A Tale of Two Statutes: New Questions on Patent Venue
Sweetener manufacturer TC Heartland recently petitioned the Federal Circuit for a writ of mandamus that asked the court to radically alter how patents are litigated in the United States. The issue presented calls into question basic law on venue for patent infringement, which for the past twenty-five years has been fairly permissive. If TC Heartland’s arguments are adopted, the much criticized practice of forum-shopping would be drastically curtailed.
On October 23, TC Heartland filed a petition for a writ of mandamus to its Delaware trial court seeking an order to dismiss or transfer the suit due to improper venue. Such a maneuver is unusual because it was assumed settled law that venue is proper wherever a corporation is subject to personal jurisdiction. Corporations are usually subject to personal jurisdiction once it is found there are sufficient sales in the state to establish minimum contacts. National corporations like TC Heartland satisfy this test easily in most districts, so the finding of proper venue is often perfunctory.
In an effort to resist out-of-state litigation, TC Heartland is challenging this link between personal jurisdiction and venue. The company supports its proposed paradigm-shift by offering an unconventional interpretation of the interplay between the two statutes affecting venue for patent litigation: 28 U.S.C. §§ 1391 and 1400.
How We Got Here
Title 28 U.S.C. chapter 87 governs venue in district courts. It begins with § 1391, which addresses venue generally, and also includes § 1400(b), which specifically addresses venue for patent infringement. The 1952 version of § 1391 is reproduced below along with § 1400(b), which has remained unchanged since 1948.
(c) A corporation may be sued in any judicial district in which it is incorporated or licensed to do business or is doing business, and such judicial district shall be regarded as the residence of such corporation for venue purposes.
(b) 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.
The scope of the first clause of § 1400(b) depends on the definition of “resides.” Legislative history indicates that “resides” carries the meaning of “domiciled,” which for corporations means incorporated in. Reading § 1400(b) alone therefore imposes a restrictive limit on venues in which corporations can be sued. Section 1391 has a more expansive definition of residency to include not only the state of incorporation, but also any state in which the corporation does business. By reading § 1391’s definition into § 1400(b), it would seem that corporations can be sued anywhere they do business, even if they are neither incorporated there nor have an established place of business there. The proper interpretation of these two sections together can therefore be a matter of great consequence.
The Supreme Court addressed this issue in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957), in which it concluded: “We hold that 28 U.S.C. § 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).” The more restrictive section, § 1400, was held to prevail over the general, § 1391, and for decades the matter was settled.
Questions arose again in 1988 when Congress amended § 1391(c) to read:
(c) For purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction . . .
The preamble “for purposes of venue under this chapter” lends support to the theory that § 1391 applies to § 1400, for they both reside in chapter 87. The issue was thus resurrected and the Federal Circuit made its determination in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990). The court distinguished the dispute from that in Fourco in light of the updated language in § 1391, considering the matter as one of first impression, and therefore relieving itself of what would otherwise be binding precedent. Relying on the plain meaning of the statute, the Federal Circuit held that the preamble to § 1391(c) empowered that section to apply to all of chapter 87, including § 1400. The effect was to broaden venue to any state in which the corporation was subject to personal jurisdiction, which was effectively any state in which it had sales.
Patent Venue Today
Although criticized at the time as overreaching and enabling burdensome litigation tactics, VE Holding is still good law. Twenty-five years later, the liberal state of venue law for corporate patent litigation is a direct result of the Federal Circuit reading § 1391 into § 1400. As predicted, forum-shopping has become the norm for plaintiffs. Last year, two districts together received nearly as many new patent lawsuits as the other 92 districts combined.
Large corporations that are frequent targets of litigation in remote districts have for years decried the current venue provisions and lobbied for their reform. Recently this effort has resulted in the Innovation Act, a bill that would sharply limit venue for infringement actions, bringing the law closer to its pre-VE Holdings state. This latest push for reform appears to have stalled however, so defendants are left to their own devices in challenging the status quo.
Fortunately for corporate defendants, Congress recently stepped into the fray again and amended § 1391 as part of the Federal Courts Jurisdiction and Venue Clarification Act of 2011. Section 1391 currently reads in part:
(a) Applicability of Section.—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 . . .
(c) Residency.—For all venue purposes—
(2) an entity . . . whether or not incorporated, shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction . . .
The Act repealed the “for purposes of this chapter” preamble of the 1988 section and included a new preamble in subsection (a): “Except as otherwise provided by law.” Defendants now have a plausible argument that this statutory revision was an attempt to clarify the autonomy of § 1400.
TC Heartland’s Petition
TC Heartland seized on this issue in its petition, asserting that VE Holding is no longer valid as a result. The argument is viable thanks to the strong Supreme Court precedent and new statutory language. A few other factors also help TC Heartland’s case. For one, the Federal Circuit’s ruling in VE Holding was essentially based on a repeal by implication, which is a widely disfavored doctrine. Additionally, the fact that certiorari for VE Holding was denied cannot be used to infer tacit Supreme Court approval. The Federal Circuit has also seen significant turnover since VE Holding: Only two of the twelve judges who were on the court at the time of VE Holding remain active, and neither were on the original panel. A new court might be more receptive to diverging from precedent or framing the issue as one of first impression considering the new language of § 1391.
Perhaps seeing promise in TC Heartland’s case, two amici have sought the court’s permission to file briefs in support: The Electronic Frontier Foundation (EFF) and a group of technology companies represented by the intellectual property firm Klarquist. The EFF has a decidedly pro-venue-reform agenda that would be greatly advanced by a ruling favorable to TC Heartland, so its support for the company is understandable. Likewise, the corporations represented by Klarquist’s brief, including Google, HP, Adobe, eBay, have a strong interest in seeing TC Heartland succeed and venue reform achieved.
TC Heartland’s appeal is but the latest episode in a long struggle to define the proper scope of venue for patent litigation. Currently the pendulum seems to be swinging toward more restrictive venue law, propelled in part by tech company lobbying and the resulting public scrutiny of forum-shopping. The Federal Circuit has the opportunity to dramatically accelerate this trend, giving national defendants a windfall that would dwarf any of their victories to date. Whether the court wants to revisit this issue is still an open question, but it is certain that whatever it decides, many eyes will be watching.
Michael Vincent is a J.D. candidate, 2017, at NYU School of Law.