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Supreme Court Restricts Where Patent Cases Can Be Filed

May 22, 2017

Overview

TC Heartland LLC v. Kraft Foods Group Brands LLC, Case No. 16-341 (May 22, ‎‎2017)‎

In an 8-0 opinion written by Justice Thomas (Justice Gorsuch did not participate), the ‎Supreme Court rules that a defendant “resides” for purposes of the patent venue statute only ‎where the defendant actually ‎is incorporated or where the defendant has committed acts of ‎infringement and ‎has a regular and established place of business. This will prove devastating to ‎Texas businesses that have taken advantage of the fact that 40% of all patent infringement ‎actions over the past three years have been filed in the Eastern District of Texas. This could prove ‎to be a boon to law firms in Delaware, which is a common state of incorporation, and to firms ‎around the country based in technology-hot areas.‎

The Court rules that the 2011 amendments to the‎ general venue statute, 28 ‎U.S.C. § ‎‎1391, changed the law and effectively overruled VE Holding, which held that the definition ‎of ‎‎“corporate residence” in the general venue statute applies to the patent venue ‎statute, 28 U.S.C. § ‎‎1400. The Court accepted Heartland’s argument that the amendment to § 1391 that added ‎‎“except as otherwise ‎provided by law” meant that the patent ‎venue statute was ‎intended to ‎control the definition of “corporate residence” in patent actions, ‎instead of the general venue ‎statute.‎

The patent venue statute, 28 U.S.C. §1400(b), provides that “any 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 Fourco Glass Co. v. Transmirra Products Corp., this Court concluded that for ‎purposes of §1400(b) a domestic corporation “resides” only in its State of incorporation, rejecting ‎the argument that §1400(b) incorporates the broader definition of corporate “residence” ‎contained in the general venue statute, 28 U.S.C. §1391(c). Congress has not amended ‎‎§1400(b) since Fourco, but it has twice amended §1391, which now provides that, “except as ‎otherwise provided by law” and “for 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.” §§1391(a), (c). ‎

Respondent filed a patent infringement suit in the District Court for the District of ‎Delaware against petitioner, a competitor that is organized under Indiana law and headquartered ‎in Indiana but ships the allegedly infringing products into Delaware. Petitioner moved to transfer ‎venue to a District Court in Indiana, claiming that venue was improper in Delaware. Citing ‎Fourco, petitioner argued that it did not “reside” in Delaware and had no “regular and ‎established place of business” in Delaware under §1400(b). The District Court rejected these ‎arguments. The Federal Circuit denied a petition for a writ of mandamus, concluding that ‎‎§1391(c) supplies the definition of “resides” in §1400(b). The Federal Circuit reasoned that ‎because petitioner resided in Delaware under §1391(c), it also resided there under §1400(b). ‎

Held: As applied to domestic corporations, “residence” in §1400(b) refers only to the ‎State of incorporation. The amendments to §1391 did not modify the meaning of §1400(b) as ‎interpreted by Fourco. ‎

‎(a) The venue provision of the Judiciary Act of 1789 covered patent cases as well as other ‎civil suits. Stonite Products Co. v. Melvin Lloyd Co. In 1897, Congress enacted a patent specific ‎venue statute. This new statute (§1400(b)’s predecessor) permitted suit in the district of which ‎the defendant was an “inhabitant” or in which the defendant both maintained a “regular and ‎established place of business” and committed an act of infringement. A corporation at that time ‎was understood to “inhabit” only the State of incorporation. This Court addressed the scope of ‎‎§1400(b)’s predecessor in Stonite, concluding that it constituted “the exclusive provision ‎controlling venue in patent infringement proceedings” and thus was not supplemented or ‎modified by the general venue provisions. 315 U.S., at 563. In 1948, Congress recodified the ‎patent venue statute as §1400(b). That provision, which remains unaltered today, uses “resides” ‎instead of “inhabits.” At the same time, Congress also enacted the general venue statute, §1391, ‎which defined “residence” for corporate defendants. In Fourco, this Court reaffirmed Stonite’s ‎holding, observing that Congress enacted §1400(b) as a standalone venue statute and that ‎nothing in the 1948 recodification evidenced an intent to alter that status, even the fact that ‎‎§1391(c) by “its terms” embraced “all actions,” 353 U.S., at 228. The Court also concluded that ‎‎“resides” in the recodified version bore the same meaning as “inhabits” in the pre-1948 version. ‎

This landscape remained effectively unchanged until 1988, when Congress amended the ‎general venue statute, §1391(c). The revised provision stated that it applied “[f]or purposes of ‎venue under this chapter.” In VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574, ‎‎1578, the Federal Circuit held that, in light of this amendment, §1391(c) established the ‎definition for all other venue statutes under the same “chapter,” including §1400(b). In 2011, ‎Congress adopted the current version of §1391, which provides that its general definition applies ‎‎“for all venue purposes.” The Federal Circuit reaffirmed VE Holding in the case below. ‎

‎(b) In Fourco, this Court definitively and unambiguously held that the word “residence” ‎in §1400(b), as applied to domestic corporations, refers only to the State of incorporation. ‎Because Congress has not amended §1400(b) since Fourco, and neither party asks the Court to ‎reconsider that decision, the only question here is whether Congress changed §1400(b)’s meaning ‎when it amended §1391. When Congress intends to effect a change of that kind, it ordinarily ‎provides a relatively clear indication of its intent in the amended provision’s text. No such ‎indication appears in the current version of §1391. Respondent points out that the current ‎‎§1391(c) provides a default rule that, on its face, applies without exception “[f]or all venue ‎purposes.” But the version at issue in Fourco similarly provided a default rule that applied “‘for ‎venue purposes,’” and those phrasings are not materially different in this context. The addition of ‎the word “all” to the already comprehensive provision does not suggest that Congress intended ‎the Court to reconsider its decision in Fourco. Any argument based on this language is even ‎weaker now than it was when the Court rejected it in Fourco. Fourco held that §1400(b) ‎retained a meaning distinct from the default definition contained in §1391(c), even though the ‎latter, by its terms, included no exceptions. The current version of §1391 includes a saving clause, ‎which expressly states that the provision does not apply when “otherwise provided by law,” thus ‎making explicit the qualification that the Fourco Court found implicit in the statute. Finally, ‎there is no indication that Congress in 2011 ratified the Federal Circuit’s decision in VE Holding. ‎

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