DBCI: Jim Green Revisits ‘TC Heartland’ One Year Later

In the April 11, 2018 edition of the Delaware Business Court Insider, LRC partner Jim Green provides his commentary in A Year Later: The Impact in Delaware From the US Supreme Court’s ‘TC Heartland’.

Last June, Green authored ‘TC Heartland’ — High Court Reverses 30 Years of Patent Venue Law for DBCI, examining the 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.

Now, almost one year later, Green looks back at the decision that upended what had been the status quo on the issue of where venue lies in patent infringement actions, and takes a look at the impact of TC Heartland. Recently, Green attended the program, “We’ve Been Wrong for 30 Years? TC Heartland and its Implications for Patent Law and Practice” presented by the Center for Technology, Innovation & Competition (CTIC) at the University of Pennsylvania Law School. The panel discussion, moderated by R. Polk Wagner, Professor of Law at UPENN, included The Honorable Leonard P. Stark, Chief Judge of the U.S. District Court for the District of Delaware and presiding judge in the TC Heartland case, and James W. Dabney, an attorney for TC Heartland.

A Year Later: The Impact in Delaware from the US Supreme Court’s TC Heartland

By James S. Green Jr.

Almost one year ago, the United States Supreme Court decided the landmark case of TC Heartland LLC v. Kraft Foods Group Brands LLC, 137 S. Ct. 1514 (May 22, 2017).  The decision upended what had been the status quo on the issue of where venue lies in patent infringement actions.  The author has written before for the Delaware Business Court Insider about a looming potential for a restriction on where plaintiffs may bring patent infringement lawsuits, first in 2016 when the Federal Circuit Court of Appeals acted on a writ of mandamus and issued its opinion on the issue, maintaining a broad interpretation of the applicable venue statutes, and again when the Supreme Court first issued TC Heartland and overruled a 26-year-old precedent of the Federal Circuit.  The question had always been whether a Supreme Court ruling would end an era during which, for certain periods, over 40% of all patent infringement suits were being brought in the Eastern District of Texas.  Now, a year later, there is evidence that this concentration of a single type of litigation in a single district is being redistributed among other historically significant patent infringement litigation venues, including the District of Delaware.

By way of background, in TC Heartland the U.S. Supreme Court unanimously ruled that a domestic corporation resides only in its state of incorporation for purposes of patent venue.  The long-standing Federal Circuit precedent that TC Heartland reversed, VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), had 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, according to the general venue statute, 28 U.S.C.

§ 1391, which defined “residence” for corporate defendants. In interpreting the terms residence and resides, VE Holding, according to the Supreme Court, improperly relied on a 1988 amendment to section 1391(c), which added the clause “[f]or purposes of venue under this chapter…” at the beginning of the provision that substantively states: “[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.”

The TC Heartland Court thus 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 the seminal Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 228-29 (1957). 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, thus Fourco remains precedential.

It is undeniable that TC Heartland has affected where patent infringement suits are being litigated.  According to data mined from Docket Navigator, in the ten months before the Supreme Court issued its opinion, plaintiffs filed over 3,800 patent infringement suits. Approximately 34% of them were filed in the Eastern District of Texas.  By comparison, the nine other most popular federal districts, including the District of Delaware (12%), the Central District of California (6%), the Northern District of California, the Northern District of Illinois, and the District of New Jersey (each at 4%), together accounted for 38% of all patent filings. All other federal districts received the remaining 28% of the cases.

Now, again, 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.  In the corresponding ten months following TC Heartland, the effect on the distribution of patent infringement filings is notable.  With a comparable number of patent filings across all federal districts in the ten months pre- and post-TC Heartland—3,858 before versus 3,677 after—plaintiffs initiated 886 fewer patent cases in the Eastern District of Texas, equating to an approximate 23% decline.  Delaware on the other hand, has seen the greatest uptick in filings, equating to an approximate 8% increase.  Further, as compared to the period before TC Heartland, patent infringement suits also increased in each of the Central District of California, the Northern District of California, the Northern District of Illinois, and the District of New Jersey.

Taking a closer look at the District of Delaware in particular, where the majority of the “Hatch-Waxman” patent-litigation is filed and litigated, it is interesting to note that the increase in filings is attributable to regular—as opposed “Hatch-Waxman”—patent infringement cases.   Generally, the Hatch-Waxman Act permits a branded drug company to sue a generic drug company before any traditional infringing acts have occurred, when the generic drug company only seeks FDA approval to sell a copy of the patented drug.  In particular, the rate of such Hatch-Waxman filings in Delaware have remained steady in the wake of TC Heartland, where the non-Hatch-Waxman cases have more than doubled in Delaware as a direct result of the Supreme Court’s decision.  However, it is not surprising TC Heartland has had less of an impact on Hatch-Waxman litigation, where district courts have struggled to apply section 1400.  For instance, Chief Judge Stark commented on the problem in a recent opinion, observing “there appears to be a complete mismatch between the backward-looking nature of the patent venue statute and the forward-looking nature of Hatch-Waxman litigation” and thus section 1400 “creates an almost impenetrable problem in the particular context of Hatch-Waxman patent litigation.” Bristol- Myers Squibb Company v. Mylan Pharmaceuticals Inc., 2017 WL 3980155 (D. Del. Sept. 11, 2017).  As a result, while TC Heartland re-established the location where the majority of patent infringement suits are filed, issues remain in the context of Hatch-Waxman litigation.

Jim Green is a Partner at Landis Rath & Cobb, where his practice is focused 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 green@lrclaw.com.

Reprinted with permission from the April 11, 2018 issue of the Delaware Business Court Insider. © 2018 ALM Media Properties. Further duplication without permission is prohibited.