Denying TC Heartland Changed the Law on Venue Ignores Reality

By Keith Grady & Karen Morris
October 8, 2017

On May 22, 2017, in TC Heartland LLC v. Kraft Foods Group Brands, LLC, 137 S.Ct. 1514 (2017), the Supreme Court held that patent venue is controlled exclusively by 28 U.S.C. § 1400(b), which restricts venue in patent cases to (1) where the Defendant resides, or (2) where the Defendant commits an act of infringement and has a regular and established place of business. The decision was immediately hailed by commentators as a significant break with past precedent.  Many suggested that the decision could sound the death knell for patent litigation in the Eastern District of Texas and would likely result in a dramatic increase in the numbers of patent cases filed in the District of Delaware.  Some commentators correctly noted that the decision would spawn litigation over what constitutes a “regular and established place of business” within the meaning of § 1400(b).

Indeed, the Federal Circuit’s recent decision, In re Cray, No. 2017-129 (Sept. 21, 2017), granted a petition for a writ of mandamus from an order denying transfer from the Eastern District of Texas, and identified three requirements that must be met to establish “a regular and established place of business” in a district:  (1) there must be a physical place in the district from which defendant’s business is carried out; (2) the place must be a regular and established place of business” and not a sporadic one; and (3) the “place” must be “a place of the defendant” and not solely a place of defendant’s employee.  Id. at 11-13.

Another issue raised in the commentary was how the decision would be applied to pending cases.  Federal Rule of Civil Procedure 12(b)(3) requires a party to assert an improper venue defense by motion prior to filing a responsive pleading.  And, Rule 12(h)(1) provides that an improper venue defense is waived if it is not raised in a Rule 12 motion.  An exception to the waiver rule allows a party to raise a defense that would otherwise have been waived if an intervening change in the law has occurred.

Despite the common perception of practitioners that the TC Heartland decision changed the law of venue in patent cases, the majority of district courts to address this issue have come to the opposite conclusion, finding that the decision merely reaffirmed existing law and could not excuse the failure to raise the defense earlier.  The reasoning of these decisions is questionable, as is the refusal of these courts to recognize how dramatically TC Heartland changed the landscape for patent litigation.

Fourco Glass and VE Holding

In 1957, the Supreme Court interpreted 28 U.S.C. § 1400(b), the patent venue statute, and held that a domestic corporation “resides” only in its state of incorporation. See Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 229 (1957).  Since Fourco, Congress has not amended § 1400(b), but has twice amended the general venue statute, 28 U.S.C. § 1391.  In 1988, Congress amended § 1391(c), to provide that “[f]or purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced.” TC Heartland, 137 S. Ct. at 1519 (quoting Judicial Improvements and Access to Jus­tice Act, §1013(a), 102 Stat. 4669).

Two years later, relying on the 1988 revision to the general venue statute, the Federal Circuit, in VE Holding Corp v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), cert. denied, 499 U.S. 922 (1991), determined that § 1391 “clearly applies to § 1400(b), and redefines the meaning of the term ‘resides.’”  Id., 917 F.2d at 1578.  Describing the case as one of “first impression,” the court held that venue in patent cases would lie in “any judicial district [where the] defendant is subject to the court’s personal jurisdiction.” Id. at 1578-80.  “The Supreme Court denied certiorari, allowing the Federal Circuit’s decision [in VE Holding] to stand, and district courts have since had to follow it – until now.”  Westech Aerosol Corp. v. 3M Co. et al., No. 17-cv-5067, 2017 WL 2671297, at *2 (W.D. Wash. June 21, 2017).

Following the VE Holding decision, commentators recognized that the ruling departed from FourcoSee, e.g., Michael Keller & Kenneth Nunnenkamp, Patent Law Developments in the United States Court of Appeals for the Federal Circuit During 1990, 40 Am. U. L. Rev. 1157, 1189 (Spring 1991) (“While courts struggled to distinguish Fourco Glass after the 1988 amendments, it was not until the Federal Circuit’s decision in V.E. Holding that plaintiffs were freed of the restrictive effect of this 1957 decision.”); Thomas Adams, The 1988 Revision of 28 U.S.C. § 1391(c): Corporate Venue Is Now Equivalent to In Personam Jurisdiction: Effects on Civil Actions for Patent Infringement, 39 Clev. St. L. Rev. 357, 384 (1991) (“[T]he Federal Circuit decision in VE Holding has been allowed to stand, due to the denial of Johnson’s petition for certiorari.  Thus, absent further congressional amendment, the thorough and well-reasoned opinion of the Federal Circuit in VE Holding will control the issue of the residence of corporate defendants in patent infringement suits.”).  Accordingly, for the past 27 years, patent owners could sue alleged infringers in any court that had personal jurisdiction over the alleged infringer.

TC Heartland Overturns VE Holding

In TC Heartland, the Court held that 28 U.S.C. § 1400(b) is the sole and exclusive provision governing venue in patent infringement actions and is not to be supplemented by the general venue statute, 28 U.S.C. § 1391(c). The Court explained:  “Congress has not amended §1400(b) since Fourco, and neither party asks us to reconsider our hold­ing in that case. Accordingly, the only question we must answer is whether Congress changed the meaning of §1400(b) when it amended §1391.” 137 S.Ct. at 1520.  The Court concluded:  “The current version of §1391 does not contain any indi­cation that Congress intended to alter the meaning of §1400(b) as interpreted in Fourco.”  Id.  The Court therefore reversed the Federal Circuit’s decision and limited venue in patent cases to (1) the defendant’s state of incorporation, or (2) where the defendant commits an act of infirngement and has a regular and established place of business.

The Aftermath:  When is a change in the law not a change?

Since the TC Heartland decision, many courts and commentators have recognized recognized that TC Heartland changed the law on patent venue.  A good example is the Westech decision, supra, in which the court stated:  “TC Heartland changed the venue landscape. For the first time in 27 years, a defendant may argue credibly that venue is improper in a judicial district where it is subject to a court’s personal jurisdiction but where it is not incorporated and has no regular and established place of business.”  Westech, 2017 WL 2671297, at *2 (emphasis added).

Similarly, in Hand Held Prods., Inc. v. The Code Corp., No. 2:17-167-RMG (D.S.C. July 18, 2017), the court granted a motion to transfer, even though the defendant had conceded venue was proper in its answer.  The court explained:  “Even if in a literal sense it may be said that the law on patent venue has not changed since 1957, it is reasonable that litigants believe TC Heartland is a change in the law.”  Id. at 5.  Likewise, in her dissent from the denial of a petition for a writ of mandamus in In Re Sea Ray Boats Inc., Judge Newman noted: “When a court is confronted with a change in the law, the judicial role is to comply with the change. There is little doubt that the Court’s decision in TC Heartland [] was a change in the law of venue…”  –Fed. Appx. –, No. 2017-cv-124, 2017 WL 2577399, at *1 (Fed. Cir. June 9, 2017) (emphasis added).  See also JPW Indus., Inc. v. Olympia Tools Int’l, Inc., No. 16-cv-3153-JPM (M.D. Tenn. July 19, 2017) (rejecting waiver argument and holding objection to venue in answer preserved defendant’s right to challenge based on TC Heartland); Stuebing Automatic Machine Co. v. Gavronsky, No. 16-cv-576 (S.D. Ohio June 12, 2017) (D.I. 42) (granting transfer to the Southern District of Texas after previously denying motion to transfer in December 2016, and noting that TC Heartlandclarified the proper venue in patent infringement litigation.”) (emphasis added).

Recently, some district courts have, sua sponte, ordered additional briefing in light of the change in law that TC Heartland brought.  For example, in Symbology Innovations, LLC v. Lego Systems, Inc. et al., No. 17-cv-86 (E.D. Va. June 2, 2017) (D.I. 30), the court specifically ordered that the parties “shall rebrief the issue of transferring this action in the wake of the intervening changes in governing law.” (emphasis added).  In addition, parties to patent cases have stipulated to transfers to other district courts on the basis that venue was no longer proper due to a change in the law under TC Heartland. See, e.g., F5 Networks, Inc. v. Radware, Inc., No. 16-cv-480 (W.D. Wash. May 30, 2017) (D.I. 97) (stipulation to transfer to the Northern District of California, where motion to transfer was previously denied before the Supreme Court decision in TC Heartland and stating that “this stipulated motion is appropriate in response to a change in the precedent governing venue in patent cases,” and that “TC Heartland overturned a line of cases.”) (emphasis added).  See also ON Semiconductor Corp. et al. v. Power Integrations, No. 16-cv-02720 (D. Ariz. June 2, 2017) (D.I. 36) (order transferring to the Northern District of California after plaintiff joined in motion to dismiss or change venue after TC Heartland whereby the plaintiff filed supplemental authority and noted that “the decision in TC Heartland affects the venue analysis.”) (see id. at D.I. 33) (emphasis added).            Surprisingly, most courts to address the issue, such as Cobalt Boats, LLC v. Sea Ray Boats Inc., iLife Technologies, Inc. v. Nintendo of America Inc., No. 13-cv-04987, 2017 WL 2778006, at *7 (N.D. Tex. June 27, 2017) and Elbit Systems Land and C4L Ltd. v. Hughes Network Systems, LLC, No. 15-cv-37, 2017 WL 2651618, at *20 (E.D. Tex. June 20, 2017), have reached the remarkable conclusion that TC Heartland did not change the law of venue as applied to patent cases.  These courts maintain that the Federal Circuit’s decision in VE Holding could not have overruled the Supreme Court’s decision in Fourco; therefore, the TC Heartland decision simply reaffirmed what had been the law since 1957, essentially denying the binding effect VE Holding had on district courts handling patent cases.  Under this reasoning, every case that followed VE Holding for the past 27 years was wrongly decided because the real controlling law was Fourco.  These courts further assert that it was incumbent upon every defendant in a patent case following the VE Holding decision to raise the issue of improper venue and try to get their case to the Supreme Court like the defendant in TC Heartland did.  This reasoning is flawed, particularly in light of the Supreme Court’s denial of the petition for certiorari in VE Holding and the recognition by commentators at the time the VE Holding opinion issued that the Federal Circuit had, in fact, changed the law on venue.

Moreover, it was not until the explosion of patent troll litigation over the past several years and the concentration of patent cases in jurisdictions viewed as plaintiff-friendly that venue became a topic of concern for courts and Congress.  See, e.g., Brian Love & James Yoon, Predictably Expensive: A Critical Look at Patent Litigation in the Eastern District of Texas, 20 Stan. Tech. L. Rev. 1, 3-4 (2017) (noting that the “target of Congress and TC Heartland’s Supreme Court amici is crystal clear: The U.S. District Court for the Eastern District of Texas, a court made infamous as the location of choice for America’s ‘patent trolls.’ . . . Since the mid-2000s the Eastern District has established a reputation as a ‘renegade jurisdiction’”).  Notably, the majority of the decisions finding that TC Heartland did not amount to a change in the law are from the Eastern District of Texas.  See, e.g., Elbit Sys. Land & C41 Ltd. v. Hughes Network Sys., LLC, No. 2:15-cv-37-RWS-RSP, 2017 WL 2651618, at *20 (E.D. Tex. June 20, 2017) (Report and Recommendation) (quoting Cobalt Boats, LLC v. Sea Ray Boats, Inc., No. 2:15-cv-21, 2017 WL 2556679, at *3 (E.D. Va. June 7, 2017), mandamus writ denied, No. 2017-125, 2017 WL 2577399 (Fed. Cir. June 9, 2017)); Realtime Data LLC v. Carbonite, Inc., No. 6:17-cv-00121-RWS-JDL, slip. op., Doc. No. 56, at *3–4 (E.D. Tex. July 11, 2017) (Report and Recommendation); Diem LLC v. BigCommerce, Inc., No. 6:17-cv-186-JRG-JDL, slip. op., Doc. No. 21, at *3 (E.D. Tex. July 6, 2017) (Report and Recommendation); Tinnus Enterprises, LLC v. Telebrands Corp., No. 6:15-cv-551-RC-JDL, slip. op., Doc. No. 316 (E.D. Tex. July 5, 2017) (Report and Recommendation).

Some of these decisions can be explained by their unique procedural posture and the prejudice that would have resulted from transferring venue on the eve of trial or after substantial discovery and claim construction proceedings had concluded.  For example, in the Sea Ray Boats case, the parties were approximately two weeks before the start of trial when the venue issue was raised.  In Re Sea Ray Boats Inc., 2017 WL 2577399, at *1.  Likewise, in iLife, trial is scheduled to begin the week of August 21, 2017, just two months after the venue issue was raised. iLife, 2017 WL 2778006, at *1. Trial in Elbit Systems similarly is scheduled for this summer as well.  Elbit Systems, 2017 WL 2651618, at *12.  However, in recently-filed cases in which no substantial proceedings have taken place, the only prejudice the plaintiff would suffer would result from having to litigate the case in the legally appropriate venue.  Accordingly, finding challenges to venue waived in such cases rests on faulty reasoning.

Some courts are cognizant of this faulty reasoning.  Recently, in OptoLum, Inc. v. Cree, Inc., No. 16-cv-03828, 2017 WL 3130642, at *1 (D. Ariz. July 24, 2017), the court transferred OptoLum’s patent case to the Middle District of North Carolina, finding that Cree did not waive the defense of improper venue in light of TC Heartland.  It specifically stated that it “did not agree with those decisions” that found that TC Heartland did not constitute an intervening change in the law.  Id. at *2.  It also explained that VE Holding changed the law twenty-seven years ago, and noted that “even Congress has recognized that VE Holding, for better or worse, was the prevailing law that bound lower courts and litigants alike.”  Id. at *4.  Thus, like the court in Westech, which it cited, the court in OptoLum found that Cree did not waive its improper venue defense, and since it was undisputed that it was incorporated in North Carolina, the court transferred the case there. Id. at *6, *7.

Conclusion

It seems clear that TC Heartland changed the law on venue for patent cases.  The decisions holding that TC Heartland is not a change in the law seem to ignore the history of patent litigation from 1990 to 2017.  During that time, VE Holding controlled venue for patent cases.  Patent practitioners know this.  Defendants could be sued in any court which could exercise personal jurisdiction over them.  Post-TC Heartland, this is no longer true.  Now, patent venue is limited to (1) a venue in which the Defendant resides, or (2) a venue in which the Defendant has committed an act of infringement and has a regular and established place of business.  To suggest this decision did not amount to a significant change in the law is to ignore reality.

The Author

Keith Grady

Keith Grady is the Chair of the Intellectual Property and Technology Litigation Practice Group of Polsinelli. With over 28 years of experience in government and private law practice, clients turn to Keith for both ongoing counsel and immediate litigation needs. He takes a strategic approach to developing, enforcing and defending clients' intellectual property and furthering their business interests.

For more information or to contact Keith, please visit his Firm Profile Page.

Keith Grady

Karen Morris Is an Associate Attorney with Polsinelli. Karen's problem solving and analytical abilities make her an invaluable asset both to the firm’s Intellectual Property and Technology Litigation team, as well as its clients. As a patent attorney admitted to practice before the U.S. Patent and Trademark Office, Karen focuses her practice on a variety of issues including patent, trademark, and copyright matters. She combines her background and training in biochemistry with her intellectual property experience to assist clients on a variety of complex scientific and technical issues.

For more information or to contact Karen, please visit her Firm Profile 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.

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There are currently 2 Comments comments. Join the discussion.

  1. Night Writer October 8, 2017 7:41 pm

    Thanks. That was a well-written article.

  2. Louis J. Hoffman October 12, 2017 12:56 pm

    Although you acknowledge that the majority view has held “that the [TC Heartland] decision merely reaffirmed existing law and could not excuse the failure to raise the defense earlier,” you don’t cite the cases. You also write, “The reasoning of these decisions is questionable,” but you neither describe the reasoning nor explain why you reach that conclusion. In my view, I can think of no reason why any litigant could not have made the same arguments that TC Heartland ultimately successfully urged. For readers who are interested in checking out the reasoning of the majority of the courts, they have concluded that TC Heartland reaffirmed the Supreme Court’s long?standing holdings in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 229 (1957) and Stonite Products Co. v. Melvin Lloyd Co., 315 U.S. 561, 566 (1942), that 28 U.S.C. §1400 is the sole statute governing venue in patent cases. TC Heartland, 137 S. Ct. at
    1520. The “majority view” cases of which I am aware are: Realtime Data, LLC, v. Carbonite, Inc., 2017?WL 3588048 (E.D. Tex. August 21, 2017); Realtime Data, LLC v. Echostar Corp., 2017?WL 3599537 (E.D. Tex. August 21, 2017); Realtime Data, LLC v. Netapp, Inc., 2017?WL 3588047 (E.D. Tex. August 21, 2017); MyMail, Ltd., v. Yahoo!, Inc., No. 2:16?CV?01000?JRG?RSP (E.D. Tex. August 17, 2017); Jarratt v. Amazon.com, Inc., 2017?WL 3437782 (W.D. Ark. August 10, 2017); Tinnus Enterprises LLC, v. Telebrands Corp., 2017?WL 3404795 (E.D. Tex. August 8, 2017); Takeda Pharma,U.S.A., Inc., v. Mylan Pharma, Inc., 2017?WL 3326663 (D. Del. August 3, 2017); Orthosie Systems, LLC v. Synovia Solutions, LLC, 2017?WL 3244244 (E.D. Tex. July 31, 2017); The Chamberlain Group, Inc. v. Techtronic Industries Co., Ltd., et al., 2017?WL 3205772 (N.D. Ill. July 28, 2017); Mantissa Corporation v. Ondot Systems, Inc., 2017?WL 3175645 (S.D. Tex. July 26, 2017); Diem LLC, v. Bigcommerce, Inc., 2017?WL 3187473 (E.D. Tex. July 26, 2017); McRo, Inc., v. Valve Corporation, 2017?WL 3189007 (C.D. Cal. July 24, 2017); Skyhawke Technologies, LLC v. DECA International Corp., 2017?WL 3132066 (S.D. Miss. July 20, 2017); Koninklijke Philips NV v. ASUSTeK Computer Inc., 2017?WL 3055517 (D. Del. July 19, 2017); Aralez Pharmaceuticals, Inc. v. Teva Pharmaceuticals USA, Inc., 2017?WL 3446543 (E.D. Tex. July 17, 2017); Reebok International Ltd., v. TRB Acquisitions LLC, 2017?WL 3016034 (D. Ore. July 14, 2017); Navico, Inc., v. Garmin International, Inc., 2017?WL 2957882 (E.D. Tex. July 11, 2017); Infogation Corp., v. HTC Corporation, 2017?WL 2869717 (S.D. Cal. July 5, 2017); Amax, Inc., v. ACCO Brands Corp., 2017?WL 2818986 (D. Mass. June 29, 2017); iLife Technologies, Inc., v. Nintendo of America, Inc., 2017?WL 2778006 (N.D. Tex. June 27, 2017); Cobalt Boats, LLC v. Sea Ray Boats, Inc., 2017 WL 2556679 *3, No. 2:15cv21 (E.D. Va. June 7, 2017); Elbit Systems Land and C4I Ltd. v. Hughes Network Systems, LLC, 2017 WL 2651618, No. 2:15?CV?00037?RWS?RSP (E.D. Tex. June 20, 2017); AlmondNet, Inc. v. Yahoo! Inc., 1:16-cv-01557-ILG-SMG (E.D.N.Y. Sept. 7, 2017).

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