Less than two months after oral argument, the Supreme Court issued a unanimous decision on Monday, May 22, 2017, in TC Heartland LLC v. Kraft Foods Group Brands LLC, uprooting long-standing Federal Circuit precedent regarding proper venue for patent infringement cases.  While the TC Heartland decision certainly portends a shift away from certain district courts, its effects may very well be minimal with respect to Paragraph IV litigation.

Evolution of Patent Venue Laws

The issue in TC Heartland can be traced back to the creation of a separate venue statute in 1897 for patent infringement cases.  Prior to the amendments of 1897, patent litigation cases were treated just like any other federal matter for venue purposes.

Venue refers to the proper or most convenient location for a case or trial — it is designed to keep litigation near the defendant or the site of the action that gave rise to the suit.  In 1897, Congress approved a separate patent venue statute, which defined venue to include (1) where the alleged infringer was an “inhabitant” or (2) where the defendant both committed the act(s) of infringement and maintained a “regular and established place of business.”  In 1948, Congress made a slight non-substantive revision to the patent venue statute, replacing “inhabit[]” with “resides.”  Supreme Court decisions relating to the pre-1948 and post-1948 patent venue statute determined that the patent venue statute was the exclusive venue provision for patent infringement actions and that both “inhabit” and “resides” meant the place of incorporation of the alleged infringer. Stonite Products Co. v. Melvin Lloyd Co., 315 U.S. 561, 563-66 (1942); Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 224-229 (1957).

The 1948 patent venue statute, 28 U.S.C. § 1400(b), has not been modified since its enactment.  It reads:

28 U.S.C. § 1400(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.

In contrast to the patent venue statute, the generally applicable venue statute, 28 U.S.C. § 1391, has undergone more recent revisions.  For example, in 1988, Congress expanded the location where a defendant can and should be sued.  The general venue statute modified the definition of “resides” by expanding residence to include “any judicial district in which such defendant is subject to the court’s personal jurisdiction.”  28 U.S.C. § 1391(c).  Personal jurisdiction can include places where the defendant has directed its actions, for example, where the product at issue is in the stream of commerce.

Two years after the 1988 amendment, the Federal Circuit evaluated whether the 1988 change to the general venue statute affected the patent-specific venue provision, 28 U.S.C. § 1400(b).  In VE Holding Corp. v. Johnson Gas Appliance Co., the Federal Circuit held that the term “resides” in Section 1400(b) should be interpreted using the new definition of “resides” in Section 1391(c).  The end result was to make venue proper for patent litigation anywhere the defendant is subject to personal jurisdiction rather than the more restricted definition of resides as the place of incorporation. VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990).  The Supreme Court denied certiorari. Johnson Gas Appliance Co. v. VE Holding Corp., 499 U.S. 922 (1991).

Over the last 27 years, attorneys have associated VE Holding Corp. with an increase in forum shopping — once venue became easier to establish, plaintiffs brought suit in places thought to provide advantages in terms of procedure, outcome, or otherwise.  For example, VE Holding is said to have contributed to the rise of the Eastern District of Texas as a go-to district for patent owners. See, e.g., Alisha Kay Taylor, What does Forum Shopping in the Eastern District of Texas Mean for Patent Reform, 6 J. Marshall Rev. Intell. Prop. L. 570, 575-577 (2007).  The Eastern District of Texas offers streamlined patent litigation procedures and a reputation for patent holder wins.  It is not a populous district, nor a place of incorporation or a principal place of business for most defendants.

After VE Holding, the Federal Circuit continued to field cases about patent venue.  In light of the rise of “troll” litigation, i.e., litigation by non-practicing entities (“NPE”s) filed in plaintiff-friendly forums, the Federal Circuit attempted to limit venue by finding that retaining jurisdiction in certain forums was an abuse of discretion. E.g., In re TS Tech United States Corp., 551 F.3d 1315 (Fed. Cir. 2008) (ordering transfer of case from the Eastern District of Texas to the Southern District of Ohio).  Congress also repeatedly introduced bills specifically designed to limit patent venue in an attempt to curb NPE litigation; those bills were never passed. See, e.g., Venue Equity and Non-Uniformity Elimination Act of 2016, S. 2733, 114th Cong. (2015-2016).

TC Heartland

The TC Heartland litigation allowed the Supreme Court a second chance to evaluate the merits of VE Holding Corp. (and their own opportunity to combat forum-shopping in patent litigation matters). In TC Heartland, Kraft Food Group Brands LLC (“Kraft”) brought suit against TC Heartland, LLC (“TC Heartland”) in the district court of Delaware.  TC Heartland moved to dismiss the suit or at least transfer the case — the company was incorporated in Indiana, maintained headquarters in Indiana, and less than 2% of the allegedly infringing product ended up in Delaware. See In re TC Heartland LLC, 821 F.3d 1338, 1340 (Fed. Cir. 2016).  The Delaware district court denied the motion to dismiss or transfer venue, leading to an appeal to the Federal Circuit.

On appeal, the Federal Circuit addressed the effect of another set of amendments to the general venue statute made in 2011. At that time Congress, inter alia, added language in 28 U.S.C. § 1391(a), stating that the general venue statute applied “[e]xcept as otherwise provided by law.” Id. at 1341.  According to TC Heartland, the additional language made the general venue statute inapplicable where other venue statutes existed, such as the patent venue statute of 28 U.S.C. § 1400(b). Id. The Federal Circuit rejected TC Heartland’s arguments, reaffirming the VE Holding Corp. precedent.  According to the court, the patent venue statute did not define the term “resides” and thus looking to the general venue statute for guidance would not defy the “otherwise provided by law” language added in 2011. Id. at 1341-44.

By an 8-0 vote, the Supreme Court reversed the Federal Circuit’s In re TC Heartland decision, overturning the precedent of VE Holding Corp. In its place, the Supreme Court has determined that the term “resides” for purposes of the patent venue statute should be interpreted in accordance with the Supreme Court’s 1956 decision of Fourco: residence means the state of incorporation of the defendant.  Under TC Heartland, plaintiffs alleging patent infringement must therefore file suit where the defendant resides (i.e., their state of incorporation) rather than wherever personal jurisdiction exists.  Alternatively, a plaintiff can make use of the second location for venue provided by Section 1400(b)–where the defendant has committed acts of infringement and has a regular and established place of business.

Effects of TC Heartland

The most obvious effect predicted from TC Heartland is a shift in patent litigation forums away from places like the Eastern District of Texas, where venue typically relied on very minimal ties to the district, and toward states such as Delaware, where many domestic corporations are incorporated.  An increase in inter partes review and post grant review proceedings before the Patent Trial and Appeal Board (PTAB) also may occur given that venue rules do not apply.

With respect to ANDA litigation, however, TC Heartland may not move the needle.  First, generic companies are already being sued primarily where they are incorporated.  According to recent data from Lex Machina, the vast majority of ANDA litigation matters are heard before the District Court of Delaware and the District Court of New Jersey — more than 10 times as many cases are cited in each of these districts than the next most popular venue.  Lex Machina, Hatch-Waxman/ANDA Litigation Report 2017 at Fig. 5 (showing that from 2015 to Q1 of 2017, there were 324 ANDA filings in New Jersey and 387 in Delaware compared to 30 in the Northern District of West Virginia (home to generic drug company Mylan)).

Second, the Supreme Court declined to review the Federal Circuit’s decision last year on ANDA jurisdiction. In Acorda Therapeutics Inc. v. Mylan Pharm. Inc., 817 F.3d 755 (Fed. Cir. 2016), the Federal Circuit determined that ANDA filers are subject to specific jurisdiction, a form of personal jurisdiction, in any state where they plan to market their generic product.  While TC Heartland eliminates the ability to use personal jurisdiction to establish venue, Acorda’s reasoning has implications for the second ground for venue under Section 1400(b):  where the acts of infringement have occurred and the defendant has a regular and established place of business.  In Acorda, the Federal Circuit determined that the “real world market injury” for an ANDA filing is where the generic product will be sold.  This suggests that in evaluating where the acts of infringement have occurred, the Federal Circuit may take into account the intent of an ANDA filing to infringe nationwide rather than focusing on just the filing of an ANDA with a Paragraph IV certification as the act of infringement.  This could keep litigation in more forums than simply where the Paragraph IV certification was drafted or submitted.

A third reason that TC Heartland may have a limited impact on ANDA litigation is that it explicitly did not reach any decision on where a foreign company can be sued for purposes of 28 U.S.C. § 1400(b).  Plaintiffs often file suit against both the domestic generic company and its foreign parents or subsidiaries who may have developed the product or plan to produce it.  Under such circumstances, TC Heartland is silent as to how venue should be determined in such cases.

Finally, because many ANDA litigations involve multiple generic companies, ANDA litigation may still end up in a less convenient forum. Under 28 U.S.C. § 1407, if civil actions that “involv[e] one or more common questions of fact” are pending in different districts, the actions can be transferred by the Judicial Panel on Multidistrict Litigation (“JPML”) or consolidated pretrial proceedings. Any party can request consolidation.

Overall, the distribution of patent litigation in the United States in TC Heartland likely will change to favor districts more amenable to defendants, such as where the alleged infringer has chosen to incorporate.  We will be closely monitoring ANDA forum choices, however, including the activity of the JPML, in the coming months to see if a similar shift occurs for ANDA litigation.

 

 

If you would like further information, please contact Jamaica P. Szeliga at jszeliga@seyfarth.com, Dean L. Fanelli, Ph.D., at dfanelli@seyfarth.com, or Thomas A. Haag, Ph.D., at thaag@seyfarth.com.