March 14, 2016
Law360
By Doris Johnson Hines
Last Friday, a panel of Federal Circuit judges (Kimberly Moore, Richard Linn and Evan Wallach) heard oral argument in the TC Heartland case, which could dramatically affect venue choices in patent infringement litigation.1 TC Heartland, the accused infringer, argues that current patent infringement venue analysis is wrong. Instead of venue being proper in forums having personal jurisdiction over the defendant, a 2011 amendment to the U.S. Code means that venue in patent infringement actions is only proper only where: (1) a defendant is incorporated; or (2) it has committed acts of infringement and has a regular and established place of business.
Before getting to the substance of TC Heartland’s statutory argument, it is worth noting that despite the court having granted TC Heartland’s mandamus petition, the Federal Circuit panel seemed skeptical; one of the first questions to the petitioner was why the case was extraordinary. TC Holdings responded that there is no settled construction of the venue statute and that the court’s precedent relies on a construction of statutory language that has now been repealed. Picking up on that, the respondent, Kraft Foods, noted that it had requested that the case be stayed in view of parallel proceedings before the U.S. Patent and Trademark Office but that TC Heartland had not agreed to a stay. Kraft Foods argued that TC Heartland was not being irreparably harmed when it could have agreed to the stay Kraft requested and therefore its petition for writ of mandamus should not have been granted.
As to TC Heartland’s arguments on the language of the venue statutes, Judge Moore questioned whether the issue was for Congress to address. TC Heartland responded that the Federal Circuit should address the current statutory language as it is unclear whether Congress will act, there having been a number of failed congressional bills to change the patent venue statute spanning almost a decade.
To understand TC Heartland’s argument, we need to consider the venue statutes and their history. Venue in patent infringement cases is controlled by 28 U.S.C. § 1400, which states 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." Historically, the question of where a patent infringement defendant "resides" for purposes of venue was controlled by Fourco Glass Co. v. Transmirra Products Corp.,2 which held that § 1400 is "the sole and exclusive provision controlling venue in patent infringement actions" and for patent infringement actions a corporation "resides" in its state of incorporation.3
In 1988, Congress amended the general venue statute, 28 U.S.C. § 1391(c), to state, "[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 at the time the action is commenced." Considering that amendment, the Federal Circuit held in VE Holding4 that §§ 1391(c) and 1400 should be read together, and that the question of where a defendant "resides" is answered by § 1391(c) and not Fourco Glass.5 As a result, VE Holding expanded venue options for patent infringement cases.
At issue in In re TC Heartland is a later amendment to § 1391(c), part of the Federal Courts Jurisdiction and Clarification Act of 2011, replacing the "[f]or purposes of venue under this chapter" language with "[f]or all venue purposes." The 2011 Act also added a new subparagraph (a), stating:
(a)Applicability of Section.—Except as otherwise provided by law—
(1) this section shall govern the venue of all civil actions brought in district courts of the United States . . .
Before the Federal Circuit on Friday, TC Heartland stated that its argument turned on a portion of § 1391(a), in particular the meaning of six words — "[e]xcept as otherwise provided by law" — added to the statute by Congress in 2011. TC Heartland argues that those six words remove the definition of "resides" in the general venue provision, § 1391, from the patent-specific venue provision, § 1400. To support its argument, TC Heartland cites to legislative history stating that "1391(a)(1) would follow current law in providing the general requirements for venue choices, but would not displace the special venue rules that govern under particular Federal statutes."6 In essence, TC Heartland is asking the Federal Circuit to disregard its analysis in VE Holding as outdated based on Congress’ change to the statute and return its venue jurisprudence to the decisional law of Fourco Glass. If the Federal Circuit agrees, the word "reside" in § 1400 would, based on Fourco, mean where a defendant is incorporated while in § 1391(c), the word "residency" would be defined much more broadly as where a defendant is subject to personal jurisdiction.
Kraft also noted that many of the amicus briefs addressed patent litigation in the Eastern District of Texas and distinguished this case, which was initiated in the district court in Delaware. Kraft argued that to the extent the arguments centered around conduct in the Texas court, a case involving supposed harm from being in East Texas would be the proper vehicle for addressing that issue. Kraft is correct; the change TC Heartland advocates would dramatically affect the docket of the most popular patent infringement venue—the Eastern District of Texas. If the Federal Circuit adopts TC Heartland’s arguments, other venues may by necessity become popular or even more popular than they are now. Here we consider what venues may be available if TC Heartland is successful.
The first step in predicting the patent litigation landscape in that scenario is identifying the potential venues, i.e., where could plaintiffs sue. Next, by examining the differences between where plaintiffs sue now, and where they could sue, we can identify venues that may rise in popularity.
Under the venue theory advocated by TC Heartland, patentees will be able to sue alleged infringers where they are incorporated or where they commit acts of infringement and have a regular and established place of business. Based on those considerations, the busiest patent venues would be those in which many potential patent infringement defendants incorporate or have their headquarters.
One approach to identifying potential patent infringement defendants is past cases, assuming that recent patent infringement defendants are likely to be a future patent defendants. Under this assumption and using data from Docket Navigator, we identified the top 50 patent infringement defendants in each of the last six years (2010-2015) and the number of patent infringement cases for each in the years they were among the top fifty defendants. We then identified the judicial districts for their states of incorporation and headquarters. Using that data, we calculated a "potential case volume" metric by assuming that a plaintiff-patentee could only have filed an infringement action in either the incorporation district or the headquarters’ district. Table 1 shows the results.
Table 1: Top Districts by Potential Case Volume
Unsurprisingly, the district with the highest potential case volume is Delaware—nearly all of the top patent defendants are incorporated there. Districts in which a large number of patent infringement defendants are headquartered, such as New Jersey and Northern California, also have a high potential case volume. But, an often-sued defendant can skew the numbers. For example, Arkansas, Kansas and Western Virginia each have a potential case volume because frequent patent defendants Wal-Mart, Sprint and Mylan Pharmaceuticals are respectively headquartered in those districts.
Another approach is to identify high-technology centers assuming that such areas will include more potential patent infringement defendants. Although there are many ways to determine such centers, two simple metrics can be used as approximations: advanced industry employment,7 and venture capital investment volume.8 Tables 2 and 3, below, show these metrics.
Table 2: Top Districts for Advanced Industry Employment (2014)
Table 3: Top Districts for VC Deals (2014)
Seven of the top eight districts for advanced industry employment and venture capital investment volume are the same: Northern California, Southern District of New York, Central California, Eastern Virginia, Massachusetts, Northern Illinois and Western Washington. Of those seven, five are also high on the potential case volume list: Northern California, Central California, Western Washington, Northern Illinois and Eastern Virginia.
One district absent from the high technology centers lists and low on the potential case volume list is Eastern Texas, which for at least the past decade has been the busiest patent district in the country. Table 4 shows the top ten busiest districts for patent infringement suits by the number of cases filed between 2010 and 2015 using data available in Docket Navigator.
Table 4: Top 10 Most Popular Patent Infringement Venues (2010-2015)
If TC Heartland succeeds, Eastern Texas will not be as popular. Delaware is an obvious choice to pick up extra cases; its current popularity is due at least in part to many defendants being incorporated there. Some plaintiffs strategically file in venues unlikely to be challenged to avoid motions practice. So while Delaware could see an increase in its patent infringement case load if the venue rule changes, the proportion of that change may not be significant. The same can be said of Northern California, New Jersey and Central California — patentee-plaintiffs already routinely sue in those districts, in part, because many defendants are headquartered in those districts and as a result are unlikely to challenge venue. Again, these districts may see an increase, but the proportionate increase may not be significant. Stated differently, Delaware, Northern California, New Jersey and Central California will likely continue to be among the busiest patent litigation districts regardless of the outcome in TC Heartland.
But, if the Federal Circuit agrees with TC Heartland, we may see newcomers in the list of the busiest patent infringement litigation districts, at the expense of the Eastern District of Texas. These newcomers are likely to be districts having a high potential case volume and/or are high technology centers: Western Washington and Eastern Virginia. Both place well on the high-technology centers lists, and while Eastern Virginia does not have a particularly high potential case volume, it places in the top five for both advanced industry employment and venture capital investment volume. Eastern Virginia also has a fast docket, which has been attractive to plaintiffs in the past. On average, cases in the Eastern District of Virginia terminate in about seven months, and the average time to trial is 16 months. This combination of factors could revive the Eastern District of Virginia as a popular patent infringement venue.
So, a post-TC Heartland environment could cause not only more patent infringement filings in current popular districts such as Delaware, Northern California and New Jersey, but also less common districts such as Western Washington and Eastern Virginia. While these districts may rise, the one district certain to decline is the Eastern District of Texas.
1 In re TC Heartland, Petition for Writ of Mandamus, Case No. 16-105 (Fed. Cir. Oct. 23, 2015).
2 353 U.S. 222 (1957).
3 See VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1578 ("The Supreme Court in Fourco confirmed that for defendants that are corporations, ‘resides’ meant the state of incorporation only.") (Fed. Cir. 1990).
4 917 F.2d 1574 (Fed. Cir. 1990).
5 Id. at 1583.
6 In re TC Heartland, Petition for Writ of Mandamus, Case No. 16-105 (Fed. Cir. Oct. 23, 2015) at 7 (citing House Report No. 112-10, 112th Cong., 1st Sess.).
7 An "advanced industry" as defined by The Brookings Institution is one where the R&D spending per worker exceeds $450 and the share of workers requiring a high degree of science, technology, engineering or math knowledge exceeds 21%. See "America’s Advanced Industries," The Brookings Institute at 2 (February 2015).
8 Venture capital investment volume was determined based on venture capital first funding in 2014. See I. Hathaway, "Early-stage venture capital: More regions get in on the action," The Brookings Institute, (March 6, 2015) available at http://www.brookings.edu/blogs/the-avenue/posts/2015/03/06-early-stage-venture-capital-hathaway.
Originally printed in Law360 (www.law360.com). Reprinted with permission. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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