Supreme Court Drastically Limits Venue for Patent Cases

May 22, 2017 Advisory

In a case sure to have immediate and profound impact on patent litigation in the United States, the Supreme Court today in TC Heartland LLC v. Kraft Food Brands Grp. LLC, 581 U.S. __ (May 22, 2017) redefined the standard for where defendants can be sued under the patent venue statute, 35 U.S.C. § 1400(b). In a unanimous 8-0 decision, the Supreme Court reversed a Federal Circuit rule that had allowed patent holders to file an infringement suit in any district where defendants made sales.

The Facts

Defendant Heartland is organized in Indiana, as well as headquartered in the state. Kraft, organized in Delaware, sued Heartland in Delaware for patent infringement over Heartland's sale of flavored drink mixes. Heartland shipped the allegedly infringing mixes to Delaware, but did not have a local office or other presence there.

Heartland challenged that Delaware was a proper venue in which Kraft could bring suit. Both the trial court and the Federal Circuit rejected this challenge, pointing to previous Federal Circuit case law that has long held that venue was proper for a domestic corporation in a patent infringement action anywhere where the defendant was subject to a district court's personal jurisdiction, which in this case was satisfied in Delaware by virtue of Heartland's sales there.

The Supreme Court disagreed, and contrary to prior Federal Circuit case law rejected the argument that the general venue statute modified the patent venue statute to define what constitutes where a defendant "resides." Rather, the Supreme Court held that the term "resides," in patent infringement actions, is defined solely by the patent venue statute, and is based on the state of incorporation. ("We therefore hold that a domestic corporation ‘resides' only in its State of incorporation for purposes of the patent venue statute." See Slip op. at 2.)

Impact of the Heartland Decision

As a result of this decision, patent infringers may now be sued in only one of two places: (1) the state of incorporation; or (2) a judicial district where the defendant has committed acts of infringement and has a regular and established place of business. For companies making sales throughout the U.S. but having only limited physical offices, this ruling substantially reduces the states where they can be sued, perhaps in some cases reducing that number from all 50 to only one or two.[1] This will profoundly impact the distribution of patent litigation cases throughout the United States.

Heartland greatly limits the ability of plaintiffs to "forum shop," i.e., to sue in districts they perceive as favorable to them – for instance based on criteria such as local rules, track record, time to trial, jury pool, etc. Overnight, there will be a significant reduction in new cases filed in the plaintiff-friendly and pro-patent "rocket docket" jurisdictions of Eastern District of Texas and Eastern District of Virginia, and those supporting litigants in these areas are likely facing dark days ahead.

Particularly, this ruling will be seen by opponents of non-practicing entities, deridingly referred to as "patent trolls," as a significant victory. Non-practicing entities had favored several jurisdictions perceived as pro-patentee. It is unclear what effect the loss of this tactic will have on the success of their overall business model.

Delaware, a common state of incorporation, even for companies with no presence there,[2] is likely to see an already busy patent docket greatly expanded.

Heartland also opens several new questions. It is not yet clear what will happen to existing cases in districts where venue was proper under the previously prevailing standard but improper under the new standard of Heartland. This will likely depend upon what stage those cases are at, and whether they are past the pleading stage, where there is an argument that they have waived the defense of improper venue. This point may be the center of a rush of new motions to dismiss or transfer.

Heartland also expressly limits its analysis to "corporations," leaving the impact as to other corporate forms, such as LLCs to be addressed in other cases. (See Slip op. at 2 n.1) Moreover, the ruling is limited to "domestic corporations." Its impact on foreign corporations has yet to be determined. (See Slip op. at 7 n.2)

Heartland could significantly impact the tactic of suing groups of defendants in the same court at the same time. Many courts would consolidate such actions for discovery, claim construction and, absent objection, trial. If the defendants do not have common states of incorporation or established places of business, multiple jurisdictions might have to be used for an enforcement program. This could bring increased utilization of the Judicial Panel on Multidistrict Litigation.

Finally, because Heartland deals only with the definition of the word "resides" in the first clause of the patent venue statute, it does not address the second clause of the patent venue statute, which provides that venue is proper where the defendant has committed acts of infringement and "has a regular and established place of business." Heartland will likely shift focus to this long-ignored second clause of the patent venue statute, as litigants may grapple over what it means to have a "regular and established place of business" in a judicial district.

[1] As an aside, permitting venue in the state of incorporation, rather than a particular judicial district, will on its face mean a corporation in a large state may still be dragged into court in a judicial district in the far reaches of their state.

[2] For instance, over 50% of Fortune 500 companies are incorporated here.