Patent Venue Rule Remains the Same ' For Now

Venue in any type of civil action is governed generally by 28 U.S.C. '1391. Section 1391(b)(1) states: “A civil action may be brought in a judicial district in which any defendant resides, if all defendants are residents of the State in which the district is located.” Section 1391(c)(2) defines “residency” for an entity with the capacity to sue and be sued, if a defendant, as “any judicial district in which such defendant is subject to the court's personal jurisdiction with respect to the civil action in question.”

In addition to the general venue statute, 28 U.S.C. '1400(b) provides specific venue provisions for patent cases. Section 1400(b) states 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.” Section 1400 does not provide a separate definition for residency.

The interplay between the two venue statutes has changed over time due to judicial interpretation and Congressional amendments. In 1957, the Supreme Court addressed the issue of whether Section 1400(b) is the sole and exclusive provision governing venue in patent infringement actions, or whether that section is supplemented by 28 U.S.C. '1391(c). See, Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957). In Fourco, the Court held that '1400(b) “is the sole and exclusive provision controlling venue in patent infringement actions, and that it is not to be supplemented by the provisions of 28 U.S.C. '1391(c).” Id. at 329. As a result of untethering Section 1400(b) from Section 1391(c), “the residence of a corporation for purposes of '1400(b) is its place of incorporation.” Brunette Mach. Works. Ltd. v. Kockum Indus. Inc., 406 U.S. 706, 707 n.2 (1972).

But in 1988, Congress amended '1391 to add a provision governing the districts in which a corporate defendant could be sued in states having more than one district. See, 28 U.S.C. '1391(c) (2000). As part of that amendment, the first sentence of '1391(c) was amended to begin: “For purposes of venue under this chapter '”

In 1990, the Federal Circuit revisited the interplay between the two venue statutes in view of the 1988 amendments to Section 1391. See, VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990). In VE Holding, the court held that the 1988 amendment to '1391 overruled Fourco, and found that the definition of corporate residency in the general venue statute, '1391(c), applied to the patent venue statute, '1400(b). Thus, instead of limiting corporate residency to a defendant's place of incorporation for purposes of '1400(b), a corporate defendant was considered to “reside” in any judicial district in which the defendant is subject to the court's personal jurisdiction.

After the VE Holding decision in 2011, Congress again amended '1391 in two ways that are material to the venue dispute.

First, new subparagraph (a) entitled “Applicability of Section” was added, and states in part: “Except as otherwise provided by law, ' (1) this section shall govern the venue of all civil actions brought in district courts of the United States.” Second, the language preceding the definition of corporate residence in '1391(c) was changed from “For the purposes of venue under this chapter '” to “For all venue purposes '” The most recent challenge to the patent venue standard is based on these 2011 amendments to '1391.

TC Heartland Background

This venue challenge stems from a patent infringement suit filed in the U.S. District Court for the District of Delaware against TC Heartland LLC, an Indiana limited liability corporation. Heartland moved to dismiss the case or transfer venue because it was not registered to do business in Delaware, had not entered into any supply contracts in Delaware and had not called on any accounts there to solicit sales. But in 2013, Heartland shipped more than 44,000 cases of the accused product into Delaware, equating to 2% of its sales of the accused product that year. The district court denied Heartland's motion, finding that Heartland's shipments of products into Delaware created specific personal jurisdiction. The court further ruled that the 2011 amendment to '1391 did not overrule VE Holding , and thus venue is proper in Delaware because Heartland is subject to personal jurisdiction in Delaware.

In its petition, Heartland argued that due to the phrase, “Except as otherwise provided by law” in '1391(a), the statute should be interpreted as governing venue generally, but yield to a more specific applicable venue provision, such as '1400.

The crux of the dispute lies in reconciling '1391(a), which generally defines the applicability of '1391 and begins with the phrase, “Except as otherwise provided by law,” and '1391(c), which defines residency and begins with the phrase, “For all venue purposes '” Heartland argued that subsection (c) must be read subject to subsection (a), such that the more specific venue provisions of '1400(b) apply. But apparently recognizing that it may not prevail on this argument, Heartland alternatively called for en banc review of the VE Holding decision as contrary to the Supreme Court's Fourco decision. Heartland lastly argued that even if the VE Holding standard applies, Heartland is not subject to personal jurisdiction in Delaware.

The Federal Circuit disagreed with Heartland's interpretation of the 2011 amendments to '1391.

First, the court found that changing the introductory phrase to the definition of residency in '1391(c) from, “For the purposes of venue under this chapter '” to, “For all venue purposes '” broadened the applicability of the residency definition. In the court's view, the new language of '1391(c) further emphasizes that section's applicability to '1400.

Second, the court was unpersuaded that the phrase, “Except as otherwise provided by law” causes '1400 to trump '1391. The court noted that '1400 does not define corporate residence, and therefore the residency definition of '1391(c) applies to '1400 because there is no residency definition “otherwise provided by law.”

With respect to the personal jurisdiction issue, the court found that the Delaware court had jurisdiction under the Federal Circuit's 1994 decision in Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558 (Fed. Cir. 1994). In that case, the court found that a defendant has sufficient minimum contacts with the forum when the defendant purposefully ships 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. See, id. at 1565. Similarly, Heartland shipped orders of the accused products into Delaware, and those shipments were the basis of the infringement suit. Thus, the Delaware court has personal jurisdiction over Heartland under Beverly Hills Fan.

Venue After Heartland

Ultimately, although Heartland may have lost this round, it appears the Federal Circuit's panel decision is just the opening salvo in this dispute. In its mandamus petition, Heartland explicitly calls for the Federal Circuit to review its VE Holding decision en banc. The panel that decided Heartland's mandamus petition (Judges Moore, Linn and Wallach) also appeared to acknowledge that this question is headed for en banc review, if not Supreme Court review. In its opinion, the panel acknowledged that “[a]s a panel, we are bound by the prior decisions of the court,” possibly suggesting that the petition must be denied under VE Holding, but not necessarily that VE Holding was decided correctly, or that it would survive en banc review.

Heartland is almost certain to seek en banc review, and if unsuccessful there, possibly Supreme Court review, on the basis that the 2011 amendment overruled VE Holding and/or that the holding in VE Holding is wrong in view of the Supreme Court's Fourco decision.

In addition to Heartland's judicial challenge of the current patent venue standards, this issue has also caught the eye of Congress.

For example, in March 2016, Sen. Jeff Flake introduced a bill entitled “Venue Equity and Non-Uniformity Elimination Act of 2016” (S.2733), which would amend '1400 to restrict venue in patent cases. The bill would specifically exempt '1400 from ”1391(b) and (c), and require that venue may only lie:

1. Where the defendant has its principal place of business or is incorporated;
2. Where the defendant has committed an act of infringement and has a regular and established physical facility that gives rise to the act of infringement;
3. Where the defendant has consented to be sued;
4. Where an inventor of the patent in suit conducted research or development that led to the application for the patent in suit;
5. Where a party has a regular and established physical facility (not primarily for purpose of creating venue), and has: a) engaged in management of significant research and development of an invention claimed in a patent in suit prior to the filing date of the patent; b) manufactured a tangible product that is alleged to embody an invention claimed in the patent in suit; or c) implemented a manufacturing process for a tangible good in which the process is alleged to embody an invention claimed in the patent in suit; or
6. For a foreign defendant that does not meet option (1) or (2), in accordance with '1391(c)(3).

The proposed amendment to '1400 would mark a major change in patent venue, and would specifically overrule the Federal Circuit's decision in VE Holding. Under the new proposed language, merely shipping products to a forum state, without more, would not subject an alleged infringer to venue in that forum.

A similar venue provision was included in the Innovation Act of 2015 (H.R.9), which has stalled in Congress. The Innovation Act, however, is a broad patent reform bill that proposes sweeping changes to attorney's fees, pleading standards, joinder, discovery, case management and other aspects of patent litigation. Specifically targeting venue reform in the Venue Equity and Non-Uniformity Elimination Act of 2016, and eliminating other patent reform issues that may be more divisive, could increase the likelihood that major changes to venue in patent cases will become a reality.

So either by judicial or congressional action, the days of forum shopping in patent infringement cases may be numbered.

Harvey S. Kauget and Ryan M. Corbett are attorneys at Burr & Forman LLP in Tampa, FL. Kauget is a partner in the Intellectual Property practice who counsels clients on a variety of matters related to intangible property. He may be reached at 813-367-5755 or by e-mail at [email protected]. Corbett is a patent attorney who represents clients in both patent litigation and patent prosecution matters across a wide variety of technologies. He may be reached at 813-367-5740 or by e-mail at [email protected].