United States: In One Fell Swoop, Supreme Court Upends Quarter Century of Practice and Limits Proper Venue in Patent Disputes, Much to the Dismay of Patent Trolls

On May 22, the U.S. Supreme Court determined that a domestic corporation "resides" only in its State of incorporation for purposes of the patent venue statute, 28 U.S.C. § 1400(b). While seemingly an esoteric discussion of civil procedure, the decision will fundamentally alter the landscape of modern patent litigation.

To appreciate the significance of TC Heartland LLC v. Kraft Foods Group Brands LLC, a history lesson is in order.[1] In 1957, the Supreme Court reached a conclusion similar to that reached in TC Heartland – a domestic corporation resides only in its State of incorporation for patent venue purposes.[2] In 1990, however, the Federal Circuit changed the prevailing view of venue in patent disputes, ruling that Congressional changes to the general venue statute (28 U.S.C. § 1391(c)) in 1988 altered patent venue rules as well.[3] In short, since 1990, a corporation "resides" for patent venue purposes anywhere in which it is subject to the court's personal jurisdiction. Given the broad scope of personal jurisdiction, a domestic corporation thus became susceptible to patent litigation almost anywhere in the country.

TC Heartland concluded that the Federal Circuit's 1990 ruling was incorrect and reaffirmed the Supreme Court's 1957 holding that "residence" for patent venue purposes was limited to the party's State of incorporation. Between 1990 and 2017, however, the volume of patent disputes grew exponentially, and most of those disputes were governed by the Federal Circuit's broader view of patent venue. And with this broader view, one district court emerged as the patent plaintiffs' favored jurisdiction: the Eastern District of Texas.[4]

Why the Eastern District of Texas? Initially, in the 1990s, patent disputes were filed in the District because of its small criminal court docket.[5] With a smaller number of criminal cases – which typically take priority over civil disputes – the District began addressing patent cases with greater speed. The District also implemented various procedural reforms designed to streamline patent cases. And, much to the chagrin of defendants, patent cases in the District are heard by a small number of jurists who grant summary judgment at a rate far below the national average. As a result, this combination of factors created the most patentee-friendly court in the nation, and patent infringement plaintiffs, including the much-maligned patent trolls, took note.[6]

With TC Heartland, however, the Eastern District of Texas will no longer host a disproportionate number of patent disputes. Plaintiffs must now file suit in the jurisdiction in which the defendant is incorporated or where the defendant maintains "a regular and established place of business" (28 U.S.C. § 1400(b)). The business community will support the TC Heartland decision, as they will say the decision upholds the ideals of the patent system itself in protecting ideas and encouraging innovation. Some patent plaintiffs will dislike the decision, arguing that it unduly restricts plaintiffs' choice of venue. No one, however, will weep for the trolls.

[1] TC Heartland LLC v. Kraft Foods Group Brands LLC, No. 16-341, slip op. (U.S. May 22, 2017).

[2] Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 226 (1957).

[3] VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1578-80 (Fed. Cir. 1990). The United States Court of Appeals for the Federal Circuit has exclusive jurisdiction over appeals from patent disputes arising in the federal district courts.

[4] Based on new patent cases filed in 2015, 43.7% of patent cases were filed in the Eastern District of Texas. No other district court was even close.

[5] The history of the Eastern District of Texas' evolution into the hotbed of patent infringement litigation is taken from Kaleigh Rogers, The Small Town Judge Who Sees a Quarter of the Nation's Patent Cases (May 5, 2016), available at https://motherboard.vice.com/en_us/article/the-small-town-judge-who-sees-a-quarter-of-the-nations-patent-cases.

[6] A "patent troll" is generally defined as a company that obtains the rights to one or more patents in order to profit by means of licensing or litigation, rather than by producing its own goods or services.

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