Speculation grows in Supreme Court’s pending ruling on TC Heartland.
When Sen. Orrin Hatch (R-Utah) recently rolled out his innovation agenda for the 115th Congress during a special event at the United States Capitol, he said there is a good chance that patent litigation reform will happen this year.
The chairman of the Senate Republican High-Tech Task Force characterized patent litigation as a tremendously thorny issue: “I believe there’s one area where we can see real progress this year: venue. Abusive litigants have exploited a hole in the law to direct a disproportionate number of suits to plaintiff-friendly forums, and to one such forum in particular.
“The Supreme Court is currently examining the issue, so we won’t have a full view of the landscape until after the court rules. But no matter what the court does, we’re likely going to need follow-on legislation to prevent future forum-shopping and to ensure that litigants have a meaningful connection to the site of the suit. I intend to take a leading role on this critical issue.”
Which Statute(s) in Play?
The subject of venue is highlighted by TC Heartland LLC v. Kraft Food Brands Group LLC. In that case, the Supreme Court has agreed to decide whether U.S. Code Title 28, Section 1400(b) is the exclusive provision governing venue in patent infringement actions. Resolving this question could have very large ramifications on where patent infringement cases can be brought by patent owners.
The statutes in question when the Supreme Court decides TC Heartland will be Sections 1400(b) and 1391(c). Pursuant to 1400(b), a “patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” Pursuant to 1391(c), a corporation is deemed to be a resident of “any judicial district in which such defendant is subject to the court’s personal jurisdiction…”
In Fourco Glass Co. v. Transmirra Products Corp. (1957), the Supreme Court held that 1400(b) is not to be supplemented by 1391(c) and that 1400(b) “is the sole and exclusive provision controlling venue in patent infringement actions…” While that might seem to end the inquiry on its face, the U.S. Court of Appeals for Federal Circuit has for the past 25 years ignored the Supreme Court ruling in Fourco Glass based on the belief that 1988 amendments by Congress “rendered the statutory definition of corporate residence (found in Section 1391) applicable to patent cases.” Thus, it is the belief of the federal circuit that Congress used its authority to overrule the Supreme Court’s ruling in Fourco Glass.
Will Federal Circuit be Overruled?
Bart Eppenauer, former chief patent counsel for Microsoft and current managing partner of the Seattle office of Shook, Hardy & Bacon, disagrees with the federal circuit that the 1988 amendments did overrule Fourco Glass. He recently told a webinar audience that he feels the Supreme Court took this case to overrule the federal circuit’s interpretation of 1391(c).
Hans Sauer, who is deputy general counsel for the Biotechnology Innovation Organization and spoke on the same webinar, said that the way business is conducted today many companies are incorporated in jurisdictions where they do not really do business or have any presence. So, he said, it is questionable whether a return to 1400(b) as the only jurisdictional statute would make sense in a modern world.
It is hard to argue with Eppenauer when he predicts the Supreme Court will overrule the federal circuit. Though the Supreme Court does from time to time affirm the federal circuit, in the vast majority of cases either the judgment or legal rulings are overruled or at least substantially alerted.
Equally clear, however, is that if the Supreme Court were to again rule that Section 1400(b) is the only venue statute applicable to patent infringement actions, that would go much farther than any proposed venue reform legislation—and specifically much farther than the venue reform bill submitted by Senator Jeff Flake (R-Ariz.) during the 114th Congress. Eppenauer, Sauer and I all agreed during the aforementioned webinar that a push for venue reform in the wake of the Supreme Court’s decision in TC Heartland seems inevitable regardless of how SCOTUS rules.
If the Supreme Court were to agree with the federal circuit, the call for venue reform from the tech sector would become deafening. Although Eppenauer said a ruling from the Supreme Court overruling the federal circuit and reinstating 1400(b) as the only venue statute would be loudly celebrated by virtually all technology companies, he also agreed that such a ruling would be harder to accept for many patent owners. So if the Supreme Court reverts to Fourco Glass, look for many patent owners with portfolios and litigation problems of a different character from the tech sector to push for a softening, which would require legislation.
Litigation Venue Shift Looms
Either way, it seems the days are numbered for the Eastern District of Texas as the patent-centric court of choice for many plaintiffs. With 35 percent to 40 percent of filings made there, the face of patent litigation could be changing quickly. Thanks to so many companies being incorporated in Delaware, the District of Delaware may become the favorite venue for patent owners in the not-toodistant future.
If things play out the way they seem to be heading, will companies (particularly start-up innovation companies) consider incorporating and limiting their operations to those areas where district courts have shown the most hostility to patent owners? Keep following TC Heartland, because it could have profound impacts on business decisions and the future of patent reform legislation.