TC Heartland: An Alternate Opinion – Not As Bad As It Seems

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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.

The Author

Ashley Keller

Ashley Keller is a Managing Director at Burford Capital, a litigation finance company. He co-founded Gerchen Keller Capital and as Managing Director helped steer its growth to $1.3 billion in assets under management prior to its acquisition by Burford. Before co-founding Gerchen Keller, Mr. Keller was a partner at Bartlit Beck Herman Palenchar & Scott LLP, The American Lawyer’s litigation boutique of the year, where he handled various trial and appellate matters involving multi-billion-dollar securities and patent cases, contractual disputes and mass-tort class actions.

Mr. Keller has also worked as an analyst at Alyeska Investment Group, a Chicago-based market neutral hedge fund, where he focused on investments in companies facing litigation and other complicated regulatory matters.

For more information or to reach out to Mr. Keller, please visit his firm webpage.

Ashley Keller

Katharine Wolanyk is an IP Principal at Burford Capital, alitigation finance company.. Her career spans the business, legal and engineering arenas, with a particular focus in intellectual property. She was named a World’s Leading IP Strategist by Intellectual Asset Management (IAM) in 2015 and 2016.

Prior to joining Burford, Ms. Wolanyk was President, Chief Legal Officer and a Board member of Soverain Software, an enterprise software company whose patent portfolio has been licensed extensively in the software and the Internet retailing industries. Ms. Wolanyk also was intellectual property counsel to a publicly traded IT solutions firm, General Counsel of a managed hosting provider, Senior Vice President of corporate development at a publicly traded enterprise software company, a corporate attorney at Latham & Watkins LLP, and a systems engineer at Hughes Aircraft Company.

For more information or to reach out to Ms. Wolanyk, please visit her firm webpage.

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 9 Comments comments.

  1. angry dude June 4, 2017 7:44 pm

    If I am small inventor living and working in North Dakota how can I possibly sue infringer in Delaware?
    Completely impossible. Period.
    To the morgue…

  2. Curious June 4, 2017 8:05 pm

    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
    Retailers don’t make for good patent defendants — way too many of them. If you have an infringing product, you want to sue the manufacturer — not the 10 or 20 or 100 end distributors of the product. Also, consider the cost of suing all those entities. While foreign companies don’t get to be bailed out, that is again a very limited subset.

    What Heartland does is make it so much more difficult for small entities to protect their patents. While large companies can still afford to wade into many venues, the same cannot be said about the little guys. The Courts (and to some extent Congress) have made patent lawsuits the sport of kings. Heartland just double downed on that notion.

    Efficient infringement is alive and thriving in the United States. The AIA (America Infringes Act) and latest forays by the Supreme Court into patent law ensures its continued existence. The US patent system is mostly dead for smaller entities — which includes almost all solo inventors and startups.

    If Mr. Keller thinks otherwise, have him tell us what percentage of his litigation financing goes to small companies. I suspect that number is in the very low single digits (or his definition of small companies is very expansive).

  3. angry dude June 4, 2017 8:28 pm

    Curious @2

    Well said..

    Just want to add that “small” entities are anyone with less than 10 mil – a pocket change for those “high-rollers” like Mr. Keller so they don’t even bother…

  4. Tesia Thomas June 5, 2017 1:28 am

    Why can’t courts just let legal teams conference call or video chat in?

    We inventors just need to disrupt the courts in order to workaround this law…

  5. Kevin R. June 5, 2017 9:37 am

    I think there are two issues broached here:
    (1) Will NPEs be able to still have proper venue in TXED under the 2nd prong (“where the defendant has committed acts of infringement and has a regular and established place of business”); and
    (2) Does TC Heartland substantially raise the financial burden for small businesses/solo inventors to assert their patent(s)?

    It would be a tremendous shame if the answers were yes to each of them–i.e., if SCOTUS decided TC Heartland with the goal of eliminating venue gamesmanship, and failed because NPEs find a ‘loophole’ for “…place of business” still in TXED, while small businesses across America are inconveniently forced to sue [primarily] in Delaware or California.

  6. angry dude June 5, 2017 9:42 am

    Tesia Thomas@4

    How long since you started following US patent system unraveling ?
    I guess you are a newcomer with such naive questions and suggestions
    Better stay away from anything patent-related
    I am serious – it can easily ruin your life with probability of winning (much) less than that of a casino

  7. angry dude June 5, 2017 9:47 am

    Kevin R @5

    “small businesses across America” will not be able to sue in Delaware or ND Cal. Period.

    And what is your definition of “small” anyway ?

  8. Ternary June 5, 2017 10:16 am

    My experience is that patent infringement cases by independent inventors are preferably filed in the Federal District Court in our state where the inventor is located. Many of these cases involve large US companies who do business in our state. These cases all operated under a severely constrained budget. Not any, in my limited experience, was filed in the EDT.

    My initial reaction was to concur with this article from the view of an independent inventor. However, we have seen how badly all the previous SCOTUS decisions and statutory changes have worked out for independent inventors.

    My concern is that the courts will empty their dockets by automatically applying TC Heartland to move a case to the state of incorporation of infringers. I see this Heartland decision as an unnecessary gift to infringers by being again not specific and clear enough and forming an additional burden on independent inventors.

    Angry Dude’s approach on this blog may seem nihilistic, but there is a case to be made that the fate of the independent inventor in the USA is not a prosperous or happy one and it certainly is the case that not a single SCOTUS decision in any way helps patents owners, let alone independent inventors.

  9. Tesia Thomas June 5, 2017 10:39 am

    @angry dude

    I know. I’m new. But I filed a PCT because I might not enter national stage in the U.S.

    Also my comment was a little bit of a joke. I do really think they should do remote court cases that way. I mean business is global and we don’t have the Pony Express.
    I’m sure both parties are used to having business meetings over the internet. Just need a secure connection and great audio visual equipment.