In re TC Heartland: Asking the Federal Circuit to ‘Fix’ Patent Venue Law

By Samantha Kuhn
March 29, 2016

judge-gavel-courtTwenty-five years ago, the Federal Circuit decided a case that transformed where (and how) patent infringement cases can be litigated.[1] By expanding the scope of where a corporate defendant “resides” for venue purposes, the court in VE Holding Corp. v. Johnson Gas Appliance greatly increased the number of states and courts in which many corporations can be sued for infringement.[2] This decision has contributed to the development of forum-shopping and related litigation issues over the past several years. One company, TC Heartland, LLC, is now urging the Federal Circuit to overturn that precedent and restore more stringent venue restrictions through a writ of mandamus, and dozens of others are joining the debate.

Venue in patent cases is governed by 28 U.S.C. § 1400(b), which provides that venue is appropriate either: (1) “in the judicial district where the defendant resides,” or (2) “where the defendant has committed acts of infringement and has a regular and established place of business.” Unfortunately, § 1400 does not define the term “resides” or explain how it should be applied to corporate defendants, thereby leaving it to the courts to deduce Congress’s intent. 28 U.S.C. § 1391(c) is a general venue statute for civil actions which does explicitly define a corporation’s “residence.” However, prior to the Federal Circuit’s 1990 decision in VE Holding, Supreme Court precedent prohibited courts from supplementing § 1400(b) with the definition from § 1391(c) because § 1400(b) was deemed the “sole and exclusive provision controlling venue in patent infringement actions.”[3] During that period, a corporate defendant in a patent infringement action would generally be considered to be a resident “only of the state in which it is incorporated.”[4]

In 1988, Congress made several amendments to § 1391(c). Among those amendments was the addition of the clause “[f]or purposes of venue under this chapter…” at the beginning of the provision.[5] Because § 1391 and § 1400 are both located in Chapter 87 of Title 28 of the U.S. Code, the Federal Circuit concluded in VE Holding that Congress clearly intended that § 1391(c) apply to § 1400(b) with respect to the meaning of “resides.”[6] Congress also redefined a corporation’s residence in § 1391(c) as “any judicial district in which it is subject to personal jurisdiction.”[7] Thus, the VE Holding decision empowered patent plaintiffs to sue corporate defendants for infringement in any district court in which the corporation is subject to personal jurisdiction.

Since VE Holding, § 1391(c) has been revised once more by Congress. The Federal Courts Jurisdiction and Venue Clarification Act of 2011, in relevant part, replaced the phrase “[f]or purposes of venue under this chapter…” with “[f]or all venue purposes.”[8] The 2011 Act also introduced a new § 1391(a) entitled “Applicability of section.” § 1391(a) now states, in relevant part, that “[e]xcept as otherwise provided by law — (1) this section shall govern the venue of all civil actions brought in district courts of the United States[.]”

On January 14, 2014, Kraft Food Group Brands LLC sued TC Heartland for patent infringement in the District of Delaware.[9] TC Heartland moved to dismiss claims for lack of personal jurisdiction and to transfer the case to a different venue.[10] Following the district court’s denial of its motion, TC Heartland filed a petition for a writ of mandamus with the Federal Circuit, seeking an order directing the dismissal or transfer of the case.[11] TC Heartland argues in both the district court motion and the Federal Circuit petition that the 2011 Act’s revisions to §§ 1391(a) and (c) nullify the court’s previous ruling in VE Holding.[12] Kraft’s response (and the district court’s position) is that: (1) the new language in § 1391(c), if anything, broadens the applicability of the section, and (2) § 1400(b) does not conflict with § 1391 (and therefore does not “otherwise provide” as stated in new § 1391(a)).[13] In its petition to the Federal Circuit, TC Heartland additionally argues that VE Holding should be re-examined en banc because it directly conflicts with the Supreme Court holding in Fourco, and has produced “enormous venue shopping opportunities in patent infringement actions.”[14]

While TC Heartland’s arguments are couched in statutory interpretation and analysis of legal precedent, policy concerns are understandably at the forefront in this debate. Two amicus briefs have been filed by a total of 27 amici, and many of the arguments focus on the effects of forum shopping. One brief describes detrimental effects of forum shopping on the judiciary, such as “forum selling”[15] and inconsistent results across jurisdictions.[16] The other brief, filed by 24 domestic companies, argues that forum shopping undermines the public policies of scrutinizing issued patents and encouraging negotiation over litigation.[17]

Although Kraft does agree with many of the concerns raised by TC Heartland and the amici regarding forum shopping, it rejects TC Heartland’s approach to solving the problem. Kraft argues that TC Heartland’s legal analysis is flawed, and the policy considerations do not warrant the abandonment of decades of legal precedent in favor of a “defendant-centric venue rule.”[18] According to Kraft’s response, the relevant policy concerns are properly addressed by Congress, which has the flexibility to draft legislation to “combat perceived forum-shopping abuses without creating unintended litigation advantages for patent infringers.”[19]

On March 11, 2016, a Federal Circuit panel consisting of Judges Kimberly Moore, Richard Linn, and Evan Wallach heard oral arguments on TC Heartland’s petition. TC Heartland opened its argument with the declaration that the case “turns on the meaning of six words: ‘except as otherwise provided by law.’” As TC Heartland began to recount the legislative history of the 2011 amendments, Judge Wallach initiated the first line of questioning – why is this case appropriate for mandamus? Judge Wallach inquired as to whether TC Heartland has other adequate means to obtain the relief desired, and why this case is extraordinary. In response, TC Heartland contrasted the instant case with other venue cases by stating that most venue cases “turn on a settled construction of a statute[.]” The discussion then turned to the issue of whether VE Holding constitutes a “settled construction” of §1391 in light of the 2011 amendments to the statute.

TC Heartland posited that there is no settled construction of §1391 because “the language that VE Holding relied on has been repealed by Congress” – specifically, the phrase “for venue purposes in this chapter.” Judge Moore pushed back, noting that the relied-upon language “was just broadened” to encompass “all venue purposes” and asking, “how can that unravel VE Holding?” In response, TC Heartland returned to the newly-added “except as otherwise provided by law” language of §1391(a). TC Heartland argued that the law “otherwise provides” a definition of corporate residency in patent cases because there is a “settled interpretation by multiple Supreme Court decisions that ‘resides’ within §1400(b) means the place of incorporation.” After clarifying TC Heartland’s premise that “except as otherwise provided by law” includes common law, Judge Moore identified what she perceived as the problem with TC Heartland’s argument: that the Supreme Court precedent cited by TC Heartland, such as Fourco, “wasn’t the law” when the 2011 amendments were enacted. Judge Moore proceeded to explain that “VE Holding, whether right or wrong, changed the state of the law. So when Congress enacted ‘except as otherwise provided by law’ language, it wasn’t operating under the assumption of the existence of that legal standard you’re relying on from pre-VE Holding.

In response to Judge Moore’s challenge, TC Heartland characterized the issue as a two-fold question: (1) whether “except as otherwise provided by law” encompasses case law; and (2) whether VE Holding is the relevant case law. With respect to the latter question, TC Heartland cited a 19th century Supreme Court opinion, Andrews v. Hovey, for the proposition that the construction of a patent-related statute “cannot be regarded as judicially settled when it has not been so settled by the highest judicial authority which can pass upon the question.” Thus TC Heartland maintained that the pre-VE Holding Supreme Court precedent is the only “settled construction” of patent venue law. TC Heartland also opined that the narrowing of the statute in 1988 created the basis for applying §1391 to §1400(b), and that the re-broadening of its applicability through the 2011 amendments was intended to return the interpretation to the pre-VE Holding status quo. Toward the end of TC Heartland’s presentation, Judge Moore suggested that the ongoing legislative activity and commentary regarding VE Holding and the venue statutes are “pretty strong evidence that even Congress doesn’t believe” TC Heartland’s arguments. During rebuttal, TC Heartland provided a concise summary of its position: (1) “Fourco interpreted §1400(b) to have [the] implicit definition” of resides; (2) “VE Holding thought that Congress had overridden that definition” through the 1988 amendments; and (3) “Congress later repealed that language” relied upon by VE Holding. Therefore, according to TC Heartland, “the definition [of ‘resides’] in §1400(b) that the Supreme Court found in its case law is then, again, the law.”[20]

Kraft began its presentation with the argument that this case is not “remotely appropriate” for mandamus. Characterizing the dispute as “about policy and about the Eastern District of Texas,” Kraft argued that even if the policy concerns raised by the petitioner and other commentators were sufficient to warrant the Federal Circuit’s reconsideration of its “clearly settled precedent,” it should at least arise from a case in the Eastern District of Texas where the alleged policy problems have actually affected a party in the case. Kraft also distinguished itself from the types of plaintiffs and hypothetical cases that embody the espoused policy concerns, emphasizing that this case was filed in Delaware which is Kraft’s home state of incorporation.

Referring to the current Congressional activity surrounding VE Holding and patent venue law, Kraft conjectured that Congress’s “suggestion that VE Holding was wrong…is actually an indication that VE Holding did exactly what the language that Congress adopted in 1988 compelled,” and that the current Congress is now considering amendments because they did not anticipate the circumstances that resulted from those previous changes. Judge Moore then initiated a discussion of whether consolidation of cases in a single district is necessarily bad from a policy perspective, citing Congress’s past consideration of instituting specialized trial courts for patent cases. Judge Moore suggested that the situation that exists today is perhaps similar to the type of regime that Congress has contemplated. Without opining as to whether such a framework would be better or worse, Judge Moore remarked that “boy, doesn’t this feel like something a legislature should do?” Kraft emphatically agreed, noting that Congress has a far greater number of ways of dealing with the perceived problems than do the courts.

Turning to the 2011 amendments, Kraft cited the legislative history and Congressional reports relating to §1391(a) for the proposition that the amended statute would “follow current law” and would not “displace the special venue rules that govern under a particular federal statute.” According to Kraft, Congress’s adoption of the expansive applicability language does not displace any of the special venue statutes, but rather provides a new definition for corporate residence for a broader range of statutes. With respect to TC Heartland’s reliance on Fourco, Kraft argued that the Supreme Court was simply interpreting what an earlier Congress meant, and that there is nothing to suggest that the Congress of 1988 or 2011 was not allowed to substitute its judgment for what the word “resides” means in §1400(b). Presented with a hypothetical scenario in which Fourco explicitly defined “corporate residence” in the context of §1400(b), and further assuming that the 1988 amendments and VE Holding never occurred, Kraft maintained that the 2011 Congress could, within its rights, change the meaning of §1400(b) by changing the definition of “reside.” According to Kraft, Congress simply selected §1391 as an efficient vehicle for changing that definition for patent venue and other specialized venue statutes that contain the word “reside” but do not contain any specific definition.

Throughout oral arguments, the panel appeared extremely skeptical of TC Heartland’s legal analysis, with Judge Moore at one point referring to the argument as becoming “quite attenuated.” During Kraft’s arguments, the court took a much more passive role, and seemed in agreement with Kraft that the relevant policy concerns would be more appropriately addressed by Congress. Based on the panel’s questions and reactions to the parties’ arguments, it seems unlikely that the Federal Circuit will grant TC Heartland’s petition. If that happens and TC Heartland does not pursue or win certiorari to be heard before the Supreme Court, then the burden may fall on Congress to decide whether and how to address the policy concerns raised by TC Heartland and its supporters.

 

________________

[1] See VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990).

[2] Id.

[3] Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222, 229 (1957); see also Stonite Prods. Co. v. Melvin Lloyd Co., 315 U.S. 561, 563-566 (1942).

[4] In re Cordis Corp., 769 F.2d 733, 735 (Fed. Cir. 1985); see also Fourco, 353 U.S. at 226.

[5] The previous version of the statute defined the districts in which a corporation could be sued, and stated that the district would be regarded as the corporation’s residence “for venue purposes.”

[6] 917 F.2d at 1580.

[7] The previous version of § 1391(c) defined a corporation’s residence as “any judicial district in which it is incorporated or licensed to do business or is doing business.”

[8]The 2011 Act also divided § 1391(c) into three separate subsections, with new § 1391(c)(2) stating that a corporate defendant resides in any district where the defendant is subject to personal jurisdiction “with respect to the civil action in question.”[8] See 28 U.S.C. § 1391(c)(2) (emphasis added).

[9] See Kraft Food Group Brands LLC v. TC Heartland LLC, No. 14-28 (D. Del. Jan. 14, 2014).

[10]Id., Dkt. 7, filed Jun. 23, 2014.

[11] Petition for Writ of Mandamus, In re TC Heartland, LLC, No. 16-105, Dkt. 2 (Fed. Cir. Oct. 23, 2015).

[12] Id.; see also Kraft v. TC Heartland, No. 14-28, Dkt. 8 (D. Del. Jun. 23, 2014). TC Heartland also argues (in both its motion and its petition) that it is not subject to personal jurisdiction in Delaware because only about 2% of the accused products were shipped to Delaware, and only at the instruction of the non-Delaware customers. For purposes of this article, we focus only on the arguments relating to the interpretation and application of § 1400(b).

[13] Brief of Respondent at 16-18, In re TC Heartland, LLC, No. 16-105, Dkt. 27 (Nov. 9, 2015); see also Kraft v. TC Heartland, No. 14-28, 2015 WL 4778828, at *9-10 (D. Del. Aug. 13, 2015), adopted by 2015 WL 5613160 (Sept. 24, 2015).

[14] Petition for Writ of Mandamus at 16, No. 16-105, Dkt. 2.

[15] The amici define “forum selling” as “the phenomenon of judges creating procedural and substantive laws that favor plaintiffs, in order to attract cases to their district.” The amici accuse judges in the Eastern District of Texas, and specifically Judge Gilstrap and Judge Schroeder, of forum selling.

[16] Brief for Electronic Frontier Foundation et al. as Amici Curiae Supporting Petitioner, In re TC Heartland, No. 16-105, Dkt. 39 (Oct. 29, 2015).

[17] Brief for Acushnet Company et al. as Amici Curiae Supporting Petitioner, In re TC Heartland, No. 16-105, Dkt. 41 (Nov. 6, 2015).

[18] Brief of Respondent at 17, In re TC Heartland, LLC, No. 16-105, Dkt. 27 (Nov. 9, 2015).

[19] An amicus brief filed in support of Kraft raises similar concerns regarding unintended consequences, but relies on the fact that § 1391(c)(3) provides for jurisdiction against foreign defendants, and argues that TC Heartland’s interpretation of § 1400(b) would result in there being no venue in which an infringement suit could be brought against a foreign defendant. See Brief for Guy Fielder et al. as Amici Curiae Supporting Respondent, In re TC Heartland LLC, No. 16-105, Dkt. 33 (Nov. 16, 2015).

[20] During rebuttal, TC Heartland also presented case law in support of its argument that “except as otherwise provided by law” encompasses judge-made law, and refuted that its arguments should be rejected based on a lack of clear legislative intent in the 2011 amendments or any pending bills before Congress that would address the issue. Judge Moore concluded the rebuttal with a series of questions regarding TC Heartland’s argument that there is a lack of personal jurisdiction in Delaware.

The Author

Samantha Kuhn

Samantha Kuhn is an attorney with the Austin office of Baker Botts. Her principal area of practice is intellectual property, with a focus on patent litigation. She also has experience with due diligence, freedom to operate analyses, inventorship disputes, validity and infringement opinions, and trade secret litigation. Samantha is also a registered patent attorney and has experience with patent drafting and prosecution in multiple fields. For more information or to contact Samantha please visit her firm bio page.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 1 Comment comments. Join the discussion.

  1. Edward Heller March 29, 2016 9:17 pm

    Prior to the patent venue statute, corporations could be sued under the general venue statute — anywhere they were doing business.

    There were abuses. Allegedly.

    Then Congress adopted the patent venue statute that Congress is now considering restoring. The patent venue statute limits venue to a corporation’s home or where they infringe and have a regular place of business.

    So — what were the abuses, because forcing a patent owner to sue in the company’s home town is designed to bias litigation in favor of the infringer.

    Again, I have never head anyone explain what the abuses were that caused the passing of the patent venue statute in the first place. But I do know this: patent owners need to be able to sue in at least a neutral forum, perhaps a national court.

    Think about fairness, Congress.

Post a Comment

Respectfully add to the discussion.

Name *
Email *
Website