Supreme Court May Preserve EDTX Grip on Patent Cases

The U.S. Supreme Court did not appear eager to upset the patent litigation landscape by drastically limiting where infringement lawsuits can be filed.

The Court heard arguments on March 27 in the closely watched TC Heartland v. Kraft Foods Group Brands, No. 16-341, touted as one of the most important IP cases of the decade. See, “Patent Lawyers, Anticipating a Shake-Up, Warily Watch SCOTUS,” The Recorder (March 24, 2017).That is in part because of the sharp rise in patent suits filed in the U.S. District Court for the Eastern District of Texas, home of allegedly plaintiff-friendly federal judges. Roughly 40% of infringement suits have been filed there in the last two years, a statistic that critics point to as proof of blatant forum-shopping. See, “Eastern Texas Still Patent Case Champ, According to Lex Machina Data,” The Recorder (March 2, 2017).

But some justices appeared unconcerned by the Texas monopoly on patent cases. “What's that got to do with the case?” asked Justice Stephen Breyer.

Breyer seemed stuck on a 2011 amendment that, among other things, spelled out venue for limited liability companies. TC Heartland argues that the 2011 amendments addressed venue only generally, and that the court should focus instead on a specific venue provision for patent cases — 28 U.S. Code § 1400. The Supreme Court's 1957 Fourco Glass v. Transmirra Products ruling called it “the exclusive provision controlling venue” when corporations are sued for patent infringement.

But as luck would have it, TC Heartland is a not a corporation. It is an LLC.

“You're asking us to decide where venue is proper for a corporation, and you are not a corporation,” Breyer said.

Hughes Hubbard & Reed partner James Dabney, arguing for Heartland, insisted that that's a non-issue. “There's a holding in Fourco that it applies to all defendants, all — italicized — all. Justice Whitaker said all in italics,” Dabney said.

Chief Justice John Roberts, the one member of the court who sounded firmly on TC Heartland's side, implied there was some dirty pool being played on the LLC issue.

“It seems odd to me you didn't raise it in your brief in opposition [to certiorari], and yet it takes up several pages in your brief on the merits,” he told Goodwin Procter partner William Jay, who argued for respondent Kraft. (Jay is coming off a March 22 win in a copyright case, Star Athletica v. Varsity Brands, No. 15-866. See also, “Did SCOTUS Miss Chance to Fine-Tune IP Protection for Apparel?” The Recorder (March 22, 2017).)

Weil, Gotshal & Manges partner Edward Reines, who's not involved in TC Heartland, said Breyer's question seemed like a bad sign for changing the venue laws. “If Justice Breyer isn't leading the charge to address perceived patent abuses, who would?” he said.

Baker Botts partner Neil Sirota, who attended the arguments, said there “was not a lot of attention paid to the Federal Circuit decision that said Fourco is no longer good law.” Instead, the justices' approach was “Let's look at the statute as it exists today.”

Justices also expressed concern that pharmaceutical cases could get bogged down if lawsuits are restricted in their venue choices. The actual outcome is hard to predict, but few justices seemed upset with the status quo. Chief Justice John Roberts Jr. was the only court member who spoke as if he was definitely ready to limit venue.

The case before the court was filed in Delaware, not Texas, but its litigation impact on that state's eastern district — and its divisions in Marshall, TX, and Tyler, TX — could be large. Kraft, incorporated in Delaware, filed suit there against Heartland, claiming infringement of patents that are essential to popular products that allow customers to add calorie-free flavors to drinking water.

Claiming that it had little connection with Delaware, Heartland asked that the suit be moved to its home state of Indiana, citing a patent-venue statute that limits litigation to the state of incorporation. But Kraft asserted that Heartland's products are sold in Delaware, making it a proper venue under a broader law that allows such suits, especially when nationwide companies are involved, to be filed almost anywhere. The U.S. Court of Appeals for the Federal Circuit ruled last year in favor of Kraft, citing longstanding precedent. See, In Re: TC Heartland, 16-105 (April 29, 2016).

Dabney argued that Fourco that limited patent litigation venues was still “the correct choice” for the court to follow. But Justice Elena Kagan said that in reality, the broader venue interpretation has been in effect because “for 30 years, the Federal Circuit has been ignoring our precedent.”

Jay argued that the broader venue statute took precedence over the narrow patent venue rule. He also minimized the problem posed by the dominance of the Eastern Texas District in handling patent cases. “If there are complaints, they tend not to be about venue” but rather how the cases are managed, Jay said.

The problem for the tech industry and TC Heartland is that Congress amended the venue laws in 2011, arguably with the Federal Circuit's views in mind. During argument, the Court seemed more focused on those amendments and the state of the law when they were enacted — good, bad or otherwise. Forum shopping seemed barely on the radar.

The case has drawn 38 amicus briefs on both sides and for neither side, written by a who's who of veteran Supreme Court and IP advocates, including: Bert Rein of Wiley Rein, Carter Phillips of Sidley Austin, Mayer Brown's Andrew Pincus, Stanford Law School professor Mark Lemley, Tom Goldstein of Goldstein & Russell, Matthew McGill of Gibson, Dunn & Crutcher, Robert Long of Covington & Burling and Jonathan Massey of Massey & Gail. See, http://bit.ly/2nA1pR7.

Munger, Tolles & Olson partner Donald Verrilli Jr., wrote a brief on behalf of Intel Corp. and Dell Inc. supporting TC Heartland, his first brief before the court since leaving office as U.S. solicitor general last June. He was able to file the brief without violating ethics rules because the U.S. Department of Justice was not involved in the case. The American Bar Association also weighed in advocating a narrow venue interpretation.

Texas Solicitor General Scott Keller also sided with TC Heartland, even though it might limit commercial activity in Marshall. “Marshall is so popular for patent suits that a hotel there got a Public Access to Court Electronic Records subscription and offered this electronic access to federal court dockets to help sell rooms to lawyers,” Keller wrote on behalf of Texas and 17 other states.

A transcript of the oral argument is available here.

*****
Tony Mauro covers the U.S. Supreme Court for ALM. He can be reached at [email protected], and on Twitter @Tonymauro. Scott Graham of The Recorder also contributed to this report.

The U.S. Supreme Court did not appear eager to upset the patent litigation landscape by drastically limiting where infringement lawsuits can be filed.

The Court heard arguments on March 27 in the closely watched TC Heartland v. Kraft Foods Group Brands, No. 16-341, touted as one of the most important IP cases of the decade. See, “Patent Lawyers, Anticipating a Shake-Up, Warily Watch SCOTUS,” The Recorder (March 24, 2017).That is in part because of the sharp rise in patent suits filed in the U.S. District Court for the Eastern District of Texas, home of allegedly plaintiff-friendly federal judges. Roughly 40% of infringement suits have been filed there in the last two years, a statistic that critics point to as proof of blatant forum-shopping. See, “Eastern Texas Still Patent Case Champ, According to Lex Machina Data,” The Recorder (March 2, 2017).

But some justices appeared unconcerned by the Texas monopoly on patent cases. “What's that got to do with the case?” asked Justice Stephen Breyer.

Breyer seemed stuck on a 2011 amendment that, among other things, spelled out venue for limited liability companies. TC Heartland argues that the 2011 amendments addressed venue only generally, and that the court should focus instead on a specific venue provision for patent cases — 28 U.S. Code § 1400. The Supreme Court's 1957 Fourco Glass v. Transmirra Products ruling called it “the exclusive provision controlling venue” when corporations are sued for patent infringement.

But as luck would have it, TC Heartland is a not a corporation. It is an LLC.

“You're asking us to decide where venue is proper for a corporation, and you are not a corporation,” Breyer said.

Hughes Hubbard & Reed partner James Dabney, arguing for Heartland, insisted that that's a non-issue. “There's a holding in Fourco that it applies to all defendants, all — italicized — all. Justice Whitaker said all in italics,” Dabney said.

Chief Justice John Roberts, the one member of the court who sounded firmly on TC Heartland's side, implied there was some dirty pool being played on the LLC issue.

“It seems odd to me you didn't raise it in your brief in opposition [to certiorari], and yet it takes up several pages in your brief on the merits,” he told Goodwin Procter partner William Jay, who argued for respondent Kraft. (Jay is coming off a March 22 win in a copyright case, Star Athletica v. Varsity Brands, No. 15-866. See also, “Did SCOTUS Miss Chance to Fine-Tune IP Protection for Apparel?” The Recorder (March 22, 2017).)

Weil, Gotshal & Manges partner Edward Reines, who's not involved in TC Heartland, said Breyer's question seemed like a bad sign for changing the venue laws. “If Justice Breyer isn't leading the charge to address perceived patent abuses, who would?” he said.

Baker Botts partner Neil Sirota, who attended the arguments, said there “was not a lot of attention paid to the Federal Circuit decision that said Fourco is no longer good law.” Instead, the justices' approach was “Let's look at the statute as it exists today.”

Justices also expressed concern that pharmaceutical cases could get bogged down if lawsuits are restricted in their venue choices. The actual outcome is hard to predict, but few justices seemed upset with the status quo. Chief Justice John Roberts Jr. was the only court member who spoke as if he was definitely ready to limit venue.

The case before the court was filed in Delaware, not Texas, but its litigation impact on that state's eastern district — and its divisions in Marshall, TX, and Tyler, TX — could be large. Kraft, incorporated in Delaware, filed suit there against Heartland, claiming infringement of patents that are essential to popular products that allow customers to add calorie-free flavors to drinking water.

Claiming that it had little connection with Delaware, Heartland asked that the suit be moved to its home state of Indiana, citing a patent-venue statute that limits litigation to the state of incorporation. But Kraft asserted that Heartland's products are sold in Delaware, making it a proper venue under a broader law that allows such suits, especially when nationwide companies are involved, to be filed almost anywhere. The U.S. Court of Appeals for the Federal Circuit ruled last year in favor of Kraft, citing longstanding precedent. See, In Re: TC Heartland, 16-105 (April 29, 2016).

Dabney argued that Fourco that limited patent litigation venues was still “the correct choice” for the court to follow. But Justice Elena Kagan said that in reality, the broader venue interpretation has been in effect because “for 30 years, the Federal Circuit has been ignoring our precedent.”

Jay argued that the broader venue statute took precedence over the narrow patent venue rule. He also minimized the problem posed by the dominance of the Eastern Texas District in handling patent cases. “If there are complaints, they tend not to be about venue” but rather how the cases are managed, Jay said.

The problem for the tech industry and TC Heartland is that Congress amended the venue laws in 2011, arguably with the Federal Circuit's views in mind. During argument, the Court seemed more focused on those amendments and the state of the law when they were enacted — good, bad or otherwise. Forum shopping seemed barely on the radar.

The case has drawn 38 amicus briefs on both sides and for neither side, written by a who's who of veteran Supreme Court and IP advocates, including: Bert Rein of Wiley Rein, Carter Phillips of Sidley Austin, Mayer Brown's Andrew Pincus, Stanford Law School professor Mark Lemley, Tom Goldstein of Goldstein & Russell, Matthew McGill of Gibson, Dunn & Crutcher, Robert Long of Covington & Burling and Jonathan Massey of Massey & Gail. See, http://bit.ly/2nA1pR7.

Munger, Tolles & Olson partner Donald Verrilli Jr., wrote a brief on behalf of Intel Corp. and Dell Inc. supporting TC Heartland, his first brief before the court since leaving office as U.S. solicitor general last June. He was able to file the brief without violating ethics rules because the U.S. Department of Justice was not involved in the case. The American Bar Association also weighed in advocating a narrow venue interpretation.

Texas Solicitor General Scott Keller also sided with TC Heartland, even though it might limit commercial activity in Marshall. “Marshall is so popular for patent suits that a hotel there got a Public Access to Court Electronic Records subscription and offered this electronic access to federal court dockets to help sell rooms to lawyers,” Keller wrote on behalf of Texas and 17 other states.

A transcript of the oral argument is available here.

*****
Tony Mauro covers the U.S. Supreme Court for ALM. He can be reached at [email protected], and on Twitter @Tonymauro. Scott Graham of The Recorder also contributed to this report.