January 01, 2018

iWitness: Where Will All the Patent Cases Go? The Aftermath of TC Heartland

Charles B. Walker and Dino Arslanagic

Download a printable PDF of this article.

The Eastern District of Texas has been ranked in the top 10 of the most popular venues for patent cases since 2000. In fact, since 2005, the Eastern District has enjoyed the number one rank. Its top ranking in patent venue may be in jeopardy, though, as the Supreme Court’s decision in TC Heartland LLC v. Kraft Foods Group Brands LLC, 137 S. Ct. 1514 (2017), attempts to limit the venues available in patent cases. The Supreme Court’s decision triggers many questions: Where will future patent cases go? Will the decision in TC Heartland trigger a shift in the landscape of patent venues? How do e-commerce businesses fit into the current patent venue framework?

This is the aftermath of TC Heartland.

How We Got Here

To understand what is to come in the aftermath of TC Heartland, we should first briefly review how we got here. Two venue statutes are at issue. First, there is the general, catchall venue statute: 28 U.S.C. § 1391. Second, there is the venue statute specifically for patent cases: 28 U.S.C. § 1400(b). The patent venue statute provides two possible options for determining proper venue in patent cases. Under the first option, venue is proper where the defendant resides. Under the second option, venue is proper where the defendant has committed acts of infringement and has a regular and established place of business. Most cases with venue disputes have focused on the first option and, more specifically, on the definition of a corporate defendant’s “residence.”

Historically, a corporate defendant has been deemed to “reside” in the defendant’s state of incorporation. However, in 1990, the Federal Circuit held that the general venue statute broadened the scope of a corporate defendant’s “residence” under the patent venue statute. See VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990). In VE Holding, the Federal Circuit held that a corporate defendant’s “residence” was in any district in which the defendant was subject to the court’s personal jurisdiction. Thus, in the 27 years after VE Holding, venue in patent cases was largely satisfied by showing a corporate defendant was subject to personal jurisdiction within the district.

In TC Heartland, the Supreme Court unanimously disagreed with the Federal Circuit’s definition of residence for a corporate defendant in patent cases. The Supreme Court held that the general venue statute never broadened the patent venue statute and, therefore, the definition of “residence” for a corporate defendant in the patent venue statute never changed. In other words, the Supreme Court held that a corporate defendant’s residence is (still) only in the defendant’s state of incorporation.

Where Will Future Patent Cases Go?

Now that we know how we got here, the next question is this: Where will future patent cases go?

In the months since TC Heartland, the Eastern District of Texas has seen a considerable decline in the number of patent litigation filings. On the other hand, and not surprisingly, the District of Delaware has seen a surge in patent litigation filings, which reflects plaintiffs’ inclination to rely on a corporate defendant’s state of incorporation for establishing proper venue under the patent venue statute. The Central and Northern Districts of California have also seen modest increases in the number of patent litigation filings.

In the months and years to come, we may see a trend in which patent litigation filings increase in venues that were popular before VE Holding. These venues could be districts where accused infringers have manufacturing facilities, headquarters, or other administrative offices. Examples of such districts include those in the Midwest (e.g., the District of Minnesota and the Southern District of Indiana) and in the Northeast (e.g., the Southern District of New York and the District of New Jersey).

The number of patent litigation filings in the Eastern District will likely continue to decrease. For example, although Judge Rodney Gilstrap of the Eastern District broadly interpreted the definition of a corporate defendant’s “regular and established place of business” in Raytheon Co. v. Cray, Inc., No. 2:15-cv-01554-JRG (E.D. Tex. June 29, 2017), the Federal Circuit reversed Judge Gilstrap’s decision and more-narrowly interpreted the statute. In In re Cray Inc., 871 F.3d 1355 (Fed. Cir. 2017), the Federal Circuit held that a “regular and established place of business” required (1) a physical place in the district; (2) that the physical place is a regular and established place of business; and (3) that the physical place is the place of the defendant. The court explained that “a physical place” is one that is a building or a part of a building from which business is conducted. According to the court, “a physical place cannot be read to refer merely to a virtual space or to electronic communications from one person to another.” As for the requirement that the place is a regular and established place of business, the court explained that “regular” means steady, uniform, orderly, or methodical, and that “established” means settled, permanent, or non-transient. As such, sporadic activity cannot establish proper venue. Finally, the court clarified that the third requirement requires venue to be at a physical place of the defendant, not solely a place of the defendant’s employee.

The Effect of TC Heartland and In re Cray

For over 120 years—certainly well before we had e-commerce businesses conducting transactions entirely via the Internet—the patent venue statute has included an option for determining venue based on a defendant’s “regular and established place of business.” In the future, applying the In re Cray analysis for determining a defendant’s regular and established place of business may create a dichotomy between venues for defendants having traditional businesses with brick-and-mortar stores and defendants having e-commerce businesses with online or virtual stores. On its face, the In re Cray analysis is prone to create more venues available for traditional defendants than for e-commerce defendants. Thus, what we may see is legislation that defines the meaning of a regular and established place of business in the context of e-commerce. Such legislation would have to balance the effects of In re Cray by expanding the venues available for e-commerce defendants or by limiting the venues available for traditional defendants (or a combination of the two).

Going forward, patent owners filing new litigation should conduct due diligence to determine proper venue. Because venue may be more limited in light of TC Heartland and In re Cray, patent owners should analyze the metrics of competing courts’ and review the In re Cray venue requirements to determine where venue is proper.

Defendants sued after TC Heartland must object to venue early in the case, preferably in the answer to the complaint; otherwise, the right to object to proper venue is waived. As for defendants who were sued before TC Heartland and failed to raise the issue of proper venue early in the case, venue transfer may still be possible. For example, in In re Micron Technology (Appeal No. 2017-138), the Federal Circuit concluded that TC Heartland changed the controlling law in the relevant sense: “at the time of the initial motion to dismiss, before the Court decided TC Heartland, the venue defense now raised by Micron (and others) based on TC Heartland’s interpretation of the venue statute was not ‘available,’ thus making the waiver rule of Rule 12(g)(2) and (h)(1)(A) inapplicable.” However, the court also pointed out that the district court retains the right to assess whether a venue transfer motion is proper and timely for other reasons.

Conclusion

Although TC Heartland seems to have clarified the definition of a corporate defendant’s residence under the patent venue statute, there is some uncertainty about how courts will treat a defendant’s regular and established place of business in the context of e-commerce. One thing, however, is sure: The debate over proper venue in patent cases is far from over.

Charles B. Walker and Dino Arslanagic

The authors are with Norton Rose Fulbright, based in Houston and Austin, Texas, respectively.