Supreme Court Holds That U.S. Corporations ​“Reside” Only in Their State of Incorporation for Patent Venue Purposes, But Questions Remain

Highlights and Impact:

• Yesterday in TC Heartland LLC v. Kraft Foods Group Brands LLC, the Supreme Court held 8 – 0 that a domestic corporation ​“resides” only in its state of incorporation for the purpose of determining venue in patent cases, not any judicial district in which the defendant is subject to personal jurisdiction with respect to that civil action.
• This decision will make it more difficult for a U.S. company to get sued in districts that seemingly have little connection to a given case, unless the company meets the second basis for which venue is proper in patent cases: ​“where the defendant has committed acts of infringement and has a regular and established place of business.”
• This decision may curb forum shopping and the continued proliferation of cases in districts such as the East Texas, but it only clarifies one of the two proper bases for venue in patent cases - where the defendant ​“resides.”  The other basis, ​“where the defendant has committed acts of infringement and has a regular and established place of business” was not addressed by the Court.  Venue disputes in patent cases are now likely to center on what constitutes a regular and established place of business (and as is often the case, whether merely an online presence suffices).  ). In In re Cordis, the Federal Circuit noted that the appropriate inquiry is whether a corporate defendant conducts business through a permanent and continuous presence and not whether it has a fixed physical presence, such as a formal office or store.
• Despite the ambiguity that remains, this decision is a win for U.S. companies that often found themselves sued in disadvantageous districts merely because they were subject to personal jurisdiction in those districts with regard to a given action, which is no longer enough.

The patent venue statute is 28 U.S.C. § 1400(b).  Section 1400(b) provides that, ​“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 1956, in Transmirra Prods. Corp. v. Fourco Glass Co., the U.S. Supreme Court interpreted a similar version of the statute to be the exclusive venue provision for patent suits.  In 1990, however, following minor revisions to the general venue statute under 28 U.S.C. § 1391, the Federal Circuit in VE Holding Corp. v. Johnson Gas Appliance Co. found venue choices available to patent infringement plaintiffs also included general venue definitions under § 1391.

Relying on the looser venue requirements of VE Holding, a disproportionate number of patent infringement cases have flooded venues that are widely considered to be more favorable to patent plaintiffs, even if there is very little logical connection between the case and the venue or the defendant and the venue.  This helped lead to the rise of the Eastern District of Texas as the go-to patent venue.  Due at least in part to the district’s unique local patent rules and other procedures perceived to be favorable to plaintiffs, nearly half of all high-volume ​“patent troll” infringement cases are filed in East Texas.[1]

In TC Heartland LLC v. Kraft Foods Group Brands LLC, Heartland challenged the Federal Circuit’s broad interpretation of the patent venue statute in VE Holding as conflicting with Fourco.  Though this case involved Delaware and Indiana venue options, the Supreme Court in TC Heartland narrowed patent venue to § 1400(b), reinforced a narrow definition of ​“resides” under the patent venue statute, and eliminated the option for patent infringement complaints to be strategically filed in the Eastern District of Texas under § 1391.

Facts and Procedural Background

TC Heartland LLC v. Kraft Foods Group Brands LLC involved a dispute between two companies over patented liquid water enhancer products.  Heartland is incorporated under Indiana law and is headquartered in Indiana.  Kraft is incorporated under Delaware law, but its principal place of business is also in Indiana.  Despite the common link to Indiana, Kraft filed suit in Delaware.

Heartland alleged it was not registered to do business in Delaware, had no local presence in the state, and had not entered into any Delaware-specific contracts or solicited any sales in Delaware.  Heartland did, however, admit that approximately 2% of its total sales of the allegedly-infringing product were shipped to Delaware.  The sales were made through national accounts.  Heartland moved to dismiss or transfer the action under 28 U.S.C. § 1406.

A magistrate judge determined the court had specific personal jurisdiction over Heartland for claims relating to the infringing products.  Applying VE Holding, the district court, and the appellate court, agreed with the magistrate judge and denied Heartland’s motion.  The appellate court found that because ​“resides” is not specifically defined by the patent venue statute, the general venue rules of § 1391 must be read into the statute.  Holding to a ​“settled precedent for over 25 years,” the court had jurisdiction under the patent venue statute as supplemented by § 1391.  The court also found that the minimum contacts requirement of the general venue statute granted jurisdiction over all sales of infringing products sold in the state.

Supreme Court Case

The Supreme Court granted certiorari to determine ​“whether 28 U.S.C. § 1400(b) is the sole and exclusive provision governing venue in patent infringement actions and is not to be supplemented by 28 U.S.C. §1391(c).”[2]  Heartland argued that Federal Circuit case law was contrary to the 1956 Supreme Court precedent in Fourco, limiting venue to where a company is incorporated.

Heartland argued that for more than three decades after the Supreme Court holding in Fourco, Section 1400(b) was the sole and unquestioned venue statute for patent infringement cases.  Then, following 1988 amendments to the general venue provisions in § 1391(c), where part of a provision stating ​“for venue purposes” was replaced with ​“for purposes of venue under this chapter,” the Federal Circuit ​“abruptly” abandoned the long-standing precedent in holding that § 1391 now supplemented § 1400.[3]  Kraft argued that the VE Holding decision was correctly decided following the amendments.  Additionally, the parties disagreed about the importance of 2011 amendments to § 1391 adding the clause ​“except as otherwise provided by law” as a possible limitation to the applicability of § 1391.

In its decision yesterday, the Supreme Court held that a domestic corporation ​“resides” only in its state of incorporation for purposes of the patent venue statute.”[4]  The Court walked through the history of the patent venue statute, noting that Congress had specifically ​“placed patent infringement cases in a class by themselves, outside the scope of general venue legislation” by enacting a patent-specific venue provision.[5]  The Court stated that in Fourco, the Court ​“definitively and unambiguously held that the word ​‘residence’ in §1400(b) has a particular meaning as applied to domestic corporations: It refers only to the State of incorporation.”[6]  The minor changes to the general venue statute did not indicate a clear intention from Congress to alter the venue statute for patent infringement cases.  This was especially true because the new revisions limited the general venue provision to cases where venue was not ​“otherwise provided by law.”[7]

Impacts on Patent Litigation

At oral argument, Justice Stephen Breyer pointed to numerous amici briefs ​“filled with this thing about a Texas district which they think has too many cases,” before asking ​“what’s [the Eastern District of Texas] got to do with this [case]?”[8]  Though the TC Heartland case focused on corporate entities in Delaware and Indiana, the Supreme Court decision necessarily impacted the Eastern District of Texas’s stranglehold on patent litigation.  Ever since the Federal Circuit used Section 1391 general venue provisions to supplement perceived gaps in § 1400 patent venue, patent infringement plaintiffs have used VE Holding as authority to file their cases in the Eastern District of Texas even when, for example, a defendant’s only connection to that district was a small number of online sales through the defendant’s website to customers residing in the district.

By reinforcing Supreme Court precedent and limiting ​“residence” to state of incorporation, the Court eliminated the general venue statute as a supplement to § 1400, and eliminated some options for plaintiffs in choosing where to file their cases going forward.    Following TC Heartland, parties will only be allowed to file in the Eastern District of Texas under § 1400 if the defendant has a regular and established business in the district.

Some questions remain.  While the decision limits the patent venue statute definition of ​“residency” from the general venue provisions of Section 1391, TC Heartland did little to resolve other ongoing debates about what constitutes ​“a regular and established place of business” under Section 1400.  For example, the Court did not find the 2% of sales to Delaware from national accounts was enough to establish ​“residency” under Section 1400, though it likely would have been sufficient enough under general venue provisions in Section 1391.  As a result, the TC Heartland holding may simply shift the debate from general venue ​“residency” to what constitutes a ​“regular and established” place of business.

For more information regarding this client advisory, please contact:

Michael J. Zinna
(973) 503-5964
mzinna@​kelleydrye.​com