May 23, 2017

TC Heartland LLC v. Kraft Foods Group Brands LLC: Supreme Court Tightens Venue Rules for Patent Cases

In a unanimous 8-0 decision, the Supreme Court ruled on May 22, 2017, in TC Heartland LLC v. Kraft Foods Group Brands LLC that for purposes of venue in patent-infringement litigation, a U.S. corporation “resides” only in the state where it is incorporated. This ruling portends a potentially significant change in patent litigation practice, including the waning of patent litigation in the Eastern District of Texas and the potential increase in patent litigation in venues such as the Northern District of California and District of Delaware, where many companies are incorporated. The Court’s decision, however, left open some potentially important questions, including where to sue non-corporate business entities and foreign corporations.

Venue in patent cases 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 1957 the Supreme Court held that for purposes of §1400(b) a domestic corporation “resides” only in its state of incorpo­ration, and that the broader meaning of “resides” in the general venue statute, 28 U. S. C. §1391(c), was not incorporated into §1400(b).  See Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 229 (1957). The Supreme Court in TC Heartland reaffirmed that rule.

In 1990, the Federal Circuit had held based on a 1988 amendment to the general venue statute 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).  The Federal Circuit relied on a definition in the general venue statute, 28 U.S.C. § 1391(c), which now reads (after a further amendment): “For all venue purposes,” a business-entity defendant “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.”  28 U.S.C. § 1391(c)(2).  Since then, courts in patent cases have interpreted “resides” in accordance with the definition in Section 1391(c).

In TC Heartland, Kraft sued TC Heartland for patent infringement in the District of Delaware. TC Heartland was a limited liability company (LLC) organized under Indiana law and headquartered in Indiana, but shipped the allegedly infringing products into Delaware and therefore was subject to personal jurisdiction in Delaware. TC Heartland moved to transfer venue to Indiana, relying on Fourco and arguing that it did not reside in Delaware and that it had no “regular and established place of business” there either. The district court denied the motion, relying on the broader definition of “residence” in §1391(c) and the Federal Circuit’s VE Holding precedent. The Federal Circuit denied TC Heartland’s petition for mandamus, holding that because TC Heartland resided in Delaware under §1391(c), it also resided there for purposes of §1400(b). In particular, the Federal Circuit concluded that the statutory amendments to §1391(c) supplied the definition of “resides” in §1400(b). The Supreme Court agreed in December 2016 to decide the issue.

The question before the Supreme Court in TC Heartland was whether Congress changed the meaning of “resides” in the patent-venue statute when it amended §1391(c). The Supreme Court held that it did not. The Supreme Court explained that in Fourco, it had “definitively and unambiguously” held that the word “resides” in §1400(b) is limited to a domestic corporation’s state of incorporation, and that since Fourco, Congress has never amended §1400(b). Examining Congress’ amendments to §1391(c) since Fourco, the Court did not see any indication in §1391(c)’s text showing that Congress had intended to also change the meaning of §1400(b). Although §1391(c) has a default rule that applies “[f]or all venue purposes,” the version of §1391(c) at the time of Fourco had a similar rule—“for venue purposes.” The Supreme Court did not agree that Congress had intended to change the Court’s conclusion in Fourco by adding “all” to an “already comprehensive provision.” Finally, the Supreme Court noted that when §1391(c) was amended in 2011, there was no indication that Congress had implicitly ratified the Federal Circuit’s VE Holding interpretation, and in fact, the 2011 amendment strengthened Fourco’s holding by adding a saving clause “[e]xcept as otherwise provided by law” expressly contemplating narrower venue statutes with definitions that conflict with the “default” definition in § 1391(c).

The Federal Circuit’s now-overturned VE Holding decision has been widely credited with the rise of patent litigation in districts such as the Eastern District of Texas, where almost half of all patent suits have been filed in recent years. After TC Heartland, the choice of available venues will be much more limited. Litigation in jurisdictions such as the Eastern District of Texas, which relied on the broad definition of “residence,” should wane. By contrast, patent litigation in other jurisdictions may increase, such as Delaware (because many companies are incorporated there) and California (home to many technology companies). 

The Supreme Court did not expressly address the impact of TC Heartland on pending cases. Venue is a defense that is subject to waiver, however. See Fed. R. Civ. P. 12(h)(1). Corporations with pending patent cases in venues where the corporation does not reside should consider whether they still have an opportunity to file motions to dismiss or motions to transfer. 

The Supreme Court’s TC Heartland ruling is limited to the question of venue in patent-infringement cases for domestic corporations. In particular, the decision expressly declines to address venue rules for unincorporated companies like LLCs and partnerships. The Court also declined to decide whether foreign corporations could raise the same venue objection; a 1974 decision, Brunette Machine Works, Ltd. v. Kockum Industries, Inc., 406 U.S. 706 (1972), suggests that they may not be able to do so, but the Court declined to decide whether Brunette remains good law. 

The decision also does not address actions for a declaratory judgment of non-infringement or invalidity, which are governed by the general venue statute, 28 U.S.C. § 1391(b), and therefore may be brought anywhere a corporate defendant is subject to personal jurisdiction.

To learn more about the TC Heartland case, and how it might affect you, please contact any of the attorneys listed below to get in touch with Goodwin’s nationally recognized IP Litigation practice.