In the June 22, 2016 edition of the Delaware Business Court Insider, LRC partner Jim Green writes that acting on a writ of mandamus from the District of Delaware, the Federal Circuit Court of Appeals recently issued a decision in In re TC Heartland, LLC, No. 16-105 (Fed. Cir. Apr. 29, 2016), a case that some observers believed had the potential to restrict significantly the venue where patent infringement lawsuits may be brought.
In re TC Heartland, LLC: Patent Venue Issues Come to the Fore
By James S. Green Jr.
Acting on a writ of mandamus from the District of Delaware, the Federal Circuit Court of Appeals recently issued a decision in In re TC Heartland, LLC, No. 16-105 (Fed. Cir. Apr. 29, 2016), a case that some observers believed had the potential to restrict significantly the venue where patent infringement lawsuits may be brought. The salient issue before the court in TC Heartland was whether the 2011 amendments to 28 U.S.C. § 1391 changed the law governing venue for patent infringement suits in a manner that nullified the holding in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), which set the current precedent for venue. Ultimately, TC Heartland indicated that the 2011 amendments to section 1391 if anything broadened the applicability of the general venue statute, thus maintaining the status quo of where a patent infringement action may be brought, for now.
The history of the patent infringement venue issue involves the meaning of the term “resides” in 28 U.S.C. §§ 1391 and 1400 and the interplay between the two sections. First, the Supreme Court held in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 228-29 (1957) that “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).” The Supreme Court reasoned that section 1391(c) “is a general corporation venue statute, whereas § 1400(b) is a special venue statute applicable, specifically, to all defendants in a particular type of action,…[and] the law is settled that [h]owever inclusive may be the general language of a statute, it will not be held to apply to a matter specifically dealt with in another part of the same enactment.”
When the Supreme Court issued Fourco Glass, section 1391(c) stated that “[a] corporation may be sued in any judicial district in which it . . . is doing business, and such judicial district shall be regarded as the residence of such corporation for venue purposes.” Section 1400(b) read, as it still does today: “[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.” The scope of the first clause of section 1400(b) depends on the definition of “resides,” which the legislative history indicates was the state of registration for businesses. Reading section 1400(b) alone therefore imposes a restrictive limit on venues in which corporations can be sued.
In 1988, Congress made several amendments to section 1391(c) that included the addition of the clause “[f]or purposes of venue under this chapter…” at the beginning of the provision. Thus, since sections 1391 and 1400 are part of Chapter 87 of Title 28 of the U.S. Code, the court in VE Holding determined that Congress intended section 1391(c) to apply to section 1400(b) and that the meaning of the term “resides” in section 1400 should be interpreted together with section 1391(c). VE Holding further explained that the 1988 amendment’s broadened definition of a corporation’s residence in section 1391(c) from “any judicial district in which it is incorporated or licensed to do business or is doing business” to “any judicial district in which it is subject to personal jurisdiction” evinced the legislature’s intent to expand jurisdiction since Fourco was decided.
Fast-forward a quarter century, and defendant TC Heartland essentially argued that the 2011 revisions to section 1391 reverted to the status quo ante VE Holding and re-adopted the Supreme Court’s rationale in Fourco—i.e., a reading of section 1400 is independent of section 1391, with the upshot that a more restrictive definition of residency should be applied in patent infringement litigation. In particular, the Federal Courts Jurisdiction and Venue Clarification Act of 2011 repealed the “[f]or purposes of this chapter” preamble of the 1988 version of section 1391(c) and changed it to read “[f]or all venue purposes.” The 2011 revisions also included a preamble to subsection (a) that reads: “[e]xcept as otherwise provided by law[.]”
The defendant TC Heartland was an Indiana LLC headquartered in Indiana. The plaintiff Kraft Foods was a Delaware LLC with its principal place of business in Indiana. The plaintiff filed suit in the federal court in Delaware alleging that defendant’s liquid water flavor enhancer products infringed three of the plaintiff’s patents. The defendant moved to dismiss for lack of personal jurisdiction and to either dismiss or transfer venue to the Southern District of Indiana. In disputing personal jurisdiction, the defendant argued that it had not registered to do business in Delaware, had no local presence in Delaware, had not entered into contracts in Delaware, or solicited sales in Delaware. However, the defendant confirmed that it shipped a small percentage of orders of the allegedly infringing product into Delaware. In disputing venue, TC Heartland argued that the patent venue statute should be more narrowly construed as permitting suit only in the defendant’s state of incorporation or “where the defendant has committed acts of infringement and has a regular and established place of business,” rather than expansively construed as extending to the limits of personal jurisdiction.
Specifically, in TC Heartland a unanimous three-judge panel determined that the meaning of “resides” in the special patent venue statute, section 1400(b), still must be interpreted in light of the definition of “resides” in the general venue statute, section 1391(c). The matter was before the Federal Circuit on petition for writ of mandamus after the Delaware District Court, affirming the recommendation of the Magistrate Judge, denied the defendant’s motion to dismiss or transfer the patent infringement suit against it in Kraft Foods Grp. Brands LLC v. TC Heartland, LLC, No. 14-28 (D. Del. Sep. 24, 2015).
TC Heartland maintained that the 2011 statutory revisions were an attempt to reassert that section 1400 is the exclusive patent venue provision and that it should be interpreted without reference to section 1391. Like the District of Delaware, the Federal Circuit disagreed. In particular, TC Heartland argued that the addition of the phrase “[e]xcept as otherwise provided by law” preamble and the removal of the “[f]or purposes of venue under this chapter” language signaled Congressional intent to overturn VE Holding. But the Federal Circuit concluded that “[t]he 2011 amendments to the general venue statute relevant to this appeal were minor,” that if anything, the new language “is a broadening of the applicability of the definition of corporate residence, not a narrowing. This change in no manner supports Heartland’s arguments.” The court added that Fourco is no longer the law because of the intervening 1988 amendments and the VE Holding case. In other words, “the common law definition of corporate residence for patent cases was superseded by a Congressional one”; thus, there is no longer any federal common law referenced by the new language pertaining to the “as otherwise provided by law” preamble. The Federal Circuit further noted that TC Heartland provided no evidence showing that Congress meant to codify Fourco.
It remains to be seen whether TC Heartland will be revisited en banc or by the Supreme Court. Overturning TC Heartland would not necessitate a reading of section 1400 that is restricted to the defendant’s state of incorporation because section 1400(b) still provides in the disjunctive that suit may also be brought “where the defendant has committed acts of infringement and has a regular and established place of business.” However, even this second option is more restrictive than the current standard, which extends to the limits of personal jurisdiction under the well-known International Shoe minimum contacts tests.
Another possibility is additional legislative action regarding the two venue provisions at issue, sections 1391 and 1400. At this time, two bills addressing patent venue are pending in Congress: S. 2733, the “Venue Equity and Non-Uniformity Elimination Act of 2016,” was introduced into the Senate Judiciary Committee on March 17, 2016; and H.R. 9, the “Innovation Act,” was reported out of the House Judiciary Committee on February 25, 2016. Both bills as proposed would restrict venue for corporate defendants and contain provisions that appear to override the broad applicability of section 1391 and limit patent venue to jurisdictions that proponents describe as having tighter and more appropriate connections to the lawsuit subject matter—such as where the alleged infringer is located, where the alleged infringer committed the alleged acts of infringement, or where the research and development of the original innovation occurred. Under the proposed legislation, venue still would be appropriate in a federal district of the defendant company’s state of incorporation.
Jim Green is a Partner at Landis Rath & Cobb LLP, where he focuses on complex business litigation in Delaware State and Federal courts, including patent litigation in the District of Delaware. He can be contacted at 302-467-4426 or at email@example.com.
Reprinted with permission from the June 22, 2016 issue of the Delaware Business Court Insider. © 2016 ALM Media Properties. Further duplication without permission is prohibited.