In deciding TC Heartland v. Kraft Foods last week, the Supreme Court continued its near-perfect trend of reversing the Federal Circuit at the expense of patent owners. The trend continued days later in Impression Products v. Lexmark, but TC Heartland will prove the more consequential case.
The Court’s much anticipated ruling in favor of TC Heartland LLC caught almost no one by surprise. Nevertheless, in the wake of a seemingly close oral argument, few anticipated a unanimous decision.
Neither the facts of the case nor the particulars of the ruling need repeating here; this audience undoubtedly has already parsed the opinion as well as the abundant analyses by patent industry watchers of what will unfold in its wake.
We believe that the fallout from the Court’s ruling last week will be less dire for patent owners than most commentators predict. We view TC Heartland differently than do many pundits, and we write to offer an alternative assessment of the decision and its ramifications.
The gist of TC Heartland is a rejection of the long-standing Federal Circuit precedent of VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574 (1990), and a reaffirmation of the Court’s decision in Fourco Glass Co. v. Transmirra Products Corp., 353 U. S. 222 (1957). This, despite the fact that Congress changed the venue statute long after Fourco and subsequent to VE Holding, in a manner that seemed to harmonize all venue statutes with a common definition of “residence.” The Court dismissed this argument casually and with precious little analysis.
The World We Live In
Notwithstanding TC Heartland’s reliance on the fundamentally unstable and potentially abrogated Fourco decision, patent owners and their counsel must adapt accordingly.
The conventional wisdom is that TC Heartland will cause a mass exodus of patent filings from the Eastern District of Texas and other supposedly plaintiff-friendly venues to Delaware, the Northern District of California and, to a lesser extent, the other states. The assumption underlying this view is that all those plaintiffs will be forced to file in the state where the defendant is incorporated. Yet even post-TC Heartland, patent owners have options and can continue to be strategic about how and where they proceed.
It is true that, as held in TC Heartland, a domestic corporation is now subject to patent litigation in the state where the defendant is incorporated—a more restrictive interpretation of “resides” in the first prong of the patent venue statute, 28 U.S.C. §1400(b). But the second prong of §1400(b) provides for venue “where the defendant has committed acts of infringement and has a regular and established place of business.” This second prong presumably will be the point of focus for transfer motion practice in the foreseeable future where the defendant is sued outside its state of incorporation.
In the case of many businesses and industries, that second prong leaves a lot of room to maneuver. One can easily imagine making the case that a retailer with a nationwide footprint is doing business and committing acts of infringement in many states. The case might be more challenging for a manufacturing or service-based company that is not registered to conduct business in the relevant state and either ship its goods and/or provides its services remotely, but even in these situations, the two-pronged possibilities of venue still cover significant territory for plaintiffs and their counsel.
Further, the holding of TC Heartland was expressly restricted to domestic corporations and thus does not affect foreign corporations. (This is despite the fact that the Court acknowledged that TC Heartland was in fact not a corporation but rather an LLC. But we digress.) In the global economy, not all accused infringers are incorporated in the United States, and patent owners will continue to have flexibility in that regard. And we shouldn’t overlook the possibility that some accused infringers may not oppose a venue if it serves other purposes, such as the ability to participate in a joint defense group, rather than go it alone elsewhere.
Finally, patent owners should not fear the District of Delaware, where many defendants “reside” (that is to say, according to the Court, are incorporated). It is a jurisdiction with experienced, fair-minded judges; an open-minded jury pool; and a good track record of large judgments in cases where the facts warrant such outcomes.
Keep calm and carry on
There’s no question that TC Heartland puts new limits on where patent infringement lawsuits can be filed and that the ability to forum shop is diminished. As a result, it’s likely that the Eastern District of Texas will no longer hold as large a portion of infringement suits going forward. But patent owners with meritorious claims and experienced patent counsel will continue to have options, and a strong financing partner remains as valuable as ever in this risk-heightened patent environment.
In the end, we predict that TC Heartland won’t turn out to be anywhere near as impactful as Alice, KSR and eBay. Those decisions precipitated abrupt changes in the patent law that have considerably devalued U.S. patent portfolios. Patent owners will continue to employ legal strategies that give them a fair shot, and venues with experienced judges and predictable patent rules will continue to attract more patent suit filings, even if it takes more effort to remain there. The sky is not falling, but rather this latest decision is on par with the reality of more than ten years of increasing risk associated with patent enforcement litigation.