Patent Litigation Venue: U.S. Supreme Court Delivers a Blow Deep in the Heart of Texas

By: Brian Johnson

TC Heartland LLC v. Kraft Foods Group Brands, LLC, 581 U.S. ____  (2017)

Issue:

Where does proper venue lie for a patent infringement lawsuit brought against a domestic corporation in light of the general federal venue statute, 28 U.S.C. § 1391, and the patent venue statute, 28 U.S.C. 1400(b) each set forth below:

28 USC § 1391

(a)  Applicability of section. 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; and

2. the proper venue for a civil action shall be determined without regard to whether the action is local or transitory in nature.

(b) Venue in general. A civil action may be brought in–

1. a judicial district in which any defendant resides, if all defendants are residents of the State in which the district is located;

2. a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated; or

3. if there is no district in which an action may otherwise be brought as provided in this section, any judicial district in which any defendant is subject to the court’s personal jurisdiction with respect to such action.

(c)  Residency. For all venue purposes—

. . .

2. an entity with the capacity to sue and be sued in its common name under applicable law, whether or not incorporated, shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question and, if a plaintiff, only in the judicial district in which it maintains its principal place of business;

28 U.S.C. 1400(b)

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.

Abstract

In an 8-0 decision (with Justice Gorsuch abstaining), the United States Supreme Court issued its May 22, 2017, opinion in TC Heartland LLC v. Kraft Foods Group Brands, LLC, No. 16-341, 2017 U.S. Lexis 3213 (May 22, 2017), clarifying the proper rule for determining venue in U.S. patent litigation brought against any domestic corporation.[1]   Ultimately, the Court determined that the question centers on a proper interpretation of only 28 U.S.C. 1400(b) and jurisprudence interpreting the patent venue statute (namely,  Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 226 (1957), which the Court considered controlling even in light of the 2011 amendments to the general venue statute).  With precedent directly interpreting the patent venue statute and with no clear legislative intent to change that precedent, the Court determined that “as applied to domestic corporations, ‘residence’ in Section 1400(b) refers only to the State of incorporation.”

In the Court’s view, this result is particularly suitable when, pursuant to one of the 2011 amendments to Section 1391(a), the general federal venue statute controls the issue for most federal litigation “[e]xcept as otherwise provided by law.”  The patent venue statute falls within that exception and must be analyzed by precedent cases interpreting Section 1400, without resorting to broader portions of the general federal venue statute.  See, TC Heartland, *13-14, slip op. at 7-8.

Factual Background

Kraft Foods Group Brands, LLC (“Kraft”) is a Delaware corporation with its principal place of business in Northfield, Illinois.   Kraft sued TC Heartland, LLC (TC Heartland) for patent infringement in the District of Delaware, seeking redress for TC Heartland marketing “liquid water enhancer products” (e.g., energy boosting water drinks, electrolyte enhanced water, and mixes for the same) that allegedly infringed Kraft’s patents in this market sector.

As summarized by the district court at Kraft Foods Grp. Brands LLC v. TC Heartland, LLC, 2015 U.S. Dist. LEXIS 106515, *2-4, (D. Del. Aug. 13, 2015), TC Heartland is a limited liability company organized in the State of Indiana.  TC Heartland develops, tests and manufactures its products at facilities in both Carmel and Indianapolis, Indiana. TC Heartland submitted discovery responses explaining that it “is not registered to do business in Delaware and has no office, property, employees, agents, distributors, bank accounts, or other local presence in Delaware.” (court docket citations omitted).  TC Heartland also claimed that it had not entered into any supply contracts in Delaware and that it did not call on any accounts in Delaware to solicit sales.

TC Heartland admitted, however, that it shipped orders of its products directly to Delaware under contracts with two national accounts that are headquartered outside of Delaware.

TC Heartland moved to dismiss the case or transfer venue to the Southern District of Indiana because venue in the patent litigation was improper in Delaware.

Legal Proceedings

TC Heartland requested a transfer of venue upon the legislative history of the general federal venue statute 28 USC 1391.   The background of this statute framed the proceedings in district court as well as the later appeals:

In 1988, Congress amended Section 1391(c). In doing so, it added the language “[f]or purposes of venue under this chapter” before the beginning of the rest of Section 1391(c)’s text.  Those words led to the practice of referring back to the general venue statute in determining the meaning of “residence” in the patent venue statute after the Federal Circuit in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990) held that Section 1391(c) should govern the meaning of “resides” in Section 1400(b). Id. at 1579-84.

Kraft Foods Grp. Brands LLC v. TC Heartland, LLC, Civil Action No. 14-28-LPS, 2015 U.S. Dist. LEXIS 106515 at *23 (D. Del. Aug. 13, 2015).   The language “for purposes of venue under this chapter” was critical in decisions allowing the general venue statute to apply to the patent venue statute which is, of course, also in Chapter 28 of the U.S. code of laws.  After the Federal Circuit decision in the VE Holding case, patent litigation relied upon the general venue statute to force defendants into a broader range of venues, particularly for companies engaged in commerce nationwide.

The district court noted that the 2011 amendments to the general venue statute changed the language “for purposes of venue under this chapter” to new language stating “[f]or all venue purposes,” but also recognized that Congress altered Section 1391(a) to include the phrase “except as otherwise provided by law.”  Id.  TC Heartland argued that these changes resulted in the fact that Section 1391(c) no longer provided for the definition of the term “resides” in the patent venue statute because the new language was not in effect when the VE Holding case was decided.

The District Court of Delaware denied the change of venue motion because the district court considered the 2011 amendments to the general venue statute to broaden its applicability and even with the change of language, section 1391(c) continued to provide the definition of the term “resides” in Section 1400(b) as construed in the VE Holding case.

TC Heartland petitioned the Federal Circuit for a writ of mandamus to direct the District of Delaware to either dismiss or transfer the patent infringement suit.  The Federal Circuit denied the petition upon the VE Holding case being “a settled precedent for over 25 years.”  In re TC Heartland LLC, 821 F.3d 1338, 1341 (Fed. Cir. 2016).  With VE Holding providing an avenue to define the statutory term “residence” in the patent venue statute according to language from the general venue statute, the Federal Circuit refused to use a more specific patent venue definition of the term “residence” that would rely exclusively upon the above noted Fourco case.

TC Heartland appealed the Federal Circuit decision denying relief to the United States Supreme Court.

The implications of dramatically changing the proper analysis for patent venue were clearly noticed by the United States patent bar.  The American Intellectual Property Law Association (AIPLA) filed an amicus brief in the matter and described the real issue as being less about venue and more about forum shopping in patent litigation.  “Cloaked in a strained argument about venue, Petitioner’s concerns about forum shopping are the result of a perfect storm: changes in the law, court procedures, and market behavior.”  Brief of Amicus Curiae American Intellectual Property Association In Support of Neither Party, 581 U.S. ____, 2017 U.S. Lexis 3213 at 3.   The AIPLA acknowledged that certain trends in federal district court patent filings, such as those in the Eastern District of Texas, have “catapulted that district into the spotlight for patentees.”  AIPLA, amicus brief at 14.  Even so, the AIPLA argued that even the stricter interpretation of “residence” for patent venue purposes would still result in further consolidation of patent cases in preferred patent districts (i.e., those where certain types of companies generally are found.)”  Id. at 17-18.  The AIPLA ultimately concluded that the patent venue question should continue to be dictated by the VE Holding case with the term “residence” for domestic corporations, being sued for patent infringement, determined by the status quo process of referring back to the general venue statute.

A change in approach to determining patent litigation venue placed the U.S. Supreme Court in a position to halt, or at least redirect, the recent forum shopping phenomenon that has resulted in certain districts, namely the Eastern District of Texas, becoming a “’plaintiff-friendly’ civil litigation forum with a short track to trial.”  Id. at 15.  The ramifications of the TC Heartland decision, therefore, would be crucial for TC Heartland’s matter, but also acutely felt in popular patent litigation forums like the Eastern District of Texas.

Summary of the Supreme Court Opinion

The opinion of the Court followed the same outline of the analyses described above—determining whether the patent venue statute, as interpreted in the Fourco decision for the corporate residency issue, should stand independently or whether the patent venue statute should refer back to jurisprudence based upon the general federal venue statute as interpreted by the VE Holding case.   In the mix, the Court considered the 1988 and 2011 amendments to the general venue statute as well as the implications of those amendments on the relevance of the Fourco and VE Holding cases as precedents.

The Supreme Court answered the question directly and succinctly.  “We reverse the Federal Circuit. In Fourco, this Court 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.”  TC Heartland LLC v. Kraft Foods Group Brands, LLC, No. 16-341, 2017 U.S. Lexis 3213 *13, slip op. at 7-8 (May 22, 2017).

The court framed the issue as one of legislative intent.  “The only question we must answer is whether Congress changed the meaning of §1400(b) when it amended §1391.  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. (citations omitted) . . .   The current version of §1391 does not contain any indication that Congress intended to alter the meaning of §1400(b) as interpreted in Fourco.” Id at *13, slip op. at 8.

In light of all the wrangling over the amendments to Section 1391 and Section 1400 for venue residency considerations, the Court mainly focused on the fact that “the current provision [of the general venue statute Section 1391] includes a saving clause expressly stating that it does not apply when “otherwise provided by law.” . . . Fourco’s holding [defining residency for patent venue] rests on even firmer footing now that §1391’s saving clause expressly contemplates that certain venue statutes may retain definitions of “resides” that conflict with its default definition. In short, the saving clause makes explicit the qualification that this Court previously found implicit in the statute.”  Id. at *15, slip op. 9.

After considering all of the above, the Court held that “[a]s applied to domestic corporations, “reside[nce]” in Section 1400(b) refers only to the State of incorporation.”  Id. *16, slip op. at 10.

Further Considerations

The TC Heartland opinion is a seismic shift away from the current trend of forum shopping for patent litigation.   Research suggests that almost half of all new patent cases are filed in the Eastern District of Texas (http://fortune.com/2016/12/16/supreme-court-patent-venue), and this decision will inevitably change the dynamics in that jurisdiction.  Serving as local counsel in patent litigation cases filed in the Eastern District of Texas has been a booming cottage industry upon which many practitioners in that area exclusively rely.

As noted in the AIPLA brief, however, the new rule will also cause patent litigation to coalesce in certain geographic areas according to respective subject matters.  For example, the District of New Jersey is home to 14 of the world’s 20 largest pharmaceutical companies, so New Jersey will remain a forum of choice for patent litigation in that industry.  See AIPLA amicus brief at 15.  It will be no surprise if the electronics industry sees a greater percentage of filings in the Northern District of California, and similar trends are likely in Delaware because so many corporations are organized there.

The TC Heartland decision may have dismantled the grip that Eastern District of Texas has gained as a patent litigation forum.  Still, however, the forum shopping issue will not go away.   It will simply be revamped as a residence shopping decision for domestic corporations planning for possible infringement defenses.

[1] The Court specifically noted that the implications of venue for foreign corporations are not addressed in this case.