Federal Circuit appears set to maintain patent forum shopping



March 14, 2016

Intellectual Property Alert

Author(s): Deanna R. Kunze, Shawn G. Hansen

“It all comes down to six words: except as otherwise provided by law.” (In re TC Heartland LLC, Fed. Cir., No. 16-105, argued March 11, 2016). So began the argument by counsel for Petitioner TC Heartland LLC to a three-judge panel for the U.S. Court of Appeals for the Federal Circuit on Friday, March 11, urging the panel to accept the premise that this phrase preserves prior Supreme Court limits on patent venue despite the more permissive scope of the literal language of the venue statute. TC Heartland is a defendant in an ongoing patent litigation suit filed in the District of Delaware by Respondent Kraft Foods Group Brands LLC. TC Heartland filed a writ of mandamus with the Federal Circuit, urging the court to transfer the action to the Southern District of Indiana, where its operations are based. The case has garnered significant attention because of its potential to end the broad construction of the venue statute that allows any corporation to be sued for patent infringement in any district where it has made sales of the accused product. In the past two decades under this rule, patent plaintiffs have disproportionately filed actions for patent infringement in the U.S. District Court for the Eastern District of Texas. The reaction of the panel to TC Heartland’s position during the oral arguments, however, varied from unsympathetic to dubious, indicating that at least this panel of the Federal Circuit regards changing patent venue standards to be a matter for Congress.

Background

At the crux of the issue is the 1990 Federal Circuit decision in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 16 U.S.P.Q.2d 1614 (Fed. Cir. 1990). For almost one hundred years before the VE Holding case, venue in a patent infringement action was based on the language of 28 U.S.C. § 1400(b): “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.”

But in 1988, Congress passed the Judicial Improvements and Access to Justice Act, which expanded the definition of “resides” outside of the relatively narrow precedent set by the U.S. Supreme Court in Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222 (1957). The revised Section 1391, which effectively supersedes Section 1400(b), provides for a definition of “resides” that makes venue proper in almost any district in the United States for a patent infringement action. And that has allowed for the disproportionate number of actions to be filed in the Eastern District of Texas despite the lack of any local connection to that venue, where few defendants are headquartered or have regular and established places of business. This dynamic has fueled arguments that the Federal Circuit should reconsider the permissive approach to venue under existing case law. Ironically, the Delaware venue from which TC Heartland seeks to move this case would be the likely venue of much more patent litigation if TC Heartland’s argument were accepted because so many large companies are incorporated in Delaware.  

Petitioner argues for an intervening—and nullifying—change

TC Heartland’s case depends on a phrase added to Section 1391 in the Federal Courts Jurisdiction and Clarification Act of 2011: “Except as otherwise provided by law.” TC Heartland asserts that this modification nullifies the ability of Section 1391 to supersede Section 1400(b), because the Supreme Court’s Fourco opinion should be interpreted to be good law that provides otherwise and is thus carved out from Section 1391. Therefore, TC Heartland argues that VE Holding did not survive the addition of the preface to Section 1391, which clarified the continuing applicability of the more restrictive Supreme Court patent venue rule under Fourco.

The three-judge panel, including Judges Kimberly A. Moore, Evan J. Wallach and Richard Linn, was active in its questioning of—and disagreement with—petitioner’s arguments. Judge Moore, reacting to Petitioner TC Heartland’s proposal that the Federal Circuit can “correct” the error of VE Holding that created “forum shopping,” stated that Congress created the statutory regime underlying VE Holding, and blaming the Federal Circuit for the current situation is “like when you make a mess in your bedroom and you blame your sibling.” During Respondent Kraft’s arguments, however, the panel was quiet and even echoed support for some statements of Kraft’s counsel.

What the future holds

Given the panel’s heated reaction to the arguments of TC Heartland on Friday, it seems probable that the court will reject TC Heartland’s writ. Counsel for TC Heartland did reserve its right to request rehearing by the full appeals court. TC Heartland also could request review by the U.S. Supreme Court.

Currently, there is legislation pending in both houses of Congress that addresses the issue of appropriate venue in patent litigation. That legislation, however, has been stalled for months.

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