This article originally ran in the Intellectual Property Supplement of The Legal Intelligencer on April 3, 2018.
May 22, 2017, was a game-changing day for patent litigators across the United States, albeit a day that many experts assumed was coming. That day, the U.S. Supreme Court issued a unanimous decision in TC Heartland v. Kraft Foods Group, 137 S.Ct. 1514 (2017) that upended years of jurisprudence applicable to interpretation of the current patent-specific venue statute, 28 U.S.C. Section 1400(b), when read with the general venue provision, 28 U.S.C. Section 1391(c). Under the patent venue statute, a “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.”
The Supreme Court determined 60 years before TC Heartland (and before amendments to the general venue statute) that under the patent venue statute, Section 1400(b), a domestic corporation “resides” only in its state of incorporation, see Fourco Glass v. Transmirra Products, 353 U.S. 222 (1957). In 1990, however, the U.S. Court of Appeals for the Federal Circuit interpreted amendments to the general venue statute and determined in VE Holding v. Johnson Gas Appliance, 917 F.2d 1574 (Fed. Cir. 1990), that changes in Section 1391(c), which supported appropriate venue in any district where a corporate defendant would be subject to personal jurisdiction, would also impact the meaning of “reside” in the patent venue statute. The court in VE Holding held that Congress’ 1988 amendment to Section 1391(c) altered the holding of Fourco Glass.
By essentially altering the interpretation of the patent venue statute, VE Holding. created a 27-year period during which patent-holders pursued actions in any federal district in which the alleged infringers would be subject to personal jurisdiction (i.e., including the location where a tort is committed, such as the sale of infringing goods). This broad scope led to permissive forum-shopping and to the Eastern District of Texas becoming the national nerve center for patent infringement suits due to its patent-holder-friendly local rules and judges. Any corporate entity providing services or selling goods within the district could be forced to defend itself in that district, where it would face inherent disadvantages not present in other districts.
TC Heartland changed everything. Justice Clarence Thomas overruled VE Holding, instead reinforcing the Fourco Glass principle that a domestic corporation “resides” only in its state of incorporation for the purposes of Section 1400(b), even in the wake of Congress’s amendment to the text of Section 1391(c). The modified language of Section 1391 explicitly carved an exception by beginning with the phrase, “except as otherwise provided by law,” and Section 1400(b) was the exclusive venue statute pertaining to patent infringement cases.
While the opinions cited above relied upon the statutory construction of the contrasting venue statutes, TC Heartland immediately had far-reaching effects on the landscape of patent litigation, and nearly one year later, case law continues to develop in its wake. Three main developments in patent venue law have occurred over the past year.
‘TC Heartland’ Provides a Path for Defendants
The most obvious effect of TC Heartland is that an allegedly infringing party is no longer required to defend a new lawsuit in any district in which it would normally be subject to personal jurisdiction, but rather only where the alleged infringer is incorporated or committed an act(s) of infringement and has a regular and established place of business. What happened, however, to cases already pending when the Supreme Court issued the TC Heartland opinion?
TC Heartland failed to guide district courts concerning venue challenges in cases initiated prior to TC Heartland, and courts were split as a result. Many district courts determined that TC Heartland constituted an intervening change in the law overriding prior improper defense waivers made before May 22, 2017. For example, in Westech Aerosol v. 3M, 123 U.S.P.Q.2d 1432 (W.D. Wash. June 21, 2017), the court granted the defendants’ request because “TC Heartland changed the venue landscape,” and in Columbia Sportswear North America v. Seirus Innovative Accessories, 265 F. Supp. 3d 1196 (D. Or. 2017), the court transferred the case to the district housing the defendant’s principal place of business, despite the defendant’s prior waiver.
On the other hand, many district courts took a more conservative approach and determined that TC Heartland did not give rise to the “intervening law exception.” The Eastern District of Virginia published a heavily cited opinion determining that “TC Heartland does not qualify for the intervening law exception to waiver because it merely affirms the viability of Fourco.” Cobalt Boats v. Sea Ray Boats, 254 F. Supp. 3d 836, 839 (E.D. Va. 2017). There, the court referenced how the defendant had filed its answer (failing to object to the venue) more than two years before the TC Heartland decision.
After six months of uncertainty, the Federal Circuit issued a precedential opinion rendering even many older cases like Cobalt Boats ripe for venue challenges. In In re Micron Technology, 875 F.3d 1091 (Fed. Cir. 2017), the Federal Circuit aligned with the Westech line of cases, holding that TC Heartland created a new venue objection not previously available to litigants, thus constituting an intervening change in the law. Locally, the Eastern District of Pennsylvania recently confirmed that Micron Technology now serves as binding precedent, granting TC Heartland-based motions to transfer in the process, as in Infinity Computer Products v. Oki Data Americas, No. CV 12-6797 (E.D. Pa. Feb. 23, 2018).
Despite Micron Technology, issues still arise when such a motion is brought in the advanced stages of a case. The Micron Technology opinion explicitly declined to determine exactly how far along a case must be to deny a venue transfer motion as an inefficient use of judicial resources, but also recognized its prior denials of mandamus in cases where defendants raised TC Heartland-based venue objections within three months of trial. Accordingly, based upon the case law to date, a district court should grant a motion to transfer venue based upon the defendant’s residence, even if the case progressed significantly prior to TC Heartland, unless trial is within a few months.
‘TC Heartland’ Creates a Need for Judicial Interpretation
As with the issue surrounding pre-TC Heartland waivers of venue objections, for a few months after TC Heartland, district courts were unsure how to determine whether a defendant maintained a “regular and established place of business” in a certain district that would place its activities within the parameters of Section 1400(b). The Federal Circuit attempted to clarify this issue, however, in In re Cray, 871 F.3d 1355 (Fed. Cir. 2017). The court there concluded that for a defendant’s place of business to fall within Section 1400(b), “there must be a physical place in the district; it must be a regular and established place of business; and it must be the place of the defendant.” All three factors must be met for venue to be proper.
In Cray, the court concluded that the test was not met when the corporate defendant’s employee simply performed certain work for the defendant within the district; the defendant itself, and not its employee, must have a regular and established place of business within the district for it to fall within the constraints of the patent venue statue. The Cray case set forth more rigid venue standards and has eliminated many doubts that TC Heartland would actually limit the scope of permissible forum-shopping.
‘TC Heartland’ Is Impacting Preferred Filing Locations
Finally, while TC Heartland seems to have somewhat diminished the Eastern District of Texas and its patent-holder-friendly local rules as the most significant patent litigation hotbed, it does not appear that any single district has truly taken over as the “nerve center” of patent infringement litigation to date. That said, the District of Delaware, which handled the second-most patent litigation matters yearly prior to TC Heartland, is the clear favorite to become the center of the United States patent infringement universe going forward.
The majority of publicly traded domestic corporations choose to be incorporated in Delaware due to the Delaware Court of Chancery’s corporate law expertise and corporation-friendly laws and regulations. Under TC Heartland, each of these corporations could be sued only in the District of Delaware or the district containing the entity’s regular and established place of business.
Additionally, most judges in the District of Delaware are well equipped to handle patent litigation matters, and the district has clearly prepared itself for an increase of patent litigation matters, as it has currently assigned cases to 10 visiting judges, most of whom are primarily based in the Eastern District of Pennsylvania. The jury is still out, however, as to whether the District of Delaware, or any other federal district, will follow the Eastern District of Texas as the true “heartland” of patent law in America.
Scott C. Oberlander is a litigation associate at Flaster Greenberg in Philadelphia. His practice includes a wide variety of commercial litigation and intellectual property matters. He can be reached at email@example.com or 215-279-9916.