Background of the Case:
Kraft brought a patent infringement suit against TC Heartland in the District of Delaware. Kraft is incorporated in Delaware and has its principal place of business in Illinois. TC Heartland is incorporated and headquartered in Indiana. TC Heartland sought to transfer the case to the Southern District of Indiana, invoking the patent infringement venue provision under 28 U.S.C. § 1400(b), which provides that “[a]ny 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” (emphasis added). The District Court denied the motion and the Federal Circuit denied a petition for a writ of mandamus, concluding that recently amended general venue statute 28 U.S.C. § 1391 supplies the definition of “resides” in § 1400(b). § 1391 provides that “[e]xcept as otherwise provided by law” and “for all venue purposes,” a corporation “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” (emphasis added). Accordingly, the Federal Circuit held that the District of Delaware was a proper venue because TC Heartland does ship the allegedly infringing products into Delaware and the suit arose from such “contacts” that the defendant formed with the state, thereby establishing personal jurisdiction under the doctrine of minimum contacts.
Supreme Court Reverses the Federal Circuit:
Justice Thomas delivered the majority opinion of the Court where all other justices joined, except Justice Gorsuch who took no part in the consideration or decision of the case.
The Court held that § 1400(b) refers only to the state of incorporation, reversing the judgment of the Federal Circuit. In reaching this conclusion, the Court walked through the history of the two venue provisions at issue and two key Supreme Court precedents – namely, Fourco Glass Co. v. Transmirra Products Corporations, 353 U.S. 222 (1957) and Stonite Products Company v. Melvin Lloyd Company, 315 U.S. 561 (1942).
In 1897, Congress first enacted a patent specific venue statute, § 1400(b)’s predecessor. The Court addressed the scope of the statute in Stonite. In that case, the Court held that the patent venue statute constituted the exclusive provision controlling venue in patent infringement proceedings. This meant that other “general” venue statutes should not supplement or modify the patent venue statute, and that the patent venue statute alone should determine the venue for patent infringement proceedings. Later, in 1948, Congress recodified the patent venue statute as the current version, § 1400(b).
In 1948, however, Congress did something else. Congress also enacted the general venue statute § 1391, which defined “residence” for corporate defendants “for venue purposes.” The Court addressed the interplay between § 1400(b) and § 1391 in Fourco. In that case, the Court reaffirmed Stonite and held that § 1400(b) is the sole and exclusive provision controlling venue in patent infringement actions. Meaning, § 1391’s definition of “residence” does not apply to § 1400(b).
In 1988, Congress amended the general venue statute, § 1391, to provide that “[f]or 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.” In VE Holding Corporations v. Johnson Gas Appliance Company, 917 F.2d 1574 (1990), the Federal Circuit took the phrase “[f]or purposes of venue under this chapter” and held that § 1391 applied to the patent venue statute, § 1400(b), because the patent venue statute was under the same chapter. In 2011, Congress once again amended the general venue statute and adopted the current version of the § 1391. It now provided that “[e]xcept as otherwise provided by law,” § 1391 governs the venue statutes.
The TC Heartland Court points out that the Federal Circuit relied on VE Holding to hold that § 1391 does establish the definition for § 1400(b). Hence, the key issue before the Court was whether Congress intended to change the meaning of § 1400(b) when it amended § 1391. If this were true, then Fourco (and Stonite) would, in effect, be supplanted as the general venue statute would establish the meaning of “residence” within the patent venue statute.
The Court first emphasized that there must be a clear indication from the legislature when it intends to effect such an influential change. However, according to the Court, § 1391 does not evince such Congressional intent to alter the meaning of § 1400(b). In fact, the Court maintains that the current § 1391 evinces Congressional intent to keep § 1400(b) as a stand-alone provision not within the influence of § 1391 because it contains a saving clause expressly stating that § 1391 does not apply when “otherwise provided by law.”
Accordingly, the Court held that “residence” in § 1400(b) refers only to the State of incorporation and that amendments to § 1391 did not modify the meaning of § 1400(b) as interpreted in Fourco. Nonetheless, it is important to note that the TC Heartland Court only discussed domestic corporations, still leaving the question open for foreign corporations.
Implications:
First, the TC Heartland decision restricted or narrowed patent infringement venue after the VE Holding decision by the Federal Circuit. Following VE Holding, plaintiffs could bring patent infringement suits against defendants under the broader rule where “residence” under § 1400(b) was not restricted to places of incorporation but included a place where the defendant corporation is subject to personal jurisdiction, as defined by § 1391.
Second, under TC Heartland, “forum shopping” will be restricted since plaintiffs will have less option in choosing venues. Since 2014, data show that more than a third of patent suits filed since 2014 were brought in the Eastern District of Texas. Furthermore, more than 90% of patent suits filed in East Texas were filed by Patent Assertion Entities (PAEs), also known as “patent trolls” since they seek to monetize patents, instead of commercializing their patents. Why do “trolls” like the Eastern District of Texas so much? Factors include, but are not limited to, the district having a reputation for being a “fast docket,” for having judges and jurors who are unusually sympathetic to plaintiffs, or having judges who grant summary judgment in defendants’ favor at a rate about 50% of the national average. Under TC Heartland, many plaintiffs will have more difficulty in establishing the proper venue in the Eastern District of Texas because the defendant corporation’s residence under § 1400(b) can no longer be established by personal jurisdiction alone. Moreover, since the Federal Circuit has reversed decisions of the Eastern District of Texas in about 45% of appeals, it may be argued that TC Heartland can perhaps improve judicial efficiency of patent infringement cases.
Lastly, as briefly mentioned above, the TC Heartland Court declined to address foreign corporations. Hence, a plaintiff who is filing a patent infringement suit against a foreign corporation may still be able to establish proper venue by showing that the foreign defendant is subject to the court’s personal jurisdiction.
David D. Suh is a J.D. candidate, 2019, at NYU School of Law.
