On May 22, 2017, the Supreme Court decided an important patent decision in TC Heartland LLC v. Kraft Foods Group Brands LLC, 581 U. S. ____ (2017), Case No. 16–34.
In short, the Supreme Court ruled that patent lawsuits must begin in the federal court district in which the defendant resides (more on that in a bit) or in which the defendant has infringed the plaintiff’s patent and the defendant has a place of business.
Before we dive into this particular decision, here are two legal concepts you must be familiar with:
Jurisdiction is the type of court that is allowed to hear a case. For example, federal court is generally not allowed to hear state issues. So, if you sue your neighbor for trespassing on your property, the state’s court system has the proper jurisdiction for that matter. (The exception is if both sides are from differing states. So if a NY resident runs a red light and then hits a NC resident in NY, then federal court may interpret state law because of the diversity of the residency of the parties.) If a plaintiff needs to sue under federal law, such as patent infringement or trademark infringement, then federal court has jurisdiction over the case.
Venue is the proper district in which to hear a case. This is defined by 8 U.S.C. §1391(c). For example, if a plaintiff in Philadelphia were to sue a defendant in New York City, certainly the Federal District Court for the Southern District of New York is a proper venue in which to hear the case. The Federal District Court for the Eastern District of Pennsylvania may be a proper venue if the defendant had contacts with Pennsylvania.
However, venue in patent lawsuits has been calculated a little differently. This is because venue for patent lawsuits is covered by 28 U.S.C. §1400(b), which provides 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 Fourco Glass Co. v. Transmirra Products Corp., 353 U. S. 222, 226 (1957), the Supreme Court concluded that for purposes of §1400(b) a domestic corporation “resides” only in its State of incorporation.
Section 1391 now provides that, “[e]xcept as otherwise provided by law” and “[f]or 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.”
The Supreme Court decided that a domestic corporation “resides” only in its state of incorporation for purposes of the patent venue statute.
What are the effects of this ruling?
Before this ruling, many plaintiffs would file lawsuits in the Eastern District of Texas or in the District of Delaware.
Since 2014, the Eastern District of Texas has handled one-quarter of all patent cases nationwide, according to court records. The reasons for this are many, but do relate to the speed at which the courts would handle the case and the jury awards being higher than in other cases.
Now, many plaintiffs are going to have to find the proper venue for filing a patent lawsuit.
However, there is a criticism of the case itself in Kraft’s petition to the Supreme Court:
“Even if [the Supreme Court] were inclined to wade into the patent venue dispute, this case would be a poor vehicle. It presents none of the forum-shopping concerns discussed by [Heartland]. [Kraft] developed and practices the patented inventions and sued [Heartland], a nationwide infringer, not in Texas but in the jurisdiction where [Kraft] is incorporated and suffered injury and where [Heartland] purposefully directed sales of its infringing product….It is telling that Petitioner could muster no more than a cursory argument in favor of a § 1404(a) discretionary venue transfer.”
Kraft’s criticism is that the defendant, Heartland, should have expected to be brought to trial in Delaware because it made its products and sold them in Delaware. Some criticisms coming have discussed that this case was heard by the Supreme Court only to tamp down on the amount of filings in the Eastern District of Texas, not because this case actually had the issue of shopping for the most favorable forum for a case.
In the meanwhile, what is left to be seen is how narrowly this case is interpreted by other courts and how narrow venue will be determined in patent infringement matters.