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End of the Line for Forum-Shopping in Patent Infringement Cases?

Posted on Dec 8, 2015 in Articles

This article originally appeared in The Legal Intelligencer on November 25, 2015.

In the first half of 2015, an astonishing 44 percent of all new patent civil actions were filed with the Eastern District of Texas. Furthermore, in 2014, two judges in the Eastern District of Texas were assigned 23.7 percent of all new patent civil actions filed that year.

The above information is based on studies published by Lex Machina, a legal analytics company (see “2015 First Half Patent Case Filing Trends” and “2014 Patent Litigation Year in Review,” both available at lexmachina.com). Why such high numbers? Because the Eastern District of Texas has a reputation for being very patent plaintiff-friendly. It has apparently become the forum of choice for plaintiffs wanting to assert their respective patents. One defendant, however, is trying to curtail the ability to decide where a patent infringement case may be heard, and its position is gaining support.

In re TC Heartland LLC, 16-105 (Fed. Cir.), is a petition for writ of mandamus stemming from a patent infringement suit filed by Kraft Foods Group Brands LLC against TC Heartland LLC, a food sweetener manufacturer. Kraft, a Delaware corporation, filed the lawsuit in Delaware. TC Heartland, an Indiana corporation, moved to dismiss or transfer the action to Indiana. The petition for writ of mandamus was filed when TC Heartland’s motion was denied.

According to the petition, “Approximately 98 percent of [Kraft’s] claims arise from non-Delaware transactions and events.” TC Heartland filed the petition to dismiss or transfer the case based on improper venue. The two parties are in conflict over the jurisdictions of Delaware and Indiana. The results of the petition, however, could affect venue for patent infringement cases everywhere, including the Eastern District of Texas.

Venue in general is covered by 28 U.S.C. Section 1391, and 28 U.S.C. Section 1400 covers venue specifically for patent cases. The determination of venue for patent cases is currently based on the combined interpretation of both Sections 1391 and 1400—but this has not always been the case. There was a time (prior to 1988) when the two statutes were interpreted separately, and the concept of venue in patent cases was very different than it is today.

Prior to 1988, Section 1400 governed venue for patent infringement without being read in combination with Section 1391. More specifically, Section 1400 permitted an action for patent infringement to be brought in a judicial district where “the defendant resides, or where the defendant has committed act of infringement and has a regular and established place of business.” General venue statute Section 1391 permitted an action to be brought where a corporation “is doing business, and such judicial district shall be regarded as the residence of such corporation for venue purposes.” Thus, the definition of venue under Section 1391 did not require a defendant to be incorporated and/or located in the jurisdiction where the action was filed—merely “doing business” in that jurisdiction was sufficient enough to provide venue. The broader definition of venue under Section 1391 was not considered to be included in Section 1400, and therefore merely “doing business” was an insufficient basis to establish venue for patent infringement. The U.S. Supreme Court so held in Fourco Glass v. Transmirra Products, 353 U.S. 222 (1957).

Everything changed in 1988, however, when Congress amended Section 1391(c) as follows: “For purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside … in any judicial district in which [it] is subject to personal jurisdiction at the time the action is commenced.”

The new language of Section 1391(c) raised the question of whether Section 1391(c) and Section 1400 were now to be read together. Was the definition of “residence” under Section 1391 to be read into Section 1400? Did the revision to Section 1391(c) mean that patent infringement venue could now be established merely based on where a corporation was doing business (without regard to whether the corporation was incorporated or located in a jurisdiction)? The U.S. Court of Appeals for the Federal Circuit tackled this question in VE Holding v. Johnson Gas Appliance, 917 F. 2d 1574 (Fed. Cir. 1990), and reasoned as follows: “It is axiomatic that statutory interpretation begins with the language of the statute. If … the language is clear and fits the case, the plain meaning of the statute will be regarded as conclusive.”

Because Section 1391(c) was changed to read, “For purposes of venue under this chapter” and Section 1391(c) and Section 1400 are under the same chapter, the Federal Circuit concluded that “1391(c) expressly reads itself into the specific statute, 1400” and that “Congress did intend to change the scope of venue under 1400.” Thus, the VE Holding decision created venue merely by an infringing act occurring in a judicial district.

After the VE Holding decision, plaintiffs were left with many more options for where they could establish venue. As a result, so-called “forum-shopping” substantially increased to the current levels reflected by the figures at the beginning of this article.

In the Federal Courts Jurisdiction and Venue Clarification Act of 2011, the language of Section 1391(c) was repealed and a new Subparagraph (a) was added. The language, “For purposes of venue under this chapter,” from Subsection (c) was replaced with the language, “Except as otherwise provided by law” in Subsection (a).

It is against this background that TC Heartland filed its petition for writ of mandamus, in an effort to overturn the VE Holding decision. In its petition, it argued as follows: “The sole legislative report on the 2011 act … clearly states that ‘new paragraph 1391(a)(1) would follow current law in providing the general requirements for venue choices, but would not displace the special venue rules that govern under particular federal statutes.'”

TC Heartland is thus asserting that Section 1400 is not to be interpreted based on the language of Section 1391.

The Electronic Frontier Foundation (EFF) has weighed in with an amicus brief supporting TC Heartland’s petition. EFF argued that the present situation cannot remain: “It is highly unlikely that Congress would have enacted a venue statute that would have led to one of the worst, most notorious situations of forum-shopping in recent history. But VE Holding Corp. … construed 28 U.S.C. Section 1400(b) to permit venue in just about any court of the patent owner’s choosing.”

EFF concluded: “Congress did not intend for patent owners to be able to sue in any district in the country, no matter how tenuous the links the purported infringer has to the district. Amici ask that this court restore balance in patent litigation.”

Google, eBay, Macy’s and other companies joined together and also filed an amicus brief in which they stated as follows: “The question here is whether the applicable venue statutes, properly interpreted, restrict … forum-shopping in patent cases. They do.”

Therefore, the brief concluded, the two venue statutes should be read separately.

Kraft filed a 40-page brief in response to TC Heartland’s petition. Kraft acknowledged the concerns of forum-shopping in the Eastern District of Texas, but stated as follows: “Those concerns do not justify—much less compel—this court doing a 180-degree turn, abandoning decades of its own venue and jurisdictional law, and adopting by judicial fiat a dramatically defendant-centric patent litigation regime that would require one to sue a nationwide infringer in either its home court or in all 50 states.”

Congress is also weighing in on forum-shopping. A bill currently being debated in Congress, HR 9, provides (among other issues) language regarding venue for patent infringement cases. If signed into law, bringing suit in the Eastern District of Texas may become more difficult.

The decision on TC Heartland’s petition may have a significant effect on how venue in patent infringement cases is determined.

– by Lawrence Ashery

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