August 25, 2017

Will Delaware Again Be the Top Patent Litigation District?

In TC Heartland LLC v. Kraft Foods Group Brands LLC, 581 US ___ (2017) the Supreme Court on May 22, 2017 held that the residence requirement of the patent infringement venue statute 28 USC 1400(b) refers only to a defendant’s State of Incorporation. The short (10-page) unanimous opinion authored by Justice Thomas reaffirms the Court’s prior decision in Fourco Glass Co. v. Transmirra Products Corp., 353 US 222, 226 (1957) — holding that “for purposes of §1400(b) a domestic corporation ‘resides’ only in its State of incorporation” and rejecting the notion that a much broader definition of venue (found in 28 USC 1391(c)) applies.

Section 1400(b) limits patent cases to the judicial district (1) “where the defendant resides,” or (2) “where the defendant has committed acts of infringement and has a regular and established place of business.” The TC Heartland decision confirms the meaning of “where the defendant resides” for US corporations.

Kraft sued TC Heartland for patent infringement in Delaware. TC Heartland is an Indiana LLC that is also headquartered in Indiana and has no regular place of business in Delaware – seemingly excusing it from defending a patent case in Delaware. The big catch, however, was that the general venue statute applicable to civil actions 28 U.S.C. 1391(c) provides a broad definition of “reside.”

Although the Supreme Court law appeared to have continuity on patent venue, the Federal Circuit changed the landscape in 1990 in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574 (1990). In VE Holding, the Federal Circuit expanded patent infringement venue to any court having personal jurisdiction over the defendant, citing the general venue statute. That interpretation allowed for the rise of patent-focused venues such as the Eastern District of Texas. Few companies have particular contact with the Eastern District of Texas, yet more than 36 percent of all patent cases were filed there in 2016, nearly four times as many cases as in the next leading district. If these cases no longer can be filed in Texas, where will the patent owners choose to file? Likely possible venues include Delaware, where more than half of all publicly traded companies and nearly two-thirds of all Fortune 500 companies are incorporated, and the Northern District of California, where many tech companies are headquartered. Other top patent districts in 2016 were Southern District of California, Northern District of Illinois and Southern District of New York. On May 26, 2017, likely anticipating an influx of new patent cases, the Chief Judge of the Delaware District Court outlined the Court’s plan for case assignments while the Court waits for two Judicial vacancies to be filled.

Following the Supreme Court’s decision in TC Heartland, it is clear that US corporations may be sued for patent infringement in their state of incorporation, regardless of whether they have any significant business there or committed the alleged infringement there. While national retailers will still be amenable to suit essentially everywhere under the second prong of 1400(b), many would-be patent infringement defendants now will be able to avoid venue in the Eastern District of Texas. It is not likely for the Court to adapt the “established place of business” portion of Section 1400(b) to include the internet and provide for venue in any district, although that portion of 1400(b) has not been explored since the rise of internet retail sales in the US.

TC Heartland did not settle the venue question for foreign companies with no established place of business in the US. The repeated, clear statements that Section 1400(b) alone dictates patent venue determinations appears to be in tension with Brunette Machine Works, Ltd. v. Kockum Industries, Inc., 406 US 706, 714 (1972) where the Court held that the then-existing general venue statute applied to foreign corporations. It therefore appears likely that additional litigation will occur to resolve the issue of foreign corporation venue.

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