Patent Venue: A history of ambiguity and the potential for unprecedented change

William Dyer III and Bea Koempel-Thomas of Lee & Hayes examine TC Heartland v Kraft and the arguments put forward in support of each party

The US Supreme Court heard arguments on 27 March 2017 in an appeal brought by TC Heartland, which could change the future of where patent lawsuits can be filed. Ironically, for those familiar with patent litigation in the US, the suit was not brought in the Eastern District of Texas.

TC Heartland, a liquid sweetener company, appealed its unsuccessful attempts to move a patent infringement case brought against it by Kraft Foods Group Brand in the District of Delaware to the Southern District of Indiana, which is TC Heartland’s state of incorporation. The sweetener company asked the high court to limit where patent suits can be filed by reinstating the holding in the 1957 decision, Fourco Glass Co v Transmirra Products Corp. In Fourco, the court ruled that patent infringement lawsuits could be established only in the district where the defendant resides, a vaguely defined term that has been the source of contention over many decades in patent law.

In Fourco, the US Supreme Court ruled that, for corporate defendants, the word “resides” in 28 USC § 1400(b) means the “state of incorporation only”. The language in the statute was the law of the land for 30 years, until VE Holding v Johnson Gas Appliance, the 1990 decision of the Court of Appeals of the Federal Circuit, which deemed patent venue to be appropriate anywhere a defendant’s product was sold.

Since the VE Holding ruling, the Supreme Court and Federal Circuit decisions are seemingly at direct odds with one another, contributing to a patent infringement landscape that has morphed into a quagmire of filings concentrated in just a few districts, rather than distributed across the 94 districts available in the US. While the argument at hand is relatively complex and spans over a century, the core of the issue today stems from a nebulous interpretation of the word ‘reside’, which has led to a seemingly intentional abuse of forum-shopping.
The current venue law has allowed plaintiffs to file cases in districts that are perceived to be more favourable to them (whether it be due to judges who are known to adopt speedy timetables for trial or large corporations sponsoring facilities and accommodations for visiting attorneys). For instance, of the nearly 4,000 patent cases filed in the US in 2016, roughly half were filed in the Eastern District of Texas, despite few patent defendants being based there, according to a February 2017 amicus brief filed by the American Bar Association (ABA) that references patent venue lawsuits. It added: “[N]early 25 percent are filed before one district judge in the Eastern District of Texas.” The ABA stressed that this is “depriving patent law of the diversity of viewpoints necessary for a healthy and robust common law” and has “undermined public confidence” in the patent system. Meanwhile, Kraft and others argue that limiting patent venue at the district court level, provides benefits from judges who are more conversant in patent law, similar to the reasoning that led to formation of the Court of Appeals of the Federal Circuit.

Should the Supreme Court rule in TC Heartland’s favour, the decision could drastically transform patent litigation in the US. TC Heartland wants the Supreme Court to rule that the patent venue statute is the sole regulation to determine where infringement suits can be filed. Kraft contends that “patent venue reform is properly left to [the US] Congress”. Kraft continues by saying that TC Heartland is not considering a 2011 revision to Section 1391(c) of the general venue statute, known as the Venue Clarification Act.

Regarding business entities, the Venue Clarification Act defines residence “for all venue purposes” as follows: “[A]n entity with the capacity to sue and be sued in its common name under applicable law, whether or not incorporated, 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 and, if a plaintiff, only in the judicial district in which it maintains its principal place of business.”

The Venue Clarification Act further states that “a defendant not resident in the US may be sued in any judicial district, and the joinder of such a defendant shall be disregarded in determining where the action may be brought with respect to other defendants”. The 2011 revision added to a series of amendments to patent venue statutes by attempting to further define corporate residence. However, the 2011 revision left the interpretation of patent venue arguably broad, and Congress acknowledged that the prevailing patent venue standard was defined by VE Holding. In TC Heartland, the Federal Circuit affirmed its interpretation of patent venue as being broad, specifically as outlined in 1391(c) and 1400(b), essentially mirroring VE Holding.

Kraft argues that the over half a century-old Fourco decision does not apply to its dispute with TC Heartland. “The decision provides no basis for this court to ignore subsequent amendments to venue laws that undeniably are substantive, and which give the relevant statutory term a different meaning than the Fourco court adopted,” disputes Kraft in its court filings.

A history of revisions to the statute and a current appeal to the Supreme Court are not the only things currently at play that could potentially change the direction of patent venue law. At present, Congress is reviewing the Venue Equity and Non-Uniformity Elimination (VENUE) Act that was introduced in March of this year. The VENUE Act and a corresponding similar House bill would replace section 1400(b) with a provision that nullifies the broad definition of corporate residence in 1391(c), effectively restricting patent venue to locations (i) where the defendant has its principal place of business or is incorporated; (ii) where the defendant committed an infringing act and has a regular established physical facility; (iii) where the defendant has consented to suit; (iv) where an inventor conducted research and development that led to the patent; or (v) where any party has a physical facility where certain specified activity took place.

The VENUE Act has the potential to tilt the scales in favour of defendants by making it more cumbersome for patent holders due to, for example: travel and logistical burdens, the need to adapt to local rules and courts in which venue is statutorily proper, and potentially longer delays before trial, to name a few. In theory, it will become more expensive for plaintiffs to uphold their patent rights while making it easier for defendants to fight patent infringement claims.

The ripple effect of the VENUE Act could also envelop others in the patent system such as tech consumers, inventors and patent owners by, for example, a potential decrease in patent portfolio values, a downturn in investment in research and development, and a potential for incentivizing infringing activity in districts that may prove to be harder on patent plaintiffs.

For many years, Congress has considered patent reform statutes that would ameliorate the patent venue issues, however, the Supreme Court may prove to be a more viable entity to address the issue due to opposing statutes and conflicting case law. A somewhat common consensus among patent litigators is that, should TC Heartland’s position be accepted, patent litigation would shift dramatically to the burdened docket of the District of Delaware, where many companies are incorporated, and areas with large tech populations, such as Northern California.

While few would dispute that patent venue in the US is ripe for reconsideration, it remains to be seen whether that reconsideration takes place at the Supreme Court in the TC Heartland case or at the congressional level. Both patent owners and potential defendants in patent litigation would be well served to stay tuned.
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