By Andrew Williams --
Today, in TC Heartland LLC v. Kraft Foods Group Brands LLC, the Supreme Court reversed the Federal Circuit and held that the word "resides" in the patent venue statute, 28 U.S.C. § 1400(b), "refers only to the State of incorporation" of the alleged infringer. As simple as that pronouncement sounds, the Court's decision will likely have profound implications for all patent litigation. If alleged infringers only "reside" in their state of incorporation, as opposed to anywhere they are subject to personal jurisdiction, patent holders will no longer necessarily get to choose the venue in which they may file a patent infringement lawsuit. This could potentially result in the loss of "home court" advantage, and will likely make it more difficult to sue multiple infringers located in different states. Accused infringers, on the other hand, will be less likely to be sued in remote locations that are otherwise unrelated to the case. The so-called "patent trolls" should be particularly impacted by this decision. The business model for these entities often entails suing alleged infringers in patent-friendly venues like the Eastern District of Texas in an attempt to extort settlements from accused infringers. The outcome of this case should severely curtail such activity. This will also hopefully be the final swing of the pendulum away from the rights of patent holders, and will hopefully diminish the recent enthusiasm for patent reform legislation in Congress.
The TC Heartland case stemmed from a lawsuit brought by Kraft Foods Group Brands LLC against TC Heartland, LLC and Heartland Packaging Corp. in the U.S. District Court for the District of Delaware. TC Heartland is incorporated in Indiana, and has its headquarters in Carmel, Indiana. As a result, it moved to either dismiss the action on venue grounds (among others) or transfer venue to the Southern District of Indiana. On August 13, 2015, Magistrate Judge Burke had recommended denying the motion, and Chief Judge Stark subsequently adopted the report in all respects. TC Heartland petitioned the Federal Circuit for a writ of mandamus to either dismiss or transfer the case, which it denied. As suggested above, the Federal Circuit's interpretation of 28 U.S.C. § 1400(b) provided that the venue of the District of Delaware was proper if that court could exercise personal jurisdiction over TC Heartland. The Supreme Court subsequently granted certiorari.
The reasoning of the Supreme Court was fairly straight forward and not very surprising. The Court began by recounting the history of the patent venue statute. Venue for patent litigation is controlled by 28 U.S.C. § 1400(b):
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.
28 U.S.C. § 1400(b). However, the general venue statute states:
(2) an 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.
28 U.S.C. § 1391(c). In Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957), the Supreme Court held that the general statute does not override the specific statute, and therefore the residence of an accused infringing corporation was its place of incorporation. Importantly, the patent venue statute had not changed since that decision. Nevertheless, in 1988, Congress amended the general venue statute to add the language "[f]or the purposes of venue under this chapter" before the beginning of the above-quoted language. This was enough to convince the Federal Circuit that § 1391(c) now governs the definition of "resides" in 1400(b). Thus, in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), that Court held that essentially any forum was available for a patent infringement action, provided the district court had personal jurisdiction over the defendant. Congress did subsequently pass the Federal Courts Jurisdiction and Venue Clarification Act of 2011, which made two changes relevant to this statute. First, the newly added language above was changed to remove "under this chapter," and second, § 1391(a) was amended to include the language: "Applicability of section. -- Except as otherwise provided by law."
The Supreme Court narrowed the question it was deciding down to "whether Congress changed the meaning of §1400(b) when it amended §1391." In answering the question in the negative, the Court pointed out that Congress ordinarily provides a clear indication of its intent in the text of the amended provision. This clear indication was missing from § 1391, according to the Court. The current version does provide a default rule, but so did the version back when Fourco was decided. Moreover, the argument that "'all venue purposes' means 'all venue purposes' -- not 'all venue purposes except for patent venue'" was advanced by both Kraft and the plaintiff in Fourco. It was not successful then, and it was not successful today. In fact, the argument was found to be even weaker today, because the current statute includes the language "otherwise provided by law." Finally, even though Congress amended § 1391 after the Federal Circuit's VE Holding decision, there was no indication that it meant to ratify that decision. To the contrary, Congress actually delated the phrase "under this chapter" in 2011; language that was heavily relied upon in the earlier Federal Circuit decision.
In this decision, the Court did not consider a few related questions. First, in footnote 2, the Court pointed out that it was not addressing the question of what venue was proper for foreign corporations. Second, in footnote 1, the Court made clear that its analysis related to proper venue for corporations. It was suggested during the briefing that TC Heartland might instead be an unincorporated entity, but the Court left this consideration to the courts below on remand. Finally, the Court made no pronouncement related to the second prong for conferring proper venue under the statute. Thus, even though it will still be possible to sue alleged infringers: "where the defendant has committed acts of infringement and has a regular and established place of business," the Court did not comment on what that meant. The contours of this provision should continue to take shape in the lower courts in the months and years to come.
This case should have a profound impact on the so-called "patent trolls." These entities will no longer be able to take advantage of patent-friendly courts, such as the Eastern District of Texas, that otherwise have no significant connection to the lawsuit. In fact, because any lawsuit will likely need to be filed in a venue in which the accused infringed has the advantage, patent trolls may find it more difficult to extort settlements from their victims.
So what will be the likely outcome of this case? Clearly, the number of lawsuits being filed in the Eastern District of Texas should fall precipitously. But will those cases be evenly distributed across the country? According to one of the amicus briefs, filed on behalf of 22 law, economics, and business professors, the distribution might not change dramatically. Currently, around 60% of lawsuits are filed in five districts -- the Eastern District of Texas, the District of Delaware, the Central District of California, the Northern District of California, and the District of New Jersey. This case would still likely leave approximately 60% of patent cases in these same five districts. The main difference is that most cases would shift out of the Eastern District of Texas, but two other districts would see a potentially commensurate uptick in filings -- the Northern District of California and the District of Delaware. This shift, as the amici pointed out, would unfortunately not result in a meaningful distribution of cases. Only time will tell.
On a final note, it is somewhat ironic that the TC Heartland case was initially filed in the District of Delaware, even though the alleged infringer was incorporated in Indiana. With today's outcome, the Delaware court may have gotten rid of this one case. However, that Court will now will likely face a deluge of patent infringement filings. So much for "winning" at the Supreme Court.
TC Heartland LLC v. Kraft Foods Group Brands LLC (2017)
Opinion of the Court by Justice Thomas, joined by all Members of the Court, except for Justice Gorsuch, who took no part in the consideration or decision of the case