How is TC Heartland Impacting the Patent Litigation Landscape?

TC Heartland changed the venue landscape. For the first time in 27 years, a defendant may argue credibly that venue is improper in a judicial district where it is subject to a court’s personal jurisdiction but where it is not incorporated and has no regular and established place of business.”  Westech Aerosol Corp. v. 3M Co.

On May 22, 2017, the U.S. Supreme Court ruled in TC Heartland v. Kraft Foods Group that venue in patent cases is restricted to where the defendant resides, or where the defendant commits acts of infringement and has a regular and established place of business. This opinion was regarded as a significant change in policy, which previously allowed patent infringement cases to be brought wherever the defendant held personal jurisdiction as a corporation (in any state where they had purposeful contact).

Intentionally or not, it is predicted to impact the ongoing issues of “venue shopping” in patent litigation cases, a practice perceived as a tool for “patent trolls” to pick courts that are more favorable to their cases. Over the past several months, the ruling has also elicited speculation and reporting on the broader repercussions for participants in patent litigation cases and its impact nationally on innovation and patenting trends. Since the ruling in May, it continues to be scrutinized as new federal cases seek to implement it and as it is brought up in discussions on proposed patent regulation reforms.

Briefly, the ruling upheld a previous 1957 ruling, Fourco Glass Co. v. Transmirra Products Corp, and overruled a Federal Circuit proposition that amendments made in 1988 to 28 U.S.C. § 1391(c) allowed patent infringement cases to be brought wherever the defendant held personal jurisdiction, as ruled in VE Holding Corp. v. Johnson Gas Appliance Co. The arguments during the case were based on whether the amendments made by Congress to the code intended to alter the meaning of the venue statues in place and on the definition of the residence of a defendant. The previous rules allowed filers to exploit the possibility that the venue where litigation occurred might affect the speed and outcome of a case, which resulted in the Eastern District of Texas seeing 1 in 4 of all patent litigation cases in the U.S.

Since the TC Heartland ruling, the legal community has been monitoring the impact of the ruling on filings and actions in district courts. In mid-July, Lex Machina reported a decline in case filings in the Eastern District of Texas and increase in cases filed in the District of Delaware (where a large portion of publicly traded companies are incorporated) in the second quarter of the year, as predicted by many observers.

The next question is whether courts will uniformly implement the new interpretation of the law retroactively and in existing and future cases. One such issue is whether this ruling affects current cases due to the Federal Rules of Civil Procedure, in which “a party waives its right to assert a defense of improper venue when it fails to raise the defense in a pleading or with other Rule 12 motions.” A recent analysis of proceedings since the ruling has found that decisions to permit defendants to raise improper venue defenses are becoming standard, though divisions between districts remain.

Regarding the question of residence, some additional definitions have been required. Just last month, some clarification was provided by the Federal Circuit, when they defined three criteria to interpret the “regular and established place of business” clause under the patent venue statute 28 U.S.C. §1400(b), stating “(1) there must be a physical place in the district; (2) it must be a regular and established place of business; and (3) it must be the place of the defendant,” as opposed to only an employee of the business. That ruling appears to further narrow the rules.

A more contentious question is whether the ruling tips the scales in an ongoing IP market struggle among the “infringer lobby” and patent owners, and how it may alter the tactics of forum shopping and the options for defendants to respond. The new rules appear to favor defendants by limiting options for plaintiffs and moving the litigation cases to the defendants “home court.”

Ultimately, the court’s decision changed little about where the authority to alter patent regulations lies: with Congress. Last week, Senator Orrin Hatch, Chairman of the Senate Republican High-Tech Task Force, mentioned the TC Heartland ruling and announced an effort to open dialogue on patent regulation. There are several ongoing needs such as how to address virtual businesses, foreign businesses and how to balance the restrictions on the practice of patent abuses while keeping the barrier to entry low enough to encourage innovation and opportunity.