Supreme Court’s Decision in TC Heartland Narrows Patent Venue Selection
The Supreme Court’s decision in TC Heartland will undoubtedly have a substantial impact on patent venue selection and will likely lead to a marked decrease in cases brought in the Eastern District of Texas. Under the Supreme Court’s view of patent venue in TC Heartland, simply selling or distributing products in a judicial district would no longer be considered sufficient to hale a defendant into court in that district unless the defendant corporation also has a “regular and permanent” presence in the district.
TC Heartland (2017): Analyzing the Supreme Court’s 8-0 Decision
Strict Reliance on Supreme Court Precedent in Fourco: In arriving at its decision, the Supreme Court relied on its previous precedent in Fourco. In the 1956 Fourco decision, the Court had reaffirmed a 1942 decision in Stonite, which unequivocally held that 1400(b) was “the sole and exclusive provision controlling venue in patent infringement actions, and… is not to be supplemented by… §1391.” Today’s TC Heartland decision reaffirmed both prior decisions and held that there was no “material difference between the two phrasings” in the version of §1391 that existed at the time of the Fourco decision and the version that exists now. If anything, the Court found that the argument for reading §1391 into §1400 was “even weaker now than it was when the Court rejected it in Fourco” because the current version of §1391 contains a savings clause, “which expressly states that the provision does not apply when ‘otherwise provided by law,’ thus making explicit the qualification that the Fourco Court found implicit in the statute.”
Application of the Clear Statement Rule: The crux of the Supreme Court’s decision dealt with the question of whether Congress’s amendment to §1391 changed the meaning of §1400, which has never been amended since its codification in 1948. On that question, Congress ultimately applied the clear statement rule and found that the “current version of §1391 does not contain any indication that Congress intended to alter the meaning of §1400(b) as interpreted in Fourco.”
No Discussion of Current Patent Venue Trends: Nearly every single amicus brief that was submitted to the Court in this case focused on the recent rise in patent forum-shopping trends and the disproportionate number of patent cases being brought in the patentholder-friendly Eastern District of Texas. Yet, the Supreme Court’s decision notably left out any discussion of the Eastern District of Texas or the practical impact of its opinion, and instead simply focused on the jurisprudential considerations.
What Does This Mean for Patent Litigation? The Practical Effects of TC Heartland
A “New” Test for Patent Venue: The relevant test now for choosing patent venue is (a) whether the corporation resides in that district, which now “refers only to the State of incorporation” or (b) whether the defendant has committed acts of infringement and has a regular and established place of business.” The second prong had been all but meaningless under the Federal Circuit’s prior expansive view of the term “reside” in the patent venue statute, but now it could become a significant consideration in cases where a plaintiff does not wish to sue in the defendant’s state of incorporation. Case law on this prong shows that no fixed physical presence is required to have a “regular and established place of business” but that the inquiry is “whether the corporate defendant does its business in that district through a permanent and continuous presence there.” (In re Cordis Corp., 769 F.2d 733 (Fed. Cir. 1985)). The TC Heartland decision will likely raise questions over the contours of this requirement, but in the meantime, corporations should consider removing “permanent and continuous” presences from jurisdictions in which they may want to avoid litigation.
Forum Selection: This decision will mostly likely lead to a significant decrease in patent litigation in the Eastern District of Texas. The Federal Circuit’s decision in VE Holding expanding patent venue has been linked to an increase in forum-shopping in patent cases. For example, in 1991, the year after VE Holding, a total of seven patent infringement cases were filed in the Eastern District of Texas. Yet, by 2015, a whopping 2558 cases - almost half of all patent cases filed that year - were brought in the Eastern District of Texas. With the Supreme Court’s new rule on patent venue, cases are now more likely to be brought in districts where companies are incorporated or tend to have their corporate headquarters, such as the District of Delaware. Other districts that will likely see spikes in litigation after the TC Heartland decision include the Northern District of California, the Central District of California, the Southern District of New York, and the Northern District of Illinois. Defendants may be able to rely on the Supreme Court’s narrow view of patent venue to contest jurisdiction in pending cases, as long as they have not already waived the defense.
Multiparty Litigation: The TC Heartland decision may also have an effect on multiparty litigation. Previously, plaintiffs could easily bring actions against multiple parties in one district by meeting the general venue provisions and demonstrating that each of the defendants committed an infringing action in the forum state. Under the now-narrowed view of patent venue, plaintiffs may find themselves unable to locate one common venue for all of the alleged infringers and would be required to file patent infringement actions in multiple venues. Maintaining multiple suits in various districts would increase the cost of litigation and demand more time and resources on the part of the plaintiffs, potentially discouraging multiparty actions.