jason Wejnert provides practical, creative legal guidance on a broad range of intellectual property matters to industry-leading clients—from small and mid-sized businesses to Fortune 500 companies. He focuses his practice on patent litigation for industry-leading clients, managing all aspects of patent litigation cases from inception through trial, as well as ex parte and inter partes reexamination and review proceedings.

This article contains material of general interest and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. Under applicable rules of professional conduct, this content may be regarded as attorney advertising.