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Legal Update

Dramatic Change in Patent Venue Rules: US Supreme Court Reverses TC Heartland

22 May 2017
Mayer Brown Legal Update

In TC Heartland LLC v. Kraft Foods Group Brands LLC, the Supreme Court addressed the patent venue statute, 28 U.S.C. § 1400(b), and reversed nearly three decades of Federal Circuit law. The Court’s holding will likely have significant implications with respect to so-called patent magnet jurisdictions, such as the Eastern District of Texas, which currently adjudicate a significant portion of the nation’s patent disputes.

Section 1400(b) provides that in patent infringement cases venue is proper “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.” In Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 226 (1957), the Supreme Court concluded that a domestic corporation “resides” only in its state of incorporation.

Subsequently, Congress amended the general venue statute, 28 U.S.C. § 1391(c). The amended statute states that, “[e]xcept as otherwise provided by law” and “[f]or 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.” In VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (1990), the Federal Circuit held that this amendment applied to the patent venue statute, Section 1400(b), overriding the Supreme Court’s decision in Fourco.

In the wake of VE Holding’s significant relaxation of patent venue rules—which effectively permitted suit in any district in which the defendant is subject to specific personal jurisdiction—certain judicial districts emerged as “magnets” for patent litigation. In 2015, for example, 74.6 percent of patent infringement cases were filed in just eight of the nation’s 94 judicial districts. And 44.2 percent of the nationwide patent cases were filed in the Eastern District of Texas.

In TC Heartland, the Supreme Court reversed VE Holding. The Court concluded that “Congress has not amended § 1400(b) since Fourco.” The Court reasoned that the amended Section 1391(c) is substantially similar to that in place at the time of Fourco. Additionally, Congress gave no clear indication that it was altering the settled construction of Section 1400(b), and the current version of Section 1391(c) contains a savings clause indicating that “it does not apply when ‘otherwise provided by law.’” TC Heartland thus concluded that, “[a]s applied to domestic corporations, ‘reside[nce]’ in § 1400(b) refers only to the State of incorporation.”

We anticipate that TC Heartland will have several significant effects. First, it will provide domestic patent defendants a powerful basis to resist venue in magnet jurisdictions so long as the defendant neither is incorporated in the state nor maintains a “regular and established place of business” there. Commentators will closely watch filing trends and transfer rates of patent cases to gauge the magnitude of this decision’s effects.

Second, given that many US entities are incorporated in Delaware, we anticipate that litigants will continue to routinely file patent infringement suits in the District of Delaware. Long one of the leading patent jurisdictions, the District of Delaware may continue to grow in importance.

Third, litigants are likely to focus on the breadth of the second prong of Section 1400(b), which provides venue “where the defendant has committed acts of infringement and has a regular and established place of business.” Given the Federal Circuit’s prior, broad interpretation of where a patent defendant “resides,” courts have not recently considered what qualifies, in this context, as a “regular and established place of business.” Litigants are now likely to dispute whether retail locations, distribution centers, factories, and the like qualify as a “[r]egular and established place of business.”

Fourth, the implications of TC Heartland on foreign corporations will be subject to significant litigation. In its decision, the Supreme Court repeatedly acknowledged that it was addressing “domestic corporations,” and it noted that it did not decide “the implications of petitioner’s argument for foreign corporations.” Some litigants will thus assert that Section 1391(c)(3), which provides that “a defendant not resident in the United States may be sued in any judicial district,” remains applicable to non-domestic corporations. If that approach is adopted, TC Heartland may have limited effect for non-US entities.

 

Authors

  • Paul W. Hughes
    T +1 202 263 3147
  • Andrew J. Pincus
    T +1 202 263 3220
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