Identifying the Correct Venue for Patent Litigation After 'TC Heartland'

The identification of the proper venue for commencing a patent infringement or declaratory judgement action was rather straight forward for a number of years. However,  when the U.S. Court of Appeals for the Federal Circuit, which has exclusive appellate jurisdiction in patent matters, addressed the venue issue in  VE Holding v. Johnson Gas Appliance, 917 F.2d 1574 (Fed. Cir. 1990), it liberalized the venue requirement to where the defendant is subject to the court's personal jurisdiction. This decision lead to lower courts applying a liberal view of personal jurisdiction when reviewing the venue issue and gave patent litigation plaintiffs greater latitude in where to file suit.

For a number of years after  VE Holding, patent owners could use venue selection to gain a bit of a "home-field advantage" and, possibly, create additional burdens for a perceived infringer. This relatively benign "home field advantage" changed into a more aggressive venue selection when patentee-friendly jurisdictions, such as the Eastern District of Texas which literally invited patent litigation, began to demonstrate a bias against granting venue transfer motions. Venue selection then evolved into a matter of demonstrating some small, potentially trivial, connection to the chosen jurisdiction in order to avoid a transfer. Minor virtual offices sprung up in what were perceived to be patentee-friendly jurisdictions on the eve of filing a patent complaint. Consequently, minimum contacts with the desired jurisdiction were established and the likelihood of a case being removed from a patentee-friendly jurisdiction became very slim.

As a result, certain venues attracted the attention of litigants who were in the business of holding patents. Many of these patent holders were nonpracticing entities (NPEs) who did not produce any products and frequently only acquired patents in a particular technological area to build a substantial, and potentially lucrative, patent portfolio. At least two of the motivating factors prompting filings against high-value targets (namely technology companies, financial institutions and e-commerce retailers) in patentee-friendly jurisdictions include the potential for a high-end verdict and the fact that the NPE was not usually subject to patent counterclaims for infringement of patents belonging to the target company. Generally the only substantial risks faced by the plaintiff were the loss of the patent because it was determined to be invalid in the district court action or the defendant filed an  Inter Partes Review in the U.S. Patent and Trademark Office (USPTO). Courts that engaged in a liberal construction of the venue requirement were frequently the most patentee-friendly jurisdictions, which reinforced the perception that they were biased against defendants. These patentee favoring venues continued to gain attention and the issue of proper venue eventually garnered significant importance, because of patentee friendly verdicts and damage awards, that defendants took a more aggressive stance in fighting the venue selection.

The venue issues ultimately became a prominent, high profile issue that attracted the attention of the U.S. Supreme Court. The Supreme Court addressed the issue in  TC Heartland  v. Kraft Food Brands Group, 137 S. Ct. 1514 (2017). The question before the Supreme Court was whether Congress changed the meaning of 28 U.S.C. Section 1400, the venue statute for patent cases, when it amended 28 U.S.C. Section 1391, which address venue generally. More specifically, the Supreme Court addressed the question of "where proper venue lies for a patent infringement lawsuit brought by a domestic corporation."

Prior to ruling on  TC Heartland in 2017, the Supreme Court last addressed the requirements of the patent venue statute, 28 U.S.C. Section 1400, 60 years earlier in  Fourco Glass v. Transmirra Products, 353 U.S. 222 (1957). In  Fourco, the respondent argued that the congressional update in 1948 to 28 U.S.C. Section 1391(c), also changed the venue statute, 28 U.S.C. Section 1400(b)Fourco, at 228. The Supreme Court disagreed that the changes to 28 U.S.C. Section 1391(c) had any impact on venue under 28 U.S.C. Section 1400(b) and held that general statutory language of 28 U.S.C. Section 1391(c) did not affect a matter specifically dealt within the 28 U.S.C. Section 1400(b) and that no substantive change occurred. The Supreme Court declared that the language laid out in 28 U.S.C. Section 1400(b), "the judicial district where the defendant resides or where defendant has committed acts of infringement and has a regular and established place of business," is the definition of venue for patent infringement.

As noted earlier the Federal Circuit addressed the venue issue and the Supreme Court's holding from  Fourco in  VE Holding v. Johnson Gas Appliance, 917 F.2d 1574 (Fed. Cir. 1990). In that 1990 decision, the Federal Circuit refined the Supreme Court's venue holding in  Fourco to be any judicial district where the defendant is subject to the court's personal jurisdiction. This Federal Circuit refinement lead to the lower courts' liberal view of personal jurisdiction.

In deciding  TC Heartland, the Supreme Court, as it did almost 60 years earlier in  Fourco, held that the 2011 language changes in 28 U.S.C. Section 1391 had no effect on 28 U.S.C. Section 1400(b). The Supreme Court rejected the notion that the addition of the word "all" to Section 1391, so that it read "for all venue purposes" meant that venue for patent infringement was subject to 28 U.S.C. Section 1391. The Supreme Court rejected the broad reading of "resides" under 28 U.S.C. Section 1391 to impact 28 U.S.C. Section 1400(b) and held that 28 U.S.C. Section 1400(b) only refers to the state of incorporation.

Since the  TC Heartland decision in May 2017, there has been an uptick in venue challenges. However, the lower courts were not uniformly reading  TC Heartland as a change in the law on venue for purposes of 28 U.S.C. Section 1400(b), see  Raytheon v. Cray, No. 2:15-CV-01554-JRG, 2017 U.S. Dist. LEXIS 100887 (E.D.Tx. June 29, 2017) (determining that the  TC Heartland decision was not a change in law);  but see Simpson Performance Products v. Mastercraft Safety, No. 5:16-CV-00155- RLV-DCK, 2017 U.S. Dist. LEXIS 134609, at *5-7 (W.D.N.C. Aug. 22, 2017) (stating that  TC Heartland was new law because  VE Holdings was binding precedent and had a different definition for the term "resides"). Thus, the Federal Circuit's guidance in  VE Holdings was being applied differently by the court of original jurisdiction.

In mid-November 2017, on a rare writ of mandamus in  In re Micron Technology, No. 2017-138 (Fed. Cir. 2017), the Federal Circuit addressed the question of whether  TC Heartland was a change in law. The Federal circuit now held that  TC Heartland had "changed the controlling law" as stated in  VE Holding which was binding precedent prior to  TC Heartland. When the original complaint was filed in  In re Micron, the prevailing view was that 28 U.S.C. Section 1391 impacted the reading of the "resides" term in 28 U.S.C. Section 1400(b). However, with the  TC Heartland decision that there was a change in the law, the Federal Circuit determined that for venue purposes under 28 U.S.C. Section 1400(b) Micron did not "reside" in Massachusetts, where the suit was brought. When Micron made its initial motion to dismiss for lack of proper venue in 2016, which was prior to  TC Heartland, that defense was unavailable to Micron. Stated another way,  TC Heartland was a change in law and that meant the improper venue defense that was previously unavailable was now procedurally a viable defense.

Despite finding  TC Heartland to be a change in the controlling law, the Federal Circuit declined to transfer the case or order a dismissal. Instead, it held that Federal Rules of Civil Procedure 12(g) (2) and 12(h) (1) (A) are not the only basis upon which a district court can reject a venue challenge and set out a framework of the analysis for such circumstances. The Federal Circuit cited  Dietz v. Bouldin, 136 S.Ct. 1885, 1891 (2016), and held that the district courts have "inherent powers" which allow them to determine if a venue objection is lost despite compliance with Federal Rule of Civil Procedure 12. Noting that waiting too close to trial or a strategic wait-and-see approach would be two circumstances where a district court could determine the forfeiture of a venue objection.

Although the Federal Circuit held that  TC Heartland was a change in the law, which is somewhat questionable in view of the court's actual opinion, it was left to the discretion of the district courts to make the ultimate decision on venue. While certain courts will certainly grant transfers of venue, other courts may use their "inherent discretion" to deny such motions.

Any defendant considering the filing of a motion to transfer venue should not only consider whether or not they fall within  TC Heartland's definition of "resides," but also consider the timeliness, party strategy and judicial efficiency factors and address them in the motion. Even if the plaintiff does not raise these issues, the court may use its inherent powers to find that the defendant forfeited the objection even though is complied with the Federal Rules of Procedure.

Anecdotally, it appears that patentee-friendly jurisdictions are granting venue changes, but there still appears to be major resistance to altering a course that built a mini economy around patent litigation and those patentee-friendly courts are less likely to grant transfer motions.

Reprinted with permission from the January 5, 2018 issue of The Legal Intelligencer ©2018 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.



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