TC Heartland: U.S. Supreme Court Messes With Texas, Opens Door to Possible New Legal Battleground Ov
On May 22, 2017, the Supreme Court in TC Heartland LLC v. Kraft Foods Group Brands LLC unanimously held that under the patent venue statue 28 U.S.C. §1400(b), a defendant in a patent infringement action must be sued either (1) in its state of incorporation (i.e., where it “resides”) or (2) “where defendant has committed acts of infringement and has a regular and established place of business.” Id.
This ruling narrows the options for where plaintiffs may sue defendants in patent infringement actions. For nearly thirty years, parties to patent infringement actions have operated under a different standard established by the Federal Circuit, allowing defendants to be haled into court simply if personal jurisdiction over the defendant existed. See VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990); 28 U.S.C. §1391. Consistent with its precedent, in TC Heartland, the Supreme Court ruled for a narrower interpretation of 28 U.S.C. §1400(b) that a defendant domestic corporation “resides” in its state of incorporation only.
As a result of the decades of practice under the former standard, certain district courts carved out niches as go-to venues for patent infringement plaintiffs. One of these courts is the Eastern District of Texas (including its divisions in Marshall, TX and Tyler, TX), which for years has rather famously had patent infringement actions flowing through its doors like waters from a steady river, subjecting out-of-state mega-corporations like Google and Apple to suit in the Lone Star state. The District of Delaware is another district court with a traditionally heavy patent infringement docket due to the large ledger of companies that are registered there, although the tale of these two districts could significantly diverge following the TC Heartland ruling.
As a result of this ruling, the District of Delaware could see a boom in patent cases, for the simple reason that Delaware is the state of incorporation of over 1 million companies, including over 60% of the Nation’s publicly traded companies and Fortune 500 companies. See http://www.corp.delaware.gov/aboutagency.shtml. The TC Heartland decision makes selecting venue for a Delaware corporation straightforward—Delaware would be one clear option, and perhaps the only option if the facts don’t support that defendant “has committed acts of infringement and has a regular and established place of business” in some other state. 28 U.S.C. §1400(b).
On the other hand, the Supreme Court really messed with Texas with its ruling last week. On its face, the ruling appears as though it will result in significantly fewer patent infringement filings in Marshall and Tyler, spelling an end to an era for patent infringement and possibly having a downward effect on the local economies. See, e.g., http://www.texasmonthly.com/politics/patently-unfair/) (referencing the positive impact the high volume of patent cases has had on, for example, the Blue Frog Grill in Marshall, TX, and the potential negative effect a downward turn may have as a result of the TC Heartland ruling).
It would also appear that the net effect nationwide could be that other district courts will see a slight increase in patent infringement filings for suits against companies incorporated in each state, that would have otherwise been filed in Texas.
However, all such broad prognostications may be tempered by the possibility of a new battleground that may arise in interpreting the meaning of the second part of the statute, i.e., “where defendant has committed acts of infringement and has a regular and established place of business.” Id. Crafty litigators may be able to apply advantageous facts to seek to set up cases in favorable districts where defendants allegedly have a “regular and established place of business,” with the only downside being transfer to a court in the forum where defendants are incorporated, the presumptive forum anyway as a result of TC Heartland.
Here is a link to the TC Heartland opinion: https://www.supremecourt.gov/opinions/16pdf/16-341_8n59.pdf
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