The workload for the “rocket docket” (Eastern District of Texas) may be getting lighter. On Monday, May 22, the U.S. Supreme Court, in an 8-0 holding, tightened the venues where patent suits can be filed. (Newly appointed Justice Neil Gorsuch did not participate in the case.) If a suit for patent infringement is brought in a distant venue considered to be a “plaintiff friendly” jurisdiction, a defendant can now seek to move the litigation to its state of incorporation.
What this ruling means
The Eastern District of Texas, where more than 40% of the patent cases are filed, will see a reduced caseload. The New York Times reported that in recent years a single judge based in Marshall, Texas, had overseen more patent cases than all federal judges in California, Florida and New York combined.
A large number of patent cases could shift to the District Court of Delaware because many companies are incorporated in Delaware. The Northern District of California may also see an increase in the number of technology patent litigations because it is home to so many technology companies.
How the ruling may impact your business
This decision is seen as a win for defendants in patent litigation cases, particularly those defendants who are the target of suits by abusive patent trolls who sue a large number of defendants simultaneously in a plaintiff-friendly forum. Many smaller defendants end up paying to settle the cases because the cost of litigating is often higher. Now the defendants would be able to transfer the cases back to their state of incorporation, making it harder for trolls to litigate a multitude of cases in different forums.
In addition, this decision will likely make it difficult for legitimate patent owners who also sue multiple unaffiliated parties for the infringement of the same sets of patents. Now, patent owners may be required to file dozens of lawsuits in multiple jurisdictions. This may dramatically increase the cost of enforcing patents.
Likewise, this ruling may also increase judicial inefficiencies because multiple judges in different jurisdictions may be required to preside over the cases covering the same patents simultaneously.
In Hatch-Waxman litigations, this ruling may also increase the costs for defendant generic drug manufacturers who currently enjoy the benefit of cost sharing with other defendants because all generic drug companies that have filed an abbreviated new drug application for a particular drug are currently sued in the same venue.
In Fourco Glass v. Transmirra Products, the Supreme Court held that the patent venue statute, 28 U.S.C. § 1400(b), was the “sole and exclusive” venue provision in patent infringement actions. 353 U.S. 222, 229 (1957). In 1998, Congress amended the general venue statute 28 U.S.C. § 1391. Shortly thereafter, the Federal Circuit held that the statutory amendments supplanted Fourco and that § 1391(c)’s definition of a defendant’s “residence” applied to § 1400(b). VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990). A corporate entity is deemed to reside in any judicial district in which such defendant is subject to the court’s personal jurisdiction for venue purposes. Id. at 1580-81.
In the present case, Kraft sued TC Heartland (“TC”) for infringement in Delaware. TC tried to move the case to its place of incorporation in Indiana but was denied. No. CV 14-28-LPS, 2015 WL 4778828, at *15 (D. Del. Aug. 13, 2015), report and recommendation adopted, No. CV 14-28-LPS, 2015 WL 5613160 (D. Del. Sept. 24, 2015). The Federal Circuit affirmed based on its holding in VE Holding. In re TC Heartland LLC, 821 F.3d 1338, 1340-41 (Fed. Cir. 2016).
The Supreme Court, however, reversed and remanded the Federal Circuit decision reinstating the more restrictive venue principle of Fourco. Writing for the court, Justice Thomas explained that “a domestic corporation ‘resides’ only in its state of incorporation for purposes of the patent venue statute.” TC Heartland LLC v. Kraft Foods Group Brands LLC, No. 16–341. Slip Opn. at p. 2. (May 22, 2017).
Kraft and many amici maintained that the 2011 amendments bolstered VE Holding’s conclusion that a corporate defendant “resides” wherever it is subject to personal jurisdiction. The Fourco approach would needlessly complicate multi-defendant patent infringement cases by forcing plaintiffs to bring separate suits in different districts, which would waste both party and judicial resources and expose plaintiffs to different verdicts on the same patent.
The Supreme Court reasoned that nothing in the Congressional text suggests approval of VE Holding and that Congress generally provides a relatively clear indication of its intent in the text of the amended provision. The 2011 amendment did not contain any indication that Congress intended to alter Fourco. Id. at 3.
The Supreme Court’s decision is the current law of the land, but it may only have a temporary effect. Congress is considering legislation that may alter the issues of venue and forum shopping in patent infringement cases.