TC Heartland Update: Federal Circuit decides ZTE and Bigcommerce

Of the many lingering issues left in TC Heartland’s wake for domestic corporations, a Federal Circuit panel resolved several of them recently. In In re ZTE (USA), No. 2018-113, the court addressed two of the most common issues dogging appeals over the application of § 1400(b): whose law governs burden, and where does that burden lie. In In re Bigcommerce, No. 2018-120, the court addressed the territorial bounds mapped by the phrase “judicial district” in § 1400(b). Judge Linn authored both.

In Bigcommerce, the court granted mandamus following the Eastern District of Texas’s order denying motions to dismiss the case for improper venue under § 1406(a). In patent cases, § 1400(b) governs whether venue is or isn’t improper. As reiterated in TC Heartland, § 1400(b) is unique to patent law and is not coterminous with the personal jurisdiction inquiry of § 1391. The first prong of § 1400(b) allows venue to “be brought in the judicial district where the defendant resides.” As made clear in TC Heartland, a domestic corporation “resides” only in its state of incorporation. But this begs the question, what about when the state has multiple judicial districts? Multiple district courts, including the one overruled in this appeal, interpreted this prong of § 1400(b) to mean that, in states with more than one judicial district, a domestic corporation incorporated in that state “resides…in each such judicial district.”

The Federal Circuit held that a domestic corporation incorporated in a state having multiple judicial districts “resides…only in the single judicial district within that state where it maintains a principal place of business, or failing that, the judicial district in which its registered office is located.” The court supported its holding first by the plain language of the statute: the use of “the” definite article before judicial district “speaks to venue in only one particular judicial district in the state.” Turning to the provision’s structure, the court noted the “use of the disjunctive ‘or’ coupled with a comma after ‘resides’ indicates that ‘the judicial district’ modifies only the first of the two venue tests in § 1400(b).” The court bolstered its conclusion by reviewing the statute’s history, purpose and precedent.

Bigcommerce is a Texas corporation, and Bigcommerce is headquartered in Austin, Texas, which is in the Western District of Texas. Applying the new rule to Bigcommerce, the corporation thus resides only in the Western District of Texas, since that district is within Bigcommerce’s state of incorporation and is where Bigcommerce has its principal place of business. Had Bigcommerce’s principal of place of business been out-of-state, then the rule would still give rise to venue in the Western District of Texas because Austin also happens to be where Bigcommerce lists its registered office, as recorded in its corporate filings. Bigcommerce will impact all companies incorporated in a state with multiple judicial districts.

In ZTE, Petitioner ZTE sought a writ of mandamus directing the Eastern District of Texas to dismiss the case for improper venue under § 1406(a). In ZTE, the Federal Circuit issued an opinion ultimately vacating the decision below, but remanding for the trial court to reconsider given the new guidance in the opinion. The court noted that the two issues it was resolving were “basic and undecided,” and likely to be repeated such that resolution on mandamus was proper.

First, the court held that Federal Circuit law – not regional circuit law – governs which party bears the burden of persuasion in establishing proper venue under § 1400(b). The court noted that the inquiry is “intimately related” to the substantive determination of whether venue is proper under § 1400(b), and that “who has the burden of persuasion on the elements of a legal rule is treated across many contexts as a substantive aspect of the legal rule.” The holding was bolstered by the fact that all appeals implicating § 1400(b) matriculate to the Federal Circuit. Invoking Beverly Hills Fan, a 1994 choice of law decision, the court noted that applying regional circuit law to the issue of which party has the burden under § 1400(b) “would run contrary to this court’s mandate of achieving national uniformity in the field of patent law.”

The court noted the lack of uniformity, even among districts within a single circuit. This first holding resolves the confusion that had developed since TC Heartland. See, e.g., Bristol-Myers Squibb Co. v. Mylan Pharm. Inc., No. CV 17-379-LPS, 2017 WL 3980155, at *4 (D. Del. Sept. 11, 2017) (holding that “the issue of which party bears the burden of proof on a [§ 1400(b)] venue challenge is a procedural, non-patent issue controlled by the law of the regional circuit”). ZTE expressly requires courts to now apply Federal Circuit law to the issue of which party carries the burden under § 1400(b).

The next question resolved by ZTE is naturally the next one: since Federal Circuit law governs who has the burden, what is the Federal Circuit’s law? The answer: Plaintiffs bear the burden of establishing that venue is proper under § 1400(b).

In holding that the burden is Plaintiff’s, the court looked back to law of the circuit courts, created before the formation of the Federal Circuit and during the time § 1400(b) was interpreted in accordance with TC Heartland (that is, from the pre-VE Holding days). The court found that the weight of authority placed the burden on a plaintiff, following a challenge by a defendant, and the court found this authority persuasive. The court also explained that § 1400(b) “is intended to be restrictive of venue in patent cases compared with the broad general venue provision.” While this statement in isolation is in some tension with the legislative history – see, e.g., Cray’s discussion of Brunette Machine and the legislative history – the ZTE panel held that “Section 1400(b)’s intentional narrowness supports placing the burden of establishing proper venue on the Plaintiff.”

The opinion concludes by reiterating the three Cray requirements relevant to the venue inquiry. Going forward, district courts should heed the call: “To be complete, the district court must give reasoned consideration to all relevant factors or attributes of the relationship in determining whether those attributes warrant [a certain business to be] deemed a regular and established place of business” of the defendant. Findings that the Federal Circuit noted the trial court should have made below included: the nature of the defendant’s relationship with representatives at a certain business in the district (a call center); whether defendants had any form of control over the representatives working there; whether defendant itself possessed, owned, leased, or rented the office space or owned any of the equipment located in the office space; and, any signage at the business relating to the defendant.

Following ZTE, Parties will want to develop the record as early and as thoroughly as possible. Plaintiffs can no longer ignore affidavit and other evidence submitted by defendants, and must be prepared to make their case for proper venue once challenged. In fact, it now becomes even more important for Plaintiffs to thoroughly research and determine that venue is indeed proper before filing suit.

These decisions and TC Heartland will be an important consideration for innovators dealing with non-practicing entities that we have seen in the past try to corral large groups of defendants in Texas. There also remains some question about the impact of TC Heartland in the context of ANDA cases (which under the AIA also have different joinder provisions from other patent infringement cases). Also pending before the Federal Circuit is how the first prong of 1400(b) applies, if at all, to unincorporated associations, such as LLCs.

The Author

Erin Knese

Erin Knese is an associate in Husch Blackwell LLP’s St. Louis office. Erin focuses her practice on commercial litigation. She has experience conducting discovery and drafting pretrial motions in patent infringement cases, and in briefing before the Federal Circuit. She also has experience in other forms of IP litigation, including trademark, copyright, and trade secrets cases under both state-law and the DTSA.

For more information or to contact Erin, Please visit her Firm Profile Page.

Erin Knese

Philip Segrest is a partner in Husch Blackwell LLP’s St. Louis office and belongs to the firm’s Technology, Manufacturing & Transportation industry group. Philip is an experienced litigator in patent and intellectual property matters in a wide variety of technologies and a registered patent attorney with a technical background in physics and computer related technologies. He has particular depth of experience managing pharmaceutical patent litigation under Abbreviated New Drug Act (ANDA), helping generic manufacturers bring their products to market at affordable, competitive prices. Philip also has extensive litigation and patent prosecution experience in information and computer related technologies, including data compression, e-commerce systems, business methods and other technologies in electrical, mechanical and chemical technical arts.

For more information or to contact Philip, Please visit his Firm Profile Page.

Erin Knese

Steve Holtshouser is a partner in Husch Blackwell LLP’s St. Louis office and belongs to the firm’s Technology, Manufacturing & Transportation industry group. Steve is a trial and appellate lawyer who concentrates his practice in the area of federal patent litigation. In addition, his litigation experience extends to protecting other key drivers of business success, including trademarks, trade secrets, cyber security and confidential information. Steve further relies on his background as an Assistant U.S. Attorney to practice in the area of white collar criminal defense, responding to government inquiries and conducting internal investigations.

For more information or to contact Steve, Please visit his Firm Profile Page.

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