In May of 2017, the Supreme Court unanimously reversed the Federal Circuit’s 25-year-old precedent on venue for corporate defendants.[1] Venue is the proper or most convenient location for trial of a case, and is governed by state and federal statutes. The 10-page opinion, authored by Justice Clarence Thomas, essentially shifted patent litigation from the venue-of-choice, the Eastern District of Texas, to the State of Delaware.
THE CASE
Under federal law, venue for general cases is governed by 28 U. S. C. §1391 while venue for patent cases is governed by 28 U. S. C. §1400. In TC Heartland, the Supreme Court held that, in amending the general venue statute, Congress did not also change the definition of “resides” in the patent venue statute as previously interpreted in the Fourco decision of 1957.[2] In Fourco, the Supreme Court “definitively and unambiguously held that the word ‘residence’ in §1400(b) has a particular meaning as applied to domestic corporations: It refers only to the State of incorporation.”
In TC Heartland, the Supreme Court was not asked to reevaluate the 1957 Fourco holding. Instead, the Supreme Court was asked to determine if Congress changed the meaning of §1400(b) when it amended §1391 to now provide that, “[e]xcept as otherwise provided by law” and “[f]or all venue purposes,” a corporation “shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question.”
In accordance with precedent, the Supreme Court looked for the necessary clear intent within the amended text to indicate Congress intended to change the meaning of §1400(b) when amending §1391. The Supreme Court did not find a clear indication within the text, and consequently held that the Fourco interpretation still holds. Therefore, the Supreme Court reaffirmed that patent venue is proper (1) where the defendant is incorporated, and (2) where the defendant has committed acts of infringement and has a regular established place of business.
MOVING FORWARD
Prior to TC Heartland, proper patent venue was found in any district where personal jurisdiction could be established over the defendant, giving potential plaintiffs the opportunity to file suit anywhere the allegedly infringing product was being sold. This choice led to patent cases becoming increasingly concentrated in certain “patent-friendly” district courts, particularly the Eastern District of Texas. However, after TC Heartland, proper patent venue became more limited.
Under TC Heartland, proper venue is limited to where the defendant corporation is incorporated. Common states of incorporation, like Delaware, in which 66 percent of all Fortune 500 companies are incorporated,[3] will likely see a sustained influx in patent cases. In the months since the TC Heartland case, the Eastern District of Texas and the District of Delaware have swapped first and second place for share of most patent case filings.[4] Other districts seeing an influx in patents cases include the Central and Northern Districts of California.
A recent Federal Circuit decision discusses the proper interpretation of the second test for patent venue under TC Heartland.[5] Previously, what constituted a “regular and established place of business” was not heavily scrutinized because corporate residency was so broadly construed and established proper venue across nearly all districts. Recognizing the lack of precedent on the second test, the Federal Circuit recently established three requirements for a “regular and established place of business”: (1) the location must be a “place,” (2) that place must be “regular and established,” and (3) the place must be “of the defendant.”
Additionally, the Federal Circuit explained that the “place” must be a physical location, but need not be an official store or office, that “regular and established” required some showing of stability or continuity over time, and that a place is “of the defendant” if the place was ratified or established by the defendant, i.e., leased or owned by the defendant, or the defendant exercised some control or possession over the place, etc.
MOTIONS TO DISMISS FOR IMPROPER VENUE
In the wake of the May decision, a large number of motions to transfer/dismiss have been filed based on improper venue. However, the differing impressions of the TC Heartland case have resulted in inconsistency in evaluating these motions.[6] Defendants that initially fail to raise an argument of improper venue are generally deemed to have waived such an argument. While courts recognize an exception to this waiver when there has been an “intervening change in the law,” they have not agreed on whether TC Heartland represents an intervening change in the law. Some courts have held that TC Heartland was merely reaffirming the precedent in Fourco, while others have granted motions to transfer because TC Heartland was an unexpected change to the Federal Circuit’s precedent.
There is even inconsistency within the District of Massachusetts. On June 29, 2017, Justice Gorton held that defendants had waived their objection to venue, that TC Heartland reaffirmed the same venue interpretation available to the defendant since 1957, and, thus, that there was no exception to the waiver because TC Heartland did not represent an intervening change in the law.[7] On the other hand, in an electronic docket order without opinion, Justice Young of the District of Massachusetts granted defendant’s motion to transfer based on improper venue post-TC Heartland, even after plaintiffs argued the defendant waived such an argument.[8]
The Federal Circuit has since resolved this split among district courts: In In re Micron Technology, Inc., the Federal Circuit held that TC Heartland “changed the controlling law.”[9] In the case at hand, Micron moved to dismiss or transfer on the grounds that venue was improper under TC Heartland. The District Court of Massachusetts denied Micron’s motion, finding that it had waived the defense when Micron filed an initial motion to dismiss on other grounds prior to the TC Heartland decision. The Federal Circuit concludes as a matter of law that the venue defense was not available before the TC Heartland decision and that the failure of a defendant to raise this defense prior to TC Heartland is not a waiver under the federal rules.
Although the distribution of patent litigation in the United States after TC Heartland is in transition, after In re Micron, district courts should be in consensus and consistent regarding waiver of improper venue.
[1] TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S.Ct. 1514 (2017).
[2] Fourco Glass Co. v. Transmirra Products Corp., 353 U. S. 222, 226 (1957).
[3] Delaware Division of Corporations 2015 Annual Report, available at https://corp.delaware.gov/Corporations_2015%20Annual%20Report.pdf
[4] https://www.law360.com/articles/942115/where-plaintiffs-are-filing-suit-post-tc-heartland
[5] In re Cray Inc., 2017 U.S. App. LEXIS 18398
[6] https://www.law360.com/articles/939480/did-tc-heartland-change-law-judges-can-t-seem-to-agree?nl_pk=9a8b86e5-3f0d-4f3e-8952-3de6004c8a9d&utm_source=newsletter&utm_medium=email&utm_campaign=special
[7] Amax, Inc. v. ACCO Brands Corp., 2017 U.S. Dist. LEXIS 101127.
[8] http://www.newenglandipblog.com/2017/07/massachusetts-court-decides-to-transfer-case-in-view-of-tc-heartland-venue-standard/
[9] In re Micron Technology, Inc., 875 F.3d 1091, 1094 (Fed. Cir. November 15, 2017).
