U.S. Supreme Court Limits Venue Under the Patent Statute in TC Heartland

May 23, 2017

Christina Ondrick, Blair Jacobs & Preston K. Ratliff II

On May 22, 2017, the United States Supreme Court, in TC Heartland LLC v. Kraft Foods Group Brands LLC, put an end to the swirling legal debate concerning where a domestic corporation resides for venue in patent infringement cases. The Supreme Court’s unanimous (8-0) decision limits residence under 28 U.S.C. §1400(b) to the State of incorporation for corporate defendants. In reaching its conclusion, the Supreme Court rejected the argument that modifications to the general venue statute, 28 U.S.C. §1391, changed the meaning of “resides” in §1400(b) as defined by the Court’s decision in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 226 (1957). Justice Thomas, writing for the majority, reasoned that when Congress intends to effect a change to statutory provisions, it “ordinarily provides a relatively clear indication” of that intent in the text of the amended language. No such clear indication of intended change was provided here and the Court concluded that Fourco remained binding law on the question. TC Heartland thus continues the Supreme Court’s growing trend of striking down the Federal Circuit’s rulings for patent cases, thus creating a chasm between the Supreme Court’s and Federal Circuit’s views.

TC Heartland represents potential good news for domestic corporate defendants involved in technology litigation. Its potential impact in the pharmaceutical sector is certainly disruptive, but unclear given the unique posture of generic drug and biosimilar pharmaceutical patent litigation. The patent venue statute provides that “[a]ny civil action for patent infringement may be brought in the judicial district where the defendant resides [i.e., only the State of incorporation for corporate defendants under TC Heartland], or where the defendant has committed acts of infringement and has a regular and established place of business.” For corporate defendants, the Supreme Court’s decision represents a dramatic shift in venue law and should significantly restrict the number of available venues for a patent lawsuit. Most notably, the decision ostensibly eliminates the risk that simply placing a product into a stream of commerce may subject a company to venue and instead focuses on a defendant’s “place of business” in assessing proper venue in patent cases. The inevitable result of this shift will likely be an increase in litigation concerning what a “regular and established place of business” means in the context of Section 1400(b). The Federal Circuit has interpreted “regular and established place of business” to mean doing business “through a permanent and continuous presence” in the district, but not necessarily a fixed physical presence. See In Re Cordis Corp., 769 F.2d 733, 737 (Fed. Cir. 1985). But merely “doing business” in a state will likely not confer venue under Section 1400(b), as other circuits have explained that continuous and controlled permanent business activity (such as a physical location or personnel under control) is necessary to have a “place” of business for venue purposes. Finally, a “regular and established place of business” need not exist in the district at the time the complaint is filed, as long as it existed “at the time the cause of action accrued” and suit is filed within a reasonable time thereafter. Welch Scientific Co. v. Human Engineering Institute Inc., 416 F.2d 32, 35 (7th Cir. 1969). Savvy plaintiffs will surely test the contours of this statutory language in an effort to maintain venue in patent friendly jurisdictions where plaintiffs and defendants alike often have tenuous ties. Corporations seeking to avoid litigation in any particular jurisdiction should carefully weigh the option of terminating any “permanent and continuous” business presence in the jurisdiction as soon as possible to strengthen the argument that future complaints are not filed within a reasonable time after their presence was terminated.

The Supreme Court’s ruling will likely lead to a wave of motions to transfer venue, assuming that the issue has been properly preserved (venue is a waivable defense so many defendants may not have preserved the ability to transfer pending cases if the venue statute is no longer met in view of TC Heartland). Those filings will likely be most pronounced in perceived patent venue friendly districts, given the large number of cases already pending in districts, such as the Eastern District of Texas, involving non-practicing entities (“NPEs “) and technology companies. Cases that involve multiple industry defendants will present some of the biggest challenges, as those defendants will now likely move to transfer to their “places of business,” creating a challenging situation for plaintiffs with multiple actions involving overlapping patents proceeding in a variety of jurisdictions. The ruling will also likely trigger a decrease in the number of cases filed in the Eastern District of Texas by NPEs, with the pendulum swinging back to increased filings in other districts, including the District of Delaware and the Northern District of California. The death knell of the Eastern District of Texas pronounced by many commentators will likely not prove true, as parties with a place of business in that district will still be subject to venue. So the percentages of patent cases filed in the Eastern District of Texas will likely significantly decrease, but the district will remain a viable venue for patent litigation.

For generic drug and biosimilar pharmaceutical patent litigation, TC Heartland will cause plaintiffs to deliberate carefully about jurisdiction, and in some cases, it may or may not curtail the available forums for litigation. The unique posture of pharmaceutical litigation—where the defendant has not yet marketed or sold a product—presents a challenge to applying TC Heartland as a bright-line rule. This is because pharmaceutical plaintiffs will have often satisfied long-standing venue requirements (i) based on where the infringement has technically occurred and (ii) by demonstrating that the alleged infringer has “a regular and established place of business” in the chosen forum (e.g., registering to do business or taking other deliberate actions to sell pharmaceuticals in the forum). Further, the reality of multiple pharmaceutical challenges occurring at approximately the same time will likely influence the choice of forum. Although some drug manufacturers may have a preference to litigate in their state of incorporation, there is a recognition among the pharmaceutical patent bar that certain jurisdictions have specialized subject matter expertise in adjudicating and managing generic and biosimilar patent disputes. As a result, defendants may not be inclined to shy away from litigating in the top courts for pharmaceutical patent cases such as the District Courts of Delaware and New Jersey.

Patentees in pharmaceutical cases can also be proactive by discussing venue considerations with alleged infringers before suits are brought. For example, the unique nature of the 45-day evaluation period in generic drug cases makes this possible. In addition, it is worth noting that in multiple defendant cases many defendants may very well prefer to litigate in the same court as their co‑defendants. Further, for existing actions where venue is challenged in light of TC Heartland and has not been waived, plaintiffs should evaluate whether transfer is a viable option as opposed to dismissal.

In both the technology and pharmaceutical sectors, concurrent litigation involving the same patents but parties in different jurisdictions is likely to increase. Parties may seek to avail themselves of the Multidistrict Litigation process, as one way to handle large, multi-party and multi-jurisdiction litigations that involve common questions of law and fact. The MDL process allows multiple cases to be consolidated and transferred to a single judge for pretrial proceedings, including discovery, claim construction, and pretrial motions. Upon completion of the pretrial proceedings, the individual cases are referred back to their court of origin for trial or for any proceedings carved out of the MDL process.

Finally, TC Heartland may be just the first but not the last step in venue reform this year. Some members of Congress, not to mention Senator Hatch, have indicated that venue reform is a focus of patent reform this year regardless of TC Heartland’s result. It remains to be seen whether the Supreme Court’s ruling placates Congress or whether additional legislation is introduced in an attempt to further curtail forum shopping in patent cases.

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