Senator Orrin Hatch (R-UT), the Chairman of the Senate Republican High-Tech Task Force, rolled out his innovation agenda for the 115th Congress during a special event today at the United States Capitol.
With respect to patent litigation, which he characterized as a tremendously thorny issue, Senator Hatch explained that there is a very real chance that venue reform will happen this year. Hatch explained:
I believe there’s one area where we can see real progress this year: venue. Abusive litigants have exploited a hole in the law to direct a disproportionate number of suits to plaintiff-friendly forums, and to one such forum in particular. The Supreme Court is currently examining the issue, so we won’t have a full view of the landscape until after the Court rules. But no matter what the Court does, we’re likely going to need follow-on legislation to prevent future forum-shopping and to ensure that litigants have a meaningful connection to the site of the suit. I intend to take a leading role on this critical issue.
Earlier today I hosted a webinar discussing patent reform in 2017, which focused on likely legislative, judicial and executive changes to the patent system. I was joined by Bart Eppenauer, former Chief Patent Counsel for Microsoft and current Managing Partner of the Seattle office of Shook, Hardy & Bacon, and Hans Sauer, who is Deputy General Counsel for the Biotechnology Innovation Organization (BIO). We all agreed that the Supreme Court’s consideration of TC Heartland is one of the biggest issues people in the patent community should be watching. We also all agreed that patent venue reform in the form of new legislation is actually more likely regardless of what the Supreme Court decides in TC Heartland. It would seem that Senator Hatch, and presumably the Republicans in the Senate agree.
The statutes in question when the Supreme Court decides TC Heartland will be 28 U.S.C. § 1400(b) and 28 U.S.C. § 1391(c). Pursuant to § 1400(b), a “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.” Pursuant to § 1391(c), a corporation is deemed to be a resident of “any judicial district in which such defendant is subject to the court’s personal jurisdiction…”
In Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957), the Supreme Court held that § 1400(b) is not to be supplemented by § 1391(c) and that “§ 1400(b) is the sole and exclusive provision controlling venue in patent infringement actions…” While that might seem to end the inquiry on its face, the Federal Circuit has for the last 25 years ignored the Supreme Court ruling in Fourco Glass based on the belief that 1988 amendments by Congress “rendered the statutory definition of corporate residence found in § 1391 applicable to patent cases.” Thus, it is the belief of the Federal Circuit that Congress overruled the Supreme Court’s ruling in Fourco Glass, which Congress obviously has the authority to do.
Eppenauer disagrees with the Federal Circuit that the 1988 amendments did overrule Fourco Glass, and told our webinar audience that he expects that the Supreme Court took this case to overrule the Federal Circuit’s interpretation of 1391(c). Sauer said that the way business is conducted today many companies are incorporated in jurisdictions where they do not really do business or have any real presence, so it is questionable whether a return to 1400(b) as the only jurisdictional statute would make sense in a modern world.
It is hard to argue with Eppeneaur when he predicts the Supreme Court will overrule the Federal Circuit. While the Supreme Court does from time to time affirm the Federal Circuit, in the vast majority of cases either the judgment or legal rulings are overruled or at least substantially alerted. In other words, the Supreme Court rarely takes a case from the Federal Circuit to express a high opinion of that court’s jurisprudence.
Equally clear, however, is that if the Supreme Court were to once again rule that § 1400(b) is the only venue statute applicable to patent infringement actions that would go well farther than any proposed venue reform legislation, and specifically much farther than the venue reform bill submitted by Senator Jeff Flake (R-AZ) during the 114th Congress. Eppeneaur, Sauer and I were all in agreement during the webinar that a push for venue reform in the wake of the Supreme Court’s decision in TC Heartland seems inevitable regardless of how they rule.
If the Supreme Court were to agree with the Federal Circuit the call for venue reform from the tech sector would become deafening. While Eppeneaur said a ruling from the Supreme Court overruling the Federal Circuit and reinstating § 1400(b) is the only venue statute would be loudly celebrated by virtually all technology companies, he did also agree that such a ruling would be harder to accept for many patent owners. So if the Supreme Court reverts to Fourco Glass, look for many patent owners with portfolios and litigation problems of a different character from the tech sector to push for a softening, which would require legislation.
Either way, it seems the days are numbered for the Eastern District of Texas being the patent centric court of choice for many plaintiffs. With 35% to 40% of filings made there the face of patent litigation could be changing quickly. Indeed, thanks to so many companies being incorporated in Delaware, the District of Delaware may become the favorite venue for patent owners in the not too distant future. Of course, that could have ripple effects that are difficult to predict. While the laws of Delaware are quite favorable for incorporation, if things play out the way they seem to be heading will companies (particularly start-up innovation companies) consider incorporating and limiting their operations to those areas where district courts have shown the most hostility to patent owners?
I guess the moral of the story is that if you haven’t been following TC Heartland you absolutely need to follow the case because it could have profound impacts on business decisions and the future of patent reform legislation.