TC Heartland LLC v. Kraft Foods Group Brands LLC (2017)

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

Comments

[EG]

Hey Andrew,

Not saying SCOTUS didn't get TC Heartland right on the law as written, but SCOTUS' ruling was almost predictable-a ruling overturning the Federal Circuit decision and generally disfavoring patent owners.

[Dan Feigelson]

I've read several blog posts about this and received "updates" from several firms. Several of them mention the impact on multi-district litigation. But the AIA already took some steps toward limiting that, didn't it? The AIA made it more difficult to sue multiple defendants in a single suit. This led to an increase in the number of suits filed, a statistic that some duplicitously pointed as showing a need for further "patent reform". Are you saying the TC Heartland decision will further erode the ability of patentees to sue multiple defendants?

[BCD]

I hope no one on this blog owned stock in Hilton or Westin in Marshall, TX.

[GBC]

While I don't disagree that several SCOTUS holdings are unfavorable to patent owners, TC Heartland will clearly cut down on forum shopping, forcing the patent owner to sue an alleged infringer in a forum where the alleged infringer has something more than minimum contacts. Indeed, many corporations will have several, if not numerous, "regular and establish places of business" throughout the U.S.

[Mike]

Without equal venue, all patent owners hold worthless pieces of paper.

I am an independent inventor, and although I think SCOTUS made the correct decision because of legal precedent, I don't think this is good for inventors at all. We just got thrown under the bus, and this case was largely driven by big business in their attempt to rid of PAEs who exhibit trolling behavior, and forum shop to benefit their cause. What big business needs to realize is that the only reason trolls exist is because they have a value proposition that benefits patent holders.

And the more difficult it becomes for small inventors to enforce their IP rights, the more likely they will cede their IP over to trolls for enforcement. All TC Heartland did was add fuel to that fire. Venue now is clearly in favor of defendants, and small inventors like me do not have the resources to go out of state, nor do contingency attorneys want to take the newly introduced risk. So congratulations trolls. You just picked up some new clientele. If big business doesn't see this, they are stupid.

True congressional venue reform is the only way to solve the problem, and it is the role of Congress to promote innovation. And TC Heartland just put the onus on Congress to enact proper legislation for a balanced venue statute.

As mentioned in the oral arguments, 1400(b) should be amended to include venue in districts at least where inventors did their research or where inventors reside. This will still prevent trolls from venue shopping, merely because trolls do not have inventors listed on the patents they own.

An excellent example of venue reform, and one that will solve the problem that TC Heartland just created, for both defendants and plaintiffs, was a bill introduced in the 114th Congress. It didn't have importance then, but post TC Heartland, it now has utmost importance, as it will preserve innovation.

https://www.congress.gov/bill/114th-congress/senate-bill/2733

It allows patent actions to be brought in judicial districts where:

1- the defendant has its principal place of business or is incorporated; (the same as TC Heartland)
2- the defendant has committed an act of infringement of a patent in suit and has a regular and established physical facility that gives rise to the act of infringement;
3- an inventor named on the patent conducted research or development that led to the application for the patent in suit; or
4- a party has a regular and established physical facility and has managed significant research and development for the invention claimed in the patent, has manufactured a tangible product alleged to embody that invention, or has implemented a manufacturing process for a tangible good in which the process is alleged to embody the invention.

3 and 4 above bring balance to venue by including legitimate inventors, while simultaneously solving the forum shopping problem, thus helping stop trolling behavior.

If you want true reform, rather than a binary SCOTUS ruling that will actually fuel the troll problem, call Senator Flake and ask him to get the bill picked up for the 115th Congress: (202) 224-4521

[skeptical]

After thinking about the venue issue, fully considering the history of the different sections and also contemplating the possible remedies in work in Congress, I come to the conclusion that the "Tr011" Kool-Aid has captured the process thoroughly.

We (the royal "we"), are seeking band-aids on a gushing wound.

I "get" that people are alarmed, don't like (for a variety of reasons), or both the concentration of patent cases.

But are we not forgetting that patents are designed to be not just alienable, but fully alienable?

Are we not forgetting that much of the Supreme Court writings in the patent sphere go to obliterating "bright line" rules and creating more flexibility lower in the court system (thereby strengthening the ability of any one regional court to create an environment MORE conducive to patent holders)?

Are we forgetting that if one particular area IS doing something wrong and outside of its rightful flexibility, then the corrective answer is in changing the problem directly?

Would it not then make sense to next turn around and apply that "fix" (whatever that "fix happens to be), universally to all the different areas that that level of court exist?

The "answer" is not yet another layer for venue control, while leaving the causes of why venue is sought in a particular area as they are.

The "answer" is not yet another constraint that works against the "who" owns the fully alienable property, not a constraint as to what ELSE that owner may or may not be doing.

Sorry Mike, but Senate Bill 2733 is just another band-aid.

Senate Bill 2733 is just another layer of (artificial) constraint on the fully alienable aspect that patents have always been meant to have.

Senate Bill 2733 does nothing to solve any underlying "problem."

Senate Bill 2733 thus is part of the problem, as it is not a part of the solution TO any underlying "problem."