Full Significance of TC Heartland Lies in Nuances of Court’s Decision

On Monday, the US Supreme Court issued an 8-0 decision in TC Heartland v. Kraft Foods Group Brands, narrowing a longstanding interpretation of the patent venue statute. Under the statute, a defendant may be sued where it “resides”. Now, a domestic corporation is deemed to “reside” only in its state of incorporation. This is significant because, until now, “resides” had been interpreted broadly, allowing plaintiffs to bring patent cases anywhere that a court had personal jurisdiction. By narrowing the term, the Court’s decision in TC Heartland could have a significant impact on where patent cases are filed—perhaps by limiting litigation in the notoriously plaintiff-friendly Eastern District of Texas, or by driving more litigation to the District of Delaware.

That said, many of the headlines about TC Heartland fail to grasp a critical point: the case did not affect the second half of the venue statute. Patent cases can still alternatively be filed where the defendant has “committed acts of infringement” and has “a regular and established place of business.” The Court’s decision left this second part intact, and leaves plenty of room for patent cases to be filed in states other than Delaware. It also leaves other questions unsettled: where do unincorporated associations reside? Where is venue proper against foreign corporations? As this Reuters story well describes, it will take some time for the dust to settle, revealing a clearer picture of the impact.

We will monitor the effects of the decision, with an eye toward the following key issues:

• “Regular and established place of business”. The patent venue statute has two prongs, and only the first prong was reinterpreted in this case. The second prong could embrace more venues than just the state of incorporation: it states that venue is proper where the defendant has “committed acts of infringement and has a regular and established place of business.” There is some precedent suggesting that lower courts will interpret this term broadly. If that happens, even companies with remote employees or retail storefronts in a particular district might qualify under the second prong. In that scenario, the Eastern District of Texas (and many others) may not be out of the game just yet.

• New venues. The net result of the decision is a narrower set of options for venue. Generally, under the new interpretation, it will be safer to choose districts where companies are incorporated (e.g. the District of Delaware) or in which they have an obvious presence (e.g. the Northern District of California, for high-tech companies).

• Foreign companies. The ruling explicitly declines to address venue for foreign corporations. They may still be subject to the same rules they have been previously, and this could limit the decision’s impact on companies incorporated outside the US. We may begin to see gamesmanship in how plaintiffs identify foreign corporations with US subsidiaries.

• Unincorporated associations. The decision also only addresses residence for corporations. Lower courts will have to determine how the decision impacts unincorporated businesses, such as LLCs. In fact, one of the court’s footnotes suggests that this might get sorted out on remand even in TC Heartland’s case, since the company is actually organized as an LLC.

• Patent reform. Congress recently attempted to pursue legislative reform on venue in patent cases. Those legislative efforts stalled, but many industry constituents still stressed the need for change. Now, with TC Heartland in the mix, Congress may have to reevaluate the urgency and wisdom of revising a statute while its meaning is in flux. Perhaps even plaintiffs will start to seek changes that give them more venue options.

As illustrated in a blog post in January, roughly 40 percent of patent lawsuits have been filed in the Eastern District of Texas in recent years. Many of those actions could be eligible for transfer; other courts should prepare for a reshuffling of some cases. But in some of those proceedings, defendants might already have waived their ability to challenge venue.

As all of these details shake out, we will be tracking the result of transfer motion practice and making a transfer alert service available. Further data and analysis of litigation activity by venue also is available on RPX Search; inquiries and suggestions for further study are welcome at reports@rpxcporp.com.