On May 22, 2017, the US Supreme Court unanimously rejected prior case law allowing patent holders to rely on the general venue statute, 28 U.S.C. § 1391(c), to file suit where a domestic defendant makes sales. TC Heartland, LLC v. Kraft Foods Grp. Brands, LLC, 581 U.S. __ (2017). Now, patent holders are required to follow the specific patent venue statute, 28 U.S.C. § 1400(b), which requires suing “where the defendant resides,” or “has committed acts of infringement” and where the defendant “has a regular and established place of business.” The Court reaffirmed a prior holding that “resides” for a domestic company refers only to the state of incorporation. As a result, patent lawsuits now are likely to shift away from plaintiff-friendly districts, and toward those venues where defendants routinely conduct business.
Background
In 2014, Kraft, a Delaware company, brought a patent infringement action in the district of Delaware against an Indiana company, TC Heartland. Defendant moved to dismiss for lack of personal jurisdiction and also improper venue. In support, TC Heartland argued that it had no established business in the district, because it was not registered to do business in Delaware, had no local presence in Delaware, had not entered into any supply contracts, and had not called on accounts to solicit sales in Delaware. But, defendant admitted to having shipped products into Delaware pursuant to contracts with national accounts.
The Delaware court denied the motion, ruling that sales into Delaware were sufficient for venue under the general venue statute, 28 U.S.C. § 1391(c). That statute provides that a corporation “shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question.” Many courts, including Delaware courts, find personal jurisdiction if a defendant has made sales, especially sales of the accused product, into that district.
On appeal, the US Court of Appeals for the Federal Circuit affirmed, holding that the definition of residency in Section 1391(c) governed where the alleged infringer “resides,” which includes “any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question.” Thus, because TC Heartland had sufficient contacts with Delaware through its sales, venue was proper in Delaware.
Central to those lower court rulings were a 1957 Supreme Court decision and amendments to the general venue statute. In Fourco Glass Co. v. Transmirra Prod. Corp., 353 U.S. 222 (1957), the Supreme Court ruled that patent infringement actions may only “be brought in the judicial district where the defendant resides,” and that “resides” means state of incorporation. But, in 1988, Congress revised the definition of “reside” in Section 1391 to allow for venue wherever personal jurisdiction could be established over a defendant.
Then, in 1990, the Federal Circuit decided VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (1990), which ruled that Section 1391(c) applied “on its face” to Section 1400(b). As a result, before the Supreme Court decided TC Heartland, courts found venue to exist pursuant to 28 U.S.C. § 1391(c): “in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question.”
The Current Supreme Court Decision
The US Supreme Court granted TC Heartland’s petition for certiorari to answer whether the definition of “residency” in the general venue statute, 28 U.S.C. § 1391(c), should be applied to the term “resides” in the patent venue statute, 28 U.S.C. § 1400(b). In plain English, is a defendant considered to be a resident anywhere it is subject to personal jurisdiction?
In an 8-0 decision, the Supreme Court answered in the negative and reversed the Federal Circuit. Applying Fourco, in which the Supreme Court “definitively and unambiguously held that” residence in Section 1400(b) has a particular meaning, the Court found no indication of Congressional intent to modify Section 1400(b) to the contrary. Therefore, the Court held, the term “reside” for a domestic company refers only to the state of incorporation.
Potential Impact
The Supreme Court’s decision shifts focus back to Section 1400(b) for venue analysis. Although the TC Heartland decision focused on where a defendant “resides,” the statute also allows patent holders to file suit “where the defendant has committed acts of infringement and has a regular and established place of business.” As a result, patent holders are likely to focus on that latter statutory provision in an attempt to avoid filing suit in a defendant’s state of incorporation, if advantageous.
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