The U.S. Supreme Court judgment on forum shopping; TC Heartland LLC v. Kraft Food Brands LLC

Historically, defendants in patent infringement litigation lawsuits in the U.S. have often been sued in so-called “plaintiff-friendly” courts such as the Eastern District of Texas even when there is little or no connection between the legal issue and the jurisdiction in which they are to be litigated. This issue is known as forum shopping. Regarding this issue, the U.S. Supreme Court handed down a very important judgment on 22nd May, 2017. The judgment could make it more difficult for a patent holder to file a lawsuit in plaintiff-friendly courts. 

Facts

Kraft Food Brands LLC (Kraft), a Pennsylvania-based company, owns three patents, which cover beverage concentrates, water flavorings and packaging. Kraft filed a patent infringement lawsuit against TC Heartland LLC (TC Heartland) in the District Court for the District of Delaware. TC Heartland is incorporated in Indiana, and has its headquarters in Carmel, Indiana. It is widely known that the district court in Delaware is one of the plaintiff-friendly courts in the U.S.

TC Heartland as a defendant asked the court to either dismiss the action on venue grounds or transfer the venue to the Southern District of Indiana because TC Heartland was not registered to do business in Delaware, and had neither local presence nor supply contracts in that State. However, the court rejected TC Heartland’s request. On appeal, the Federal Circuit agreed with the District Court.

The issue

The issue before the Supreme Court relates to where a company may be properly sued for patent infringement. As for this venue issue, there are two relevant statutes in 28 U.S.C. [Judiciary and Judicial procedure]:

  1. 1400 (b) [patent venue] as the specific venue statute, and
  2. 1391 (c)(2) [venue in general] as the general venue statute.

For a long time, there had been a dispute on which statutes should be applied to the venue for patent litigation.

Venue for patent litigation is governed by §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 Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, (1957), the Supreme Court decided that the “the judicial district where the defendant resides” is limited to the state in which the defendant company is incorporated, clarifying that the general statute doesn’t override the specific statute.

However, the general statute and the case law related to it may lead to different venue. §1391 (b)(a) states that:

 “a civil action may be brought in a judicial district in which any defendant resides“.

In this regard, §1391 (c)(2) states that:

 “[a corporation] shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question”.

Regarding this statute, in VE Holding Corp. v Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), the court took the position that personal jurisdiction would be admitted in any state where a corporation was engaged in sales activity. Since most companies are considered to be engaged in sales activity throughout the U.S., §1391 (c)(2) related case law would appear to make venue proper for such company in all U.S. jurisdictions.

Supreme Court judgment

The Supreme Court held that the word “resides” in the patent venue statute (§1400(b)) “refers only to the State of incorporation of the alleged infringer.“, and the general statute (§1391 (c)(2)) does not override the patent venue statute.

Comments

The Supreme Court reinstated Fourco case and revoked VE Holding case. It is noted that recent statistics show that 38 % of all patent infringement lawsuits were filed in the Eastern District of Texas in 2016. After the judgment, it is likely that in the future many cases that would have been filed in the Eastern District of Texas will instead be brought to the District of Delaware where many companies are incorporated for historical and tax reasons.

This judgment will definitely have a considerable impact on the so-called “patent trolls”, whose business model often entails suing alleged infringers in plaintiff-friendly venues like the Eastern District of Texas in an attempt to extort settlements from alleged infringers. Patent trolls might no longer be able to take advantage of plaintiff-friendly courts.

Another interesting issue is the venue for foreign companies, which are not incorporated in the U.S. because historically suits against those companies can be brought in any district. Since the Supreme Court did not rule on this issue, further case law may be expected in the future to clarify the venue for them.

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