Did the Supreme Court Just Close the Door on Eastern District of Texas Patent Plaintiffs?
May 23 2017
For over 25 years, the Court of Appeals for the Federal Circuit and the United States district courts have interpreted the patent venue statute 28 U.S.C. §1400(b) to allow plaintiffs to bring patent infringement cases against a corporation in any district court where there is personal jurisdiction over that corporate defendant. The U.S. Supreme Court just overturned that interpretation in TC Heartland v. Kraft Foods. In some instances, TC Heartland will greatly limit where patent infringement cases can be filed. In fact, some are predicting that a significant number of the cases filed in the plaintiff-friendly Eastern District of Texas will be dismissed or transferred and that a substantially smaller number of cases can be filed there in the future.
The patent venue statute 28 U.S.C. §1400(b) provides that “[a]ny civil action for patent infringement may be brought in” either “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.” When the defendant is a corporation, the question arises as to where does the corporation reside? In Fourco Glass Co. v. Transmirra Products Corp., the Supreme Court previously ruled that for purposes of the patent venue statute “a domestic corporation ‘resides’ only in its State of incorporation.” In Fourco, the Court rejected the argument that §1400(b) is subject to the broader definition of corporate ‘residence’ found in the general venue statute, 38 U.S.C. §1391(c). However, §1391 has been amended twice since the ruling in Fourco. As amended, §1391 provides that for purposes of venue, a defendant corporation resides in any judicial district where the corporation is subject to personal jurisdiction.
In 1990, the Federal Circuit concluded in VE Holding Corp. v. Johnson Gas Applicance Co. that §1391(c), as amended in 1988, applies to §1400(b) and redefines the meaning of “resides” in §1400(b) to mean that a defendant corporation resides in any judicial district in which it is subject to personal jurisdiction rather than just in its state of incorporation. In 2011, §1391 was amended again to clarify that the statute applies, “[e]xcept as otherwise provided by law,” to “venue of all civil actions brought in district courts of the United States.” But in its ruling below, the Federal Circuit reaffirmed VE Holding, finding no basis for a change in interpretation after the 2011 amendment. The Supreme Court just reversed.
Now, for patent cases, a plaintiff will need to show that a particular district court has personal jurisdiction over a corporate defendant and separately show that venue is proper in that district. To show that venue is proper, the plaintiff will have to show that
- the district court is in the defendant’s state of incorporation or
- the defendant has committed acts of infringement in the judicial district and has a regular and established place of business in that district.
The impact of this ruling will likely be felt greatest in plaintiff-friendly jurisdictions, such as the Eastern District of Texas where approximately 38% of all patent cases were filed in 2016 and where approximately 45% of all patent cases were filed in 2015. Of those cases, the Eastern District of Texas would be a proper venue for only a small fraction of those cases today in light of the Supreme Court’s ruling. In fact, we can expect to see a large number of motions to dismiss or transfer pending cases where venue has not yet been waived. We are also likely to see a rise in filings in jurisdictions, such as Delaware, where many companies are incorporated.
Another impact of this ruling is that a plaintiff seeking to enforce patents against multiple defendants will likely need to file lawsuits in multiple districts rather than be able to bring all of the defendants to a single venue. There are pros and cons to this effect. Plaintiffs likely will give even more careful consideration to the merits of their claims before filing suit, given that the cost of litigating in multiple locales will be higher than litigating in a single venue. Defendants may feel more emboldened to fight, rather than settle, claims they feel are unmeritorious if the venue is more favorable to them.
But where do foreign corporations reside? Consider a foreign corporation doing business in the United States, such as over the Internet. What if it does not have a place of business in the United States? Where does that foreign corporation reside for purposes of venue? We will have to leave that question for another day. This ruling only clarified where domestic corporations reside.