“Supreme Court Upends Thirty Years of Patent Litigation, Declaring for Venue Purposes That Corporate Defendants ‘Reside’ Only Where Incorporated”

May 23, 2017
Marshall Gerstein Alert

On May 22, 2017, the Supreme Court stunned the nation’s IP community by declaring that nationwide venue for patent cases is now dead. Ruling in TC Heartland LLC v. Kraft Foods Group Brands LLC, the Supreme Court rejected Federal Circuit precedent that has reigned for nearly 30 years. The Supreme Court declared that patent holders may sue only in the state in which an accused infringer is incorporated, or in a district in which it has committed acts of infringement and has a “regular and established place of business.”

The consequences of the Supreme Court’s action cannot be overstated. Venues favored by patentees—in particular, the Eastern District of Texas—are destined to see a dramatic decline in patent litigation. In contrast, the Federal District Court for the District of Delaware will undoubtedly see a significant rise in patent litigation, owing to the large number of corporations incorporated in Delaware.

Patent holder Kraft Foods sued TC Heartland (a limited liability corporation organized under the laws of the State of Indiana) in the District of Delaware. TC Heartland’s motion to dismiss for improper venue was denied by the district court, as was its subsequent writ of mandamus to the Federal Circuit Court of Appeals. After granting TC Heartland’s petition for a writ of certiorari on December 14, 2016, the Supreme Court reversed.

The Supreme Court declared controlling its 1957 decision in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957). In Fourco, the Supreme Court had determined Title 28, Section 1400(b) of the United States Code exclusively established venue in patent cases. The Supreme Court there rejected arguments that language in the general venue statute (28 U.S.C. Section 1391) expanded the available venues beyond those permitted by Section 1400(b) (i.e. those in which the defendant was an “inhabitant.”) See id. at 226. The Supreme Court observed that a corporation is an inhabitant only of the state in which it is incorporated.

In 1990, the Federal Circuit ruled in VE Holding Corp. v. Johnson Gas Appliance Co. that Congress’ amendment two years earlier of Section 1391’s definition of residency “under this chapter,” constituted a legislative renunciation of the Supreme Court’s Fourco decision. See 917 F.2d 1574, 1579-80 (Fed. Cir. 1990) (change impliedly incorporated into Section 1400(b), which limited venue to where a defendant “resides”).

Now, a unanimous Supreme Court (excepting newly-confirmed Justice Gorsuch who did not participate), has declared that Congress’s amendment of Section 1391 in 1988 did not overrule its decision in Fourco. The Court reiterated that Section 1400(b) is a “stand-alone” venue provision for patent cases that restricts a corporate defendant’s residency for venue purposes to its state of incorporation. Congress did not alter or amend the language of Section 1400(b), nor had it “clearly indicated” its separate amendments to Section 1391 were intended to change the meaning of Section 1400(b). The Court, through Justice Thomas, further noted that Congress had again amended Section 1391 in 2011, eliminating the language relied upon by the Federal Circuit in VE Holding--a fact found to further weaken the basis for that Federal Circuit decision. The Court declared that, “[a]s applied to domestic corporations, ‘reside[nce]’ in §1400(b) refers only to the State of incorporation.” The Court remanded the case to the Federal Circuit for the appropriate application of the decision to the parties in the TC Heartland suit.

In the immediate aftermath of the Supreme Court’s decision, parties will likely scramble to answer a number of questions. What becomes of pending cases that find themselves in venues that are improper under the Supreme Court’s decision? Will litigants now be offered an opportunity to assert a defense of improper venue if, in reliance upon prior precedent, they previously failed to raise such a defense? What application will the Court’s decision have upon unincorporated entities, such as limited liability corporations? What interpretation will courts now give to the alternative requirement that venue is proper where the defendant has “committed acts of infringement” and has a “regular and established place of business”? In the last 30 years, courts have had little occasion to address this second basis for venue.

For more information, please contact Thomas L. Duston or another attorney at the Marshall Gerstein. 

The information contained in this alert is for informational purposes only. Under applicable rules of professional conduct, this communication may constitute Attorney Advertising. © 2017 Marshall, Gerstein & Borun LLP. All rights reserved.

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