“The problem is that it comes down to looking into your crystal ball to see what the Federal Circuit is going to do.”
In May of 2017, the United States Supreme Court delivered a unanimous decision in TC Heartland LLC v. Kraft Food Group Brands LLC that reversed the Federal Circuit and said that 28 U.S.C. 1400(b) remains the only applicable patent venue statute, that 28 U.S.C. 1391(c) did not modify or amend 1400(b) or the Court’s 1957 ruling in Fourco Glass Co. v. Transmirra Products Corp., and that the term “residence” in 28 U.S.C. 1400(b) means only the state in which a company is incorporated.
Since TC Heartland, courts and plaintiffs have struggled to understand the real world application of this decision; most recently, the Federal Circuit in In re Google allowed a case to remain in the Eastern District of Texas because Google had servers there. Thus, while the decision has undoubtedly resulted in a shift away from the heyday of the Eastern District of Texas, the precise parameters of a “physical presence” sufficient to satisfy venue remain murky.
To examine the effect TC Heartland has had so far, I recently sat down with Mike Oropallo of Barclay Damon, who has been out there litigating patent cases around the country. Among other observations, Oropallo says that—as usual—it all comes down to the Federal Circuit. Read on for more.
GENE QUINN: Thanks a lot, Mike, for taking the time to chat with me today. We’ve known each other for a long time now, and when last we spoke you were in Kentucky and then you were in Wisconsin. You’re all over, so I thought it would be fun to talk to you about what’s going on with TC Heartland on the frontlines. I think we all know what was supposed to happen, but is that actually happening?
MIKE OROPALLO: Well, Gene, this patent litigation thing has had its twists and turns between the Supreme Court and the Federal Circuit. TC Heartland definitely had an impact on where practicing entities and non-practicing entities are bringing lawsuits. I think it has really affected courts such as the District of Delaware, the Eastern District of Texas, and others. When TC Heartland was decided in May of 2017, it basically turned on its head the prior practice of bringing patent litigation wherever you wanted to as long as it met the minimum standards of personal jurisdiction. TC Heartland basically said that we need to look at 28USC 1400B, which is the patent venue statute, with respect to where the defendant is incorporated or where it has a regular and established place of business and has committed an act of infringement. So, suddenly, when a plaintiff is looking to sue a defendant for patent infringement, instead of being able to sue in a patent-friendly jurisdiction like the Eastern District of Texas, now the defendants are challenging venue if they’re sued in those jurisdictions because they may be a Delaware corporation doing business in the state of Wisconsin, for example. So, it has really changed things. The cases that have come down after it have tried to home in on what constitutes the regular and established place of business, and it’s come down to whether the defendant has a physical place of business or a physical presence, in the area. It has been interesting.
GENE QUINN: That’s one of the reasons I wonder sometimes whether it really has changed—you look at a place like the Eastern District of Texas and a lot of these big businesses do have at least some presence there already, although Apple has just announced they are pulling out, which strikes me as more of a stunt than anything else. But regardless of whether Apple leaves, there is still this narrative out there that the Eastern District is just this Podunk location where you might see tumbleweeds going across the vast plains, and that’s just not the Eastern District. It’s not New York City, it’s not L.A., it’s not Chicago, but real big businesses are established there and despite Apple’s decision other big businesses will stay. So, I wonder how much has really changed?
MIKE OROPALLO: Well, I think it has changed, because it’s not just about having a place of business, at least as I’m reading TC Heartland. In the cases that have come down since then, you’ve got to have some real presence in the location, and it’s got to be the same corporation—not a subsidiary. I think that the most telling case that has come down so far is the In re Google case, where SEVEN Networks sued Google in the Eastern District of Texas and claimed that, because Google has computer servers in Texas, that gives them jurisdiction. The motion to dismiss on venue grounds at the district court level said there is a physical presence in the Eastern District of Texas, therefore Google, even under TC Heartland, is amenable to sue there. Google filed a writ of mandamus with the Federal Circuit and the Federal Circuit basically denied the mandamus and said, we’re not deciding the issue of venue permanently, but the case has got to remain in the Eastern District of Texas. But it was sort of a split decision even on mandamus—you had Judges Dyk and Taranto in favor of denying it, but then you had the dissent by Judge Reyna that basically said, “Are we now going to say that every cell tower is a physical presence in the particular jurisdiction?” What really is a physical presence? I mean we all know that if you’re incorporated in a particular jurisdiction or if your principal place of business is in a particular jurisdiction, well then easily the patent statute applies. But then what do you do beyond that in order to determine what is a physical presence? There was another case that talked about oil and gas rigs as being a physical presence, for instance— Weatherford Technology Holdings v. Tesco Corporation. It’s an interesting dilemma. I think what we’re going to see are courts saying it’s not just about whether you’re doing business there, because then that would hearken right back to the personal jurisdiction standard, but you have to have something beyond a physical presence or a serious physical presence.
GENE QUINN: The thing is it can’t be the personal jurisdiction standard—we know that because the Supreme Court doesn’t like that. So, presumably, whatever the standard is going to wind up being under TC Heartland has got to be different because we’re using a different set of words and a different standard altogether. I think a lot of people thought “we have some guidance” because this is the way it used to be back before the Federal Circuit said that things had changed, so maybe we’ll go back to the older cases where it was just under Section 1400 rather than Section 1391. But I think if you look at some of those older cases that talk about what constitutes a regular and established place of business, they don’t answer a lot of the questions we need answered in a 21st Century economy. I was just talking, for example, at this conference recently with some people about software patents and patent eligibility and Section 101 and whether they could have envisioned that in the 1952 Patent Act as they were sitting there writing the Act. And the answer is clearly they could not have because science fiction shows like Lost in Space and Star Trek were still 10 to 20 years away. They could not have imagined what we have today.
MIKE OROPALLO: Good point.
GENE QUINN: So, I wonder whether a lot of those old cases are helpful to answer these questions.
MIKE OROPALLO: Yeah, I don’t know that they are. And it’s interesting also because in the In re Big Commerce case, the Federal Circuit did grant mandamus changing the jurisdiction, but the most important thing in that case was that they said the issue of venue is not under the local circuit law, it’s under the Federal Circuit law. So, I don’t know that any of the old cases would really be applicable to the Federal Circuit. I mean, obviously they could look to it, but on both the grounds that you’re talking about and on the grounds that there’s not a whole lot of Federal Circuit common law that’s been developed yet.
GENE QUINN: Right. I really don’t think the Federal Circuit is very cohesive. And what I mean by that is, for a while, it seemed like they were all on the same page and now it seems like we have the dynamics of many different regional Circuits within the court, because it’s so panel dependent. I think maybe, ultimately, to some extent, given it’s so important, the Supreme Court may have to weigh in on that. But am I being Pollyannaish about that? The Supreme Court doesn’t like to take many cases and I know they’ve been taking a lot of patent cases lately, but they only take about 100 cases a year.
MIKE OROPALLO: Yeah, I don’t think the Federal Circuit has weighed in enough on this particular issue for the Supreme Court to really take it up again. Maybe they will, I’m not the Supreme Court. But I think we’ve got to see what some of these other panels of the Federal Circuit say and then if we get a split in the different panels maybe that becomes the issue, just like you’d like have a split in different circuit courts around the country that it would warrant the Supreme Court taking it up—or do you get an en banc decision of the Federal Circuit, which is a whole other topic in and of itself.
GENE QUINN: Right. Because it seems like we’re going to be out to sea here for a little while as we start to really try and figure out what this means. As I sit here and think about it, the way I approach these kinds of decisions is that I try to ask myself what I would do if I was on the Federal Circuit. Now I see a server farm or server building with Google servers as a wholly different magnitude than cell towers. I don’t know that I could explain why that is, but I do, at least on an initial gut reaction. And I think those are the types of things that we’re going to have real difficulty explaining. In the Eastern District of Texas, for example, there’s got to be all kinds of Verizon stores all over the place. So it probably wouldn’t matter for a company like them whether they have their network running through those cellphone towers. But those are the types of questions that we’re facing, and I don’t think we really have good answers—but they’re basic and fundamental and that’s the frustrating thing right now.
MIKE OROPALLO: Yeah, and it becomes a transactional cost issue too. Do you bring an action in a jurisdiction that you’re not sure if you’re going to get a venue motion on but you still have a good basis for doing that? In certain cases, you absolutely go forward and do that because the client has sufficient resources, but if you’re representing a midsized company are you willing to take a chance and the cost that is associated with a motion to dismiss and a venue motion and having to get it transferred to another jurisdiction? All of those practical issues need to be weighed by both the attorney and the client.
GENE QUINN: Yeah. And that’s just an extra layer, right? I mean we’re just talking about getting in the door. At the beginning of our legal careers if somebody told you that it would be difficult for a patent owner to get past a motion to dismiss, you’d have been put in a straitjacket or you’d at least be looked at like you just didn’t get it.
MIKE OROPALLO: It’s true. You play it out and you go through the whole process, you go through claim construction, motions for summary judgment and/or trial and at some point you get a judgment and then it goes up to the Federal Circuit and, depending upon which panel you draw, you’re back to the drawing board.
GENE QUINN: Right. It’s just so frustrating. I sometimes wonder whether the judges understand how frustrating it is for clients and whether they really understand that their decisions are panel dependent. I’ve heard some of the judges speak down here in the Washington D.C. area, and it becomes clear to me that some of them don’t seem to really appreciate how the industry interprets the decisions. For example, I don’t really think the Federal Circuit understands that the industry believes there is a practically per se rule against medical diagnostics being patent eligible. I think that they believe they take each case fresh and new and look at it with independent eyes and maybe they do, but the outcomes always seem to be ineligible, ineligible, ineligible.
MIKE OROPALLO: Well, and then you look ahead. You look at the impact that that has on American innovation and innovation in itself because if all of a sudden you have a chilling effect because of what the interpretation is and the perceived per se rule like you’re talking about, now the companies are going to say, “Geeze we spent money to try and patent this particular medical innovation when we’re gonna get a 101 rejection on it? I don’t know.”
GENE QUINN: Yeah. The Cleveland Clinic is out of the business of medical diagnostics and it’s because they can’t find investors to invest in the startup companies that they would form based on their own research. Now that should alarm everyone. One of the major research institutions in America, the Cleveland Clinic is no longer investigating medical diagnostics because the state of the patent system. Wow.
MIKE OROPALLO: Wow, that’s right.
GENE QUINN: Well, Mike, we could talk all day, but is there anything else that you think you say about TC Heartland or venue in general or personal jurisdiction or this whole idea of getting into the courthouse in the first place?
MIKE OROPALLO: You’ve got to really look at it at the outset of the case and see what jurisdiction you’re likely to be in because, whereas forum shopping was the norm a few years ago, now you’ve really got to look at the forums with a lot of incorporations, where there are a lot of principle places of business and see what those courts do with the cases. For example, in the Northern District of California, the number of patent filings has skyrocketed, as has the number of filings in the District of Delaware. The District of Delaware had a lot of them to begin with but now they’re getting even more. And even though the Eastern District of Texas is still popular, the sands are definitely shifting. The problem is that it comes down to looking into your crystal ball to see what the Federal Circuit is going to do and if all of a sudden, we get two divergent opinions by two different panels in the Federal Circuit on what constitutes a physical presence in a jurisdiction, now it’s even more of a crapshoot.
GENE QUINN: Agreed.
Thanks, Mike, I really appreciate you taking the time to chat with me.
MIKE OROPALLO: Thank you very much, Gene, it’s been a good conversation.