December 16, 2016

Is the Eastern District of Texas’ Reign as the Busiest Patent Court in the Country About to End?

The Supreme Court has agreed to hear argument in a case—TC Heartland LLC v. Kraft Food Brands Group LLC, No. 16-341—that may lead to significant restrictions on where patent infringement cases can be filed. The Federal Circuit has held for 25 years that the patent venue statute allows patent infringement lawsuits to be filed in any district where a defendant company is subject to personal jurisdiction. Companies that make products and services available to consumers nationwide or through the internet, under the Federal Circuit rule, have been subject to patent lawsuits in virtually any federal district court. The Supreme Court will decide by June 2017 whether venue is instead much more restrictive, limiting patent lawsuits to the states where a defendant is incorporated or has a “regular and established place of business” where infringement occurred.

The underlying patent infringement lawsuit was brought by Kraft Food Brands Group, LLC (Kraft) against TC Heartland LLC (Heartland) in the District of Delaware. The defendant, Heartland, had virtually no ties to Delaware. Heartland is a limited liability company organized under the laws of Indiana and with its principal place of business in Indiana. Heartland was not registered to do business in Delaware and had no office, property, employees, agents, distributions, accounts, or other local presence in Delaware. Heartland argued that it had not entered into any supply contracts in Delaware nor solicited sales in Delaware. Its only connection to Delaware was limited to two contracts with “national accounts” whereby approximately 2% of the accused products were shipped directly to Delaware. In light of those facts, Heartland moved to transfer the case to Indiana, arguing, among other things, that Delaware was not the appropriate venue for the case.

In patent cases, venue is governed by a specific statute, 28 U.S.C. § 1400(b), which provides that patent infringement cases may be brought in either (1) the judicial district where the defendant “resides” or (2) where the defendant has committed acts of infringement and has a regular and established place of business. 28 U.S.C. § 1400(b). In 1990, the Federal Circuit held that a corporate defendant “resides” in any judicial district where the defendant is subject to personal jurisdiction. See VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.3d 1574 (Fed. Cir. 1990). In reaching its conclusion in VE Holding, the Federal Circuit relied on the general venue statute, 28 U.S.C. § 1391(c), which provided at the time: “For purposes of venue under this chapter [which includes § 1400(b)], 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.”  28 U.S.C. § 1391(c) (1988). 

The district court determined that Heartland “resided” in Delaware, because the shipment of 2% of the accused products to Delaware was enough to subject Heartland to personal jurisdiction.  Heartland petitioned the Federal Circuit for a writ of mandamus to direct the district court to dismiss or transfer the case to Indiana. See In re TC Heartland LLC, 821 F.3d 1338 (2016).  The Federal Circuit panel denied the petition, setting the stage for Heartland’s petition for certiorari to the Supreme Court 

The central issue before the Supreme Court is whether the Federal Circuit wrongly decided in VE Holding that the general venue provision of § 1391(c) can be used to define where a business entity “resides” for purposes of the specific patent venue provision of § 1400(b). Most notably, 30 years before VE Holding, the Supreme Court held that the specific venue patent provision of § 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).” Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 229 (1957). In VE Holding, the Federal Circuit determined that Fourco was no longer applicable because Congress had changed § 1391(c) in ways that made it now applicable to patent cases. Until now, however, the Supreme Court has not weighed in on whether Fourco remains good law. 

If the Supreme Court determines that the subsequent revisions to the venue provisions do not affect the interpretation laid down in Fourco, the choice of available venues in patent cases will be significantly limited. Cases filed in jurisdictions such as the Eastern District of Texas will wane, and be absorbed, at least in part, by an increase in patent filings in jurisdictions such as Delaware, given the number of companies incorporated under Delaware law. 

Briefs supporting Heartland (and a more restrictive view of venue) are due February 6, absent an extension. Briefs supporting Kraft (and the Federal Circuit’s view of venue) are due March 8, also absent an extension. The case will likely be argued in March or April 2017. A decision by the Supreme Court is expected in June 2017. 

If you are interested in learning more about the Heartland case or submitting amicus briefs, please contact any of the attorneys listed below to get in touch with Goodwin’s nationally recognized IP Litigation and Appellate Litigation practices.