Southeast Texas Record

Wednesday, February 19, 2020

TC Heartland v. Kraft: Awaiting a 2017 Supreme Court Decision with Potentially Significant Implications for Patent Litigation

Their View

By Rebecca Kaufman and Abby Parsons | Feb 7, 2017

Patents 09

Kaufman and Parsons are attorneys with King and Spalding.

Patent litigation continues to be concentrated in a small number of venues. Of the 4530 patent cases filed in 2016, for example, patentees chose the Eastern District of Texas more than one third of the time (1661 cases).1 In fact, patentees filed three quarters of all patent cases last year in only 10 of the 94 available venues.2

That is because patent plaintiffs have significant freedom in terms of where to file, and certain districts are historically favorable to patent plaintiffs—as evidenced by time-to-trial, success rates, and median damages awards. These venues include the Eastern District of Texas, the District of Delaware, the Eastern District of Virginia, and the Western District of Wisconsin, to name a few. As a result of the patent plaintiff’s wide discretion in selecting a venue, many defendants have no contact with a given venue other than product sales, and sometimes, relatively minor product sales.

TC Heartland LLC v. Kraft Food Group Brands LLC may change all this.3 The Supreme Court will soon answer whether 28 U.S.C. § 1400(b) is the sole and exclusive provision governing venue in patent infringement actions—with the potential to constrain a patent plaintiff’s choice of venue.

A Brief History Lesson

Originally enacted in 1897, and last amended in 1948, the patent venue statute provides that venue is proper either: (1) “in the judicial district where the defendant resides,” or (2) “where the defendant has committed acts of infringement and has a regular and established place of business.” 28 U.S.C. § 1400(b). Unfortunately, however, Congress failed to define the term “resides.” Under 28 U.S.C. § 1391(c)—a statute governing venue in civil actions generally—a corporation is deemed to be a resident of “any judicial district in which such defendant is subject to the court’s personal jurisdiction . . . .” Yet, Supreme Court precedent for many years held that section 1400(b) is the sole and exclusive provision governing venue in patent infringement actions. See Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222, 229 (1957). It further interpreted the term “resides” to mean the corporation’s state of incorporation only. Id. at 226.

In 1990, the Federal Circuit reconsidered the statutory basis for patent venue in VE Holding Corporation v. Johnson Gas Appliance Company, and ultimately abandoned the Supreme Court’s statutory interpretation set forth in Fourco.4 The VE Holding court relied upon a 1988 revision to §1391(c), where Congress stated that “[f]or 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 at the time the action is commenced.”5 Accordingly, the Federal Circuit held that the definition of “corporate residence” in section 1391(c) did, in fact, apply to the patent venue statute in section 1400(b).6 Thus, both sections 1391(c), and 1400(b) currently govern venue in patent cases.

That means a patent holder can sue an alleged infringer in any venue where the defendant is doing business. The result has been an increasing concentration of patent cases in a relatively small number of venues. Non-practicing entities (“NPEs,” referred to lovingly in the industry as “trolls”) have driven much of this phenomenon, engaged in rampant forum shopping in an effort to drive early settlements. This is particularly true in the Eastern District of Texas, where summary judgment is rare and procedural rules require defendants to expend considerable sums early in the case.

Why Patent Venue Matters

On one hand, the resulting sophistication of the “favored” venues in dealing with patent cases can be a plus. Put simply, appearing before a court with limited experience in handling patent matters can be problematic—for both parties. On the other hand, the concentration of cases in favored venues tends to overburden certain federal judges and courts, while also giving those judges and courts a disproportionate influence in shaping patent law. It seems doubtful, for example, that Congress intended a single judge (Judge Gilstrap, E.D. Tex.) to be responsible for nearly one quarter of all patent cases. Moreover, litigating in certain favored venues can significantly increase the costs for many defendants and tends to unduly influence the decision to settle.

The problem posed by patent forum shopping, particularly by patent trolls, has received considerable attention, prompting numerous proposals for reform. Yet, despite bipartisan interest, Congress has (to date) been unable to pass a legislative fix. Some interested observers look to TC Heartland as a potential solution for reducing patent troll litigation, despite the fact that the case does not actually involve a patent troll; Kraft (the plaintiff) is a food manufacturing and processing conglomerate and Heartland is an ingredient supplier. That is, both parties are practicing entities. Nonetheless, the Supreme Court could use TC Heartland to significantly reduce the concentration of patent litigation in certain district courts, in particular with respect to patent trolls. Certainly, Heartland is framing the case as a referendum of sorts on the evils of patent forum shopping. Given these facts, TC Heartland was a surprising choice for the Supreme Court to address the issue of patent venue. That said, the Court has shown increasing activism on patent issues in recent years, and TC Heartland may just be the latest example.

The TC Heartland Case

Kraft Food Brands LLC (“Kraft”) sued TC Heartland LLC (“Heartland”) for patent infringement relating to sweetener products in the District of Delaware. Kraft is headquartered in Chicago, but incorporated in Delaware.7 Heartland is a limited liability company organized and existing under Indiana law and headquartered in Indiana. Heartland moved the court either to dismiss the action or transfer venue to the Southern District of Indiana.8 In support, Heartland argued that it was not registered to do business in Delaware, had no local presence in Delaware, had not entered into any supply contracts in Delaware, or called on any accounts there to solicit sales.9 Yet, Heartland admitted that it ships orders of the accused sweetener products into Delaware under contracts with two national accounts. In 2013, these shipments accounted for about 2% (roughly $331,000) of Heartland’s total sales of the accused products that year.10 On this basis, the district court determined that it had specific personal jurisdiction over Heartland for claims involving the accused sweeteners and rejected Heartland’s arguments that Congress’s 2011 amendments to 28 U.S.C. § 1391 changed the law governing venue for patent infringement suits in a manner which nullified VE Holding.11

Undeterred, Heartland sought a writ of mandamus from the Federal Circuit, citing two legal theories: (1) it did not “reside” in Delaware for venue purposes according to 28 U.S.C. § 1400(b); and (2) the District of Delaware lacks specific personal jurisdiction.12 The Federal Circuit flatly rejected Heartland’s writ, calling its argument regarding the effect of the 2011 Congressional amendments to section 1391 to be “utterly without merit or logic.”13 Specifically, the Federal Circuit found the statutory basis of patent venue to be well settled under VE Holding, and held that Congress’s 2011 amendments to 28 U.S.C. § 1391 did nothing to change that, siding with Kraft on both points.14

The Potential Impact

If the Supreme Court overturns the Federal Circuit, patent plaintiffs will face new constraints in determining where to sue alleged infringers. We expect the impact on patent troll litigation filed in the Eastern District of Texas to be most significant, requiring hundreds of plaintiffs to file elsewhere. In comparison, the impact on practicing entities would be more limited, but we would expect that the number of cases filed in Delaware (generally) and California (high tech) would increase.

The District of Delaware, for example, already is considered a favored venue. More importantly, however, it serves as the state of incorporation for a significant percentage of U.S.-based companies, including many U.S. food and beverage manufacturers. While time-to-trial is slightly longer, and overall success for plaintiffs is slightly less in Delaware than in the Eastern District of Texas, both exceed the average for favored venues.15 Perhaps most importantly, median damages in Delaware far exceed both the average among favored venues and the Eastern District of Texas.16

If Kraft prevails, plaintiffs will continue to have significant discretion in where to file suit, unless and until Congress can pass legislative reform.

1 Data compiled from Lex Machina®.2 Id.3 In re TC Heartland LLC, 821 F.3d 1338 (Fed. Cir. 2016) (denying petition for writ of mandamus) (hereinafter “TC Heartland”), granting pet. for cert. sub nom., TC Heartland LLC v. Kraft Food Brands Group LLC, --- S.Ct. ----, 2016 WL 4944616 (Mem.) (Dec. 14, 2016).4 917 F.2d 1574, 1575 (Fed. Cir. 1990).5 Id. at 1579 (emphasis added); 28 U.S.C.§ 1391(c).6 Id. at 1584.7 See TC Heartland, 821 F.3d at 1340.8 Id.9 Id.10 Id.11 Id. at 13410-41.12 Id. at 1341.13 Id. at 1342.14 Id. at 1341.15 PWC® 2016 Patent Litigation Study at 19, available at Id.

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