In the June 21, 2017 edition of the Delaware Business Court Insider, LRC partner Jim Green writes on the recent U.S. Supreme Court decision in TC Heartland LLC v. Kraft Foods Group Brands LLC and the impact it will have in reversing 30 years of patent venue law.
‘TC Heartland’ — High Court Reverses 30 Years of Patent Venue Law
By James S. Green Jr.
In a highly anticipated opinion that many observers expect will have a significant impact on patent litigation, the U.S. Supreme Court unanimously ruled that a domestic corporation resides only in its state of incorporation for purposes of patent venue. The ruling reverses long-standing Federal Circuit precedent that interpreted “resides” in the patent venue statute, 28 U.S.C. § 1400(b), to confer venue in nearly any forum where a defendant was subject to personal jurisdiction. Now, a defendant in a patent infringement action may be sued only in the defendant’s state of incorporation or where the defendant has “a regular and established place of business” and also committed acts of infringement.
Justice Thomas delivered the 8-0 opinion reversing and remanding the matter. The Supreme Court first traced the path of patent venue law back to the Judiciary Act of 1789 as “important context.” The Supreme Court analyzed how the first patent venue statute “was adopted to define the exact jurisdiction of the federal courts in actions to enforce patent rights, a purpose that would be undermined by interpreting it to dovetail with the general provisions relating to the venue of civil suits.” Early interpretations of the law held that “the patent venue statute alone should control venue in patent infringement proceedings.”
While Congress recodified the patent venue statute as § 1400(b), this version, which remains unaltered today, differs from the previous one in that it uses “resides” instead of “inhabit[s].” 1400(b) 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.” At the same time, Congress also enacted the general venue statute, § 1391, which defined “residence” for corporate defendants. That provision stated that “[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.” 28 U.S.C. § 1391(c).
The recent history of the patent infringement venue issue involves interplay between and meaning of the term “resides” in sections 1391 and 1400. 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).” There, 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.” Congress enacted § 1400(b) as a standalone venue statute and that nothing in the 1948 recodification evidenced an intent to alter that status. The fact that § 1391(c) by “its terms” embraced “all actions” was not enough to overcome the fundamental point that Congress designed § 1400(b) to be “complete, independent and alone controlling in its sphere.” Moreover, the Fourco Court also concluded that “resides” in the recodified version of § 1400(b) bore the same meaning as “inhabit[s]” in the pre-1948 version, meaning domicile, and relating to corporations, the state of incorporation only.
This landscape remained effectively unchanged until 1988 when Congress amended section 1391(c) by adding the clause “[f]or purposes of venue under this chapter…” at the beginning of the provision. Two years later, the Federal Circuit issued VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), which set the current precedent for venue until a few weeks ago. The court in VE Holding determined that Congress intended section 1391(c) to apply to section 1400(b) because sections 1391 and 1400 are part of Chapter 87, and that the meaning of the term “resides” should be interpreted consistently. VE Holding explained that the 1988 amendment broadened the 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.” This, the court reasoned, evinced the legislature’s intent to expand jurisdiction since Fourco.
Practically, this broad reading of “resides” affected plaintiffs’ venue choices in patent infringement over the past 30 years. Defendants were subject to jurisdiction almost anywhere they conducted business, leading to high-volume patent filings in certain jurisdictions. For instance, of the 4,520 patent complaints filed in 2016, approximately 36 percent were filed in the Eastern District of Texas, followed by 10 percent in the District of Delaware.
In the underlying case, the accused infringer was TC Heartland, an Indiana LLC headquartered in Indiana. The plaintiff Kraft Foods was a direct competitor and a Delaware LLC with its principal place of business in Indiana. Kraft Foods filed suit in the Delaware District Court alleging that TC Heartland’s liquid water flavor enhancer products infringed three of Kraft’s patents. TC Heartland 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, TC Heartland 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.
Now, for the TC Heartland Court, “the only question we must answer is whether Congress changed the meaning of §1400(b) when it amended §1391.” The decision seemed simple. The opinion did not directly address policy or the nationwide distribution of patent cases. The Court instead focused on interpreting the venue statutes and precedent. The Court explained that when Congress intends to effect a change of that kind, it ordinarily provides a relatively clear indication of its intent in the text of the amended provision. The current version of section 1391 does not contain any indication that Congress intended to alter the meaning of section 1400(b) as interpreted in Fourco. Justice Thomas wrote that Fourco definitively and unambiguously held that the word “reside[nce]” in § 1400(b) has a particular meaning as applied to domestic corporations: It refers only to the State of incorporation. Congress has not amended § 1400(b) since Fourco, and neither party asks us to reconsider our holding in that case.
The Court added that the 2011 revisions to section 1391 only further supported 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[.]””
While the boundaries of proper venue will continue to be defined, the ruling does not shield completely defendants from broader venue applications. A patent plaintiff may still file an infringement action where the defendant has “regular and established” business, under the second prong of section 1400, a clause that until now has had little application—the Supreme Court’s opinion alters 30 years of Federal Circuit precedent that interpreted “resides” to allow venue in fora where defendants were subject to personal jurisdiction. With TC Heartland, Defendants now only are subject to jurisdiction for patent infringement actions (1) in the defendant corporation’s state of incorporation or (2) where the defendant has an established place of business and committed acts of infringement. To help with expected additional patent cases to be filed in this State where a large percentage of businesses are incorporated, the Delaware District Court already enlisted four visiting judges from the Eastern District of Pennsylvania.
Jim Green is a Partner at Landis Rath & Cobb, where his practice is focused on complex business litigation in Delaware State and Federal courts, ncluding 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 21, 2017 issue of the Delaware Business Court Insider. © 2017 ALM Media Properties. Further duplication without permission is prohibited.