Supreme Court’s TC Heartland Decision Impact

Tuesday, May 23, 2017

TC Heartland LLC v. Kraft Foods Group Brands LLC, No. 16-341 (May 22, 2017)

The U.S. Supreme Court has rejected the prevailing interpretation of the patent venue statute, 28 U.S.C. § 1400(b), and held in an 8-0 decision that a domestic corporation defendant may be sued for patent infringement only in its state of incorporation or in a district where it allegedly “committed acts of infringement and has a regular and established place of business.” TC Heartland LLC v. Kraft Foods Group Brands LLC, No. 16-341 (May 22, 2017). The decision will immediately cause a diversion of cases away from the U.S. District Court for the Eastern District of Texas and other jurisdictions favored by patent plaintiffs, to districts where defendants are incorporated or have an established presence.

Background

The decision results from a petition for a writ of mandamus filed by TC Heartland, a liquid sweetener manufacturer that was sued for patent infringement in the U.S. District Court for the District of Delaware, in its attempt to have the action against it transferred to a more favorable forum. The patent owner, Kraft Foods Group Brands LLC, a Delaware corporation, sued TC Heartland in the District of Delaware. The defendant moved to dismiss the action or transfer it to the U.S. District Court for the Southern District of Indiana, on the grounds that TC Heartland was an Indiana corporation with no presence in Delaware, other that the incidental sale of accused products. The district court denied the motion and the U.S. Court of Appeals for the Federal Circuit denied mandamus, relying on its controlling decision in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990). That decision allowed infringement actions to be filed against corporations selling or distributing allegedly infringing products through nationwide channels of commerce in almost any judicial district. TC Heartland petitioned to the Supreme Court.

Supreme Court Rules that “Resides” Means “Incorporated

On appeal, TC Heartland challenged the Federal Circuit’s interpretation of the patent venue statute, 28 U.S.C. § 1400(b), which states that infringement actions “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.” The Federal Court in VE Holding had ruled that the general venue provision, 28 U.S.C. § 1391, as amended in 1988, modified Section 1400(b) to require that a corporation defendant “resides” in any district where it is subject to personal jurisdiction.

In a unanimous decision written by Associate Justice Clarence Thomas, the Court rejected the VE Holding analysis and held that a domestic corporation “resides” only in its state of incorporation. The Court limited its discussion to a traditional statutory construction analysis, and avoided commenting on the policy concerns raised by the parties and several amici curiae. The Court held that its interpretation of Section 1400(b) in Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222 (1957) was dispositive, and that Congress did not clearly indicate an intent to change that caselaw when it amended Section 1391. Furthermore, the Court noted that more recent amendments to Section 1391 in 2011 appeared to confirm that the Fourco decision remained good law, since the general venue provision now includes a savings clause stating that it does not apply when “otherwise provided by law[.]”

As a result, a patent owner has two venue options for defendants that are domestic corporations: It may file the infringement action in the defendant’s state of incorporation, or in a judicial district where the defendant allegedly has committed acts of infringement and has a regular and established place of business.

Practical Impact

The TC Heartland decision will have a huge and immediate impact on patent litigation practice and strategy. Under the prior VE Holding decision, patent owners opted to file infringement cases in favorable districts, with half of all patent infringement actions each year being filed in just two courts: the Eastern District of Texas and the District of Delaware. Critics have criticized this practice as “forum shopping,” and have argued that subjecting defendants to litigation in inconvenient courts was unfair. Other critics have argued that the concentration of patent litigation in a handful of districts gave the limited number of federal judges in those districts a disproportionate influence over the interpretation and development of patent law.

The TC Heartland ruling will cause a large fraction of cases that otherwise would be filed in the Eastern District of Texas to be filed in other judicial districts. The precise redistribution of those cases will depend on the footprints of future defendant and the perceived tactical advantages and disadvantages of alternative jurisdictions. It is likely that many more cases will be filed in districts where corporate headquarters, manufacturing, and/or retail facilities are located. In addition, it is likely that defendants in cases currently pending in the Eastern District of Texas and other unfavorable fora will move to transfer venue, if the right to do so has not been waived.

The TC Heartland decision will cause patent owners to reassess their enforcement strategies, including evaluating the relative pros and cons of filing in districts outside Texas and Delaware. In some cases involving multiple defendants, plaintiffs will need to file separate actions in different courts, leading to possible coordinated multidistrict litigation. In addition, if patent owners adopt a strategy of filing infringement actions against retailers (which generally do have a presence in the Eastern District of Texas), manufacturers may be forced to defend those actions due to their contractual indemnification obligations. Although the decision raises numerous questions that can only be resolved by future cases, such as the appropriate venue rules for foreign corporation and limited liability corporation defendants, the TC Heartland decision is sure to be a watershed event that will shape patent litigation practice for many years.