In TC Heartland LLC v. Kraft Foods Grp. Brands LLC,1 the Supreme Court of the United States reversed and remanded a decision by the Federal Circuit on patent venue. At its core, the TC Heartland decision is one of statutory interpretation. There are three different statutory subsections in play. First, the patent venue statute, 28 U.S.C. §1400(b), 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."
Second, the general venue statute, 28 U.S.C. §1391(a), provides that "[e]xcept as otherwise provided by law," "this section shall govern the venue of all civil actions brought in district courts of the United States." And third, 28 U.S.C. §1391(c)(2) provides that "[f]or all venue purposes," certain entities, "whether or not incorporated, 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."
Before TC Heartland, the Federal Circuit had concluded that the definition of a corporate resident in §1391(c) applied to the patent venue statute in §1400(b).2 This was the very issue before the Supreme Court in TC Heartland: where does proper venue lie for a patent infringement lawsuit brought against a domestic corporation? And, specifically, should the word "resides" in §1400(b) be interpreted using the definition provided by the general venue statute in §1391(c)? The short answer is no. The Supreme Court held that the patent venue statute operates independently from the general venue statute, and a domestic corporation "resides" only in its state of incorporation for purposes of the patent venue statute.3 Despite this holding, however, the Court’s decision leaves many questions open for lower courts and practitioners to tackle moving forward.
TC Heartland, a food products group that manufactures drink mixes, is a limited liability corporation organized and existing under Indiana law.4 Kraft, a Delaware corporation with its headquarters in Illinois, brought a patent infringement suit against Heartland in the District Court for the District of Delaware.5 Heartland had no local presence in Delaware—it was not registered to do business in Delaware, had no supply contracts in Delaware, and did not directly solicit sales in Delaware.6 Heartland’s only relevant connection to Delaware was its shipment of its allegedly infringing products into the state (accounting for less than 2% of the total sales of Heartland’s products).7 Relying on the facts above, Heartland moved to transfer the venue (or, alternatively, to dismiss the case) to the District Court for the Southern District of Indiana, arguing that venue in Delaware was improper. The District Court in Delaware denied both of Heartland’s motions.8 The Federal Circuit similarly denied Heartland’s petition for a writ of mandamus.9 Finally, Heartland filed a writ of certiorari to the Supreme Court, which was granted, and the Supreme Court issued its decision in May of this year.10
Historical Development of the Patent Venue Statute and Its Relationship With the General Venue Statute
In supporting its conclusion that the definition of residence found in §1391(c) (general venue provision) should not be read into §1400(b) (patent venue provision), the Court first reviewed the historical development of the patent venue statute, noting that "[t]he history of the relevant statutes provides important context for the issue in this case."11 Over the years, amendments to the general venue statute have led to ambiguity about whether these amendments were meant to be incorporated into the patent venue statute. Often Congress or the Supreme Court would then step in to resolve this ambiguity, typically finding that patent venue was distinct from general venue (just as the Supreme Court found in TC Heartland).
The Court pointed to the Judiciary Act of 1789, permitting plaintiffs in any civil suit to sue in a federal district court if the defendant was "an inhabitant" of that district or could be "found" for service of process in that district.12 Congress amended the Act in 1887, and an 1893 decision by the Supreme Court in In re Hohorst contained the first instance of jurisprudence suggesting that the 1887 amendments to the Judiciary Act did not apply for purposes of patent venue.13 District courts were split on this issue until Congress enacted a patent specific venue statute in 1897 (§1400(b)’s predecessor), permitting a suit where the defendant was an "inhabitant"—that is, where it was incorporated, or otherwise where it maintained a "regular and established place of business" and committed an act of infringement. The Court revisited the issue again in 1941 decision; Stonite Products Co. v. Melvin Lloyd Co., affirmed that the patent venue statute was "the exclusive provision controlling venue in patent infringement proceedings."14
In 1948, Congress recodified the patent venue statute—the current version of §1400(b).15 At the same time, Congress enacted the general venue statute found in §1391(c).16 Following these codifications, the Courts split again—this time regarding whether §1400(b)’s use of the word "resides" incorporated §1391(c)’s definition of "residence."17 In Fourco Glass, the Supreme Court resolved the confusion by reaffirming §1400(b) "is the sole and exclusive provision controlling venue in patent infringement actions, and… is not to be supplemented by… §1391(c)."18 The law surrounding patent venue remained largely unchanged until 1988, when Congress amended §1391(c) again to now 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 at the time the action is commenced."19
In turn, the Federal Circuit took this language and applied it in its 1990 decision VE Holding, concluding that §1391(c)’s "exact and classic language of incorporation" via the phrase "[f]or the purposes of venue under this chapter" meant that §1400(b), located in the same chapter, incorporated §1391(c)’s definition of residence.20 Thus, until TC Heartland, patent venue was assumed proper so long as the district court could exercise personal jurisdiction over a domestic corporate defendant that committed acts of alleged infringement in that district.
Congress amended §1391(a) again in 2011, adding the qualification that "[e]xcept as otherwise provided by law," "this section shall govern the venue of all civil actions brought in district courts of the United States."21 Further, §1391(c)(2) now provided that "[f]or all venue purposes," certain entities, "whether or not incorporated, 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."22 Heartland had argued below that these 2011 amendments undid the incorporation of §1391(c) into §1400(b), as the Federal Circuit had concluded in VE Holding.
The Supreme Court’s Decision, Finding Congress Did Not Change the Meaning of §1400(b) by Amending §1391
In the 8-0 decision, Justice Thomas explained that the patent venue statute is distinct and independent from the general venue statues–rejecting the notion that "Congress changed the meaning of §1400(b) when it amended §1391."23 And, as noted above, this was the only question before the Court–that is, whether the definition of a corporation from §1391(c) should be incorporated into §1400(b)–as neither party asked the Court to reconsider its holding in Fourco. The Court explained that when Congress intends to change the meaning of a statutory provision by modifying a related provision, "it ordinarily provides a relatively clear indication of its intent in the text of the amended provision."24 The Court concluded that no such indication accompanied the amendments because the current wording of §1391(c) is materially similar to that of the Fourco version.
First, the Court found unpersuasive Kraft’s argument that §1391(c) clearly and unambiguously applies "[f]or all venue purposes," including for patent venue, noting that the Fourco version of §1391(c) similarly provided a default rule that applied "for venue purposes."25 Second, the Court found that the saving clause ("[e]xcept as otherwise provided by law") further weakened any incorporation argument because the statute now expressly contemplated alternative venue requirements, which might conflict with §1391(c)’s default definition of "resides."26 Finally, the Court found no indication that Congress ratified VE Holding’s definition of residence. Rather, Congress deleted "under this chapter," the supposed exact and classic language of incorporation referenced in VE Holding, and reverted to the wording of §1391(c) "almost identically to the original version of the statute."27 Overall, the changes to the statutory scheme failed to convey a Congressional intent to revise the patent venue requirements and legislatively overrule the Court’s holding in Fourco.
The Court did not decide three points based on the facts of TC Heartland, any of which may have led to a different outcome. First, the Court did not reconsider its prior decision in Fourco, as neither party addressed this issue.28 Second, the venue analysis performed in TC Heartland is limited to the proper patent venue for corporations, and does not discuss patent venue for unincorporated entities. Finally, the opinion expressly does not address the question of patent venue for foreign corporations.29 Beyond these three issues that were left unaddressed, what legal impact may TC Heartland have on patent litigation in the short-term? In currently pending cases, the primary question is whether defendants have already waived a venue objection, or whether the objection can still be brought. In future cases, two issues are likely to arise in determining proper patent venue under §1400(b):(a) what is a "regular and established place of business" for purposes of the statute; and (b) where do the alleged "acts of infringement" take place?
Pending Cases: Waiver of Venue Objection
Post-TC Heartland, many patent defendants whose cases were brought pre-TC Heartland may now want to seek to dismiss or transfer their case for improper venue. But, a question arises as to whether those defendants have waived their objection to venue by, for example, failing to file a motion to dismiss until after responsive pleadings,30 waiting until appeal,31 or having already argued the merits of the case before filing the objection.32
Several defendants have argued that TC Heartland amounts to an intervening change in the law, which may allow defendants to avoid such waiver where "'there was strong precedent' prior to the change, such that the failure to raise the issue was not unreasonable and the opposing party was not prejudiced by the failure to raise the issue sooner."33 This exception, commonly cited after Supreme Court decisions, "exists to protect those who, despite due diligence, fail to prophesy a reversal of established adverse precedent.34
Three district courts have rejected the notion that TC Heartland constitutes an intervening change in the law.35 They reasoned that, because the Supreme Court reaffirmed its decision in Fourco, the law has been the same since 1957. Although these courts acknowledged that, before TC Heartland, motions to dismiss or transfer relying on Fourco would have been viewed as "meritless," the "hard reality" was that defendants could have appealed the issue had they wanted to preserve their jurisdictional defence, and therefore defendants waived their venue defence.36
Two district courts, however, found that a defendant did not waive its improper venue defence, because they "could not have reasonably anticipated" how "TC Heartland changed the venue landscape."37 Rather than point to Fourco, these courts instead looked to the Federal Circuit’s VE Holding, explaining, for example that:
"[t]o suggest that the defense of improper venue has always been available, and that TC Heartland did not effect a change in the law 'because it merely affirms the viability of Fourco' ignores the significant impact of VE Holding and the patent bar’s reliance on the case for nearly three decades."38
These courts also pointed to several patent venue cases that the Supreme Court refused to consider over the years, allowing the Federal Circuit’s VE Holding to stand for so long.
What is a "regular and established place of business" under §1400(b)?
Now that §1400(b) is solidly in play as the governing patent venue statute, a plaintiff seeking to sue a defendant anywhere other than its place of incorporation may need to demonstrate:
Because VE Holding essentially obviated the need to perform this analysis (by allowing plaintiff s to rely on the more permissive personal jurisdiction standard), cases analyzing what constitutes a "regular and established place of business" are primarily found between 1948 (Congress’ recodifi cation of the patent venue statute) and 1990 (VE Holding). As a result, important questions remain as to how this body of case law will be reinterpreted and applied to the world as it exists in 2017 (particularly with respect to the Internet). The Federal Circuit has only addressed the "regular and established place of business" requirement in its 1985 decision in In re Cordis Corp., stating that
"the appropriate inquiry is whether the corporate defendant does its business in that district through a permanent and continuous presence there and not… whether it has a fixed physical presence in the sense of a formal office or store."39
Factors considered under this test are whether an office or other property is kept in the district; the nature, number, and control over representatives in the district; continuous sales as compared to isolated sales; and the overall amount of sales activity in the district.40 Since TC Heartland, one district court partially granted a motion to compel venue-related discovery, requiring a defendant to disclose total product sales (but excluding direct Internet sales), activities of third-party vendors selling the defendant’s products, any substantial amount of property it owns, leases, or manages, and even any leasing of trade show booths or conference spaces.41
Judge Gilstrap in the Eastern District of Texas has created a four-factor test in an attempt to standardize the "regular and established place of business" requirement. This test weighs the extent to which a defendant:
This test has already been adopted by at least one other district court.43
Determining the Location for Acts of Infringement (ANDA Litigation)
Determining whether a defendant committed "acts of infringement" in the venue district may also present questions, particularly in ANDA (abbreviated new drug application) litigation. Defining the location of infringement in context of 38 U.S.C. §271(a), the Federal Circuit wrote that "[t]he situs of the infringement 'is wherever an offending act [of infringement] is committed'."44 This definition provides little guidance for geographically-spread system or method claims or ANDA claims in which the "highly artificial act of infringement" is submitting an ANDA to the U.S. Food and Drug Administration.45 As one possibility, ANDA litigations may become more prevalent in districts where the alleged infringer is incorporated, avoiding the "acts of infringement" question altogether.
Effects on Recent Filings
Based on the above, TC Heartland would appear to have the greatest impact on regional companies. Companies with widespread business across the country will likely remain subject to a suit in multiple districts. Nonetheless, early statistics indicate a shift away from the more popular districts for patent litigation. Since 22 May 2017, over 100 cases have been filed in the District of Delaware, where many U.S. companies are incorporated, while only 91 have been filed in the Eastern District of Texas. By way of comparison, between 1 January and 22 May 2017, 548 cases were filed in the Eastern District of Texas, and only 223 were filed in the District of Delaware.46 Although the sample size is small, TC Heartland may affect litigation strategy moving forward. These numbers suggest—as many predicted—that the District of Delaware will now become a more popular venue for patent litigation for the foreseeable future.
Like many issues in U.S. patent law, how parties and courts react to and apply the Supreme Court’s decision in TC Heartland will become more apparent as current and future cases work their way through district courts and on appeal to the Federal Circuit. Stay tuned as we follow this evolving area of the law.
1137 S. Ct. 1514, 197 L. Ed. 2d 816 (2017).
2VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990).
3TC Heartland, 137 S. Ct. at 1515.
4Id. at 1517.
7Kraft Foods Grp. Brands LLC v. TC Heartland, LLC, No. CV 14-28-LPS, 2015 WL 4778828, at *3 (D. Del. Aug. 13, 2015).
8TC Heartland, 137 S. Ct. at 1517–1518.
10Id. at 1518.
15Id. at 1518–1519.
16Id. at 1519.
19Id. at 1519–1520.
20Id. at 1520.
25Id. at 1520–1521.
26Id. at 1521.
28Id. at 1516.
29Id. n. 2 ("The parties dispute the implications of petitioner’s argument for foreign corporations. We do not here address that question, nor do we express any opinion on this Court’s holding in Brunette Machine Works, Ltd. v. Kockum Industries, Inc., 406 U.S. 706, 92 S.Ct. 1936, 32 L.Ed.2d 428 (1972) (determining proper venue for foreign corporation under then existing statutory regime)").
30Continental Bank, N.A. v. Meyer, 10 F.3d 1293, 1297 (7th Cir. 1993) (finding waiver where defendant pursued litigation on the merits for two-and-a-half-years before pursuing their properly-raised jurisdictional defence); but see Brokerwood Prods. Int’l, Inc. v. Cuisine Crotone, Inc., 104 Fed. Appx. 376, 380 (5th Cir. 2004) (finding no waiver where defendant waited seven months between initially raising a jurisdictional defense and filing a motion to transfer/dismiss).
31Yeldell v. Tutt, 913 F.2d 533, 538–39 (8th Cir. 1990) (finding waiver where defendants only raised the jurisdictional issue on appeal); but see Peterson v. Highland Music, 140 F.3d 1313, 1318 (9th Cir. 1998) (finding no waiver where defendants raised their personal jurisdiction defense on appeal, but prohibiting new arguments and ruling for plaintiff).
32Bel-Ray Co., Inc. v. Chemrite Ltd., 181 F.3d 435, 443–44 (3rd Cir. 1999) (finding waiver where defendants filed a motion to dismiss only aft er losing on their own motion for summary judgment).
33Holland v. Big River Minerals Corp., 181 F.3d 597 (4th Cir. 1999) (citing Curtis Pub. Co. v. Butts, 388 U.S. 130 (1967)).
34GenCorp., Inc. v. Olin Corp., 477 F.3d 368, 374 (6th Cir. 2007).
35Cobalt Boats, LLC v. Sea Ray Boats, Inc., No. 2-15-CV-00021, 2017 WL 2556679, at *5 (E.D.Va. June 7, 2017) (concluding that a defendant waived its objection to venue and TC Heartland did not trigger an intervening law exception to that objection), mandamus denied, In re: Sea Ray Boats, Inc., No. 2017-124, 2017 WL 2577399, at *1 (Fed. Cir. June 9, 2017); iLife Techs., Inc. v. Nintendo of Am., Inc., No. 3:13-CV-04987, 2017 WL 2778006 (N.D. Tex. June 27, 2017) (concluding the same); Elbit Sys. Land & C4I Ltd. v. Hughes Network Sys., LLC, No. 2-15-CV-00037, 2017 WL 2651618, at *20 (E.D. Tex. June 20, 2017) (concluding the same, acknowledging "the harsh reality that [the defendant] would have ultimately succeeded in convincing the Supreme Court to reaffirm Fourco, just as the petitioner in TC Heartland did").
36Elbit Sys. Land, 2017 WL 2651618 at *20.
37Westech Aerosol Corp. v. 3M Co., No. 3-17-CV-05067, 2017 WL 2671297, at *2 (W.D. Wash. June 21, 2017).
38OptoLum Incorporated v. Cree, Inc., No. 2-16-CV-03828, ECF No. 90 at 7 (D. Ariz. July 24, 2017).
39In re Cordis Corp., 769 F.2d 733, 738 (Fed. Cir. 1985) (denying mandamus petition to dismiss an action where defendant did not maintain a fixed location in the venue district, but did employ sales representatives and technical consultants with home offices).
40See, e.g., Kay v. J.F.D. Mfg. Co., 261 F. 2d 95 (5th Cir. 1959) (affirming a motion to dismiss where defendant’s single salesperson in the district could not make binding agreements, carried no inventory, and worked on commission); Univ. of Ill. Found. v. Channel Master Corp., 382 F. 2d 514 (7th Cir. 1967) (affirming a motion to dismiss because defendant’s single salesperson in the district worked out of his own home, received no business visitors, and paid his own rent); E.T. Mfg. Co. v. Xomed, Inc., 228 U.S.P.Q. (BNA) 542, 1986 WL 321 (N.D. Ill. 1986) (finding improper venue and granting a motion to transfer where defendant’s single salesperson in the district kept no inventory and provided no technical support for the infringing product); Clearasite Headwear, Inc. v. Paramount Cap Mfg. Co., 204 F. Supp 4 (S.D.N.Y. 1962) (granting a motion to dismiss where defendant’s single salesperson in the district also worked for other companies); London v. Green’s Luggage, Inc., 1988 WL 64586 (N.D. Ill. 1988) (granting a motion to dismiss where defendant’s single salesperson in the district worked out of her home, had no inventory, and offered no technical support); Coleco Indus. v. Kransco Mfg., 247 F. Supp. 571 (S.D.N.Y. 1965) (finding improper venue and granting a motion to transfer where defendant’s salesperson in the district worked for commission, stocked no inventory, and represented other manufacturers).
41Nike, Inc. v. Skechers USA, Inc., No. 3-16-CV-00007, ECF No. 120 (D. Or. June 30, 2017).
42Raytheon Co. v. Cray, Inc., No. 2-15-CV-01554, 2017 WL 2813896, at *7 (E.D. Tex. June 29, 2017).
43Susan McKnight, Inc. v. United Industries Corp., No. 16-CV-2534, ECF No. 40 at 3 (W.D. Tenn. July 7, 2017).
44NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282 (2005) (quoting N. Am. Philips Corp. v. Am. Vending Sales, Inc., 35 F.3d 1576, 1579 (Fed. Cir. 1994)) (addressing extraterritorial infringement).
45AstraZeneca Pharm. LP v. Apotex Corp., 669 F.3d 1370, 1377 (Fed. Cir. 2012) (citing Eli Lilly & Co. v. MedTronic, Inc., 496 U.S. 661, 678 (1990)).
46Filing data collected from Docket Navigator.
May 9, 2018
April 26, 2018
December 12, 2017
November 27, 2017
November 9, 2017
April 24, 2018
March 15, 2018
December 6, 2017
August 7, 2017
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