Forum Shopping in Patent Litigation

by Fish & Richardson
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This month, both the Federal Circuit and the Senate Judiciary Committee took up the issue of “forum shopping” in patent infringement suits.  Right now, a patent plaintiff can essentially file suit in the district court of its choosing.  Consequently, patent suits (especially those filed by so-called “patent trolls”) are heavily concentrated in jurisdictions considered “plaintiff-friendly.”  The most popular of these is the Eastern District of Texas.  Nearly half of all patent suits filed in 2015 were filed in the Eastern District of Texas.  The court has been called a “haven” for patent trolls because of its reluctance to make early determinations of patent invalidity and non-infringement or even to stay suits pending review of the asserted patents by the U.S. Patent and Trademark Office.

Venue in patent infringement cases is governed by 28 U.S.C. § 1400(b), which states that “[a]ny civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.”  In 1957, the Supreme Court explained that, in patent infringement actions, a corporation “resides” where it is incorporated and held that “§ 1400 is the sole and exclusive provision controlling venue in patent infringement actions, and that it is not supplemented by the provisions of 28 U.S.C. § 1391(c),” the general venue statute.[1]  After a 1988 amendment of § 1391(c), however, the Federal Circuit held the opposite.  Namely, in VE Holding v. Johnson Gas Appliance Co., it said that §§ 1400(b) and 1391(c) should be read together, so that a corporation accused of patent infringement is deemed to reside in every district in which it is subject to personal jurisdiction.[2]  VE Holding thus greatly expanded the venue options for patent cases.  According to its critics, it also fostered forum shopping, resulting in the current concentration of patent suits in the Eastern District of Texas.

In 2011, § 1391 was again amended (as part of the Federal Courts Jurisdiction and Clarification Act).  Not surprisingly, perhaps, the Federal Circuit is now being asked to clarify the test for venue in patent cases in light of the 2011 amendment.  TC Heartland LLC filed a mandamus petition to the Federal Circuit after the District Court of Delaware denied Heartland’s motion to transfer the suit against it to the Southern District of Indiana (Heartland’s state of incorporation and principal place of business).  On March 11, 2016, a panel of Federal Circuit judges (Moore, Linn, and Wallach) heard oral arguments on the subject.  Heartland argued that the 2011 amendment “specifically repealed” the statutory language on which the VE Holding decision relied.[3]  According to Heartland, for patent cases, the venue rules once again restrict a corporation’s residence to the state in which it is incorporated.  Federal Circuit Judge Bryson recently rejected a similar argument while sitting by designation in the Eastern District of Texas.[4]  More than two dozen companies and interest groups filed amicus briefs in support of Heartland’s petition, urging the Federal Circuit to overturn VE Holding.  Virtually all of them pointed to the Eastern District of Texas as exemplifying the negative consequences of that decision.

Respondent Kraft Foods Group Brands LLC stated that it “concurs with much of the criticism that Heartland and the amici direct to the adverse effects of forum shopping in the Eastern District of Texas by nonpracticing entities,” but stressed that its case originated in Delaware, not the Eastern District of Texas.[5]  Kraft also argued that reforming patent venue rules is a job for Congress, not the Federal Circuit (a point that seemed to resonate with the judges).

Indeed, less than a week after the hearing, a new bill was introduced in the Senate that would effectively overturn VE Holding.  The bill, called the Venue Equity and Non-Uniformity Elimination (VENUE) Act (S. 2733), proposes to do away with § 1400(b) and replace it with a series of restrictions that emphasize the presence of physical facilities related to either the development of the claimed invention or the alleged infringement.  The bill would exclude facilities maintained by plaintiffs “primarily for the purpose of creating venue.”  In the vast majority of cases, venue would not be proper in the Eastern District of Texas.  The success of the bill, of course, is uncertain, but it likely has better prospects than broader proposals to curb abusive patent litigation, as embodied by the Innovation Act (H.R. 9) and the PATENT Act (S. 1137).

[1] Fourco Glass v. Transmirra Products Corp, 353 U.S. 222, 229 (1957).

[2] See VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1583 (Fed. Cir. 1990).

[3] Petition for Writ of Mandamus, In re TC Heartland, 16-105, Dkt. No. 2 (Fed. Cir. Oct. 23, 2015).

[4] Script Security Solutions, L.L.C. v. Amazon.com, LLC, 2:15-cv-1030, 2016 WL 1055827 (E.D. Tex. Mar. 17, 2016).

[5] Response, In re TC Heartland, 16-105, Dkt. No. 27 (Fed. Cir. Nov. 9, 2015).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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