Patent Trolls Beware! -- Supreme Court to Review Patent Venue Statute

By Andrew Williams --

In the past few years, the Supreme Court has been single-handedly tackling the so-called Patent Troll problem.  Sure, in that time, the President and Congress have made Patent Trolls a focus of their agendas, and have proposed many initiatives or legislative solutions to address the perceived problem.  And the mainstream media has certainly been reporting on the evils of the current patent systems, from the NPR "This American Life" and "Planet Money" podcasts (see "When NPR Podcasters Hit the Patent System"), to John Oliver's HBO commentary/comedy show "Last Week Tonight".  But only the Supreme Court has been effecting change that strikes at the heart of Patent Trolls -- from Octane Fitness v. ICON Health & Fitness, which made it easier for district courts to award attorney fees, to Nautilus, Inc. v. Biosig Instruments, Inc., which made it easier for district courts to invalidate claims based on vague claim language, with many other decisions in between that expanded the meaning of patent ineligible subject matter.  To cap it off, earlier today, the Supreme Court granted a petition for writ of certiorari in a case that could have a significant impact on the ability of so-called patent trolls to take advantage of patent-friendly courts, such as the Eastern District of Texas -- TC Heartland LLC v. Kraft Foods Group Brands LLC.

This case involves the interpretation of the current venue statute.  At the time, we reported on the Federal Circuit's decision that denied a writ of mandamus to TC Heartland.  That case stemmed from a lawsuit brought by Kraft against TC Heartland 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.  Other than approximately 2% of its alleged infringing product ending up in Delaware, TC Heartland argued that it had no other contacts with that state.  As a result, it had moved the District Court to either dismiss the complaint for lack of personal jurisdiction, or to dismiss the action on venue grounds or transfer venue to the Southern District of Indiana.  Judge Stark denied that request.  TC Heartland followed that up with a petition to the Federal Circuit for a writ of mandamus to either dismiss or transfer the case.

The issue essentially stemmed from a 1957 Supreme Court case, Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957), in which the Court held that the general venue statute does not override the specific patent statute.  The result was that a corporation could only be sued in the state in which it was incorporated.  The specific venue statute for patent litigation was (and is) 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).  The general venue statute, in turn, specified that:

(c) A corporation may be sued in any judicial district in which it is incorporated or licensed to do business or is doing business, and such judicial district shall be regarded as the residence of such corporation for venue purposes.

28 U.S.C. § 1391(c) (1952).  However, in 1988, Congress amended 28 U.S.C. § 1391 to be more definitional:

(c) For purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced.

28 U.S.C. § 1391(c) (1988).  Moreover, Congress again amended the statute by passing the Federal Courts Jurisdiction and Venue Clarification Act of 2011, making two changes, including expanding the applicability of the new definition to:  "all venue purposes."  By changing the § 1391(c) to a definition of "reside" for the purposes of venue, it was argued that Congress meant to expand the reach of patent venue statute.  The Federal Circuit agreed with this position in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990).  This ultimate result was that any forum was available for a patent infringement action, provided that the district court had personal jurisdiction over the defendant.

Interestingly, even though the TC Heartland case could impact so-called patent trolls and litigation in the Eastern District of Texas, it involves neither.  Both parties in the case are practicing entities, and the case was filed in the District Court of Delaware.  Nevertheless, it is pretty clear that certiorari was granted because of concerns about trolls.  TC Heartland's brief highlighted all of the harm that has resulted from the Federal Circuit's interpretation of the statute.  For example, it included a pie chart of the impact of forum shopping in 2015, which showed that more than 43% of patent infringement cases were filed in the Texas court:

In addition, it included citations to numerous law review articles that allegedly demonstrated the "pervasive dissatisfaction with the Federal Circuit's broad patent venue" rulings, which was to blame for the success of the so-called trolls.  Finally, TC Heartland's brief included a 2016 ABA Resolution that supported an interpretation of the patent venue statute that would limit the definition of "reside."  Moreover, six amicus briefs were filed, all in support of granting petition for certiorari.  Not only did these briefs complain about the patent troll problem that allegedly stemmed from the Federal Circuit's interpretation of the statute, but one was filed by known anti-patent troll advocacy group The Electronic Frontier Foundation.

Kraft, for its part, did not deny the potential patent troll implications of the case.  Instead, it pointed out that even if the goal of combating trolls was lofty, this case was not the way to do it:

Petitioner and the amici describe at length concerns with forum shopping in patent cases, primarily the disproportionate number of cases brought in the Eastern District of Texas, often by patent-assertion entities.  Respondent does not dispute the existence of patent venue shopping.  However, the task of patent venue reform lies squarely with Congress.  The judiciary's role is to enforce the straightforward statutory framework currently in place, and the Federal Circuit's decisions challenged here are scrupulously faithful to that framework.

Brief in Opposition, page 1.  Moreover, Kraft argued that this was a poor vehicle to address the issue because it was set to go to trial in January 2017.  Even if the Supreme Court sides with TC Heartland, it probably won't make a difference.

Without knowing what the parties will argue in their substantive briefs, one thing is clear:  the Supreme Court usually does not grant certiorari in cases it intends to affirm.  Therefore, it is possible that we will see a change in the environment that has given rise to the popularity of patent friendly jurisdictions.  If the Supreme Court does side with petitioner TC Heartland, so-called Patent Trolls will in most cases no longer be able to use the Eastern District of Texas as a tool for extorting settlements from accursed infringers.  Congress, for its part, has attempted to address the forum selection problem by, among other things, introducing the VENUE Act earlier this year.  It is possible that Congress will now postpone any further action until resolution of this Supreme Court case, a decision for which is expected by the of the term in June 2107.  We will continue to monitor the case as warranted.

Comments

[EG]

Hey Andrew,

That's right the "perceived" and "so-called" patent troll "problem" which has been blown so far out of proportion that it defies logic. I'm also not saying that the Federal Circuit was necessarily correct in the way they've interpreted the patent statute.

But when you have SCOTUS grant a cert petition on a procedural issue like this one, yet deny petitions in Sequenom and MCM Portfolio/Cooper that have more substantive patent law issues, you've got to wonder about Our Judicial Mount Olympus' sense of priorities when comes to rendering justice in our nook of the law.

[skeptical]

A Court of convenience - for themselves - may lose focus on what they exist for, and instead aim to be a court for themselves.

Why take cases that may lead away from how they want to shape the nose of wax of patent law?