We’re Not in Texas Anymore: Supreme Court Drastically Limits Where You Can Sue for Patent Infringement

Brandon Scruggs

By Brandon Scruggs. A member of our Litigation Practice Group

June 2017 IP Update

The Supreme Court’s recent decision in TC Heartland v. Kraft Foods dramatically restricts where patent lawsuits can be brought.  Previously, a patent owner could sue an accused infringer in any district where the infringer was subject to personal jurisdiction, which often meant anywhere that products accused of infringement were sold.  For products sold nationwide, this led to lawsuits in odd places – courts that offered tactical advantages to plaintiffs but were often thousands of miles from either party.

Now, the Supreme Court has ensured that patent litigation plaintiffs can sue domestic corporate defendants only in either: 1) the defendant’s state of incorporation; or 2) where the defendant has committed acts of infringement and has a regular and established place of business.  This sea change in the patent litigation landscape tilts the balance in favor of defendants.

For over twenty years, many patent owners filed infringement lawsuits in perceived pro-patent jurisdictions that often have few ties to either the patent owner or the accused infringer.  For example, the Eastern District of Texas (in rural areas like Marshall and Tyler) and the Eastern District of Virginia (home of the “rocket docket”) became popular venues for patent infringement because of shorter time-to-trial schedules, higher patent-owner success rates, and trends towards higher damage awards.[1]

For similar reasons, many patent owners have also filed patent lawsuits in the Western District of Wisconsin (in Madison) and the Middle District of Florida (with courthouses in Tampa and Orlando).  Defendants often hated those forums because the tactical advantages for patent owners are usually tactical disadvantages for accused infringers.  And plaintiffs’ choice of those forums often forced defendants to litigate cases in inconvenient places thousands of miles from home.

The longtime enabler of forum-shopping had been the Federal Circuit, the court that hears all appeals from patent decisions in the trial courts.  In its 1990 decision in VE Holding, the court interpreted a patent-specific venue statute, 28 U.S.C. § 1400(b), in conjunction with a general venue statute, 28 U.S.C. § 1391(c).

The patent-specific statute states that a patent infringement lawsuit can be brought in the district where the defendant either (a) resides or (b) has committed acts of infringement and has a regular and established place of business.  The general venue statute states that a corporate defendant will be deemed to reside anywhere it is subject to personal jurisdiction for the lawsuit in question.  In combination, the Federal Circuit interpreted the two venue statutes to allow patent owners to sue accused infringers in any district where the infringer was subject to personal jurisdiction.

In coming to this conclusion, the Federal Circuit disregarded an authoritative precedent.  In Fourco Glass (1957), the Supreme Court had held that the general venue statute did not apply to patent cases and that, for purposes of the patent venue statute, a domestic corporation “resides” only in its state of incorporation.  The Federal Circuit brushed aside Fourco by reasoning that later amendments to the general venue statute rendered the Supreme Court’s interpretation irrelevant.

In 1988, Congress amended the general venue statute to say 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…”  The Federal Circuit reasoned that the addition of the phrase “[f]or purposes of venue under this chapter” meant that the general venue statute’s definition of where a corporate defendant “resides” should now apply to all other venue statutes in the same “chapter.”  Since the patent-specific venue statute falls under the same chapter, the court concluded that the general and patent-specific venue statutes should now be interpreted together.

In TC Heartland, the Supreme Court reversed VE Holding and reaffirmed Fourco.  Congress intended the patent-specific venue statute to stand alone, said the court, so the general venue statute does not apply to patent lawsuits.  The later amendments to the general venue statute did nothing to change that.

Significantly, the amended general venue statute states it does not apply when “otherwise provided by law.”  This carve-out clause, says the Supreme Court, means that the general venue statute does not apply in patent cases, since the patent-specific venue statute represents a venue rule “otherwise provided by law.”  As a result of TC Heartland, patent litigation plaintiffs can now sue only where the defendant is incorporated or where it has committed acts of infringement and has an established place of business.

The impact on the patent litigation landscape will be profound.  The number of patent cases filed in popular jurisdictions like the Eastern District of Texas will decline rapidly.  The volume of patent litigation overall may diminish somewhat.  Patent owners may simply decide not to file some lawsuits that seemed like a marginally good bet in the Eastern District of Texas but a losing bet in other forums they may have to choose from now.

Many expect that the TC Heartland decision will help curtail patent lawsuits filed by non-practicing entities (NPEs), the so-called “trolls” that attempt to enforce patent rights against accused infringers but do not make goods or supply services based on the patents in question.  The Eastern District of Texas was a favored venue for NPEs.  Without the option of filing in that location, some NPEs may balk at filing a lawsuit in a court perceived as less congenial to their side of the dispute.  Exactly how much this new decision will decrease NPE lawsuits is an open question.

Many patent owners will likely just shift where they file lawsuits. The District of Delaware can expect an increase in patent lawsuits. It has long been a favorite choice of venue for patent owners because, like other favored jurisdictions, it provides the tactical advantages of a shorter time to trial, has a record of higher patent owner success rates, trends towards higher damages awards, and features judges with a reputation for knowing patent law well.[2]  Since many corporate defendants are incorporated in Delaware for tax and other legal reasons, it may become even more popular given the new venue rules’ focus on defendants’ state of incorporation.

Courts in California, New York, Illinois, and Texas (Houston) may also see more patent litigation activity, since the population centers in those districts tend to attract “regular and established place[s] of business.”  One thing is certain: The distribution of patent cases across U.S. judicial districts will undergo a tectonic shift unlike anything we have seen in decades.

 

[1]See, e.g., PricewaterhouseCooper’s 2017 Patent Litigation Study, at 22-23, available at https://www.pwc.com/us/en/forensic-services/publications/patent-litigation-study.html
[2]See, e.g., PricewaterhouseCooper’s 2017 Patent Litigation Study, at 22-23, available at https://www.pwc.com/us/en/forensic-services/publications/patent-litigation-study.html