On December 14, 2016, the U.S. Supreme Court granted certiorari in TC Heartland LLC v. Kraft Food Brands Group LLC to decide the following issue:
Whether the patent venue statute, 28 U.S.C. § 1400(b), which provides that patent infringement actions ‘may be brought in the judicial district where the defendant resides[,]’ is the sole and exclusive provision governing venue in patent infringement actions and is not to be supplemented by the statute governing ‘[v]enue generally,’ 28 U.S.C. § 1391, which has long contained a subsection (c) that, where applicable, deems a corporate entity to reside in multiple judicial districts.
The determination of this issue has potentially significant consequences for accused infringers and their counsel who have routinely faced patent suits in distant venues with plaintiff-friendly local rules and procedures that together drive settlements often unrelated to the value of the asserted technology. As the Petitioner TC Heartland (“Petitioner”) and the amici curiae in support of the cert petition have noted, the Federal Circuit’s unwavering adherence to its holding in VE Holdings Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990) has created conditions that allow rampant forum shopping by plaintiffs and even forum selling by certain district courts. Petitioner and the amici argue that forum shopping and forum selling undermines the economic utility of patent system and ultimately destabilizes public confidence in the judiciary. These important policy concerns, together with strong legal arguments that the Federal Circuit’s holding in VE Holding was misguided, will likely signal the end of an era in patent litigation and restore treatment of patent venue to a pre-1990 scope.
TC Heartland is an Indiana limited liability company headquartered in Indiana. Kraft Food Brands (“Respondent”) is organized and exists under Delaware law and has its principal place of business in Illinois. Respondent sued Petitioner in the United States District court for the District of Delaware, alleging Petitioner’s liquid water enhancer products infringed three patents owned by Respondent. Petitioner moved to dismiss the complaint for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2). Petitioner also moved to either dismiss the action or transfer venue to the Southern District of Indiana under 28 U.S.C. §§ 1404 and 1406. Petitioner contended that the accused products were designed and manufactured in Indiana and that a mere 2% of its sales in 2014 were shipped to destinations in Delaware at the sole direction of one of its national customers based in Arkansas. Petitioner therefore argued that because it had no local presence in Delaware, was not registered to do business there, and had not solicited sales in Delaware, Delaware was not the “judicial district where the [Petitioner] resides” within the meaning of 28 U.S.C. § 1400(b). Petitioner also argued that the district court was bound by the Supreme Court’s opinion in Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222 (1957), and that the 2011 amendments to § 1391 repealed the statutory language upon which the Federal Circuit’s decision in VE Holding relied in circumventing Fourco.
In the proceedings below, the Magistrate Judge determined that it had specific personal jurisdiction over Petitioner based on a stream-of-commerce type theory under Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558, 1571 (Fed. Cir. 1994). The Magistrate Judge also rejected Petitioner’s arguments that the 2011 amendment to 28 U.S.C. § 1391 altered the general venue statute and thereby nullified the Federal Circuit’s holding in VE Holding. Accordingly, the judge held that venue was proper based upon a finding of personal jurisdiction.
The district court adopted the Magistrate Judge’s report in full and expressly concluded that Congress’ 2011 amendments to 28 U.S.C. § 1391 “did not undo” the Federal Circuit’s decision in VE Holding. Petitioner timely petitioned the Federal Circuit for a writ of mandamus. The Federal Circuit affirmed the district court’s order, stating that “[t]he arguments raised concerning venue have been firmly resolved by VE Holding, a settled precedent for over 25 years[,]” and asserted that the Supreme Court’s interpretation of patent venue in Fourco is “no longer the law.”
Taking a Step Back: Brief History of Patent Venue Law
Under Section 48 of the Judiciary Act of 1897, Congress limited jurisdiction in patent cases to districts where the defendant inhabited or had a place of business and committed infringing acts. (Act of March 3, 1897, c. 395, 29 Stat. 695.) In 1942, the Supreme Court unequivocally concluded that “Congress did not intend the Act of 1897 to dovetail with the general provisions relating to the venue of civil suits, but rather that it alone should control venue in patent infringement proceedings.” Stonite Prods. C. v. Melvin Lloyd Co., 315 U.S. 561, 563 (1942). Then, in 1948, Congress enacted 28 U.S.C. § 1400(b), which, consistent with the Judiciary Act of 1897 and the Supreme Court’s holding in Stonite, provided:
Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.
The newly codified title 28 also included a provision, § 1391, for “venue generally,” which stated in relevant part:
(c) A corporation may be sued in any judicial district in which it is incorporated or licensed to do business or is doing business, and such judicial district shall be regarded as the residence of such corporation for venue purposes.
In 1957, following a circuit split that developed over whether corporate residence under § 1391 applied to the term “resides” in § 1400(b), the Supreme Court held that the patent venue statute was to be read in isolation and not within the context of the general venue statute: “28 U.S.C. § 1400(b) . . . is the sole and exclusive provision controlling venue in patent infringement actions, and that it is not to be supplemented by the provisions of 28 U.S.C. [§] 1391(c).” Fourco , 353 U.S. at . The Supreme Court’s holding in Fourco has never been overruled.
In 1988, Congress changed the statutory language in § 1391 from defining residence “for venue purposes” to defining residence “for purposes of venue under this chapter.” Petitioner and amici in support of the cert petition argue that there is no legislative history to suggest that Congress intended this minor change to the statutory language to supplant Supreme Court precedent or otherwise impact the patent venue statute. In fact, the legislative history shows a Congressional intent to further constrain corporate venue rather than expand it: “[A] corporation that confines its activities to Los Angeles (Central California) should not be required to defend in San Francisco (Northern California).” H.R. Rep. No. 100-889, at 70 (1988). Nonetheless, in 1990, the Federal Circuit deviated from longstanding Supreme Court precedents and the plain language of the statute when it determined that the ministerial amendments to 28 U.S.C. § 1391 in 1988 effectively overruled Stonite and Fourco. VE Holding, 917 F.2d at 1584. The Federal Circuit held that “the first test for venue under § 1400(b) with respect to a defendant that is a corporation, in light of the 1988 amendment to § 1391(c), is whether the defendant was subject to personal jurisdiction in the district of suit at the time the action was commenced.”
As a result of the Federal Circuit’s holding in VE Holding, numerous amici curiae argue that the Federal Circuit effectively expanded the scope of 28 U.S.C. § 1400(b) to permit filing of patent lawsuits in any federal district court where the accused products are sold. See, e.g., In re TC Heartland, LLC, No. 2016-105, at 10 (Fed. Cir. Apr. 29, 2016) (holding that jurisdiction is proper in a patent suit “where a nonresident defendant purposefully shipped accused products into the forum through an established distribution channel and the cause of action for patent infringement was alleged to arise out of those activities”). In at least one recent case, the Federal Circuit held that there was personal jurisdiction in Delaware over a defendant who had never sold an accused product in Delaware because the defendant’s application for drug approval indicated a prospective desire to sell the drug nationally. Acorda Therapeutics Inc. v. Mylan Pharmaceuticals Inc., 817 F.3d 755, 764 (Fed. Cir. 2016). The Federal Circuit concluded this planned future conduct satisfied the minimum contacts requirement, and nothing in the court’s opinion suggests that such conduct would not give rise to personal jurisdiction in every jurisdiction. Id. at 762-63.
Finally, in 2011, Congress enacted further amendments to § 1391, adding section (a), entitled “Applicability of Section.” This section currently reads: “Except as otherwise provided by law . . . (1) this section shall govern the venue of all civil actions brought in district courts of the United States . . . .” 28 U.S.C. § 1391(a)(1) (2012). Shortly thereafter, the Supreme Court interpreted § 1391 as governing venue where a more specific venue provision is lacking. See Atlantic Marine Construction Co. v. United States District Court for the Western District of Texas, 134 S. Ct. 568, 577 n.2 (2013) (noting “[s]ection 1391 governs ‘venue generally,’ that is, in cases where a more specific venue provision does not apply” and citing by way of example 28 U.S.C. § 1400 as “identifying proper venue for copyright and patent suits”).
TC Heartland’s petition for writ of certiorari seeks a restoration of Supreme Court’s interpretation of § 1400(b) under Fourco and reversal of the decision below.
Arguments in Support of TC Heartland
The brief of amici curiae 56 professors of law and economics persuasively argues that VE Holding ignores fundamental canons of statutory construction, namely that Congress does not alter vital details of a regulatory schemes by vague changes to ancillary provisions, and that a statute should not be read so as to render parts of it mere surplusage. For example, under the Federal Circuit’s interpretation in VE Holding, the latter half of § 1400(b) would be largely superfluous. That is, the term “resides” in § 1400(b) must have some definition other than “a regular and established place of business,” since § 1400(b) already provides that patent venue is proper where the defendant has a “regular and established placed of business.”
The Electronic Frontier Foundation (EFF) as amicus curiae argues that the Federal Circuit’s holding in VE Holding should be overruled in light of existing Supreme Court precedent and the plain language of the patent venue statute in order to cure – in its view – the fundamental lack of fairness and protection to defendants. The EFF also persuasively argues that whereas personal jurisdiction provides sufficiently reliable limits on personal jurisdiction in non-patent suits, the same does not hold true for patent cases because the Federal Circuit has also more-or-less adopted an expansive stream-of-commerce-type theory, holding personal jurisdiction is proper where “defendants, acting in consort, placed the accused [product] in the stream of commerce, they knew the likely destination of the products, and their conduct and connections with the forum state were such that they should reasonably have anticipated being brought into court there.” Beverly Hills Fan, 21 F.3d at 1566. Therefore, the current state of Federal Circuit law often permits essentially nationwide personal jurisdiction.
Upending the (Un)intended Consequences of VE Holding
TC Heartland and the amici in support of TC Heartland’s petition argue forcefully that the consequences of the Federal Circuit’s holding in VE Holding have been overwhelmingly negative and contend that virtually limitless venue under the VE Holding construct has corrupted the underpinnings of the patent system. Whether this is an overly dramatic view of patent law may depend on what side of the courtroom a particular patent litigator sits, but certain underlying facts cannot be disputed. For example, it is true that the Eastern District of Texas still sees a disproportionate number of patent case filings. On average, a quarter of all patent cases are filed in that district – one with a relatively small population and relatively few companies – and in 2015, this figure spiked to 44% of all patent-infringement cases. (By contrast, the Northern District of California, a district of more than double the population and home to many companies, sees only 4-5% of all patent-infringement cases filed annually.) In the Eastern District of Texas’s banner year of 2015, Judge Rodney Gilstrap, referred to as the “busiest patent judge” in the country, heard a quarter of all patent cases filed nationwide. TC Heartland argues that this kind of undue case concentration diminishes the integrity of the patent system. The amici agree, pointing to nuisance-value settlements that arise when patentees have unfettered ability to file in the Eastern District of Texas and then take advantage of the local rules to extract settlements tied to the costs of litigation rather than the value of the asserted technology.
The amici also argue that the Eastern District of Texas, among other districts, have been attempting to attract patent-infringement cases through the use of patent-holder-friendly local rules, standing orders, and other judge-specific practices. For instance, TC Heartland and the amici argue that the time to rule on motions to transfer (150 additional days on average) and the timing and scope of discovery place undue settlement pressure on accused infringers. They argue that ultimately the whole system suffers when monetary settlements are reached as a result of defendants seeking to avoid the burden and cost of discovery and protracted litigation instead of a good faith belief in the legitimacy of the patented technology and its value to society. TC Heartland seeks to upend these practices through its appeal. At the end of the day, these policy arguments regarding the integrity of the overall system may be more persuasive to the Supreme Court justices than any statutory interpretation arguments advanced in the appeal.
The Federal Circuit’s decisions and general confusion at the district court level have set the stage for the Supreme Court to settle this issue. This case promises to be particularly important for large companies accused of patent infringement, as the Supreme Court’s decision will determine whether they may be haled into any forum in the United States or instead into a limited number of venues under § 1400(b). The recent trend of the high court’s limiting access to the federal courts and its propensity for reversing the Federal Court over the last decade strongly suggest a decision in TC Heartland’s favor, a sea change in the practice of patent litigation, and the end of forum shopping in patent cases. Oral arguments in this appeal are set for Monday, March 27, 2017.