Supreme Court Restricts Where Patent Cases Can Be Filed

Schwabe, Williamson & Wyatt PC

Schwabe, Williamson & Wyatt PC

TC Heartland LLC v. Kraft Foods Group Brands LLC, Case No. 16-341 (May 22, ‎‎2017)‎

In an 8-0 opinion written by Justice Thomas (Justice Gorsuch did not participate), the ‎Supreme Court rules that a defendant “resides” for purposes of the patent venue statute only ‎where the defendant actually ‎is incorporated or where the defendant has committed acts of ‎infringement and ‎has a regular and established place of business. This will prove devastating to ‎Texas businesses that have taken advantage of the fact that 40% of all patent infringement ‎actions over the past three years have been filed in the Eastern District of Texas. This could prove ‎to be a boon to law firms in Delaware, which is a common state of incorporation, and to firms ‎around the country based in technology-hot areas.‎

The Court rules that the 2011 amendments to the‎ general venue statute, 28 ‎U.S.C. § ‎‎1391, changed the law and effectively overruled VE Holding, which held that the definition ‎of ‎‎“corporate residence” in the general venue statute applies to the patent venue ‎statute, 28 U.S.C. § ‎‎1400. The Court accepted Heartland’s argument that the amendment to § 1391 that added ‎‎“except as otherwise ‎provided by law” meant that the patent ‎venue statute was ‎intended to ‎control the definition of “corporate residence” in patent actions, ‎instead of the general venue ‎statute.‎

The patent venue statute, 28 U.S.C. §1400(b), provides that “any 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 Fourco Glass Co. v. Transmirra Products Corp., this Court concluded that for ‎purposes of §1400(b) a domestic corporation “resides” only in its State of incorporation, rejecting ‎the argument that §1400(b) incorporates the broader definition of corporate “residence” ‎contained in the general venue statute, 28 U.S.C. §1391(c). Congress has not amended ‎‎§1400(b) since Fourco, but it has twice amended §1391, which now provides that, “except as ‎otherwise provided by law” and “for all venue purposes,” a corporation “shall be deemed to ‎reside, if a defendant, in any judicial district in which such defendant is subject to the court’s ‎personal jurisdiction with respect to the civil action in question.” §§1391(a), (c). ‎

Respondent filed a patent infringement suit in the District Court for the District of ‎Delaware against petitioner, a competitor that is organized under Indiana law and headquartered ‎in Indiana but ships the allegedly infringing products into Delaware. Petitioner moved to transfer ‎venue to a District Court in Indiana, claiming that venue was improper in Delaware. Citing ‎Fourco, petitioner argued that it did not “reside” in Delaware and had no “regular and ‎established place of business” in Delaware under §1400(b). The District Court rejected these ‎arguments. The Federal Circuit denied a petition for a writ of mandamus, concluding that ‎‎§1391(c) supplies the definition of “resides” in §1400(b). The Federal Circuit reasoned that ‎because petitioner resided in Delaware under §1391(c), it also resided there under §1400(b). ‎

Held: As applied to domestic corporations, “residence” in §1400(b) refers only to the ‎State of incorporation. The amendments to §1391 did not modify the meaning of §1400(b) as ‎interpreted by Fourco. ‎

‎(a) The venue provision of the Judiciary Act of 1789 covered patent cases as well as other ‎civil suits. Stonite Products Co. v. Melvin Lloyd Co. In 1897, Congress enacted a patent specific ‎venue statute. This new statute (§1400(b)’s predecessor) permitted suit in the district of which ‎the defendant was an “inhabitant” or in which the defendant both maintained a “regular and ‎established place of business” and committed an act of infringement. A corporation at that time ‎was understood to “inhabit” only the State of incorporation. This Court addressed the scope of ‎‎§1400(b)’s predecessor in Stonite, concluding that it constituted “the exclusive provision ‎controlling venue in patent infringement proceedings” and thus was not supplemented or ‎modified by the general venue provisions. 315 U.S., at 563. In 1948, Congress recodified the ‎patent venue statute as §1400(b). That provision, which remains unaltered today, uses “resides” ‎instead of “inhabits.” At the same time, Congress also enacted the general venue statute, §1391, ‎which defined “residence” for corporate defendants. In Fourco, this Court reaffirmed Stonite’s ‎holding, observing that Congress enacted §1400(b) as a standalone venue statute and that ‎nothing in the 1948 recodification evidenced an intent to alter that status, even the fact that ‎‎§1391(c) by “its terms” embraced “all actions,” 353 U.S., at 228. The Court also concluded that ‎‎“resides” in the recodified version bore the same meaning as “inhabits” in the pre-1948 version. ‎

This landscape remained effectively unchanged until 1988, when Congress amended the ‎general venue statute, §1391(c). The revised provision stated that it applied “[f]or purposes of ‎venue under this chapter.” In VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574, ‎‎1578, the Federal Circuit held that, in light of this amendment, §1391(c) established the ‎definition for all other venue statutes under the same “chapter,” including §1400(b). In 2011, ‎Congress adopted the current version of §1391, which provides that its general definition applies ‎‎“for all venue purposes.” The Federal Circuit reaffirmed VE Holding in the case below. ‎

‎(b) In Fourco, this Court definitively and unambiguously held that the word “residence” ‎in §1400(b), as applied to domestic corporations, refers only to the State of incorporation. ‎Because Congress has not amended §1400(b) since Fourco, and neither party asks the Court to ‎reconsider that decision, the only question here is whether Congress changed §1400(b)’s meaning ‎when it amended §1391. When Congress intends to effect a change of that kind, it ordinarily ‎provides a relatively clear indication of its intent in the amended provision’s text. No such ‎indication appears in the current version of §1391. Respondent points out that the current ‎‎§1391(c) provides a default rule that, on its face, applies without exception “[f]or all venue ‎purposes.” But the version at issue in Fourco similarly provided a default rule that applied “‘for ‎venue purposes,’” and those phrasings are not materially different in this context. The addition of ‎the word “all” to the already comprehensive provision does not suggest that Congress intended ‎the Court to reconsider its decision in Fourco. Any argument based on this language is even ‎weaker now than it was when the Court rejected it in Fourco. Fourco held that §1400(b) ‎retained a meaning distinct from the default definition contained in §1391(c), even though the ‎latter, by its terms, included no exceptions. The current version of §1391 includes a saving clause, ‎which expressly states that the provision does not apply when “otherwise provided by law,” thus ‎making explicit the qualification that the Fourco Court found implicit in the statute. Finally, ‎there is no indication that Congress in 2011 ratified the Federal Circuit’s decision in VE Holding. ‎

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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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