Is patent litigation coming home to Georgia? Last year the U.S. Supreme Court holding in TC Heartland v. Kraft Foods Grp. Brands significantly affected the law of venue jurisdiction under 28 U.S.C. § 1400(b) for patent infringement cases. One result was to shift new patent complaint filings away from federal district courts that had been perceived to be plaintiff-friendly, such as the Eastern District of Texas, as I recently wrote in the Daily Report. TC Heartland only clarified one of the tests for patent venue in § 1400(b), holding that the provision “where the defendant resides” is limited to only the district where the defendant is incorporated.
What about the other provision to satisfy venue, the two-part test: (1) “where the defendant has committed acts of infringement” and (2) “has a regular and established place of business”? Both of these clauses must be satisfied for proper venue outside of the defendant’s state of incorporation. Much of the post-TC Heartland case law has focused on the latter clause, including the Federal Circuit’s September 2017 In re Cray opinion, which it limited only to clarifying the “regular and established place of business” phrase.
The result is that while the patent venue jurisprudence in TC Heartland and Cray provided plaintiffs with greater certainty on two of three of the clauses in § 1400(b), it left many questions around the final clause, “where the defendant has committed acts of infringement.” As we will see, the lack of precedent around the clause may have caused disproportionate uncertainty around patent venue in litigation involving software method claims, where the location of the infringement is more abstract and typically spans multiple districts. In turn, Georgia defendants in non-Georgia forums accused of infringing such claims may leverage this uncertainty to argue for a change of venue, perhaps to bring their cases home to Georgia.
Overview of the Lack of Precedent on the “Committed” Clause
Practically every patent complaint cites the patent venue statute, 28 U.S.C. § 1400(b), containing the “committed” clause, which itself has been on the books in similar form since 1897. Yet it appears no Federal Circuit opinion has discussed in detail “where” a defendant “has committed acts of infringement.” It is rare that a statute cited this commonly could contain a clause having as little legal authority as the “committed” clause. How did we get here?
Likely it is an accident of history – from 1990 through 2017 patent venue using the “residence” provision was coextensive with the easier bar of personal jurisdiction, so plaintiffs rarely if ever relied on the “committed” clause. Considering that the Federal Circuit was only created in 1982, that left eight years in which the “committed” clause could be plausibly interpreted. Yet it never was, and any previous non-Federal Circuit precedent was not binding on all federal district courts (and quickly became dated as technology changed). Thus, the Federal Circuit and district courts never developed meaningful jurisprudence over it.
That same time period between 1990 and 2017 coincided with the significant growth of two major sources of patent litigation. The first was the growth of patent infringement litigation involving software and computer networks. Especially in more recent years, software-related patents and litigation have involved transmissions and manipulation of information across the internet to servers, computers, and mobile devices that could be anywhere in the United States (not to mention the world). These patents typically have method claims where each and every step of the claim requires an operation performed by a different machine, generally with no geographic limitations. The other source of significant growth in patent litigation in that time period has been in the pharmaceutical industry, brought on by the addition of a new ground of infringement, 35 U.S.C. § 271(e)(2), from the Drug Price Competition and Restoration Act (commonly called the Hatch-Waxman Act) in 1984. This new act of infringement is unlike infringement under § 271(a) and is caused, among other things, when a defendant “submit[s] an application” to the FDA “to obtain approval” to manufacture, use, or sell a drug.
While these two areas of litigation expanded significantly in the last 25 to 30 years, the jurisprudence on “where” a defendant had “committed acts of infringement” for proper patent venue remained stagnant.
Overview of Outstanding Legal Questions Surrounding the “Committed” Clause
The lack of precedent has not been lost on district courts, who are beginning to struggle over “where” patent infringement occurred when determining whether they have proper venue for the case.
In a recent software patent infringement case involving method claims, the District of Delaware looked to a party’s brief citing the Federal Circuit opinion in NTP v. Research in Motion to help determine “where” a method claim was practiced. Presently, NTP might be the best authority for the question of “where” an act of infringement has been committed. In NTP, the court addressed the “territorial reach of Section 271,” which is “limited.” According the court, § 271(a) is “only actionable against patent infringement that occurs within the United States.” The court found that its question about infringement had “an added degree of complexity” in light of the facts that (1) the “patented invention” was not one single device, “but rather a system comprising multiple distinct components or a method with multiple distinct steps,” and (2) the nature of those components or steps “permits their function and use to be separated from their physical location.”
Thus, NTP addressed the extraterritoriality of infringement of method claims. And it held that every step of a method claim must be practiced “within” the United States. But, NTP’s applicability to patent venue is limited – NTP addressed infringement of a method claim where the steps were performed in two different sovereign nations, which is not necessarily a fair analogy for steps practiced in multiple districts within the United States.
Further, at a more base statutory interpretation level, NTP analyzed the term “within the United States” in 35 U.S.C. § 271(a) versus the phrase “in the judicial district . . . where the defendant has committed acts of infringement” in 28 U.S.C. § 1400(b). Without the specter of extraterritoriality, courts might be more open to an argument that patent venue is satisfied if a district is substantially a “locus” of infringement of the steps of a method claim, perhaps in terms of substantial benefit, use, or control – a similar argument to the one NTP applied to system claims but had foreclosed for allegations of transnational infringement of method claims.
However, the outstanding legal questions over the “committed” clause extend far beyond just method claims. In pharmaceutical patent litigation, a split in district court authority is developing under § 271(e)(2). Recently, the Eastern District of Texas in Raytheon Co. v. Cray identified the lack of precedent about the “committed” clause regarding an offer for sale under § 271(a), stating: “[t]he Federal Circuit’s only guidance regarding the location of an offer to sell has been in the context of determining whether an offer to sell occurred within the United States.”
There’s even a lack of clear precedent about what a well-pleaded complaint must recite to provide venue jurisdiction, or whether courts may look beyond the complaint for facts to support a motion for improper venue under 12(b)(3). There is little Federal Circuit authority on this issue, or even clear precedent on whether Federal Circuit law or the local Circuit Court law governs. Defendants may even be able to challenge a complaint’s patent venue allegations under the Iqbal and Twombly standard, i.e., by arguing that “threadbare recitals of the elements of a cause of action, supported by mere conclusory statements,” do not suffice under Rule 8 of the Federal Rules of Civil Procedure, and that certain “well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct.” For example, simply “stating” that a defendant committed patent infringement under a complex method claim involving computer hardware anywhere in the country may be insufficient to satisfy Iqbal and Twombly. The Eastern District of Texas identified this issue in Raytheon but declined to rule on it.
Cases That May Come Home To Georgia
Let’s take a look at two cases involving Georgia companies as defendants who are currently being sued in federal court outside of Georgia – could Haverty Furniture and Arris Group leverage the uncertainty in the law to bring their cases home? Also, below is an update on a recent lawsuit against The Home Depot, another Georgia-based company.
The first case is Dynamic Applet Technologies v. Haverty Furniture Companies, which was filed in the Eastern District of Texas on December 15, 2017. The defendant, Haverty, is a leading furniture manufacturer with headquarters in Atlanta, where it was founded 125 years ago. According to its website, Haverty has stores or showrooms in 16 states, including in the Eastern District of Texas as pointed out by the plaintiff.
The plaintiff is asserting, against Haverty, U.S. Pat. No. 6,446,111, which is titled “Method and apparatus for client-server communication using a limited capability client over a low-speed communications link,” and according to plaintiff the patent resulted from research in the area of “website scalability and how websites could more efficiently and quickly process very large volumes of website visitor requests for web pages.” The patent claims an independent method of processing data, and two data processing systems.
Here, Haverty could press on two of the issues discussed above to try to have the case dismissed from Texas, or alternatively transferred to Georgia, by arguing (1) the steps of the asserted method claim is not “committed” in the Eastern District of Texas, and (2) the plaintiffs failed to file a well-pled complaint. First, the method and system claims of the patent require a “server” that receives a request from a “client device” such as a smartphone and then transfers an “applet” to the client device. Haverty’s best argument may be that it could only (allegedly) commit infringement in the district where the server, the locus of the infringement, is located, and the server is not located in Texas. The plaintiff will surely argue that because there is a transfer to the “client device” then infringement also occurs wherever the client device could be located.
Second, Haverty could argue that the plaintiff’s complaint never sufficiently alleged that it committed an act of infringement in the Eastern District of Texas. The complaint states that personal jurisdiction is proper, and then states “[f]urther, venue is proper” because Haverty “has a regular and established place of business in this district.” The complaint seemingly ignores the “committed” clause, and although an amended complaint could rectify this, a follow-up Iqbal/Twombly attack upon a general amended statement would not be so easily dispatched by the plaintiff. Failing that, Haverty could challenge the complaint to introduce facts showing that the allegedly infringing “server” is nowhere near Texas.
The next case is Realtime Data LLC d/b/a IXO v. Sling TV in the District of Colorado. The plaintiff added Arris Group as a defendant to an amended complaint on November 6, 2017. Arris Group is a leading telecommunications equipment manufacturer and innovator headquartered in the Atlanta metro area, and it’s no stranger to patent litigation. In a significant case in 2011 the Federal Circuit reversed a holding by the Northern District of Georgia that Arris Group lacked subject matter jurisdiction under Article III for its declaratory judgment action for patent invalidity after VoIP licensing negotiations with British Telecommunications reached an impasse.
Here, the plaintiff in the Colorado litigation asserted U.S. Pat. Nos. 8,867,610 and 8,934,535. Both relate to systems and methods for video and audio data distribution and storage. The claims are apparatus and methods that involve compressing data. According to the complaint, one of Arris Group’s allegedly infringing products streams high-quality television to consumer devices in a home. For patent venue, the complaint identifies that two of the defendants are “organized under the laws of Colorado,” clearly providing venue under TC Heartland’s definition of “resides.” But Arris Group appears to be lumped in with the rest of the defendants who allegedly “transacted business in this District and have committed acts of direct and indirect infringement in this District, and have a regular and established place of business in this District.” This is the only statement regarding venue in the amended complaint.
Indeed, Arris Group does have an office in Denver, Colorado. And assuming its product was sold in Colorado, Arris Group’s best argument for lack of venue may be to focus on aspects of the asserted method claims and argue that they occurred in other districts. For example, method claims of both patents involve limitations “based upon a throughput of a communication channel,” and the specification describes that such channel could be “from a remote location,” perhaps in another district. Two dependent method claims of the ’535 patents involve transmission “over the Internet,” and certain of the ’610 patent claims appear to contemplate the same.
Could those method claim limitations be a hook for Arris Group to dispute patent venue? Perhaps, but here the facts might not be in Arris Group’s favor if the device in a consumer’s home is performing more of the beneficial steps of the method claim. In any case, for now, it appears that patent eligibility issues have overshadowed any patent venue issues—the defendants joined together to file an Alice motion challenging the validity of the asserted patents under 35 U.S.C. § 101.
The Home Depot
Finally, below is an update on the case Electronic Receipts Delivery Systems v. The Home Depot in the Eastern District of Texas. The Home Depot was, of course, founded in the Atlanta metro in 1978 and is still based here. The plaintiff filed its complaint against The Home Depot on September 16, 2017, and filed an amended complaint on Dec. 5, 2017—the venue paragraph states that The Home Depot’s “acts of infringement are occurring in this district.”
The asserted patent, U.S. Pat. No. 8,534,551, is titled: “System and method for issuing digital receipts for purchase transactions over a network.” It is possible that these patent claims may involve devices located outside of the Eastern District of Texas, e.g., the complaint references the term “cloud-based”. The Home Depot filed its answer on January 26, 2018. The answer states in a paragraph relating to venue: “Home Depot denies that venue is proper in this District pursuant to 28 U.S.C § 1400(b). Home Depot admits that it has a place of business located in Longview, TX but denies that it has committed the alleged acts of patent infringement in this or any other district.”
The year 2018 will likely bring resolution to some of these issues – and more patent litigation to Georgia. I believe we can expect at least one, but perhaps two precedential Federal Circuit decisions further clarifying “where” a defendant committed an act of infringement, with one or both relating to software method and pharmaceutical patent infringement.