Venue in US patent cases post ‘TC Heartland’

September 2017 | LEGAL & REGULATORY | INTELLECTUAL PROPERTY

Financier Worldwide Magazine

September 2017 Issue

For at least the last decade, the US District Court for the Eastern District of Texas (E.D. Texas) was a hotbed for patent litigation filings. Despite the relatively small size of Marshall and Tyler, the locations of the two main E.D. Texas courthouses, these towns hosted some of the biggest patent trials in the country and had one of the largest patent dockets. The Supreme Court’s decision in TC Heartland LLC v. Kraft Foods Group Brands LLC seems to have changed the patent landscape.

Broadly speaking, TC Heartland does not change a patent holder’s ability to sue or the scope of any patents. Instead, TC Heartland limits where defendants can be sued. This is an important result for regional companies or national companies with a limited or regional physical footprint. It is also significant for the patent dockets of courts around the country.

The TC Heartland Decision

The patent venue statute, 28 U.S.C. 1400(b) states that “[a]ny civil action for 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”. In TC Heartland, the Supreme Court clarified that, in relation to the statute, ‘residence’ refers only to the state of incorporation. This is in contrast to how district courts and the US Court of Appeals for the Federal Circuit had interpreted the statute for the past 20-plus years. Under the old precedent, venue was anywhere the district court could exercise personal jurisdiction over a patent defendant, often, anywhere the defendant sold the accused infringing products or services. Now, the Supreme Court has clarified that venue is only proper in the following places: first, the defendant’s state of incorporation and second, where the defendant has committed acts of infringement and has a regular and established place of business.

Who is impacted by the venue changes?

In 2016, plaintiffs filed 1679 patent complaints in the E.D. Texas. The District of Delaware was second with 458 filings. The difference was even starker in 2015. Though many defendants are incorporated in Delaware, many of the East Texas defendants had few ties to the district.

The number of filings in E.D. Texas will fall significantly. The first few weeks since the decision was handed down has already seen a sizable shift away from E.D. Texas. Many of the cases have gone to Delaware, but there are also a significant number spreading across the country, especially in the other top five or six patent districts, namely Central and North California, the Northern District of Illinois, and New Jersey.

US companies now must be sued where they are incorporated or where they committed allegedly infringing acts and have a permanent and continuous presence. Companies with regional physical footprints will see a change in their patent litigation profile. Some non-practicing entities may not bother suing them because of the hassle of filing in district courts across the country. And to the extent they are sued, the suits will have to be filed where they are incorporated or where they have a permanent and continuous presence. That is a significant benefit in terms of cost, convenience and the potential home court advantage.

Companies with national footprints will see far less change, particularly if they have physical locations in East Texas. These companies can likely be sued anywhere, just like they could have been before TC Heartland. There are, however, open questions. For example, if a company is sued for a website technology that has no direct connection to East Texas, is the proper venue for such a case East Texas? Early 1990s case law does not answer internet questions because the issues did not exist.

Foreign entities can likely still be sued anywhere in the country where a court has personal jurisdiction. So, little may have changed for foreign entities.

With patent holders being required to sue defendants in districts across the country, we expect to see a significant uptick in MDL panel requests. Importantly, this could be how patent holders force litigation back to East Texas. If the patent holder files suits against a number of targets including several in East Texas, and then seeks MDL designation asking for the cases to be consolidated in East Texas for discovery, that could drive some of the cases back to Texas. Of course, if many of the cases end up in MDLs, it will significantly reduce the impact of TC Heartland.

So is TC Heartland the sea change that it has been made out to be? As with the outcome of so many Supreme Court decisions, it really depends and it will take time to tell. However, recently, Judge Gilstrap of E.D. Texas devised a four factor test to determine what constitutes a ‘regular and established place of business’ for venue purposes. The test takes a broad view of what constitutes a place of business for venue purposes and companies without a physical presence in E.D. Texas could still be open to being sued there. Since then, at least one other district court has taken notice of the test and asked for additional briefing. It is unclear how widely this test will be adopted and if the Federal Circuit will weigh in on this issue further.

R. David Donoghue and Steven E. Jedlinski are partners and Anthony J. Fuga is an associate at Holland & Knight LLP. Mr Donoghue can be contacted on +1 (312) 578 6553 or by email: david.donoghue@hklaw.com. Mr Jedlinski can be contacted on +1 (312) 715 5818 or by email: steven.jedlinski@hklaw.com. Mr Fuga can be contacted on +1 (312) 715 5771 or by email: anthony.fuga@hklaw.com.

R. David Donoghue, Steven E. Jedlinski and Anthony J. Fuga

Holland & Knight LLP