Supreme Court Closes Venue Bridge for Patent Trolls

Last term, the United States Supreme Court drastically limited the field of locations where patent infringement suits can be filed. In TC Heartland LLC v. Kraft Foods Group Brands LLC, No. 16-341 (May 22, 2017), the Court held that the law authorizing patent suits to be filed in the judicial district where "the defendant resides" was not superseded by 1990 amendments to the general federal law on venue. Instead, the definition of "residence" in the patent venue federal statute (26 U.S.C. § 1400(b)) refers only to the state of incorporation for a U.S. company. The result? TC Heartland overturned a series of decisions by the U.S. Court of Appeals for the Federal Circuit and limits patent venue to the defendant's state of incorporation.  The decision will create challenges for plaintiffs known as patent assertion entities or non-practicing entities (often referred to as "patent trolls").  Patent trolls are named as such because they typically acquire patents to generate revenue by asserting them against alleged infringers, instead of producing products.

In TC Heartland, Kraft Food Groups sued TC Heartland for patent infringement in the United States District Court for the District of Delaware.  Kraft Foods filed a traditional suit (read: not a patent troll) alleging that "liquid water enhancement" products by TC Heartland infringe three of Kraft's patents. TC Heartland, which is both incorporated and headquartered in Indiana, argued that the case should be transferred to federal court in the Southern District of Indiana.  The Federal Circuit, on appeal, held that the case could be brought in Delaware, because TC Heartland was subject to personal jurisdiction in Delaware.  The Federal Circuit reasoned that the general federal law on venue gives the term "reside" a broad meaning. This reasoning allows federal suits to be filed wherever a corporation may be subject to personal jurisdiction.  Basically, because TC Heartland conducts a "substantial amount of business" in Delaware, it can face suit in federal court in Delaware.  Typically, patent trolls seize upon this reasoning because, practically speaking, successful businesses conduct a substantial amount of business in practically any jurisdiction.  For years, this has allowed patent trolls to select whichever forum appears most favorable from a strategic standpoint.  Specifically, many patent trolls file in the widely-viewed "plaintiff-friendly" Eastern District of Texas.  Indeed, for the last three years, nearly one-quarter of all patent suits in the United States have fallen onto the docket of a single judge in Marshall, Texas.

The Supreme Court's ruling puts a stop to this strategy.  Justice Clarence Thomas, writing for the Court in an 8-0 decision (Judge Gorsuch did not participate), explained that the "reside requirement" demands that patent suits filed under that prong of the venue statute be filed in the state where the company is incorporated.  In an opinion just shy of ten pages, Justice Thomas explained that the corporate "residence," for purposes of a separate patent venue statute, should be applied narrowly, as first held in the Supreme Court's Fourco Glass v. Transmirra Products, 353 U.S. 222 (1957) decision.

Although the Federal Circuit held that amendments from 1990, for purposes of general venue, superseded the Court's holding in Fourco, Justice Thomas disagreed by looking to the text of the statute.  The Court unanimously overruled the Federal Circuit and explained that "[w]hen Congress intends to effect a change of that kind, it ordinarily provides a relatively clear indication of its intent in the text of the amended provision."

As a result, plaintiffs (including patent trolls) wishing to shop for a favorable venue will now be limited to whichever venue is available in the state of incorporation. Indeed, this decision could result in a dramatic increase in patent infringement suits being filed in Delaware, where a disproportionate number of companies choose to incorporate.

The venue law on foreign defendants has not changed… yet.  Plaintiffs may still sue a foreign defendant anywhere as per the Supreme Court's 1972 decision in Brunette Machine Works Ltd. v. Kockum Industries, Inc., 406 U.S. 706 (1972).  In Brunette, the Supreme Court held that a foreign corporation can be sued for patent infringement in any judicial district, following a long-standing rule that venue restrictions do not apply to foreign companies.  In a footnote to the TC Heartland ruling, Justice Thomas wrote that the court did not "express any opinion on this court's holding" in Brunette or on the implications of the decision on foreign corporations.

Patent litigators should expect foreign companies to be at the center of another round of legal battles over patent venue following TC Heartland.  Expect that Supreme Court will address this issue within the next couple of terms, and hold whether or not Brunette will remain good law.

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Zach Heck |