Patent Docs

Celgene Corp. v. Mylan Pharmaceuticals Inc. (Fed. Cir. 2021)

By Kevin E. Noonan --

The question of the proper court for a branded pharmaceutical maker to bring suit against an Abbreviated New Drug Application filer under the Hatch-Waxman Act is surprisingly unsettled seeing as the Act was enacted in 1984.  The Federal Circuit brought some measure of clarity to the question recently when it affirmed a District Court dismissal of an ANDA action on improper venue grounds, in Celgene Corp. v. Mylan Pharmaceuticals Inc.

The case arose over Celgene's multiple-myeloma drug pomalidomide (Pomalyst).  Celgene filed suit in the District of New Jersey, where none of the named defendants (Mylan Pharmaceuticals Inc. (MPI), Mylan Inc., or Mylan N.V.) have their headquarters.  These actions involved separate ANDA litigations initiated by Celgene in response to the Mylan defendants' Paragraph IV certifications (21 U.S.C. § 355(j)(2)(A)(vii)(IV)).  The first of these litigations commenced in 2017 involving four Orange Book-listed patents, the second in 2018 involving one of a separate five OB-listed patents and the third action commencing in 2020 involving yet another of the five separate OB-listed patents.  All these actions were consolidated.  Celgene also asserted the remaining three of the five separate OB-listed patents in an action commenced in 2019; it is this last case on appeal here.  The relevance of these other litigations is that the parties stipulated that the District Court's decision on Rule 12 motions in the earlier cases would be binding on them in this case.  The District Court's decision dismissing the action for improper venue was based on the Federal Circuit's holding in In re Cray, that to satisfy the venue statute (28 U.S.C. § 1400(b)) a plaintiff must show the defendant had "committed acts of infringement and has regular and established place of business" in the district.  (Celgene did not appeal on the merits the District Court's ruling that they had failed to state a claim against Mylan N.V. under Fed. R. Civ. Pro. 12(b)(6) on the basis that the ANDA had been filed only in the name of MPI, but rather argued the adequacy of its pleadings and that the District Court had abused its discretion in denying Celgene's motion for leave to amend its complaint, as discussed below.)

The Federal Circuit affirmed, in an opinion by Judge Prost joined by Judges Chen and Hughes.  The opinion recites the plaintiff's burden to show that a defendant "resides" in the district or "has committed acts of infringement and has a regular and established place of business" there.  The first option is clearly not satisfied, according to the Court ("No one argues that the defendants-appellees reside in New Jersey").  The questions then devolved into whether the defendants committed acts of infringement in the district and had a regular and established place of business in New Jersey.  The basis for Celgene's infringement action was that filing an ANDA itself constitutes an act of infringement under 35 U.S.C. § 271(e)(2) and that this was sufficient for proper venue.  The panel rejected Celgene's argument that this act has a nationwide consequence and effect and thus the effects will be "felt" in New Jersey.  Unfortunately for Celgene, venue is "predicated on past acts of infringement" under Valeant Pharms. N. Am. LLC v. Mylan Pharms. Inc., 978 F.3d 1374, 1381–82 (Fed. Cir. 2020), and thus this argument was precluded according to the Court.  (The opinion further recites that Supreme Court precedent requires venue determinations to be "specific and unambiguous" and not "given a liberal construction," citing Andra Grp., LP v. Victoria's Secret Stores, L.L.C., 6 F.4th 1283, 1287 (Fed. Cir. 2021).)  Moreover, submission of an ANDA does not occur in New Jersey, nor does the destination of the Paragraph IV letter (Celgene's New Jersey headquarters) make venue proper as an act of infringement in the district according to the opinion.  Citing Valeant, the opinion limits the act of infringement under § 271(e)(2) to be the ANDA submission itself, which does not occur in the district.  And while the Paragraph IV letter is a necessary part of the ANDA process, the panel stated that "the statute and regulations treat the infringing ANDA submission and the notice letter as different things," in part based on timing of filing the ANDA followed by sending the notice letter to the NDA holder (and not the FDA) in rejecting Celgene's argument (also noting that it is the ANDA filing that raises a cause of action not the notice letter).

Next the Court turned to the question of whether MPI and Mylan had a "regular and established place of business" in the district, concluding (as had the District Court) that they did not.  The opinion cites the Federal Circuit's Cray decision for the requirements that "(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" and notes that the absence of any of these requirements fails to satisfy the standard.  The panel found the third requirement to be "particularly relevant," to the extent that it is not limited to places where a defendant's employee happen to be located.  Resorting once again to Cray, the opinion recites the four "non-exhaustive relevant factors, specifically"

(1) "whether the defendant owns or leases the place, or exercises other attributes of possession or control over the place"; (2) "whether the defendant conditioned employment on" "an employee's continued residence in the district" or "the storing of materials at a place in the district so that they can be distributed or sold from that place"; (3) "a defendant's representations" about that place, including advertisements; and (4) "the nature and activity of the alleged place of business of the defendant in the district in comparison with that of other places of business of the defendant in other venues."

The opinion recognizes that no party has argued that either MPI or Mylan Inc. have a physical presence in New Jersey.  Rather, Celgene relied on New Jersey as being the situs of "places associated with Mylan employees" or "places associated with Mylan affiliates."  For the former, the Court noted the distinction between an employee "owning or leasing" a place of business and a defendant doing so, stating that the former does not support proper venue (it also being significant to the extent the opinion mentions it that "MPI and Mylan Inc. have tens of thousands of employees.  Seventeen live in New Jersey.").  Defendants rebutted this Celgene argument by noting that none of these employees were required by MPI or Mylan Inc. to live in New Jersey, nor did the companies pay for these homes nor store materials there or provide support staff there.  Nor said the Court was there any evidence that MPI or Mylan identified these residences as places of their business (and the evidence that they in fact may be is "too speculative" to establish the residences as places where MPI or Mylan business is conducted).  Nor did job postings "asking that candidates live in New Jersey or 'within reasonable driving distance'" suffice according to the panel.  In these regards the Court saw a clear parallel with the factual predicate in Cray, the opinion drawing those similarities expressly.  The panel also rejected Celgene's assertion that a "now-defunct" related corporate entity, Mylan Laboratories Inc., had once had a physical presence in New Jersey, agreeing with the District Court that Celgene had not established that "a subsidiary's presence isn't imputed to a parent for venue unless the parties 'disregarded the corporate form in their dealings with their respective subsidiaries and affiliates,'" which Celgene had not shown was the case here.  Nor was Celgene's assertion that venue should be proper on a corporate "alter ego" theory that would justify piercing the corporate veil any more persuasive before the Federal Circuit than it had been before the District Court.

Having dispensed with the venue question, the Court next addressed an issue of sufficiency of the pleadings in the District Court's dismissal of Celgene's complaint against Mylan N.V. On the Rule 12(b)(6) question, the panel found persuasive, in reviewing the decision de novo, that MPI and not Mylan N.V. had signed the ANDA and that MPI had not acted as Mylan N.V.'s corporate alter ego (as had the District Court).  In coming to this conclusion, the Court relied heavily on the procedural principles underlying the Supreme Court's decisions in Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), and Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007), regarding Celgene's failure to establish either ground for Mylan N.V.'s liability based on assertion of insufficient facts.  The opinion summarizes Celgene's asserted litany of possible liability-inducing facts as being "too conclusory" and "[j]ust not enough."  The Court expressly rejected Celgene's attempt to analogize the situation in this case with that in In re Rosuvastatin Calcium Pat. Litig., 703 F.3d 511 (Fed. Cir. 2012), where, according to the opinion, "the entity that signed the ANDA sought to escape liability because it claimed that it was only filing the ANDA as the agent of a Canadian company" (emphasis on opinion).  In this case all that Celgene had asserted was "unadorned suspicion" of defendants "working in concert" for an ANDA where only MPI submitted the ANDA in question.

On the leave-to-amend question, the Court held the District Court had not abused its discretion on the facts before them.  In addition, the opinion states that Celgene had not complied with the District Court's local rules (based on a deadline for filing amendments to the complaint).  Celgene unsuccessfully argued that the District Court applied the wrong deadline based on a difference in such deadlines in other related cases as set forth above.  Unfortunately for Celgene, however, the parties had stipulated that resolution of Rule 12 motions in this case would be governed by the decision in the earlier case, and the Federal Circuit applied this stipulation to the question before it under Rule 15.  And further, the opinion notes that Celgene had not made this argument before the District Court, further dooming its efforts before the Federal Circuit.

The Court's precedential decision establishes the principle that a notice letter under Paragraph IV cannot form the basis for establishing venue and reinforces the primacy of the principles enunciated in Cray in patent venue cases, here as applied in ANDA cases.  For those reasons alone the decision is a significant advance in certainty regarding the requirements for establishing venue.

Celgene Corp. v. Mylan Pharmaceuticals Inc. (Fed. Cir. 2021)
Panel: Circuit Judges Prost, Chen, and Hughes
Opinion by Circuit Judge Prost

In re Nitro Fluids L.L.C. (Fed. Cir. 2020)

By Kevin E. Noonan --

Venue in patent cases has been a topic of recent Supreme Court (TC Heartland LLC v. Kraft Foods Group Brands LLC) and Federal Circuit (In re Cray) consideration.  Last month, the Federal Circuit again considered venue with regard to a motion to transfer and defendant's writ of mandamus challenging the District Court's denial of its transfer motion, in In re Nitro Fluids L.L.C.

The issue arose when plaintiff Cameron International Corp. filed suit against Nitro Fluids, LLC in the Southern District of Texas in 2018 over three patents; the opinion notes that both parties are headquartered there, making venue proper under 35 U.S.C. § 1404(a).  The case lingered:  by early 2020 (pre-COVID), there had been no claim construction performed nor trial date set.  Cameron then filed suit against Nitro in 2020 in the Western District of Texas, raising patent infringement of two other patents and the same products. Nitro moved the Western District Court either to refuse jurisdiction or transfer to the Southern District for consolidation.  The Western District denied the motion.  In its reasoning, the District Court recognized that such motions are typically resolved under the first-to-file rule, wherein "the court in which an action is first filed is the appropriate court to determine whether subsequently filed cases involving substantially similar issues should proceed."  Save Power Ltd. v. Syntek Fin. Corp., 121 F.3d 947, 950 (5th Cir. 1997).  But the District Court recognized another principle, that such a motion can be denied when there are "sufficiently compelling circumstances" to avoid applying the rule, citing Mann Mfg., Inc. v. Hortex, Inc., 439 F.2d 403, 407 (5th Cir. 1971).  And those compelling reasons are determined by a balancing of the "traditional transfer factors" under 28 U.S.C. § 1404(a) and can result in denial of the transfer motion when they do not weigh in favor of transfer.

The District Court supported its decision to deny the motion by saying that "two of the factors—the relative ease of access to sources of proof and the local interest in having localized interests decided at home— both favored transfer" while "the administrative difficulties flowing from court congestion weighed against transfer," and the "practical problems factor" weighed "heavily against transfer" because Cameron had filed a co-pending suit against another defendant in the Western District and that could raise inconsistent claim construction issues as a result.

Nitro filed a petition for writ of mandamus to the Federal Circuit, to compel the Western District to either dismiss the action or transfer to the Southern District of Texas.  As noted in In re Cray, the standards for having a writ of mandamus granted are high:  only "exceptional circumstances" will suffice.  There are three general requirements for obtaining a writ:

• The Petitioner must have no other "adequate means of obtaining the relief petitioned for (Cheney v. U.S. Dist. Court for Dist. of Columbia, 542 U.S. 367, 380 (2004))

• The Petitioner's right to the writ (and the relief petitioned for) must be "clear and indisputable" (Id., citing Kerr v. U.S. Dist. Court for N. Dist. of Cal., 426 U.S. 394, 403 (1976))

• The Court issuing the writ must be "satisfied that the writ is appropriate under the circumstances."

The Federal Circuit granted the writ, in an order support by an opinion by Judge Reyna, joined by Judges Wallach and Chen.  The standard of review the Court applied was abuse of discretion, citing In re Genentech Inc., 566 F.3d 1338, 1348 (Fed. Cir. 2009), which  could result "on an erroneous view of the law or on a clearly erroneous assessment of the evidence," citing Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990).

The panel reviewed the District Court's decision under 5th Circuit law (albeit voicing the opinion in a footnote that Federal Circuit law would not result in a different conclusion here).  The Federal Circuit understood the basis for the District Court's decision to be that "the legal proposition that the first-to-file rule is only applicable when the balance of factors favors the first-filed court."  "That proposition," according to the panel, "is contrary to law."  Even worse, the panel believed that the cases the District Court cited in support of its decision show that the court "had the matter[] backwards."  The correct statement of the law according to the Court is that "[u]nless the balance of transfer factors favor keeping the case in the second-filed court, there are no compelling circumstances to justify such an exception," citing decisions from the 2nd, 11th, and 5th Circuits in support.  The opinion found "good reasons for making these adjustments from an ordinary § 1404(a) calculus."  For example, deference to plaintiff's choice of forum is usually to be respected in transfer motions.  But this deference is not owed to a party that has instituted "two substantially overlapping proceedings continue at the same time before two different courts."  And these typical transfer considerations also seek to avoid "potential interference in the affairs of another court" which is accomplished in instances such as the one before the Western District by requiring that "the balance of the transfer factors favor the second-filed court" before denying a transfer motion.

Under the Court's analysis mandamus relief was warranted because "[t]he district court did not expressly resolve the critical issue of whether a balance of the factors favors the second-filed court."  Although the District Court had analyzed the different factors in the transfer calculus it did not (apparently) indicate "that those factors were important enough to warrant, on balance, favoring" denying the motion to transfer.  Perhaps more relevant, and specifically cited by the panel, was the District Court's assessment that for the "court congestion" factor the history of the first-filed action (showing little progress to trial after 2 years pendency) favored the Western District as being able to hear the case more expeditiously because the court has "patent-specific" orders resulting in quicker patent adjudications.  The proper focus of this factor, according to the opinion, was whether there is "an appreciable difference in docket congestion between the two forums" (and much of the factual bases for delay in the Southern District did not, in the panel's view, relate to "an appreciable difference" in trial scheduling).  While the opinion says the District Court "may be on stronger footing" in light of there being a related case brought by the same plaintiff against other defendants on the same patents, the panel considered the District Court's explanation of this factor to be "cursory" and that the court had not considered other alternatives (multidistrict litigation, for example).  For all these reasons the panel granted the writ, vacated the District Court's opinion and directed the Court to consider the transfer motion in light of this order.

In re Nitro Fluids L.L.C. (Fed. Cir. 2020)
Panel: Circuit Judges Reyna, Wallach, and Chen
Order by Circuit Judge Reyna

Board of Regents of the University of Texas System v. Boston Scientific Corp. (Fed. Cir. 2019)

By Kevin E. Noonan --

A question of sovereign immunity, which has come before the Federal Circuit in many guises of late (Saint Regis Mohawk Tribe v. Mylan Pharmaceuticals Inc.; Regents of the University of Minnesota v. LSI Corp.), arose again in Board of Regents of the University of Texas System v. Boston Scientific Corp. earlier this month.  And as has happened thus far in this spate of these cases, the Court did not recognize the immunity as advanced by the State, in this case asserted over the question of proper venue.

The case arose when the University of Texas sued Boston Scientific for infringing U.S. Patent Nos. 6,596,296 and 7,033,603 directed to implantable drug-releasing biodegradable fibers.  These fibers are useful, inter alia, for producing implantable stents impregnated with therapeutic agents.  The University of Texas (UT) filed suit in the Western District of Texas, and Boston Scientific successfully moved to transfer the lawsuit to the District of Delaware.  It was undisputed that Boston Scientific is a Delaware corporation having its principle place of business in Massachusetts.  Moreover, the corporation "does not own or lease any property or maintain a business address in the Western District of Texas," and its 46 employees all worked from home.  Under settled Supreme Court (TC Heartland LLC v. Kraft Foods Group Brands LLC) and Federal Circuit law (In re Cray Inc.), venue was clearly improper in Texas.  The University argued that, to the contrary, as a sovereign (because it was an "arm of the State") it could not be haled into court in a different state by a citizen of another state:

Venue is proper in the Western District of Texas because UT is an arm of the State of Texas, has the same sovereign immunity as the State of Texas, it would offend the dignity of the State to require it to pursue persons who have harmed the State out- side the territory of Texas, and the State of Texas cannot be compelled to respond to any counter-claims, whether compulsory or not, outside its territory due to the Eleventh Amendment.

The Texas District Court transferred the case to Delaware, and the Delaware District Court, disagreeing with the University's position denied the University's motion to transfer the case back to the Western District of Texas.  Texas appealed the transfer order.

The Federal Circuit affirmed, in a decision by Judge Stoll, joined by Chief Judge Prost and Judge Reyna.  The Court first opined on whether it had jurisdiction to consider the University's appeal under 28 U.S.C. § 1295(a)(1), because "[t]ransfer orders are interlocutory and generally cannot be appealed immediately."  With a combination of legal and practical reasoning, the Court found jurisdiction was proper, concluding that "this case falls within the small class of orders excepted from the final judgment rule by the collateral order doctrine," citing Amgen Inc. v. Hospira, Inc., 866 F.3d 1355, 1358–59 (Fed. Cir. 2017).  The Court said that it could accept for review a decision that "finally determine[s] claims of right separable from, and collateral to, rights asserted in the action, too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole case is adjudicated," citing Puerto Rico Aqueduct & Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 142 (1993), in which the Supreme Court held that an order denying a claim of sovereign immunity falls within the scope of the collateral order doctrine (although in Puerto Rico, the sovereign was a defendant whereas here Texas is a plaintiff).  All of these requirements were fulfilled in this case, according to the opinion:  the transfer order was conclusive, the issue (sovereign immunity) was "important," and the order is "effectively unreviewable on appeal from a final judgment."

The panel then turned to the University's arguments on the merits:  first, that "U.S. Constitution's Original Jurisdiction Clause ensures that a State cannot be forced to sue in a court located in another State"; second, that "the Eleventh Amendment confirms that a State is entitled to control where it litigates against a private party"; and third "that it did not consent to jurisdiction or waive its sovereignty rights in Delaware, and that the patent venue statute does not abrogate those rights."  There was no dispute, between the parties or the courts, that the University of Texas is an arm of the state and entitled to the same sovereign rights as the State of Texas itself.  Nevertheless, the panel disagreed with the University's assertion that "a State has the right to sue a private party in any forum as long as personal jurisdiction requirements are met" when the State is a plaintiff.  Moreover, the panel held that "nothing in the U.S. Constitution's Original Jurisdiction Clause or in UT's other asserted authorities . . . supports the proposition that a State has the right to bypass federal venue rules when it engages in patent litigation as a plaintiff."  The Eleventh Amendment applies to suits brought against a state, not by a state according to the opinion, the panel citing Regents of the Univ. of Cal. v. Eli Lilly & Co., 119 F.3d 1559, 1565 (Fed. Cir. 1997), and supported in its reasoning by United States v. Peters, 9 U.S. (5 Cranch) 115 (1809) (Marshall, C.J.); Gunter v. Atl. Coast Line R.R. Co., 200 U.S. 273, 284 (1906); and Lapides v. Bd. of Regents of Univ. Sys. of Ga., 535 U.S. 613, 619 (2002).  The Court also rejected the University's argument that "State sovereign immunity—a complementary attribute of state sovereignty—confirms that only the state can dictate where it litigates its property rights" because none of the cases the University cited in support were instances where the State was a plaintiff.

With regard to the University's original jurisdiction argument, the panel noted that the Constitution provided original but not exclusive jurisdiction to the Supreme Court in cases where a State is a party, codified under 28 U.S.C. § 1251(b)(3).  The panel appreciated that the University was asserting not only that "(a) it has a Constitution-rooted right to avoid out-of-state venues, but also that (b) it has an affirmative right to sue in a federal district court that Congress has deemed unavailable."  The Court disagreed with the University's reading of cases it asserted in support of these propositions -- Ames v. Kansas, 111 U.S. 449 (1884); Georgia v. Pennsylvania Railroad Co., 324 U.S. 439 (1945); and Ohio v. Wyandotte Chemicals Corp., 401 U.S. 493 (1971) -- saying that they were not read in context.  In particular, the panel held that Ames decided that "lower federal courts can exercise jurisdiction over suits filed by a State against a non-State," i.e., that States can sue in lower Federal courts in addition to the Supreme Court (not that sovereign immunity gives a State the right to sue or be sued in its own state fora).

Finally, the panel rejected the University's argument that its right to sue in the forum of its choice was one of the "inherent powers of a state sovereign."  The basis of this determination was that when a State voluntarily invokes federal jurisdiction (as here, in a patent case), then "[i]t logically follows that the State must then abide by federal rules and procedures—including venue rules—like any other plaintiff" and "it would be 'anomalous or inconsistent' for [the University] to both invoke federal question jurisdiction and then to assert sovereignty to defeat federal jurisdiction."  And the panel further found the University's arguments that it had not waived immunity to be haled before the Delaware court does not apply when the State is a plaintiff.

Board of Regents of the University of Texas System v. Boston Scientific Corp. (Fed. Cir. 2019)
Panel: Chief Judge Prost and Circuit Judges Reyna and Stoll
Opinion by Circuit Judge Stoll

VoIP-Pal.com, Inc. v. Twitter, Inc. (D. Nev. 2018)

District Court Refuses to Limit Application of In re Cray to Factual Circumstances Where Physical Products Are Involved

By Donald Zuhn --

Last month, in VoIP-Pal.com, Inc. v. Twitter, Inc., District Judge Richard F. Boulware, II of the U.S. District Court for the District of Nevada issued an Order granting a Motion to Change Venue filed by Defendant Twitter, Inc.  The dispute between the parties began when Plaintiff VoIP-Pal.com, Inc. filed suit against Twitter, asserting infringement of U.S. Patent Nos. 8,542,815 and 9,179,005.  Following a stay of the case due to pending proceedings before the Patent Trial and Appeal Board, Twitter filed its Motion to Change Venue, VoIP-Pal.com filed a response to Twitter's Motion, and Twitter filed a Reply to VoIP-Pal.com's response.  Prior to issuing its Order, the District Court held a hearing on the matter and ordered Twitter to file a Supplemental Declaration to address whether it had any physical equipment or leased any space in Nevada, including space for data storage, or other support equipment or hardware.

The District Court began by noting that for the purposes of determining venue under the patent venue statute, the location where a defendant corporation "resides" is limited to the corporation's State of incorporation, citing TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S. Ct. 1514, 1517 (2017).  The District Court also noted that in view of TC Heartland, the Federal Circuit addressed the question of where a defendant corporation has a "regular and established place of business" under the patent venue statute in In re Cray Inc., 871 F.3d 1355 (Fed. Cir. 2017).  In Cray, the Federal Circuit set forth three requirements to establish the second prong of the § 1400(b) venue test: "(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" (In re Cray, 871 F.3d at 1360), all three of which must be satisfied for venue to be proper.

With respect to the instant case, the District Court found that VoIP-Pal.com is a Nevada corporation, with its principal place of business being located in Bellevue, Washington.  The Court also found that VoIP-Pal.com does not have any officers, directors, or employees based in Nevada; has no office, land, facilities, or sales in Nevada; and that all of its inventors reside outside of the U.S.  The Court further found that Twitter is a Delaware corporation with its principal place of business and headquarters in San Francisco, California.  In addition, the Court found that Twitter's product design, development, implementation, and financial activities are centered in San Francisco, and that:

The accused technology is largely designed and built in San Francisco, and the bulk, if not all, of any relevant technical documentation, manuals, and product specifications, as well as all financial data relevant to revenue derived from Defendant's products, are located in San Francisco.  Defendant does not own or lease any offices, buildings, or other facilities in Nevada, and does not directly or indirectly store any data in Nevada.  It has no Nevada telephone number or local address listed on its website or in any directory.  Defendant is a software company that has no physical product inventory, and its advertising and marketing are primarily conducted online.  It does not store inventory or product literature in Nevada.

The Court further found that Twitter had a single employee, a software engineer, living in Nevada, and that:

[T]his particular engineer chose to live in Nevada for personal reasons and works from home.  He reports to a manager in San Francisco and uses San Francisco support staff.  Defendant does not own his home or pay his rent.  The decision to live in Nevada was the employee's alone; Defendant does not condition his employment on his location.

In its Motion to Change Venue, Twitter argued that under In re Cray, the District of Nevada is not one where Twitter has a regular and established place of business.  VoIP-Pal.com countered that although Twitter does not reside in Nevada, the second prong of the § 1400(b) test is satisfied.  In particular, VoIP-Pal.com asked the District Court to recognize the nature of Twitter's business -- facilitating communication over the web, in every state including Nevada -- and limit the application of In re Cray to factual circumstances where physical products are involved.

The District Court refused VoIP-Pal.com's invitation to limit the application of In re Cray, determining instead that "the In re Cray factors weigh in favor of transferring venue."  Looking at the first Cray factor, the Court found that:

[T]he undisputed facts show that Defendant does not have a physical location in this district where its business is carried out.  Nor does Defendant store any of its data on servers located in Nevada.  The fact that one software engineer resides in this district is insufficient to establish such location.  The employee works remotely and reports to a team in San Francisco.  This employee is not required to live in Nevada.

As for the second Cray factor, the Court explained that "[t]here are no facts to suggest that any of the business conducted out of the software engineer's home meets this requirement."  Finally, with respect to the third Cray factor, the Court stated that "[t]here is no dispute that Defendant neither owns nor leases the software engineer's residence," and "[t]here is no dispute that Defendant does not condition the engineer's employment upon his location in this district."

In response to VoIP-Pal.com's request that the District Court distinguish In re Cray from the instant case because there are no physical or tangible products to be distributed or sold, and given the web-based nature of Twitter's business, the District Court stated that "the key inquiry is not whether physical objects are involved, but rather whether the public has access to the defendant corporation through an employee or office located in the district where a suit is brought or if the public directly accesses the services of defendant through a location in the respective forum."  Finding, however, that "the bulk of the defendant's employees, product development, and overall operations are located in San Francisco, and that it does not own or lease any buildings in this district, it has no Nevada phone numbers or addresses listed for its operations, and it stores no inventory or data in Nevada," the Court determined that "[t]hese facts demonstrate that Defendant maintains no place of business in Nevada, much less one that is both regular and established."

In granting Twitter's Motion to Change Venue, the District Court also determined that "convenience and fairness to the parties requires transfer of this action."  In particular, the Court found that "[t]he litigation will . . . likely be more efficient and easier for both parties in the district of transfer," explaining that "[t]here is no dispute that the Northern District of California is closer in proximity to Plaintiff's center of operations in Bellevue, Washington," and finding that "the burden on the inventors of the technology in question will likely be the same regardless of whether the action proceeds in Northern California or in Nevada."

VoIP-Pal.com, Inc. v. Twitter, Inc. (D. Nev. 2018)
Order by District Judge Boulware, II

CDx Diagnostic, Inc. v. United States Endoscopy Group, Inc. (S.D.N.Y. 2018)

Storage Units Do Not Satisfy Second Prong of Cray Test for Establishing "Regular and Established Place of Business"

By Donald Zuhn --

Earlier this year, in CDX Diagnostic, Inc. v. United States Endoscopy Group, Inc., District Judge Nelson S. Roman of the U.S. District Court for the Southern District of New York granted a Motion to Dismiss for Improper Venue pursuant to Federal Rule of Civil Procedure 12(b)(3) filed by Defendants United States Endoscopy Group, Inc. ("Defendant") and John Does 1-30.  In its Motion, Defendant argued that the patent infringement action filed by Plaintiffs CDx Diagnostic, Inc.; Shared Medical Resources, LLC; and CDx Medical IP, Inc. against Defendants should be dismissed for improper venue.  In particular, while Defendant conceded sales of allegedly infringing product into the Southern District of New York, it argued that Plaintiffs had failed to demonstrate that Defendant has a regular and established place of business within the Southern District of New York.

The District Court noted that for purposes of patent cases, venue is governed by 28 U.S.C. § 1400(b), which states that "[a]ny 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" (emphasis in Opinion).  Citing Fourco Glass Co. v. Transmirra Prod. Corp., 353 U.S. 222, 226 (1957), the Court explained that a domestic corporation resides in its "state of incorporation only," pointing out that the Supreme Court in TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S.Ct. 1514, 1517 (2017), had indicated that this definition was not supplanted by amendments to the general venue statute, 28 U.S.C. § 1391(c).  As a result, the Supreme Court in TC Heartland reaffirmed its holding in Fourco Glass that a domestic corporation's residence for purposes of patent venue is only the State in which it was incorporated.

With respect to the instant case, Plaintiffs acknowledged that Defendant is incorporated in Ohio, and therefore that venue would be proper only if Defendant committed acts of infringement in the Southern District of New York and had a regular and established place of business in the District.  In view of Defendant's concession that it sold allegedly infringing products in the Southern District of New York, the only issue for the District Court to resolve was whether Defendant had a regular and established place of business in the District.  Citing In re Cray Inc., 871 F.3d 1355, 1360 (Fed. Cir. 2017), the District Court noted that the test for establishing the existence of a "regular and established place of business" requires a showing that: (1) there is 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.

After applying the Cray test to the instant case, the District Court determined that "Plaintiffs cannot meet this burden because they cannot demonstrate the second prong of the test."  With respect to the first and third prongs of the Cray test, the Court explained that "the storage units identified by Plaintiffs are likely 'physical places in the district' prong, insofar as they are 'building[s] or []part[s] of a building set apart for any purpose,'" adding that "Plaintiffs also demonstrated that Defendant pays for these storage units, . . . leading to a conclusion that the storage units are 'of the defendant.'"  However, with respect to the second prong, the Court noted that "the storage units are not 'regular and established places of business', because Plaintiffs have failed to demonstrate that Defendant 'actually engage[s] in business from [either] location,'" adding that "[w]hile Defendant's customer service reps may 'typically' retrieve materials from the storage units to visit customers within this District, . . . no 'employee or agent of [Defendant actually] conduct[s] business at' the storage units, whatsoever" (emphasis in Opinion).  The Court therefore concluded that venue was improper.

Finding that venue was improper, and in view of Plaintiffs' withdrawal of their opposition and consent to a dismissal without prejudice (Plaintiffs withdrew their opposition in a letter submitted one day before the Court issued its Opinion & Order), the District Court granted Defendant's Motion to Dismiss for Improper Venue.  The Court permitted Plaintiffs to refile in the appropriate venue in compliance with the mandates of 28 U.S.C. § 1400(b).

CDx Diagnostic, Inc. v. United States Endoscopy Group, Inc. (S.D.N.Y. 2018)
Opinion & Order by District Judge Roman

In re BigCommerce, Inc. (Fed. Cir. 2018)

By Kevin E. Noonan --

The proper application of the patent venue statute, 28 U.S.C. § 1400(b) in the wake of the Supreme Court's decision in TC Heartland LLC v. Kraft Foods Group Brands LLC (2017), under recent Federal Circuit precedent (see In re Cray, Inc.) continues to be explicated in the district courts.  The most recent episode in this continuing saga is a mandamus order handed down by the Federal Circuit today in In re BigCommerce, Inc.  Specifically, the Court held:

[W]e hold that for purposes of determining venue under § 1400(b) in a state having multiple judicial districts, a corporate defendant shall be considered to "reside" only in the single judicial district within that state where it maintains a principal place of business, or, failing that, the judicial district in which its registered office is located.

This is a considerable restriction on the already limited venue options open to plaintiffs, which limited proper venue to states where the defendant resides (its state of incorporation) or "where the defendant has committed acts of infringement and has a regular and established place of business."

The case arose in the Eastern District of Texas, Marshall Division, where respondents Diem LLC and Express Mobile Inc. individually filed patent infringement suits against BigCommerce.  BigCommerce filed a motion to dismiss for improper venue in the Diem case, and a motion to transfer in the Express Mobile case; each of these motions was denied by the District Court.  As noted in the Federal Circuit's Order, "[i]t is undisputed that BigCommerce has no place of business in the Eastern District of Texas" (rather, its registered office and headquarters is in Austin, which is in the Western District of Texas).  Nevertheless, the Diem court ruled that "a domestic corporation resides in the state of its incorporation and if that state contains more than one judicial district, the corporate defendant resides in each such judicial district for venue purposes" and the Express Mobile court found nothing in plaintiff's argument that distinguished this reasoning.

The Federal Circuit issued a mandamus order overturning these decisions, despite the acknowledged "heavy burden" placed on a petitioner for obtaining one, by Judge Linn joined by Judges Reyna and Hughes.  The Court found "exceptional circumstances" here, specifically that "basic" and "undecided" questions were involved as required by the Supreme Court in Schlagenhauf v. Holder, 379 U.S. 104, 110 (1964).  The order states there is "no doubt" that venue is proper for a domestic corporation only in its state of incorporation, but that there is inconsistent precedent regarding whether venue is limited in states having more than one judicial district.  The Court also recognized that this issue had not been addressed in its Cray decision and thus "will inevitably be repeated," further justifying issuing the writ in this case.  In this regard the order also notes that the magistrate's decision in the Diem case, that BigCommerce had waived its venue objections, was "clearly incorrect as a matter of law" under the Court's In re Micron Tech., Inc., 875 F.3d 1091 (Fed. Cir. 2017) precedent.

The Court's substantive decision, that "a domestic corporation incorporated in a state having multiple judicial districts [does not] 'reside[]' for purposes of the patent-specific venue statute, § 1400(b), in each and every judicial district in that state" was based, according to the order, on "the statute's language, history, purpose, and precedent."  The plain language of the statute recites "judicial district" in the singular which has been held in other contexts as meaning a single place according to the panel, citing Hertz Corp. v. Friend, 559 U.S. 77, 93 (2010); NLRB v. Canning, 134 S. Ct. 2550, 2561 (2014); and Rumsfeld v. Padilla, 542 U.S. 426, 434 (2004).  The order finds that the history of § 1400(b) is consistent with this construction, citing language in the 1897 predecessor to the current statute and that Congress did not intend to change the scope of the statute in its revisions in 1948, citing the Supreme Court's decision in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957).  The panel also considered this reading consistent with the broader venue provisions of 28 U.S.C. § 1391(c) (1952), and that Congress had evinced an intent that venue in patent cases should be more limited than in general civil litigation contexts, citing Brunette Mach. Works, Ltd. v. Kockum Indus., Inc., 406 U.S. 706, 713 (1972) for this proposition.

The panel also found that the term "resides" was "a term of art that had a settled meaning in the law" consistent with limiting venue to the judicial district where a patent infringement defendant resides.  The order cites Federal Practice treatise as well as Supreme Court precedent, including Galveston, H. & S.A. Ry. Co. v. Gonzales, 151 U.S. 496, 504 (1894), and Stonite Products Co. v. Melvin Lloyd Co., 315 U.S. 561 (1942), as well as Fourco in support of the "well-established" status of the meaning of "resides," with Stonite being particularly relevant; there, two corporate defendants were "both incorporated in the state of Pennsylvania but maintained principal places of business in different judicial districts (like here, there being Eastern and Western judicial districts in Pennsylvania).

The Court's Order also reviewed and rejected three arguments from respondents.  The first was that the use of "resides" in earlier Supreme Court cases (including Stonite) is in tension with later Supreme Court cases (including Fourco).  The Federal Circuit rejected this argument almost out of hand, saying that the Court did not address the issue in Fourco at the judicial district level of granularity, "and set a necessary but not necessarily sufficient condition for corporate residence for venue under § 1400(b)" (emphasis in order).  The second argument, that modern business circumstances counseled a "more flexib[le]" approach was "a non-starter," the panel stating that "'[t]he requirement of venue is specific and unambiguous; it is not one of those vague principles which, in the interest of some overriding policy, is to be given a 'liberal' construction," quoting Olberding v. Ill. Cent. R.R. Co., 346 U.S. 338, 340 (1953), as cited in Schnell v. Peter Eckrich & Sons, Inc., 365 U.S. 260, 264 (1961), and saying that "[s]uch policy-based arguments are best directed to Congress."  Finally, the order addresses the question generally regarding how venue should be properly decided in multi-judicial district states.  First, the proper district for venue would be the district in which the defendant has a principal place of business (if there is such a place in the state), citing Galveston, H. & S.A. Ry. Co. v. Gonzales, 151 U.S. 496, 504 (1894).  And the Court noted that a "principal place of business" is not the same as "a regular and established place of business" as required by other aspects of the statute, the order citing Hertz Corp. v. Friend, 559 U.S. 77, 93 (2010).  In the absence of a "principal place of business" in a state in which a defendant is incorporated, the "default' should be the judicial district in which the corporation has its registered office or agent, calling this a "universally recognized foundational requirement of corporate formation."

Thus, the contraction of proper venue for suing patent infringement defendants continues, with this current decision limiting venue to those districts having the closest ties with the accused infringer.  It would not be incorrect to count this decision as another judicial encroachment on the ability of patentees to assert their patents.

In re BigCommerce, Inc. (Fed. Cir. 2018)
Panel: Circuit Judges Reyna, Linn, and Hughes
Order by Circuit Judge Linn

In re ZTE (USA) Inc. (Fed. Cir. 2018)

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

Top Four Stories of 2017

By Donald Zuhn –-

After reflecting upon the events of the past twelve months, Patent Docs presents its 11th annual list of top patent stories.  For 2017, we identified nineteen stories that were covered on Patent Docs last year that we believe had (or are likely to have) a significant impact on patent practitioners and applicants.  In previous posts, we counted down stories #19 to #15, stories #14 to #10, and stories #9 to #5, and today we count down the top four stories of 2017.  As with our other lists (2016, 2015, 2014, 2013, 2012, 2011, 2010, 2009, 2008, and 2007), links to our coverage of these stories (as well as a few links to articles on related topics) have been provided in case you missed the articles the first time around or wish to go back and have another look.  As always, we love to hear from Patent Docs readers, so if you think we left something off the list or disagree with anything we included, please let us know.  In addition, we will be offering a live webinar on the "Top Patent Law Stories of 2017" on January 17, 2018 from 10:00 am to 11:15 am (CT).  Details regarding the webinar, which will focus on a handful of the most important stories on this year's list, can be found here.

4.  Supreme Court: § 286 Trumps Laches Defense

In March, the Supreme Court vacated the Federal Circuit's affirmance of a District Court decision that a patent infringement suit filed by SCA Hygiene Products Aktiebolag against First Quality Baby Products, LLC was barred by laches (even though SCA brought suit about 7 years after it first notified First Quality regarding its allegations of infringement).  The Supreme Court's decision in SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC was based, in part, on the Court's earlier decision in Petrella v. Metro-Goldwyn-Mayer, Inc., where the Court barred laches as a defense in copyright infringement actions based on a three-year statute of limitations enacted by Congress.  The Federal Circuit, sitting en banc, based its affirmance of the District Court on the reasoning that although Congress had enacted a six-year time limitation on money damages in 35 U.S.C. § 286, the provisions of 35 U.S.C. § 282 made unenforceability, which includes the equitable doctrine of laches, available as a defense.  However, as in Petrella, the Supreme Court determined that there was no basis for the Federal Circuit's decision that laches could contradict the statute of limitations provisions of § 286.  The Court also opined that the doctrine of laches was developed for situations where Congress had not specified a fixed time for bringing suit, and thus was a "gap-filling" doctrine to cure in equity what the law did not expressly provide.  However, when, as here, Congress had provided an express statute of limitations "there is no gap to fill" and thus no purpose for laches.

For information regarding this and other related topics, please see:

• "SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC (2017)," March 21, 2017

3.  Use of Tribal Sovereign Immunity as Shield to PTAB Review

In September, Allergan creatively invoked the protection of sovereign immunity under the Eleventh Amendment to the Constitution by assigning six Orange Book-listed patents protecting Allergan's RESTASIS^® (Cyclosporine Ophthalmic Emulsion 0.05%), which is used to treat chronic dry eye, to the St. Regis Mohawk Tribe (SRMT).  The patents had been challenged in inter partes review (IPR) proceedings.  Allergan paid SRMT $13.75 million upon transferring these patents, which SRMT licensed to Allergan for $15 million per year until the patents expire in 2024.  Shortly after the transfer, SRMT filed a motion before the Patent Trial and Appeal Board (PTAB) to have six IPRs involving the patents dismissed based on SRMT's sovereign immunity upon Allergan's assignment of the patents.  In October, Federal Circuit Judge William Bryson, sitting by designation on the bench of the U.S. District Court for the Eastern District of Texas, granted a motion made by Allergan to join SRMT to ANDA litigation as a necessary party, and then found the claims of the Orange Book-listed patents asserted in ANDA litigation to be invalid.  Judge Bryson's decision rendered moot the inter partes review proceedings before the PTAB (insofar as the claims at issue before the District Court and the Board were the same).  Back at the PTAB, the Board was sufficiently vexed over the question of whether SRMT was entitled to have the Board dismiss, on grounds of sovereign immunity, IPRs on patents SRMT licensed from Allergan to solicit amicus curiae briefs on the issue from "interested parties."  However, in December, an expanded panel of the Board issued an order dismissing a sovereign immunity challenge by the State of Minnesota in Ericsson Inc. v. Regents of the University of Minnesota.  The coincidence of these two decisions was curious, particularly because while the scope of sovereign immunity enjoyed by the various recognized Tribes of Native Americans is both uncertain and subject to Congressional abrogation, a State's sovereignty is acknowledged and protected by the Eleventh Amendment.  The Board's decision in Ericsson Inc. provides some insight into not only how the Board may rule on SRMT's motion, but also on how the Board (and the Patent Office) perceives its role and authority to make such decisions, and almost certainly means that tribal sovereign immunity will be making a return trip to our list of top stories next year.

For information regarding this and other related topics, please see:

• "PTAB Decides Patent Infringement Lawsuit Waives Eleventh Amendment Sovereign Immunity to Inter Partes Review, December 19, 2017
• "More Instances of Tribal Sovereign Immunity Shielding Patents from PTAB Invalidation," November 1, 2017
• "District Court Allows Mohawk Tribe to Join ANDA Litigation, Finds Patents at Issue Invalid," October 16, 2017
• "Mohawk Nation Exercises Sovereign Immunity in Inter Partes Review," September 25, 2017
• "Allergan Avails Itself of Sovereign Immunity," September 13, 2017

2.  Supreme Court to Decide Constitutionality of Post-Grant Review Proceedings

In November, the Supreme Court heard oral argument in Oil States Energy Services, LLC v. Greene's Energy Group, LLC, where the sole question being considered by the Court is:

1.Whether inter partes review––an adversarial process used by the Patent and Trademark Office (PTO) to analyze the validity of existing patents––violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.

Ultimately, Oil States Energy Services, LLC may come down to the Court's decision in the 1898 case of McCormick Harvesting Machine v. Aultman.  In that case, the patentee had sought to add claims via reissuance, but the Examiner found that at least some of the issued claims were invalid and sought to revoke the patent right.  The Supreme Court at the time determined that the Patent Office did not have the authority to do so, with the McCormick Harvesting Machine Court stating that:

It has been settled by repeated decisions of this court that when a patent has received the signature of the secretary of the interior, countersigned by the commissioner of patents, and has had affixed to it the seal of the patent office, it has passed beyond the control and jurisdiction of that office, and is not subject to be revoked or canceled by the president, or any other officer of the government.  It has become the property of the patentee, and as such is entitled to the same legal protection as other property.

The only authority competent to set a patent aside, or to annul it, or to correct it for any reason whatever, is vested in the courts of the United States, and not in the department which issued the patent.

Regardless of how the Supreme Court comes down with respect to the question presented, this case will no doubt appear on our top stories list again next year.

For information regarding this and other related topics, please see:

• "Is a Patent a Private or Public Right? -- Supreme Court Hears Oral Arguments in Oil States Energy Services, LLC. v. Greene's Energy Group, LLC," November 30, 2017
• "Oil States Energy Services, LLC v. Greene's Energy Group, LLC -- Positions Taken in Selected Amicus Curiae Briefs," November 27, 2017
• "Oil States Preview Take II -- Just What Did the Supreme Court Hold in McCormick Harvesting Machine v. Aultman?" November 21, 2017
• "Supreme Court Preview -- Oil States Energy Services, LLC v. Greene's Energy Group, LLC," November 15, 2017

1.  Supreme Court Narrows Venue Options for Patentees

In May, the Supreme Court, in TC Heartland LLC v. Kraft Foods Group Brands LLC, 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.  The 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.  The District Court denied the motion, and TC Heartland petitioned the Federal Circuit for a writ of mandamus to either dismiss or transfer the case, which the Federal Circuit denied.  In reversing the Federal Circuit's decision, the Supreme Court looked at whether Congress had changed the meaning of § 1400(b) (the patent venue statute) when it amended 28 U.S.C. § 1391 (the general venue statute) in 1988 -- the Court had previously determined, in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957), that the general venue statute does not override the patent venue statute, and therefore that the residence of an accused infringing corporation was its place of incorporation.  In answering the above inquiry in the negative, the Court pointed out that Congress ordinarily provides a clear indication of its intent in the text of the amended provision, and that this clear indication was missing from § 1391.

For information regarding this and other related topics, please see:

• "More on Venue -- Plexxikon v. Novartis Pharmaceutical Corp. (N.D. Cal. 2017)," December 13, 2017
• "More Views on Venue -- Federal Circuit Addresses In re Micron Fallout," December 12, 2017
• "In re Micron Technology, Inc. (Fed. Cir. 2017)," November 22, 2017
• "Does the Federal Circuit's In re Cray Decision Suggest a New Business Model for Savvy Infringers?" October 1, 2017
• "Views on Venue -- Take Two: Did the District of Delaware Get It Right?" September 24, 2017
• "In re Cray Inc. (Fed. Cir. 2017)," September 21, 2017
• "Views on Venue -- District of Delaware Provides Some Guidance on Venue in ANDA Cases Post-TC Heartland," September 19, 2017
• "TC Heartland LLC v. Kraft Foods Group Brands LLC (2017)," May 22, 2017
• "TC Heartland LLC v. Kraft Foods Group Brands LLC -- 98 Professors Chime In," March 26, 2017
• "Supreme Court Preview -- TC Heartland LLC v. Kraft Foods Group Brands LLC," March 23, 2017
• "Xilinx, Inc. v. Papst Licensing GmbH & Co. KG (Fed. Cir. 2017)," February 19, 2017

More on Venue -- Plexxikon v. Novartis Pharmaceutical Corp. (N.D. Cal. 2017)

By Kevin E. Noonan --

The sequel to the original summer blockbuster movie, Jaws, had as a tagline "Just when you thought it was safe to go back in the water."  This sentiment can describe much of U.S. patent law over the last decade and a half, between the ill-fated USPTO "claims and continuation" rules, the Leahy-Smith America Invents Act, and the Supreme Court's various forays into numerous areas of the law.  The latest head-turner, the question of proper patent venue, has suffered the double whammy of changes enacted by Congress and the Supreme Court's interpretation of them (particularly in overturning the Federal Circuit's interpretation which had been in effect for decades).  The Federal Circuit has provided some limited guidance (see "In re Micron Technology, Inc. (Fed. Cir. 2017)" and "In re Cray Inc. (Fed. Cir. 2017)") and these decisions have provided some illustrative district court decisions showing how these lower courts have understood and adopted whatever rubrics their judicial superiors have enunciated (see "More Views on Venue -- Federal Circuit Addresses In re Micron Fallout").

The latest head-turning wrinkle in the venue question comes from a decision denying Defendant's venue-related motions by Judge Haywood S. Gilliam, Jr., U.S. District Court Judge for the Northern District of California, in Plexxikon Inc. v. Novartis Pharmaceuticals Corp.  Defendant put two venue-related motions before the District Court:  a motion to dismiss (or in the alternative transfer) under 28 U.S.C. § 1406 and a motion to transfer under 28 U.S.C. § 1400(b).  Citing the Supreme Court's decision in TC Heartland LLC v. Kraft Foods Group Brands LLC, 137 S. Ct. 1514, 1519 (2017), the District Court's opinion acknowledges that venue is proper either "in the judicial district where the defendant resides," i.e., its state of incorporation (in this case, Delaware) or "where the defendant has committed acts of infringement and has a regular and established place of business."  Noting that for a motion to dismiss a Court must accept a plaintiff's allegations of infringement, the Court applies the "three general requirements" enunciated by the Federal Circuit in In re Cray:  1) that the defendant must have a physical place of business in the district (a "physical, geographical location in the district from which the business of the defendant is carried out"); 2) that it must be a "regular and established" place of business (that "operates in a steady, uniform, orderly, and methodical manner"); and 3) that "it must be the place of the defendant," i.e., where a defendant has an "establish[ed] or ratif[ied] place of business."

Applying these requirements, the Court found that venue was properly in the Northern District of California.  While the facts underlying the Court's decision were straightforward, where the Court reached new ground was in the relationship between Defendant's "regular and established place of business" and the alleged acts of infringement.  It was undisputed that Defendant "'leases and operates two adjacent facilities in San Carlos,' California — a manufacturing facility and a research facility," but Defendant argued that there must be a nexus between the actions forming the basis for the complaint and the facts supporting proper venue.  The Court disagreed, finding that the plain meaning of the statute contained no such nexus requirement.  If followed by other district courts, this interpretation of the venue requirements could again expand the scope of judicial districts that support venue, particularly for large corporations having more than one business unit or divisions selling disparate products -- wherever their commercial activities occur may be sufficient for finding proper venue even if the commercial activities have no relationship to the alleged infringing activities.

With regard to transfer on convenience grounds under 28 U.S.C. § 1406, the Court found that the relative inconvenience of California or Delaware was equal for Defendant and Plaintiff and that the deference due plaintiff on choice of forum favored denying the transfer motion (being generally given "great weight").  Also relevant to the Court's decision was that "the technology at issue was designed and developed" in the California district, providing a "significant connection" to the forum.  Finally, in this case the Court also considered the congestion in the Delaware court (where two of the four district court judgeships were vacant), something appropriate due to these "unique circumstances" (and not simply because, inter alia, the District of Delaware's docket was particularly heavy).

More Views on Venue -- Federal Circuit Addresses In re Micron Fallout

By Andrew Williams --

Last Spring, the Supreme Court in TC Heartland LLC v. Kraft Foods Group Brands LLC 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.  Last month, the Federal Circuit in In re Micron concluded that TC Heartland changed the controlling law and, as such, defendants that did not raise it at the appropriate time did not waive the venue defense based on Federal Rule of Civil Procedure 12(g)(2) and (h)(1)(A).  However, as we reported at the time, the Court also concluded that the waiver rule found in the Federal Rules is not the only basis on which a district court might reject a venue defense.  In so ruling, the Federal Circuit was clear that it was not seeking "to define the channels in which discretion must be exercised," and that "[a]ny legal conclusions about the boundaries of discretion must await particular district court explanations under the Dietz framework for how discretion is being exercised in particular settings."  Dietz v. Bouldin, Inc., 136 S. Ct. 1885 (2016), had provided that a district court's inherent powers are governed by the control necessarily vested to manage the affairs of the court "to achieve the orderly and expeditious disposition of cases."  The Federal Circuit, therefore, granted Micron's petition for Writ of Mandamus, but it did not order dismissal of transfer for lack of venue.  Instead, it "remanded for the court to consider any such properly raised non-Rule 12(h)(1)(A) arguments that Micron has forfeited its venue defense, and if there is no such sound arguments, to consider the merits of venue under § 1400(b)."

On November 15, 2017, the same day In re Micron was decided, the Federal Circuit granted one additional petition for Writ of Mandamus, and denied two others.  Further, on November 22, 2017 the Court denied two additional petitions, and denied a final petition on November 27, 2017.  For some reason, however, these cases did not appear on the Federal Circuit's Opinions and Orders page until December 1, 2017.  The five cases in which the petitions were denied had all been similarly postured:  a defendant had filed a petition for Writ of Mandamus directing the district court to either grant a motion to transfer, to dismiss the case for improper venue, or to address arguments why venue was improper.  The specifics of each case are summarized in the following table:

The Federal Circuit in these cases reiterated the holding from In re Micron that failure to present the venue objection earlier did not constitute waiver within the Federal Rule of Civil Procedure 12(g)(2) and (h)(1).  However, the Court denied these petitions because they deemed "the proper course here for petitioners [was] to first move the district court for reconsideration of its order denying the motion to dismiss."  The Court also provided that "[a]ny new petition for mandamus from the district court's ruling on reconsideration will be considered on its own merits."  The only significant difference in any of these five cases was that in the In re Flopam Inc. case, the petitioners also moved to stay the district court proceedings pending consideration of the petition.  This motion to stay was denied as moot, although the Court did note that "the Fifth Circuit has noted that matters of venue should take 'top priority in the handling of this case by the . . . District Court.'"

The only petition for writ of mandamus that was granted was in a case in which a district court had already transferred a case.  On November 15, 2017, a Federal Circuit panel consisting of Judges Taranto, Chen, and Hughes granted the petition to the United States District Court for the District of Minnesota in In re Cutsforth, Inc.  The petition stemmed from a case filed in May 2012, although the case had been stayed until September 2016 pending inter partes review of the asserted patents.  In this case, after the Supreme Court issued its TC Heartland decision, the District Court agreed with defendants that the venue objection had not been previously available.  Correspondingly, because "the law of venue exists for the convenience of defendants, not plaintiffs, and under 28 U.S.C. § 1406(a), prejudice to the plaintiff is not a relevant consideration," the Court transferred the case to the Western District of Pennsylvania.  Cutsforth petitioned the Federal Circuit to vacate the transfer order "because the district court erred in its analysis of whether the venue defense was waived."  The Federal Circuit pointed out that "[i]n light of In re Micron, the district court in the present case here clearly erred in not considering non-Rule 12 bases for waiver raised by Cutsforth," and as a result, Mandamus relief was "appropriate to direct the court to reconsider its decision in light of In re Micron."

It remains to be seen what the various district courts will do with these instructions from the Federal Circuit.  It will be interesting to see how the lower courts handle these cases that are returned, or handle the motions for reconsideration that are certainly forthcoming.  We will continue to monitor these cases, as well as others that address the fallout of the TC Heartland decision, and we will provide updates as they are warranted. 

In re Micron Technology, Inc. (Fed. Cir. 2017)

By Kevin E. Noonan --

Last Friday, the Federal Circuit granted a writ of mandamus to Micron Technology, Inc. involving their motion challenging venue in a patent infringement lawsuit brought by The President and Fellows of Harvard University.  In granting the writ, the panel stated that the Federal Circuit intended to "clarify the basic legal framework governing determinations of forfeiture of a venue defense" in patent cases in the wake of the Supreme Court's decision last term in TC Heartland LLC v. Kraft Foods Group Brands LLC, 137 S. Ct. 1514 (2017).

The case arose when Harvard filed suit in the District of Massachusetts against Micron for infringement of U.S. Patent Nos. 6,969,539 and 8,334,016, related to "novel processes and materials for deposition of thin [metallic] films" in components of computers and cell phones.  Harvard's basis for its venue choice was 28 U.S.C. §§ 1391(b) and 1400, as those statures had been interpreted by the Federal Circuit.  Although Micron moved to dismiss under Fed. R. Civ. P. 12(b)(6) for failure to state a claim, it did not move to change venue under Rule 12(b)(3).  After TC Heartland was decided, however, Micron filed motion to dismiss or transfer for improper venue under 28 U.S.C. § 1406(a), asking the District Court to dismiss or in the alternative to transfer the lawsuit to District of Delaware (where Micron is incorporated) or the District of Idaho (Micron's principle place of business).  The District Court denied Micron's motion on grounds that objection to venue had been waived, and that the Supreme Court's TC Heartland decision was not a "intervening change in the law" that excused Micron's failure to move earlier.  Micron then petitioned the Federal Circuit for a writ of mandamus to require the District Court to transfer venue.

For context, the relevant statutes and Federal Rules of Civil Procedure are:

28 U.S.C. §1406(a):

The district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.

Fed R Civ Pro 12(g)(2):

(g) Joining Motions.
            . . .
    (2) Limitation on Further Motions. Except as provided in Rule 12(h)(2) or (3), a party that makes a motion under this rule must not make another motion under this rule raising a defense or objection that was available to the party but omitted from its earlier motion.

Fed R Civ Pro 12(h)(1)(A):

(h) Waiving and Preserving Certain Defenses.
    (1) When Some Are Waived. A party waives any defense listed in Rule 12(b)(2)–(5) by:
        (A) omitting it from a motion in the circumstances described in Rule 12(g)(2); or . . .

The Federal Circuit issued the writ, in a form slightly less than Micron requested, in an opinion by Judge Taranto, joined by Judges Chen and Hughes.  The opinion notes "widespread disagreement" in the district courts regarding whether the TC Heartland case changed the law sufficiently that venue motions should be considered (either anew or reconsidered if previously proffered) and that this opinion is intended to provide clarity on venue transfer matters in patent cases.  Succinctly put:

We conclude that TC Heartland changed the controlling law in the relevant sense: at the time of the initial motion to dismiss, before the Court decided TC Heartland, the venue defense now raised by Micron (and others) based on TC Heartland's interpretation of the venue statute was not "available," thus making the waiver rule of Rule 12(g)(2) and (h)(1)(A) inapplicable.

This conclusion comes with a general caveat (that applies in many instances):  a district court retains the right to assess whether the motion is timely and for other reasons, which the opinion characterizes as "[a] less bright-line, more discretionary framework" that applies even where the Federal Rules at issue do not.

As noted in the opinion the standards for having a writ of mandamus granted are high:  only "exceptional circumstances" will suffice.  The opinion sets out three general requirements for obtaining a writ:

• The Petitioner must have no other "adequate means of obtaining the relief petitioned for (Cheney v. U.S. Dist. Court for Dist. of Columbia, 542 U.S. 367, 380 (2004))

• The Petitioner's right to the writ (and the relief petitioned for) must be "clear and indisputable" (Id., citing Kerr v. U.S. Dist. Court for N. Dist. of Cal., 426 U.S. 394, 403 (1976))

• The Court issuing the writ must be "satisfied that the writ is appropriate under the circumstances."

According to the panel opinion, venue is such a circumstance and appropriate to address the "basic, undecided question" of whether the TC Heartland case has given rise to circumstances where a writ is necessary to provide an answer to the status of venue issues arising in its aftermath.  Generally, according to the opinion, writs involving venue transfer cases address important issues outside the immediate case before the Court, which the panel found apply here, there being "certain basic, unsettled, recurring legal issues over which there is considerable litigation producing disparate results."  The District Court provided examples of these disparate results; in a representative sample, the court surveyed 17 decisions wherein the majority (12) found that TC Heartland not to have occasioned an intervening change in the law and thus not excusing defendants like Micron for not raising the venue challenge earlier.

The opinion set forth its own further justifications for its decision:

Answering the fundamental change-of-law question regarding the applicability of Rule 12(g)(2) and (h)(1)(A)—as well as the equally fundamental question whether those provisions provide the only basis for finding that a defendant can no longer make a venue objection—is important to proper judicial administration.  Doing so would reduce the widespread disparities in rulings on the fundamental legal standards, while leaving the exercise of such discretion as is available in applying those standards subject to case-by-case review.

With regard to waiver, the opinion states that "one crucial condition" imposed on the application of Rule 12(h)(1)(A) is that the venue defense had to be available to a defendant when the defendant made its original motion to dismiss under Rule 12.  Here, Micron's Rule 12(b)(6) motion to dismiss was undisputedly made prior to the Supreme Court's TC Heartland decision.  Under these facts the Federal Circuit decided as a matter of law that the defense was not available prior to the Supreme Court's decision and thus Micron could not be held to have waived.

The panel characterized this as a "common sense" application of the waiver rule -- after all, had Micron made the motion with its Rule 12(b)(6) motion, the District Court would have been required to deny it, based on how the Federal Circuit had interpreted 35 U.S.C. § 1400(b) (the opinion characterizes such a motion as "futile" at that time).  This interpretation is also consistent with Supreme Court precedent on the impact of intervening law the opinion citing Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313, 350 (1971), and copious other Supreme Court and Circuit Court precedent in support of its decision.  And because § 1400(b) is specific for patent cases the opinion notes that the District Court was bound by that (now erroneous) precedent, particularly V.E. Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1575 (Fed. Cir. 1990).

The Federal Circuit explains its decision to vacate and remand, rather than order venue transfer, based on its appreciation that "Rule 12(h)(1) is not the sole basis on which a district court might, in various circumstances, rule that a defendant can no longer present a venue defense that might have succeeded on the merits."  And the basis for that understanding is that Rule 12(h)(1) is not exhaustive of the reasons that a District Court might deny a venue transfer motion.  Examples set forth by the opinion include "timely and adequate preservation [of the venue issue]" in a case of an intervening change in the law.  The panel also finds solace in this view, that there are other considerations that a District Court can take into account than just the Federal Rules of Civil Procedure, based on similar sentiments from the Supreme Court in Dietz v. Bouldin, Inc., 136 S.Ct. 1885, 1891 (2016):

"[A] district court possesses inherent powers that are 'governed not by rule or statute but by the control necessarily vested in courts to manage their own affairs so as to achieve the orderly and expeditious disposition of cases,' citing Link v. Wabash R. Co., 370 U.S. 626, 630–631 (1962); see also United States v. Hudson, 7 Cranch 32, 34 (1812).

But even these considerations have standards the Supreme Court finds compelling:

First, the exercise of an inherent power must be a "reasonable response to the problems and needs" confronting the court's fair administration of justice.  Degen v. United States, 517 U.S. 820, 823– 824 (1996).  Second, the exercise of an inherent power cannot be contrary to any express grant of or limitation on the district court's power contained in a rule or statute. See id., at 823; Fed. Rule Civ. Proc. 83(b) (districts courts can "regulate [their] practice in any manner consistent with federal law"); see, e.g., Bank of Nova Scotia v. United States, 487 U.S. 250, 254 (1988) (holding that a district court cannot invoke its inherent power to circumvent the harmless-error inquiry prescribed by Federal Rule of Criminal Procedure 52(a)).

The opinion distills these principles into two:  that the inherent power of a district court must be "a reasonable response to a specific problem" and that the exercise of judicial power cannot be contrary to "an express rule or statute."  Timeliness (or lack of it) and consent are the bases for losing a venue challenge most readily accommodated in the Court's exemplars, there being numerous examples cited in the opinion where lack of one or the presence of the other precluded a venue challenge.  While "leav[ing] to future cases the task of elaborating on when such determinations may soundly be reached and what other considerations, if any, might be relevant within the Dietz framework," the opinion did observe that the Federal Circuit has denied writs of mandamus on venue transfers where the motion to transfer was presented "close to trial," citing cases where the motion was filed from two weeks to three months before trial was set to commence.  The panel also noted instances (not exemplified) where a defendant used (or attempted to use) venue challenges strategically, but here the panel did not set forth any exemplary analysis of how courts should judge such behavior.

The panel granted Micron's mandamus petition, vacating the District Court's order denying Micron's transfer motion, and remanded to the District Court for a determination whether there were any other factors that needed to be considered.

In re Micron Technology, Inc. (Fed. Cir. 2017)
Panel: Circuit Judges Taranto, Chen, and Hughes
Opinion by Circuit Judge Taranto