Fed. Circ. Clarifies Venue Selection In Patent Cases
Law360, New York (May 2, 2016, 4:17 PM ET) — The Federal Circuit refused to restrict where patent cases could be filed in its decision denying TC Heartland’s writ of mandamus handed down last Friday. In re TC Heartland LLC, case number 16-105, in the U.S. Court of Appeals for the Federal Circuit. Stating that “Heartland’s arguments are foreclosed by our long standing precedent,” the court rejected an interpretation of the venue statutes that would have made it difficult to maintain venue in plaintifffavored venues such as the Eastern District of Texas and the Northern District of California.
The patent venue statute states that a patent infringement action “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.” 28 U.S.C. § 1400(b). In 1988, Congress broadened the general venue statute, 28 U.S.C. § 1391(c), with regard to a corporation’s residency to provide, “For 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.” Based on the 1988 amendment, the Federal Circuit in VE Holding Corp. v. Johnson Gas Appliance Co., held that the new definition of corporate residence in § 1391(c) applies to all venue statutes, including the patent venue statute, 28 U.S.C. § 1400(b). 917 F.2d 1574 (Fed. Cir. 1990). As a result, patent cases are not limited to the specific venues set forth in § 1400(b), but may be brought in any venue where the court has personal jurisdiction over a defendant.
In the underlying case, Kraft Food Groups Brands LLC sued Heartland in the United States District Court for the District of Delaware alleging Heartland’s liquid water enhancer products infringed three of Kraft’s patents. Heartland moved to transfer venue to the Southern District of Indiana. Heartland argued that it does not reside in Delaware for venue purposes under 28 U.S.C. § 1400(b) because it was not registered to do business in Delaware, had no local presence in Delaware, and had not entered into any supply contracts in Delaware or called on any account there to solicit sales. Because Heartland admitted it “ships orders of the accused products into Delaware pursuant to contracts with two national accounts,” the district court found that Heartland was subject to specific personal jurisdiction for claims involving the accused products. The district court, thus, denied Heartland’s motion to dismiss for lack of personal jurisdiction and motion to transfer venue.
In its writ of mandamus, Heartland asked the Federal Circuit to reconsider its interpretation of the patent venue statute 28 U.S.C. § 1400(b) and order that the limiting elements of the provision be given effect. Heartland argued that § 1391(c) and § 1400(b) should not be read together, but instead that venue in patent cases should be limited to those venues set forth in the special patent venue statute, 28 U.S.C. § 1400(b). Heartland’s argument is based on the U.S. Supreme Court’s decision in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957), holding that “28 U.S.C. § 1400(b) is the sole and exclusive provision controlling venue in patent infringement actions and that it is not to be supplemented by the provisions of 28 U.S.C. § 1391(c).” In its VE Holding Corp. decision, the Federal Circuit held that Fourco Glass no longer applied as a result of the 1988 amendments.
Heartland argued that Congress’ 2011 amendments to 28 U.S.C. § 1391 changed the law governing venue for patent infringement suits in a manner that nullified the Federal Circuit’s holding in VE Holding Corp. The Federal Circuit held that Congress’ 2011 amendments to § 1391 “did not undo” our decision in VE Holding Corp., stating that the “arguments raised regarding venue have been firmly resolved by VE Holding, a settled precedent for over 25 years.” The court noted that the 2011 amendments were minor and actually broadened § 1391. The language preceding the definition of corporate residence in § 1391 was changed from “For the purposes of venue under this chapter” to “For all venue purposes.” The Federal Circuit stated that this “change in no manner supports Heartland’s arguments.” In addition, Heartland’s argument that the language “Except as otherwise provided by law,” which was added to § 1391(a) (addressing the applicability of the general venue statute) in 2011, mandated that § 1400(b) should control venue in patent cases without resort to § 1391(a), was soundly rejected by the Federal Circuit. Finding there was no statutory or federal common law that otherwise defined corporate residence, the Federal Circuit characterized Heartland’s arguments as “utterly without merit or logic.”
Despite the clear rejection of Heartland’s position by the Federal Circuit, it appears that Heartland is focused on en banc review and a potential Supreme Court review. At least one commentator has opined that the real argument now to be presented en banc is that VE Holding Corp. was wrongly decided, representing a misinterpretation of both the statute and Supreme Court precedent. An eventual win by Heartland would result in a major change in patent litigation by greatly reducing the concentration of patent cases, especially those filed in the Eastern District of Texas and the Northern District of California.
The Federal Circuit’s decision, at least for the present, resolves the uncertainties of venue selection in patent cases. To date in 2016, there have been 482 patent cases filed in the Eastern District of Texas. This rate, if consistent for 2016, would result in fewer patent cases than the 2,532 cases filed in the Eastern District of Texas in 2015. The likely impact of the decision is that the Eastern District of Texas and the Northern District of California will continue to be popular venues for patent cases and that patent case filings in those districts will increase for 2016. While both venues have gained notoriety as venues where nonpracticing entities file, practicing entities file in the venues as well. Moreover, all parties may ultimately benefit from litigating in venues with judges, magistrates and clerks who have a deep understanding of the issues, including an expertise in patent law and the nuances of patent litigation.