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An Opportunity to Reshape U.S. Patent Venue Practice in TC Heartland LLC v. Kraft Food Brands Group LLC

Introduction

Few areas of litigation showcase greater disparity between the relative burdens experienced by plaintiff and defendant than certain types of patent infringement cases. All that is needed to assert a claim of patent infringement is ownership of a patent and a plausible allegation of infringement and validity. Indeed, many patent infringement lawsuits today are filed by patent assertion entities (PAE), which exist solely to monetize the value of patents within their portfolios through licensing and litigation.1 These entities often have very few relevant documents apart from the patent, prosecution history, and chain of title. By contrast, the accused infringers may have hundreds of thousands–or even millions–of relevant documents regarding their products or processes accused of infringement.

Against this backdrop, the venue of a patent infringement case can play a very significant role in determining its overall cost. Jurisdictions across the United States have adopted local patent rules that vary and expand the requirement to particularize infringement and invalidity contentions beyond the notice pleading standard.2 In particular, the Eastern District of Texas has employed rules and practices that impose heavy burdens on accused infringers relative to other judicial districts by requiring early production of relevant evidence while delaying resolution of pretrial motions to transfer or dismiss on the pleadings.3 In this way, litigants filing suit in the Eastern District of Texas can more easily coax accused infringers into early settlements calculated with reference to the cost of defending suit more so than the merits of the asserted patent claims.4 Despite Congressional reforms to patent litigation practice, the Eastern District of Texas has resisted some of these efforts and remains a disproportionately popular forum for patent owners to sue.5 Yet, few defendants in these cases have significant contact with the Eastern District of Texas apart from being sued for patent infringement there.

The Supreme Court has agreed to review patent venue in this term. The case is TC Heartland LLC v. Kraft Food Brands Group LLC, and it has the potential to dramatically reshape patent litigation. While the TC Heartland case involves a venue dispute concerning the District of Delaware, a decision to restrict venue in patent cases would likely curb the Eastern District of Texas' influence on patent infringement litigation and remove a stronghold long favored by patent owners for the burden it imposes on the defendants forced to litigate there.

Venue Generally and the Historical Development of Venue in Patent Infringement Suits

A civil action brought in federal district court must have proper venue.6 As is relevant here, venue is proper if brought in "a judicial district in which any defendant resides, if all defendants are residents of the State in which the district is located." 28 U.S.C. 1391(b). The general venue statute indicates that for corporate defendants, "resides" means "in any judicial district in which such defendant is subject to the court's personal jurisdiction with respect to the civil action in question." 28 U.S.C. 1391(c)(2).

Congress decided long ago that particular rules should govern venue in patent infringement cases. The patent venue statute currently reads, as it has since 1948, "Any 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." 28 U.S.C. 1400(b). The definition of "resides" in the patent infringement context developed under federal common law on a different track from that of the general venue statute. For instance, in 1957, the Supreme Court held "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)." Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 229 (1957). This holding "confirmed that for defendants that are corporations, 'resides' meant the state of incorporation only." VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1578 (Fed. Cir. 1990) (citing Fourco, 353 U.S. 222). The Supreme Court discussed Section 1400(b) in connection with the venue statute addressing suits against aliens in 1972,7 and has not had occasion to discuss patent venue since.

Congress's 1988 Amendments to the Venue Statute and the Federal Circuit's Interpretation in VE Holding Corp. v. Johnson Gas Appliance Co.

Congress amended Section 1391(c) of the general venue statute in 19888 to read:

(c) 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 at the time the action is commenced.

VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1578 (quoting 28 U.S.C. § 1391(c) (1988)).

In construing the 1988 Congressional amendments, the Federal Circuit upended nearly three decades of federal common law by holding that the general patent venue statute displaces the specific rules applied to patent infringement suits. Central to its ruling was Congress' 1988 amendments to the general venue statute, which added "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 at the time the action is commenced." VE Holding, 917 F.2d at 1578 (emphasis added). The court found particular significance in the preamble "[f]or purposes of venue under this chapter," as well as amendments' specific mention of the assorted federal venue statutes under chapter 87 of title 28 of the United States Code. Id. Four years later, the Federal Circuit confirmed the VE Holdings rule in Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558 (Fed. Cir. 1994), and has not considered the issue since.

The Federal Circuit's prevailing interpretation of the venue statutes in VE Holding Corporation v. Johnson Gas Appliance Co. has allowed patent owners to sue corporate defendants for patent infringement in any judicial district in which they are subject to personal jurisdiction. For many multinational business entities, which may sell products directly or indirectly across the globe, the VE Holding rule may mean they could be subject to suit for patent infringement in any U.S. federal judicial district. This has led to an onslaught of patent cases filed in patent owner-friendly districts–most notoriously, the Eastern District of Texas.

TC Heartland's Appeal

Turning to the facts of the TC Heartland appeal, Kraft sued TC Heartland, an Indiana limited liability company with its principal place of business in Indiana, in the District of Delaware for patent infringement. TC Heartland "is not registered to do business in Delaware, has no local presence in Delaware, has not entered into any supply contracts in Delaware or called on any accounts there to solicit sales." In re TC Heartland LLC, 821 F.3d 1338, 1340 (Fed. Cir. 2016). Indeed, revenue from the accused products shipped into Delaware accounted for just two percent of TC Heartland's total sales of the accused products. See id.

On this basis, TC Heartland moved to dismiss Kraft's complaint for lack of personal jurisdiction, for improper venue, and, in the alternative, to transfer venue. The district court relied on the Federal Circuit's 1990 precedent in VE Holding Corporation v. Johnson Gas Appliance Co. that a corporate defendant resides in any district in which it is subject to personal jurisdiction to deny TC Heartland's motion. TC Heartland petitioned the Federal Circuit for a writ of mandamus on the basis that the district court had incorrectly interpreted the venue statutes in denying its motion to dismiss. The Federal Circuit denied the petition, finding TC Heartland had failed to present a clearly established right to dismissal or transfer for improper venue. The Supreme Court recently granted TC Heartland's petition for certiorari to review the Federal Circuit's decision.

TC Heartland's principal argument is that the Federal Circuit's VE Holding precedent on venue no longer applies because Congress further amended the general venue statute in 2011. Section 1391(a) now begins: "Except as otherwise provided by law . . ." TC Heartland's position seizes on this language as indicating a return to § 1400(b) as the exclusive patent venue statute and the restoration of the Supreme Court's ruling in Fourco that "resides" carries its traditional meaning as the state of incorporation. It additionally argues that the Federal Circuit was incorrect to reject the holding of Fourco in VE Holding in finding that Congress' 1988 amendments to the general venue statute were intended to allow Section 1391(c) to supplement Section 1400(b).

Conclusion

A reversal by the Supreme Court could return patent litigation practice to the more restrictive venue regime that existed before the VE Holding case. This would reduce the ability of patent owners to purposely select a forum whose rules and procedures sometimes inflict disproportionate costs onto accused infringers and induce early settlements before the merits of a claim of patent infringement can be tested. Instead, plaintiffs would be required to choose a forum that is more closely aligned with defendants' business. As such, the outcome of TC Heartland could reduce litigation in the Eastern District of Texas.


  1. See, e.g., Brian J. Love and James Yoon, Predictably Expensive: A Critical Look at Patent Litigation in the Eastern District of Texas, 20 STAN. TECH. L. REV. 1, 8 (2017).
  2. See Rules of Practice for Patent Cases before the Eastern District of Texas, available at, http://www.txed.uscourts.gov/page1.shtml?location=rules:local; Local Rules of Practice for Patent Cases before the United States District Court for the Northern District of California, available at, https://cand.uscourts.gov/localrules/patent.
  3. See, e.g., Love and Yoon, 20 STAN. TECH. L. REV. 1. Professor Love and Mr. Yoon conducted a study of patent litigation in the Eastern District of Texas and concluded that “the driving force behind the jurisdiction's popularity is the combination of plaintiffs' ability to impose early, broad discovery obligations on accused infringers and defendants' inability to obtain an early procedural or substantive victory through motion practice.” Id. at 34.
  4. See Love and Yoon, 20 STAN. TECH. L. REV. 1, 23-24.
  5. For instance, Professor Love and Mr. Yoon’s study suggest that judges in the Eastern District of Texas are significantly less likely to stay litigation pending the post-grant administrative review procedures enacted by Congress in the America Invents Act. Love and Yoon, 20 STAN. TECH. L. REV. 1, 26-28.
  6. See 28 U.S.C. § 1406(a).
  7. The holding in the Brunette Machince Works, Ltd. v. Kockum Industries Inc. dealt with whether Section 1400(b) or 1391(d) applied to suits against foreign parties for patent infringement. Brunette Mach. Works, Ltd. v. Kockum Indus., Inc., 406 U.S. 706, 714 (1972) (“For § 1391(d) is properly regarded, not as a venue restriction at all, but rather as a declaration of the long-established rule that suits against aliens are wholly outside the operation of all the federal venue laws, general and special.”).
  8. Judicial Improvements and Access to Justice Act, Pub.L. No. 100–702, tit. X, § 1013(a), 102 Stat. 4642, 4669 (1988).