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Fresh From the Bench: Precedential Patent Cases From the Federal Circuit

May 3, 2016

Overview

On a petition for a writ of mandamus in TC Heartland, the panel refuses to tighten venue requirements for filing patent cases. The folks in Tyler, Texas undoubtedly breathed a sigh of relief when this decision was announced, as the change that was argued would have required patent plaintiffs to sue where defendant actually is based or where it has committed acts of infringement and has a regular and established place of business.

In two related cases, the Circuit denies en banc review to consider whether the Circuit should be applying the "clear error" standard of review in the appeal of IPRs instead of the more deferential "substantial evidence" standard now being applied. 

TC Heartland

The Circuit denies a petition for writ of mandamus that would have required patent owners to sue where the defendant has a place of business instead of wherever personal jurisdiction can be obtained. The general venue statute, 28 U.S.C. § 1391, provides that corporate defendants may be sued wherever a defendant is subject to the court's personal jurisdiction. Heartland argued that Congress's 2011 amendments to § 1391 changed the law in a manner that effectively overruled VE Holding. In that case, the Circuit held that the definition of "corporate residence" in the general venue statute applied to the patent venue statute, 28 U.S.C. § 1400. Heartland's argument was rejected by the panel, which found it to be "utterly without merit or logic."

Specifically, the 2011 amendment to § 1391 added "except as otherwise provided by law." Heartland argued that this amendment meant that the patent venue statute, which provides that patent actions can 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, was intended to control the definition of "corporate residence" in patent actions, instead of the general venue statute.

As to personal jurisdiction, Heartland argued that the Supreme Court's 2014 decision in Walden v. Fiore requires that specific personal jurisdiction can only arise from activities or occurrences taking place in the forum state. That is, Heartland should only be liable for sales in the forum and not sales in other states. Thus, to resolve nationwide the same issues as in this Delaware infringement suit, Kraft would have to bring separate suits in all other states in which Heartland's allegedly infringing products are found. Alternatively, under Heartland's argument, Kraft could opt to bring one suit against Heartland in Heartland's state of incorporation.

The panel rejects this argument of Heartland as well, relying on the Circuit's decision in Beverly Hills Fan in which it held that the due process was satisfied where a nonresident defendant purposefully shipped accused products into the forum through an established distribution channel, and the cause of action for patent infringement was alleged to arise out of those activities.

Most commentators did not expect the Circuit to accept either of Heartland's arguments on a writ of mandamus where the burden of proof is so high. While Heartland may ask for hearing en banc, it is unlikely to be granted because the same high burden would still be required. We know that Congress seems to be looking for ways in which it can restrain nonpracticing entities. A change in the venue statute to require patent cases to be filed pursuant to the patent venue statute would seem to be a good way to do that. Such legislation would undoubtedly be fought by Congressional representatives from Texas.

Merck v. Gnosis

The Circuit denies en banc review of a case in which the patentee argued that "substantial evidence" is the wrong standard of review of inter partes reviews. The panel majority considered whether the PTAB's conclusion that the contested claims of the patent-in-suit are invalid as obvious was supported by substantial evidence. Merck urged the Circuit to sit en banc to decide whether application of a more searching standard of review—clear error—is required for appeals from IPR proceedings. In an opinion concurring with the denial, Judge O'Malley reflects on the advantages of applying a more searching standard of review, but ultimately decides it is up to Congress to make the change. 

South Alabama v. Gnosis

Judge Newman dissented in Merck v. Gnosis and dissents in this companion case as well, urging that en banc review should be granted. She argues that this case is a perfect example of why the deferential "substantial evidence" standard of review is not appropriate for IPRs. "En banc consideration is necessary to realign the appellate standard of review of these inter partes proceedings with the statutory purpose of the America Invents Act."

Here the royalty stream for the South Alabama patents produces millions of dollars in annual revenue. The PTAB did not mention these as objective indicia of nonobviousness, but instead dismissed all of South Alabama's objective evidence for lack of nexus. In the panel decision the majority held that this was legal error but nonetheless affirmed the ruling because that evidence is not enough to overcome the strong evidence of obviousness relied upon by the Board. Judge Newman concludes that her colleagues also err in the panel decision for applying the "substantial evidence" standard of review, and feels that en banc review should be granted. 

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