High Court to Hear Potential Landmark Case About Patent Venue

Posted on Mar 22, 2017 in Articles

This article originally appeared in The Legal Intelligencer on March 21, 2017.

In a patent litigation suit, is venue ­established where the corporation was incorporated or where the corporation does business? This question, which currently raises one of the thorniest issues in patent law, will capture the spotlight this month in oral argument before the U.S. Supreme Court.

The case is TC Heartland v. Kraft, No 16-341, and the issue comes down to how the word “resides” is interpreted in the patent venue statute.

The patent venue statute, 28 USC 1400, states that an action for patent infringement “may be brought … where the defendant resides,” but in the past 60 years the meaning of the word “resides” has changed. In 1957, the U.S. Supreme Court held that “resides” means the place where a business was incorporated (see Fourco Glass v. Transmirra Products , 353 U.S. 222 (1957)). Then, in 1988, the general venue statute (28 USC 1391) was amended to state that the definition of “resides” was, “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.” The amendment was significant because the general venue statute and the patent venue statute are both in the same chapter of the U.S. Code (chapter 87). Therefore, based solely on the language of the 1988 amendment, the definition of “resides” in the general venue statute should have applied to the patent venue statute.

In fact, in VE Holding v. Johnson Gas Appliance , 917 F. 2d 1574 (Fed. Cir. 1990), as a result of the 1988 amendment to the general venue statute, the word “resides” in the patent venue statute was interpreted to mean the place where “a defendant is subject to the court’s personal jurisdiction”—which is anywhere a corporation does business. In today’s world of modern business and internet connectivity, many companies sell their products and services throughout the United States. The practical effect of the VE Holding decision was to allow any company conducting business in interstate commerce to be sued in virtually any of the 50 states. As a result, many patent ­infringement plaintiffs choose to file their claims in the Eastern District of Texas because of its “patent plaintiff friendly” reputation. Lex Machina reports that 36.4 percent of all patent litigation cases filed in 2016 were filed in the Eastern District of Texas. To put this number into context, the second most popular jurisdiction for patent cases in 2016 was the District of Delaware, with slightly over 10 percent of the cases filed.

In 2011, 28 USC 1391 (the general venue statute) was modified again, and the words “for purposes of venue under this chapter” were removed from the statute. The issue raised by this modification is whether the definition of “resides” in the general venue ­statute still applies to the patent venue statute. In other words, as a result of the amendment, should the definition of “resides” in the patent venue statute not be interpreted to have the same meaning as set forth in the general venue statute? Specifically, is venue in patent litigation now based (from the 1957 Fourco decision) solely on where a corporation is incorporated?

At least TC Heartland believed that venue should now be based solely on the place of incorporation, and it filed a petition for writ of mandamus with the U.S. Court of Appeals for the Federal Circuit to have its suit moved on that basis. The Federal Circuit, however, disagreed. In denying the petition, the court noted that the legislative history of the amendment to the general venue statute “repeatedly recognized that VE Holding is the prevailing law.”

TC Heartland filed a petition for writ of certiorari with the U.S. Supreme Court, which was granted in December of last year. Oral argument begins shortly. TC Heartland argued in its brief that the language in the patent venue statute, “where the defendant resides” must be interpreted independently of the general venue statute after the general venue ­statute’s 1988 amendment. But in its responsive brief, Kraft argued that the general venue statute still provides a definition of residence “for all venue purposes.” Kraft also discouraged the Supreme Court from changing the definition of “resides” in the patent venue statute, because “Congress is far better positioned to reform venue appropriately.”

A slew of amicus briefs already have been filed, some opposed to the lower court’s decision in this case, and one in particular supporting it. The Electronic Frontier Foundation (EFF) argues for the more restrictive definition of “resides,” ­stating: “Venue law is intended to promote convenience for the parties and fairness in the adjudicatory system. But on the contrary, the Federal Circuit’s decision enabling broad patent venue exacerbates unfairness and inconvenience. That decision should be reversed.” Furthermore, the American Bar Association (in its amicus brief) writes: “The VE Holding court was wrong to incorporate the general venue statute into the special patent venue statute, and the Federal Circuit erred in repeating that mistake again here. The special patent venue statute has not changed since Fourco. The Federal Circuit’s decisions ignore established canons of interpretation that dictate that specific provisions govern over more general statutes.” The American Intellectual Property Law Association (AIPLA), however, wants the U.S. Supreme Court to affirm the lower court’s decision, stating: “AIPLA agrees with petitioner that forum shopping in patent litigation should be minimized; however, a return to the patent venue doctrine under Fourco is not the answer. Patent law has benefitted from decisions across the breadth of the federal judiciary. A return to the Fourco rule could have significant unintended consequences: further consolidation of patent cases in the preferred patent districts (i.e., those where certain types of companies generally are found).”

Congress is well aware of the patent venue issue that will be addressed when the U.S. Supreme Court publishes its opinion in TC Heartland. While several ­congressional bills have tried to change the patent venue statute, all have failed to pass. In a speech on Feb. 16, U.S. Sen. Orrin Hatch, R-Utah, noted that the U.S. Supreme Court is “currently examining the issue” but “no matter what the court does, we’re likely going to need follow-on legislation to prevent future forum-shopping and to ensure that litigants have a meaningful connection to the site of the suit.”

Thus, the intellectual property ­community will be looking with extreme interest at how the U.S. Supreme Court will rule in this case. The issues of forum-shopping and venue have attracted center stage as the courts and Congress have attempted to balance the numerous issues in this complicated subject. The decision in TC Heartland may be a critical component of the jurisprudence that ensures fair adjudication of patent infringement suits.

– By Lawrence E. Ashery