By Andrew Williams --
Since the Supreme Court's decision in TC Heartland LLC v. Kraft Foods Group Brands LLC last year, there have been hundreds of district court cases that have determined (or reconsidered) whether venue was proper. Correspondingly, because there have been "basic" and "undecided" issues necessary to address the effect of the TC Heartland case, the Federal Circuit has granted a few petitions for Writ of Mandamus because "[t]hese issues are likely to be repeated and present sufficiently exceptional circumstances . . . ." For example, the Court explained in In re Cray what constitutes a "regular and established place of business," and in In re Micron whether defendants have or have not waived their venue defense. This week, the Court granted two more petitions to address additional implications of the Supreme Court's case. In one of these cases, In re ZTE (USA) Inc., the Court addressed the question about which party has the burden in establishing whether venue is proper (or improper) in a particular case. In this case, the Federal Circuit vacated an Eastern District of Texas order denying a motion to dismiss for improper venue and instructed the District Court to place the burden of persuasion with regard to the propriety of venue on the Plaintiff.
The underlying case was American GNC Corporation v. ZTE Corporation, No. 4:17-cv-00620-ALM-KPJ, and was filed in the Eastern District of Texas. The case was initially filed in the Marshall Division, but was transferred to the Sherman Division before the motion on venue was denied. On October 4, 2017, Magistrate Judge Johnson recommended denying a motion to dismiss for improper venue. In so doing, she noted that "[a]lthough courts are not uniform in their views as to which party bears the burden of proof with respect to venue, the majority of Fifth Circuit cases hold that the burden is on the objecting defendant to establish that venue is improper." She also found that ZTE USA had a dedicated call center in Plano, Texas. And even though ZTE USA alleged that the call center was established in partnership with a third party and did not qualify as a regular and established place of business, Magistrate Judge Johnson found that ZTE USA had failed to meet its burden to show that the call center was not. U.S. District Judge Mazzant adopted the report and recommendations over ZTE USA's objections, and denied the motion to dismiss on November 7, 2017.
After determining that this issue was "amenable to resolution via mandamus," the Federal Circuit analyzed whether it involved a question "'related' to 'substantive matters unique to the Federal Circuit . . . .'" The Court had already determined in In re Cray that whether venue was proper under § 1400(b) was an issue unique to patent law. Moreover, the Court explained that which party bears the burden of persuasion for a legal rule is often treated as a substantive question, citing Supreme Court precedent from 1942 to the recent Medtronic, Inc. v. Mirowksi Family Ventures, LLC case from 2014. In addition, the Court pointed out that all appeals from cases that involve § 1400(b)-venue questions will come to it, so uniformity at the lower court level will "obviate any uncertainty . . . ." As a result, the Federal Circuit concluded "that the patent-specific nature of §1400(b) also implicates the burden for satisfying that statute, and should be analyzed under this court's law."
The Federal Circuit next analyzed the question of which party bears the burden. Interestingly, the Court could not find a case in which the issue had been addressed in its 37-year history. However, prior to the formation of the Federal Circuit, the regional circuits handled challenges to venue in patent cases by placing the burden on Plaintiffs. Even though this precedent might not have been binding on the Court, it was persuasive. Moreover, the Court noted that the restrictive nature of the patent-specific venue statute (as opposed to the more general venue statute of § 1391) supports placing the burden on the Plaintiff. Correspondingly, the Court held that "as a matter of Federal Circuit law, that upon motion by the Defendant challenging venue in a patent case, the Plaintiff bears the burden of establishing proper venue."
Finally, with regard to the merits of the venue determination, the Federal Circuit held that the District Court did not make a proper showing because it essentially rested on the fact that ZTE USA failed to meet its burden. Even though In re Cray dealt with the alleged "place of business" being an employee's house and not a call center, it did establish what is required to show whether the second prong of the venue statute is established, namely "(1) there must be a physical place in the district; (2) it must be a regular and established place of business; and (3) it must be the place of the defendant." Therefore, the lower court was required to "give reasoned consideration to all relevant factors or attributes of the relationship in determining whether those attributes warrant iQor's call center being deemed a regular and established place of business of ZTE USA." Because the District Court did not do this, the Federal Circuit vacated and remanded.
So what will be the impact of this decision? For district courts that have already been placing the burden on Plaintiffs, there will not be much effect. However, the districts where the question of proper venue has probably been addressed the most, namely Delaware and the Texas districts (located in the Third and Fifth Circuits respectively), the courts have been placing the burden on the defendants that move to dismiss or transfer. Therefore, there might be a shift in the outcome in such cases. For example, for ANDA cases, the District of Delaware and the Northern District of Texas had created two different tests for whether venue is proper in the Hatch-Waxman context. Chief Judge Stark from the Delaware court in Bristol-Myers Squibb Company v. Mylan concluded that "the 'acts of infringement' an ANDA filer 'has committed' includes all of the acts that would constitute ordinary patent infringement if, upon FDA approval, the generic drug product is launched into the market." On the other hand, Chief Judge Lynn of the Northern District of Texas in Galderma Laboratories, L.P. v. Teva Pharmaceuticals USA, Inc. focused on the act of infringement being the submission of the ANDA. It is unlikely that In re ZTE (USA) will impact this split. Chief Judge Stark has been allowing limited venue discovery in such cases, and this is unlikely to change based on the recent decision. And in Galderma, because neither party alleged that Teva USA had prepared or submitted its ANDA from Texas, there was no act of infringement found (and thus the issue of whether there was a "regular and established place of business" was moot). Nevertheless, moving forward, defendants will have little to lose in bringing a motion to dismiss or transfer because of improper venue in all but the clearest cases, so plaintiffs will need to be prepared for such challenges (ideally before the complaint is filed).
In re ZTE (USA) Inc. (Fed. Cir. 2018)
Panel: Circuit Judges Reyna, Linn, and Hughes
Order by Circuit Judge Linn