Reading the Tea Leaves from the TC Heartland LLC v. Kraft Food Group Brands LLC Oral Argument
On Monday, the Supreme Court heard oral argument in TC Heartland LLC v. Kraft Food Group Brands LLC, a case in which the Court could alter the longstanding interpretation of the venue statutes as applied to patent infringement actions. This potential venue upheaval could both limit the ability of non-practicing entities to bring suit in the Eastern District of Texas and alter the dynamics of Hatch-Waxman and other patent litigation involving pharmaceutical and biotechnology companies in substantial ways. Although the Court was expected to overturn the current interpretation of those statutes, several justices seemed to express hesitation in departing from the current status quo.
Currently, courts have interpreted the venue statutes to allow plaintiffs to bring patent infringement actions where a defendant is subject to personal jurisdiction. This has effectively granted plaintiffs the ability to bring suit against defendants in a jurisdiction of their choice under state “long-arm” statutes and stream-of-commerce theories. Plaintiffs, and in particular non-practicing entities, have used this freedom to bring a substantial proportion of all patent infringement cases (more than 40% of all patent cases in 2015)
The legal question revolves around two statutes, 28 U.S.C. §§ 1391(c) and 1400(b), and two cases, Fourco and VE Holding.
In 1957, the Supreme Court determined in Fourco that § 1400(b) was the “sole and exclusive provision controlling venue in patent infringement actions, and that it is not to be supplemented by the provisions of 28 U.S.C. § 1391(c).”
In VE Holding, the Federal Circuit determined that an amendment to § 1391(c) in 1988—which rearranged and modified the clause “for venue purposes” to “for purposes of venue in this chapter”—redefined the term “resides” in § 1400(b).
Due in part to the Supreme Court’s historically high reversal rate of the Federal Circuit, many believed a change in the interpretation of venue statutes was imminent when the Court granted Heartland’s petition for certiorari. However, questions from the bench during oral argument seemed to indicate that at least several justices were struggling to reconcile both parties’ positions with the current statutory regime.
To begin, despite the looming policy ramifications of this case, questions from the justices signaled that the Court viewed this case first and foremost as an issue of statutory construction. Justice Breyer most colorfully illustrated this through an early exchange with Heartland: “The Amici briefs] [a]re filled with this thing about a Texas district which they think has too many cases. . . . But is there some relevance to it?”
As for Heartland’s position, several justices observed that Fourco, in interpreting § 1400(b), dealt only with corporations, and not with other entities such as limited liability companies (like Heartland). Justice Sotomayor asked Heartland: “So what do we do with unincorporated associations? . . . [T]hose are not defined by [§] 1400.”
Several justices on the Court also appeared hesitant to embrace Heartland’s contention that it should sweep aside the Federal Circuit’s interpretation of § 1400(b) in VE Holding, focusing much of its questioning on the interplay and effect of the 2011 amendments to § 1391(c) in view of the Federal Circuit’s decision. Justice Kagan provided the sound bite, observing that “today’s accidental theme is: When 30 years of practice goes against you, what happens?”
But the justices also expressed skepticism that the 2011 amendments to § 1391(c) overruled Fourco’s interpretation of § 1400(b) in favor of the Federal Circuit’s in VE Holding. Chief Justice Roberts was the most pointed questioner, stating “I would have thought that if Congress were trying to make a significant change [in the venue laws], there’d be a lot more evidence of it other than just changing the particular nuances of—of the words.”
Justice Kagan also noted that “the [Federal Judicial Code Revision project] wanted to get rid of [§] 1400, and Congress didn’t do that.”
The justices also appeared to have differing opinions of whether Kraft’s interpretation of the interplay between §§ 1400(b) and 1391(c) was correct. For example, Justice Breyer asked Kraft why the “except as otherwise provided by law” clause in subsection (a) of § 1391 would apply to subsection (b), but not to subsection (c).
Justice Breyer appeared to contemplate a third path: venue under § 1400(b) extending only to corporations. Justice Breyer pointedly remarked to Kraft: “I’m not worried about [what to do] if you win. What I’m worried about what to do is if you lose.”
Finally, although the focus of the arguments was on statutory construction, the Court did not ignore the policy ramifications underlying the dispute. Chief Justice Roberts asked Kraft: “So we shouldn’t worry that 25 percent of the nationwide [patent] cases are [in the Eastern District of Texas]?”
In short, the Court’s ultimate resolution of this case is now unclear. Unlike many recent appeals from the Federal Circuit, there appear to be competing views on the Supreme Court, with Chief Justice Roberts supporting the petitioner Heartland and Justice Ginsburg supporting the respondent Kraft. None of the other justices clearly laid out their position, with Justices Breyer and Kagan asking tough questions of both sides, Justices Kennedy and Sotomayor offering limited questioning, and Justices Alito and Thomas entirely silent. Justice Breyer suggested a possible third path, a limited application of § 1400(b) solely to corporations, but it is unclear whether this was a mere hypothetical and whether his suggestion had support from the other justices. It is also possible, like the Court did in Bilski v. Kappos, 561 U.S. 593 (2010), that the Court could end up in a 4-4 split on party lines. This would maintain the status quo, but leave the issue unsettled so that it could be reargued, for example, after another justice is confirmed to the Court.
As for next steps, for defendants in patent litigation against non-practicing entities, we suggest to continue the preservation of venue challenges, as the Court’s track record of reversing the Federal Circuit cannot be ignored. However, we believe there is also some chance that the current interpretation of the venue statutes will stand, or be left deadlocked for a full Court to hear again with a better-positioned petitioner (i.e., a corporation, rather than a limited liability company).
For branded pharmaceutical companies, any disruption of the current venue rules will likely curtail the available forums for Hatch-Waxman plaintiffs. Given the reality of multiple generic challenges occurring at approximately the same time, should the Supreme Court alter the current interpretation of the venue statutes, there may, as a result, be an increase in concurrent litigations involving the same patents but different generic defendants in a number of different forums. Not only would this introduce systemic inefficiencies, it could also increase the cost of patent litigation and create the risk of inconsistent rulings regarding the same patents, which would then need to be resolved within the applicable 30-month stays. Whether the Judicial Panel on Multidistrict Litigation or other mechanisms for partially consolidating cases across districts are sufficient to address such issues remain to be seen.
Regardless of the outcome, TC Heartland illustrates the importance of venue to the policy analysis of patent litigation. And it is apparent from the questioning by the justices on Monday that the Court may not believe the existing statutory regime can support venue rules appropriately tailored to eliminate abusive forum-shopping without upsetting the current Hatch-Waxman practices or creating problems for the interpretation of venue in different areas of law. Should the Court comment on the inadequacy of the venue statues to address both the high-tech and the pharmaceutical industry, it could highlight the need for Congress to intervene. This could return focus to several pending bills in Congress, such as H.R. Rep. No. 114-235 and 114th Cong. 2d Sess. S. 2733, that may render any resolution by the Court to be short-lived.