Source: https://iclg.com/practice-areas/patents-laws-and-regulations/3-u-s-supreme-court-agrees-upon-restricted-venue-for-patent-cases
Timestamp: 2018-08-14 11:22:41
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Patents 2018 | U.S. Supreme Court Agrees Upon Restricted Venue for Patent Cases
History of the Kraft Foods/TC Heartland Litigation
The Interplay Between the General and Patent-Specific Venue Statutes
The Supreme Court’s Heartland Decision
In what may prove to be one of the most significant U.S. patent law decisions in recent years, the U.S. Supreme Court held in TC Heartland LLC v. Kraft Foods Group Brands LLC that domestic U.S. corporations may be sued for patent infringement only in federal districts in which they: (i) “reside” (i.e., within the U.S. state where they are incorporated); or (ii) have “committed acts of infringement” and have a “regular and established place of business”.1 This decision overturned 27 years of contrary practice, under which U.S. corporations could be sued in any district in which they were subject to personal jurisdiction – in other words, just about anywhere their business activities reached.
The decision likely reduces the potential for forum-shopping in patent cases by restricting the number of jurisdictions in which a patentee may bring an infringement lawsuit against a domestic U.S. corporation. However, the decision also raises new questions about (i) what constitutes a “regular and established place of business”, and (ii) where foreign (i.e., non-U.S.) corporations can be sued.
This article examines the history of the patent venue statutes, the effect of the TC Heartland ruling, and the issues that are expected to be the subject of near-term future litigation.
The case arose out of a dispute between Kraft Foods (“Kraft”), a major global food and beverage producer, and TC Heartland (“Heartland”), a smaller U.S. company selling competing flavoured water products. Kraft sued Heartland in the U.S. District Court for the District of Delaware, one of the most popular jurisdictions for patent cases, alleging infringement of three patents concerning packaging techniques for water flavourings.
Heartland moved for dismissal of the action on the basis that the court lacked personal jurisdiction over Heartland. According to Heartland, no personal jurisdiction could be established because Heartland was not registered to transact business in Delaware and had no office, property, employees, agents, distributors, bank accounts, or other local presence in Delaware. Nor did it have any supply contracts there; nor did it call on any customer accounts there.
The only connection between Heartland and Delaware – which Heartland conceded – was that a very small percentage of its accused products (on the order of 2 per cent) were shipped to customers’ distribution facilities in Delaware. Heartland also argued that venue was improper under the patent-specific venue statute, 28 U.S.C. 1400(b),2 due to Heartland’s lack of a “regular and established place of business” in Delaware. In the alternative, Heartland requested transfer to the U.S. District Court for the Southern District of Indiana, where Heartland’s headquarters are located.
The Delaware court denied the motion, finding that jurisdiction over Heartland was proper because Heartland had “purposefully availed” itself of the privilege of conducting activities within Delaware by knowingly and intentionally shipping products to Delaware, thus invoking the benefits and protections of Delaware laws. Additionally, the district court relied on a 1990 decision of the U.S. Court of Appeals for the Federal Circuit, VE Holding Corp. v. Johnson Gas Appliance Co.,3 to find that the requirement of proper venue had been satisfied based merely on the existence of personal jurisdiction.
Heartland then filed a petition for mandamus at the Federal Circuit, seeking a writ directing the Delaware court to either dismiss or transfer the case. Not surprisingly, the Federal Circuit relied on its prior decision in VE Holding in denying the writ. According to the Federal Circuit, the venue question had been “firmly resolved” by VE Holding more than 25 years beforehand. In that case, as discussed in greater detail below, the Federal Circuit had held that the broad definition of corporate residence in the general venue statute – which would encompass all jurisdictions in which the defendant corporation was subject to personal jurisdiction – was intended by Congress to be read into the special patent venue statute.
With its attempt to obtain a writ of mandamus rejected, Heartland then filed a petition for writ of certiorari with the U.S. Supreme Court, which – to the surprise of many observers – was granted on December 14, 2016.
The special venue statute for patents in U.S. patent law, 28 U.S.C. 1400(b), provides that “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”. This statutory text has remained largely unaltered since its original enactment in 1897.4
In 1942, the U.S. Supreme Court explicitly held that the special patent venue statute was the “exclusive provision controlling venue in patent infringement proceedings”. Stonite Products Co. v. Melvin Lloyd Co., 315 U.S. 561, 562 (1942). Stonite addressed the question whether a general venue provision – which permitted suits against two or more defendants residing in different districts within the same state to be brought in either district – supplemented the special venue statute, or whether the special patent venue statute was a stand-alone provision, not to be supplemented by any other venue statute. The Supreme Court reasoned:
The Act of 1897 was adopted to define the exact jurisdiction of the federal courts in actions to enforce patent rights and thus eliminate the uncertainty produced by the conflicting decisions on the applicability [of an earlier general venue statute]. That purpose indicates that Congress did not intend the [earlier statute] to dovetail with the general provisions relating to the venue of civil suits, but rather that it alone should control venue in patent infringement proceedings.
Stonite, 315 U.S. 565-56.
Then, in 1948, in an effort to expand the number of locations in which corporate defendants could be sued in civil cases in general, the U.S. Congress enacted 28 U.S.C. 1391(c), which provided (at that time, fairly similar to today) that “[a] corporation may be sued in any judicial district in which it is incorporated or licensed to do business or is doing business, and such judicial district shall be regarded as the residence of such corporation for venue purposes”.
In 1957, in addressing the apparent conflict between the new general provision of 1391(c) and the specialised patent venue statute, the Supreme Court again held that the specialised patent venue statute was “the sole and exclusive provision controlling venue in patent infringement actions, [and that it is] not to be supplemented by the provisions of §1391(c)”. Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 229 (1957). As the court reasoned:
We think it is clear that §1391(c) is a general corporation venue statute, whereas §1400(b) is a special venue statute applicable, specifically, to all defendants in a particular type of actions, i.e., patent infringement actions. In these circumstances the law is settled that ‘[h]owever inclusive may be the general language of a statute, it ‘will not be held to apply to a matter specifically dealt with in another part of the same enactment. * * * Specific terms prevail over the general in the same or another statute which otherwise might be controlling.
Fourco, 353 U.S. at 229.
That settled the matter for the next 30-plus years. In 1988, however, Congress amended §1391 to read, “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” (emphasis added).5
In 1990, in VE Holding, the Federal Circuit addressed this change in the statutory language of the general corporate venue provision. Reasoning that the language “for purposes of venue under this chapter” now constituted “exact and classic language of incorporation”, the court held that Congress now had shown a “clear intention” that 1391(c) supplement (and indeed, provide the definition of corporate “residence” for) 1400(b). VE Holding, 917 F.2d at 1579.
The Federal Circuit also noted that “the legislative history of the 1988 amendment reveal[ed] no legislative intent, let alone clearly expressed intent, contrary to the plain meaning of this first sentence of the amended statute”. Id. Thus, under the Federal Circuit’s interpretation of the statutory regime in VE Holding, the general venue provision for corporations applied in patent cases, and corporate defendants were susceptible of suit in any federal district in which personal jurisdiction – a low bar – could be established. And the matter was once again settled for nearly another 30 years.
Against the backdrop of VE Holding, the patent litigation landscape changed considerably in the United States between 1990 and 2015. As one indication of this change, the distribution and concentration of patent cases across the United States shifted quite dramatically. More and more cases found their way to particular federal districts, including some districts which – rightly or wrongly – were perceived to be more claimant-friendly. The Eastern District of Texas, as one example, which includes about 1 per cent of the population of the United States and is not particularly known for being a hotbed of research and development, by 2015 had come to host nearly half the patent cases filed that year.6
One additional change bears noting. In 2011, Congress amended §1391 such that “except as otherwise provided by law”, “this section shall govern the venue of all civil actions brought in district courts of the United States. And 1391(c)(2) now provided that “[f]or all venue purposes”, certain entities, “whether or not incorporated, shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question”.
The Federal Circuit, in declining to issue a writ of mandamus in response to Heartland’s petition, determined that such amendments reflected a broadening of the applicability of the definition of corporate residence, not a narrowing, and rejected the argument that these amendments were intended to codify the holding of Fourco as opposed to VE Holding.
And then came the Supreme Court’s grant of certiorari.
The Supreme Court heard oral argument on March 27, 2017, and issued its decision on May 22, 2017. In a unanimous 8-0 opinion, the court reversed the decision of the Federal Circuit as to the Heartland matter, and abrogated the Federal Circuit’s determination in VE Holding that the general venue statute supplemented the specialised patent venue statute. As the court stated:
In Fourco, this Court definitively and unambiguously held that the word ‘residence’ in §1400(b) has a particular meaning as applied to domestic corporations: It refers only to the State of incorporation. Congress has not amended §1400(b) since Fourco, and neither party asks us to reconsider our holding in that case.
TC Heartland, 137 S.Ct. at 1520.
Moreover, the court stated 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”. And “nothing in the text suggest[ed] congressional approval of VE Holding”.
Thus, the rule of Fourco and Stonite has been upheld once again: §1400(b), the specialised patent venue statute, is the exclusive provision governing venue in U.S. patent cases. Accordingly, a U.S. domestic corporation may only be sued in districts: (i) which are within the defendant’s state of incorporation; or (ii) in which the corporate defendant has committed acts of infringement and the defendant has a regular and established place of business.
The Supreme Court’s decision raises several new issues which likely will be litigated heavily in the near-term. First, since VE Holding issued in 1990, 27 years ago, courts have had little occasion to address what constitutes a “regular and established place of business”. The Federal Circuit only had one opportunity to weigh in on that question prior to VE Holding, and only then in a procedural posture that did not require to court to put much gloss on what the term means. To be sure, in the age of the Internet, the ways in which many companies conduct business has changed radically since VE Holding issued.
Second, the Heartland decision expressly applies only to domestic corporations, which raises the question: what is the state of the law in respect of foreign (i.e. non-U.S.) corporations and other entities? With the caveat that these questions have not been definitively answered, we address each of these issues in turn below to provide some background.
One of the key issues that will be litigated as a result of the Heartland decision is what constitutes a “regular and established place of business”. A key point to note is that much of the case law gloss on this phrase pre-dates the creation of the Federal Circuit.7
The Federal Circuit only had one occasion to weigh in on the meaning of this phrase, and when it did so, it was reviewing for clear error a district court’s decision not to dismiss a case based on improper venue. Because it was a deferential standard of review, the Federal Circuit spent little time addressing the contours of the test for a regular and established place of business. The court did say that “whether the corporate defendant does its business in that district through a permanent and continuous presence there and not…whether it has a fixed physical presence in the sense of a formal office or store”. In re Cordis Corp., 769 F.2d 733, 737 (1985). However, the court did note that the Supreme Court had “yet to address the issue of whether it is necessary to show that a corporate defendant maintains a fixed physical location within a jurisdiction in order to find that it has an established place of business as required by §1400(b)”. 769 F.2d at 736.
Amongst the pre-Federal Circuit cases, at least a few principles are clear: it is not sufficient to merely be “doing business” in a district to meet the requirement. There must be some “permanent and continuous” presence there. In the Cordis case, the presence of sales representatives in the district, who held company inventory in stock at their home offices, drove company cars, enlisted the services of a secretarial support firm, instructed surgeons on the proper use of their medical devices during surgical procedures, and deducted the expenses of their home offices was found sufficient to constitute a “regular and established place of business” – or at least not to constitute clear error on the part of the district court.
In other cases, circuit courts generally agreed that the presence of an independent distributor or agent, or a temporary presence for the purpose of conducting a sale, is insufficient to meet the requirement. On the other hand, the presence of a full-time sales representative, even working from a home office, may in some cases be sufficient. The courts will be picking up decades-old case law and continuing to develop gloss on the meaning of this statutory language.
The other key issue raised by TC Heartland concerns whether there are restrictions on venue for suits against foreign (i.e., non-U.S.) corporations and similar entities. The Supreme Court expressly noted:
The parties dispute the implications of [Heartland’s] argument for foreign corporations. We do not here address that question nor do we express any opinion on this Court’s holding in Brunette Machine Works, Ltd v. Kockum Industries, Inc., 406 U.S. 706 (1972) (determining proper venue for foreign corporation under then existing statutory regime).
TC Heartland, 137 S.Ct. at 1520, n.2 (emphasis added).
In Brunette, the Supreme Court held that foreign corporations could be sued for patent infringement in any federal district. The court stated that “in 1897 Congress placed patent infringement cases in a class by themselves, outside the scope of general venue legislation”. Yet the court concluded that the 1400(b) analysis “shed[] no light on the present case”, in which a Canadian defendant asserted that it was not subject to proper venue in the U.S. District Court for the District of Oregon because it did not have a “regular and established place of business” there. Brunette, 406 U.S. at 713.
According to the Court: “Section 1391(d)8 is not derived from the general venue statutes that §1400(b) was intended to replace. Section 1391(d) reflects, rather, the longstanding rule that suits against alien defendants are outside those statutes.” Accordingly, “we conclude that in §1391(d) Congress was stating a principle of broad and overriding application, and not merely making an adjustment in the general venue statute, as this Court found Congress had done in Stonite and Fourco”.
In so finding, the Court relied heavily on In re Hohorst, a case dating from 1893 holding that non-U.S. defendants in general were not subject to the venue statutes all the way back to the Judiciary Act of 1789. Given this reasoning, it seems likely that the rule of Brunette will stay intact, but this creates an odd state of affairs in which one provision of the general venue statute (concerning venue for U.S. corporations) does not apply in patent actions, but a neighbouring provision of the same general statute (concerning non-resident entities) states a rule that applies in all federal civil actions, including patent actions.
The TC Heartland decision likely will have a significant impact on where patent cases against domestic U.S. corporations may be heard. In the wake of this decision, U.S. domestic corporations may only be sued in districts in the state in which they are incorporated, or where alleged infringement has occurred and the corporation has a regular and established place of business. Would-be claimants, therefore, will have limited choice as to where to bring lawsuits, and the opportunities for forum-shopping will be limited. This represents a major departure from the last 27 years of U.S. patent practice.
1. 134 S.Ct. 1514 (2017).
2. The current version of 28 U.S.C. 1400(b) provides: “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.”
3. 917 F.2d 1574 (Fed. Cir. 1990).
4. Prior to 1897, patent lawsuits were governed by the general federal venue statutes, beginning with the first venue provision in the Judiciary Act of 1789.
5. Section 1400 is part of the same “chapter” as §1391.
6. See Colleen V. Chien and Michael Risch, Recalibrating Patent Venue, Santa Clara Univ. Legal Studies Research Paper 10-1, October 2016, at pp. 3–4.
7. The Federal Circuit was created in 1982 in part to create uniformity in U.S. patent law. Prior to the creation of the Federal Circuit, patent appeals from district court litigation were heard in the regional circuit courts of appeal, which applied their own circuit precedents in the absence of binding authority from the U.S. Supreme Court.
8. 28 U.S.C. §1391(d), at that time, stated that “(a)n alien may be sued in any district”.
U.S. Supreme Court Agrees Upon Restricted Venue for Patent Cases