This Blog Was Published Prior To The Supreme Court’s Decision. It Highlighted Errors in The Federal Circuit Precedent and Accurately Predicted The Supreme Court’s Final Decision.
Executive Summary: During the March 2017 session, the Supreme Court heard oral arguments concerning the Federal Circuit’s decision in In re TC Heartland. In that case, the Federal Circuit affirmed its own twenty-five year old precedent that has enabled non-practicing entities (“NPEs”) to readily litigate in patent friendly jurisdictions, such as the Eastern District of Texas and the District of Delaware. After review of the applicable cases and legislative history, Bauz IP Law has determined that there are compelling arguments for the Supreme Court to narrow where patent cases are litigated, namely to judicial districts where a corporation “resides,” i.e., the state of incorporation, or alternately in the judicial districts where (1) it has committed an act of infringement and (2) maintains its principal place of business. This development would significantly curtail forum shopping and patent litigation in the Eastern District of Texas and District of Delaware. Today, these two jurisdictions account for approximately 60% of all patent cases.
The Federal Circuit in In re TC Heartland LLC, 821 F.3d 1338 (Fed. Cir. 2016) held that the patent- specific venue statute, 28 U.S.C. § 1400(b), is supplemented by the general venue statute, 28 U.S.C. § 1391, in regards to where a corporate defendant “resides.” This holding essentially expands venue by equating it to personal jurisdiction. In other words, the mere presence of accused products in a given judicial district can result in proper venue. However, the venue statutes and corresponding legislative history combined with binding Supreme Court precedent strongly supports a different result.
Supreme Court Cases
The first codified patent-specific venue statute was § 48 of the 1911 Judicial Code. That statute provided that patent infringement suits could be brought “in the district of which the defendant is an inhabitant.” In 1942, the Supreme Court in Stonite Prods. Co. v. Melvin Lloyd Co., 315 U.S. 561 (1942) faced the question of whether, for patent cases, §48 was the sole provision, or whether it is supplemented by §52, the then general venue provision. After review of the precedent leading to Congressional adoption of a patent-specific venue, as well as the legislative history, the Supreme Court held “that [the patent-specific venue provision] §48 is the exclusive provision controlling venue in patent infringement proceedings.” In effect, the Supreme Court in Stonite narrowed the number of district courts that can properly preside over patent cases.
In 1948 Congress replaced §48 with §1400(b). In relevant part, Congress substituted the language “of which the defendant is an inhabitant” in §48 with “where the defendant resides” in the newly enacted §1400(b). The term “reside” was also present in the general venue statute §1391(c). As a result, the common term “reside(s)” raised the issue of the relationship of the two provisions. In other words, did Congress intend the new patent-specific venue to be exclusive of the general venue statute or supplemented by it.
In 1957, the Supreme Court in Fourco Glass Co. v. Transmirra Products Corp, 353 U.S. 222 (1957) addressed that precise issue. The Court noted that “it will not be inferred that Congress, in revising and consolidating the laws, intended to change their effect unless such intention is clearly expressed.” Id. at 227. Finding no such intent in the 1948 legislative history corresponding to §1400(b), the Court determined that the word “resident,” which replaced “inhabitant,” are synonymous and both mean the state of incorporation. Similarly, the Court concluded that use of the common term “reside(s)” did not in and of itself create a nexus that altered its decision in Stonite. The Court held that “1400(b) was the sole and exclusive provision governing venue in patent infringement actions, as was its predecessor, 48 of the Judicial Code of 1911.” Id.
Brunette Machine Works
In 1972, the Supreme Court in Brunette Mach. Works, Ltd. v. Kockum Indus., Inc., 406 U.S. 706 (1972) addressed whether §1400(b) or §1391(d) should control venue in patent cases involving foreign corporations. In this regard, only the general venue statute §1391(d) expressly addressed the question of proper venue in such cases. The Court made it clear that §1391(d) was properly regarded “as a declaration of the long-established rule that suits against aliens are wholly outside the operation of all the federal venue laws, general and special.” Brunette at 714. It therefore found that 1391(d) controls.
Federal Circuit Decisions
In 1988, Congress amended §1391(c). It added the modifier “For purposes of venue under this chapter” and re-defined the term “reside” for corporations to mean “any judicial district in which it is subject to personal jurisdiction at the time the action is commenced.” Because §1400(b) falls under that same chapter and uses the common term “reside(s),” a new variation of the venue question arose as to whether Congress meant to have the amended §1391(c) supplement §1400(b). If so, venue would be appropriate in more judicial districts because personal jurisdiction in patent cases often boils down to where infringing products are found, i.e., where they are “made, used, sold or offered for sale.” Two years later, the Federal Circuit addressed the venue question in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (1990).
In VE Holding Corp., the Federal Circuit held that in amending §1391(c) Congress intended that provision to supplement §1400(b). The Federal Circuit noted the phrase “For purposes of venue under this chapter…” and concluded that it meant that §1391(c) applies to all of chapter 87 of title 28, to which §1400(b) belongs. The Federal Circuit reasoned that “the language of the statute is clear and its meaning is unambiguous.” Id. at 1580. Yet, the Federal Circuit also recognized that Congress was silent on “how or whether this amendment is intended to affect” §1400(b), or for that matter other sections of chapter 87 . . .” Id. at 1581. The Federal Circuit also suggested that Brunette stands for the proposition that §1400(b) was no longer the “exclusive” venue provision for patent cases, thereby limiting the reach of Fourco Glass. As a result, VE Holding essentially made it easier to sue corporations in a greater number of judicial districts.
There are persuasive arguments that VE Holding was wrongly decided. First, the reasoning of VE Holding expressly contradicts to what the Supreme Court pointed out regarding interpretation of revised statutes: courts should not infer “that Congress, in revising and consolidating the laws, intended to change their effect unless such intention is clearly expressed.” Fourco Glass at 227. As discussed above, the Federal Circuit admitted that there was no legislative history. It nonetheless concluded that Congress intended §1400(b) to be supplemented by §1391(c), thereby impermissibly “chang[ing] their effect.” Id. Second, Fourco Glass and Brunette could together stand for the proposition that a more specific venue provision controls over a more general one. Following this interpretation, Supreme Court precedent leads to a different result. Namely, §1400(b) specifically addresses where corporations are said to reside for patent cases and therefore should control, unless the corporation “resides” outside the U.S. These two reasons alone reasonably support the proposition that the VE Holding case was wrongly decided.
In re TC Heartland
In 2011, Congress amended §1391 again. The language “For purpose of venue under this chapter” was changed to “For all venue purposes.” The only other relevant 2011 amendment is §1391(a), which now begins with “Applicability of section – Except as otherwise provided by law””
Five years later, the Federal Circuit in In re TC Heartland again addressed the question of venue in light of the latest legislative changes to the venue statutes. The Federal Circuit followed its own decision in VE Holding, applied analogous reasoning and held that §1391(c) supplements”
§1400(b). Thus, the problematic issues of VE Holding were subsumed by In re TC Heartland. The end result is NPEs could continue their practice of filing patent cases in plaintiff friendly, and often inconvenient, jurisdictions.
There are compelling arguments that the Federal Circuit erred in its interpretation of the venue statutes in patent cases. Accordingly, the Supreme Court may resurrect its decision in Fourco Glass and overturn In re TC Heartland. If so, venue in patent cases would be limited to §1400(b). More specifically, venue for a domestic corporation alone, or when sued together with a foreign subsidiary, would be limited to the State where a corporation is incorporated (“resides”) or judicial districts where (1) it has committed an act of infringement and (2) maintains its principal place of business. In effect, the Supreme Court would end NPEs’ ability to forum shop for plaintiff friendly jurisdictions such as the District of Delaware and the Eastern District of Texas.
By N. Thane Bauz and Sunyong Tang, PhD