U.S. Supreme Court Significantly Limits Where Patent Lawsuits Can Be Filed

By Mitchell S. Feller

On May 22, 2017, the U.S. Supreme court issued an anxiously awaited decision addressing where patent patents lawsuits can be filed. The unanimous decision, TC Heartland LLC v. Kraft Foods Group Brands LLC, significantly narrows the options available for selecting where to sue. Since 1990, companies that offered their products to customers across the country could be sued anywhere in U.S. even if the company’s only contact was shipping a small amount product there. Under Supreme Court’s new decision, a company can be sued for patent infringement only (i) in the state where they are incorporated or, (ii) a jurisdiction where they have a regular office and where alleged infringing acts occurred. Although there are still many subsidiary issues that will need to be addressed, one result of this decision is to undo a decade’s long concentration of patents suits filed in East Texas, a place where many companies have no presence but which is viewed as having rules and juries favorable to patent owners. A more detailed discussion of the history and impact of this decision follows.

Under U.S. law, lawsuits can only be filed in a federal district court located in places that meet certain venue requirements. There is a special venue statute for patent cases. This statute provides that a patent suit can be filed where the defendant either (a) “resides”, or (b) “has committed acts of infringement and has a regular and established place of business” and, under a 1957 Supreme Court decision, a company “resides” where it is incorporated. Until 1990, these two choices defined the only venues available for bringing patent lawsuits. In 1990, the Federal Circuit, the appellate court that hears all patent-related appeals, held that an amendment Congress made to a more general venue statute also meant that the special patent venue statute was no longer the exclusive one for patent suits. Instead, the more general venue statute also applied. This decision allowed patent lawsuits to be filed wherever an infringement occurred. For companies that sell products across the country, even if only by mail, this meant that they could be sued anywhere regardless of where they or the plaintiff were located.

One result of this essentially nation-wide venue has been the extreme concentration of patent lawsuits filed in the Eastern District of Texas. Part through historical accident and partly through design, the Eastern District of Texas (“EDTX”) is viewed as particularly friendly for patent owners. It became the go-to district for patent plaintiffs – particularly non-practicing entities whose business is buying and enforcing patents (a/k/a “patent trolls”). In 2015, over 40% of patent cases filed in the U.S. were filed there, many of them ending up before a single judge in the small town of Marshall Texas, population 24,000. Delaware was a distant second, with about 10%.

When TC Heartland was sued by Kraft in Delaware for infringing a patent on an artificial sweetener, Heartland argued that it had no contacts in Delaware beyond shipping a small percentage of its product to stores there and that the case should be dismissed or transferred to Indiana where it was incorporated and headquartered. It argued that that a 2011 amendment Congress made to the Federal Rules of Civil Procedure undid the reasoning relied on by the Federal Circuit in 1990 and that the limited venue rule and the Supreme Court’s definition of “resides” as meaning “place of incorporation” were the only rules that should be applied in patent cases. The district court and Federal Circuit both flatly rejected this argument. The dispute drew wide attention because of the potential impact a victory by Heartland rule would have on where alleged infringers could be sued, and by extension, the impact on the concentration of patent troll lawsuits in the EDTX. When Heartland appealed to the Supreme Court, nearly 40 third party briefs were filed on behalf of hundreds of companies and organizations to give their views of the issues. Most of them were in favor of limiting where defendants in patent cases could be sued.

In its unanimous decision, the Supreme Court reversed the Federal Circuit and emphatically held that the special patent venue statute was the only one that applied to patent cases and that the definition of “resides” as meaning where a company is incorporated also applied. The immediate impact of this decision will be a severe curtailing of patent cases filed in the EDTX because many companies do not have offices there. The number of cases filed in Delaware is likely to rise significantly because of the number of companies registered there. Likewise, cases in the Northern District of California are likely to go up because of concentration of high-tech companies in the region.

Over the past few years, Congress has considered several ways to curtail abusive patent enforcement practices. While legislative fixes may still be discussed, this decision is likely to take some of the pressure off for immediate action. However, many subsidiary issues about venue remain to be addressed and attorneys will have to revisit issues that have not been given attention for nearly thirty years.