The VENUE Act -- A Last-Ditch Attempt at Patent Reform?

By Andrew Williams --

It has been some time since we have heard serious discussions about patent reform legislation from Congress.  Sure, the Innovation Act (H.R. 9) is still pending in the House, and the Patent Act (S. 1137) is still pending in the Senate.  But even though these bills resemble the Innovation Act (H.R. 3309), which was passed by the House of Representatives by an overwhelming margin on December 5, 2013 (see "Innovation Act Passed By House -- A Closer Examination"), and even though everyone predicted that the Republican's success in the mid-term elections would resolve the patent reform deadlock (see "Patent Litigation Reform -- Will the Outcome of the Mid-Term Elections Matter, and Is Reform Still Necessary?"), further Congressional action has been almost non-existent.  Therefore, it came as a bit of a surprise that on March 17, 2016, Sen. Flake of Arizona introduced S. 2733, the "Venue Equity and Non-Uniformity Elimination Act of 2016," on behalf of himself, Sen. Gardner of Colorado, and Sen. Lee of Utah (all Republicans).  This VENUE bill (wherein the "V" stands for venue) is limited to one single issue – amending Section 1400 of title 28 of the United States Code to limit the venues in which patent holders could bring patent infringement lawsuits.

We have written extensively on the patent reform initiatives that have been percolating in Congress over the past few years.  One of the main concerns that has been expressed regarding these "omnibus" patent reform bills (such as the Innovation Act) is that they contain many provisions that are not narrowly tailored to address the perceived problem of "Patent Trolls."  Instead, these initiatives were more akin to blunt instruments that would have impacted all patent owners regardless of whether they were asserting their patents in an abusive manner.  In fact, we have even questioned whether patent reform is still necessary in view of the recent opinions by the Supreme Court in the past few years and the rise of IPR and CMB patent proceedings before the Patent Trial and Appeal Board (see "Patent Litigation Reform -- Will the Outcome of the Mid-Term Elections Matter, and Is Reform Still Necessary?").

The Venue bill itself is more narrowly tailored to one particular perceived problem -- the use of the Eastern District of Texas as the venue of choice by patent trolls.  Currently, venue for patent litigation is controlled by 28 U.S.C. § 1400(b), as understood in view of 28 U.S.C. § 1391(c):

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).  And, even though that appears clear on its face, the Federal Circuit has concluded that 28 U.S.C. § 1391(c) controls:

(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).  So, basically, any judicial district in which a corporation is subject to personal jurisdiction is considered to be an appropriate venue.

Of course, the problem with this approach is that certain district courts can become popular for patent infringement litigation, even when the relationship to the alleged action appears tenuous at best.  This is exactly what has happened in the Eastern District of Texas -- this venue is often cited as the poster child for patent abuse by every anti-patent advocate.  This bill, however, does not call out the Eastern District of Texas specifically, but instead mandates that patent infringement suits (or related patent invalidity actions) can only be brought in a judicial district that has a tie to the action in some way.  The Act does this by first amending the statute to read "(b) Notwithstanding subsections (b) and (c) of section 1391 . . . ."  This is apparently necessary to avoid the more expansive reading of what constitutes proper venue (as interpreted by the Federal Circuit).  Then, the act adds language to dictate that patent litigation can only be brought based on actions of the alleged infringer (such as where the corporation is located, or where it committed the acts that lead to the lawsuit), actions of the inventor (such as where the research and development of the invention occurred), and even actions of a Plaintiff that did not originally obtain the patent, provided that party has done something in the district related to the suit (such as manufacturing products covered by the patent).  The act also makes it easier to seek mandamus relief, and clarifies that teleworkers in a particular location do not subject the corporation to proper venue there.

In general, this bill appears to be less controversial than the previous bills, and therefore stands a decent chance of passing.  That is, of course, if the groundswell of support for such patent reform still exists.  Moreover, its passage will help minimize the need for the more comprehensive bills that are currently pending.  With regard to whether this bill will be successful at accomplishing its goal if it passes, it can be safely assumed that it will likely result in fewer patent infringement suits properly brought in the Eastern District of Texas.  However, it will be interesting to see if this will deter other "patent troll"-like activity.  Or, will this bill just require patent trolls to file in several different districts (some of which might not be as patent owner friendly).  The one thing that is sure is that the likely outcome if passed is that this bill will cause an uptick in the number of cases filed in Delaware.  This is because the bill allows infringement actions to take place in the states where defendants are incorporated, and many companies are incorporated in Delaware.  It probably does not help that Delaware is seen as more patent friendly than most.

Interestingly, this legislation comes on the heels of the oral argument at the Federal Circuit for In re TC Heartland LLC case.  The defendant of the Kraft Foods Group Brands LLC v. TC Heartland, LLC litigation had petitioned the appeals court for a writ of mandamus to the U.S. District Court for the District of Delaware in order to have the case transferred to Indiana.  TC Heartland is asking the Court to consider statutory changes that were previously made to the above-referenced sections.  The argument is that Congress amended the venue statute recently, thereby making § 1400(b) controlling.  As such, it should be more difficult for patent holders to bring suits wherever they want.  In essence, TC Heartland is asking the Federal Circuit to make changes to the understanding of what is proper venue that are similar to those found in the recently introduced bill.  Most likely a function of coincidence, Judge Moore during oral argument commented that the changes TC Heartland is seeking might be more appropriately made by Congress.  Within days of that comment, the Venue bill was introduced.

We will continue to monitor the progress (if any) of this bill, and will have a more completely report of the In re TC Heartland case after the Federal Circuit renders its decision.

Comments

[Paul F. Morgan]

Good report thanks.
Note, by way of further background, that Congress had never removed the prior special venue statute section for patent suits from the statute books. It is still there. Nor did Congress ever indicate any specific intent to overrule it . Rather a Fed. Cir. panel decision decided that in their view it had been rendered completely inoperative by a change in another [general] venue statute section. Now the pending mandamus argues that the special patent suit venue statute was revived by another such change.

[staff]

'they contain many provisions that are not narrowly tailored to address the perceived problem of "Patent Trolls." '

That's always been the problem with these patent bills. Infringers whine about problems that seldom if ever exist, or they fictionalize and propose 'reforms' that have far reaching affects and at times have nothing to do with the problems they claim exist. In the end we get the same result, making it harder and more lengthy and expensive to get and enforce patents. For inventors and small entities the patent system is mostly dead. After fighting the PTO for years we find we are unable to enforce the patents we do finally get. Our rights have largely been destroyed.

Don't believe the lies of thieves. just because they call it reform doesn't mean it is.

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