Recent Supreme Court Decision Constrains Forum Shopping in Patent Infringement Cases

Until recently, if you were a plaintiff and wanted to bring a patent infringement claim, you could file suit almost anywhere. That has now changed.

The United States Supreme Court recently limited where patent cases can be filed against corporate defendants. In TC Heartland, the Supreme Court clarified that patent infringement lawsuits can be filed only where: (1) the defendant is incorporated (this is a change from prior law); and (2) the place in which a defendant has committed acts of infringement and has a regular and established place of business (this is consistent with prior law).

The long-term impact of the TC Heartland case is still to be determined. So far, we know plaintiffs bringing patent infringement cases will not be able to simply pick the Eastern District of Texas (a very plaintiff-friendly venue). We also have seen a flurry of motions filed in ongoing cases because defendants can now argue that their cases should be transferred to the state in which they reside.

As the law covering this issue evolves, we will continue to monitor court decisions for our clients. See below for a detailed analysis of cases and court decisions that are shaping the selection of venue for patent litigation matters.

What does this mean to my company?

• You may be able to have the case transferred to your local venue.
• It’s now more likely that new cases are filed in defendant’s home court.

Why would I want to change venue on an ongoing matter?

• Home court advantage
• Save defendant time and money
• Requires that plaintiff engage local counsel
• Pressures plaintiff to reasonably settle the case

Case Analysis

TC Heartland Overview

Federal law dictates where a patent infringement action may be filed. The patent venue statute, 28 U.S.C. § 1400(b), provides that “[a]ny 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.” For nearly thirty years, federal courts applied the general venue statute’s residence standard —that a corporate defendant “resides” wherever a corporation is subject to personal jurisdiction — to Section 1400(b). See VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1578 (Fed. Cir. 1990). This meant that a single sale or offer for sale of an allegedly infringing item in a jurisdiction was sufficient to establish both personal jurisdiction over the defendant and venue over the matter even if the defendant had no other presence in the jurisdiction. This broad application of the venue rules created the opportunity for patent owners to file suits in patent favorable jurisdictions such as the Eastern District of Texas.

On May 22, 2017, the United States Supreme Court significantly limited where patent cases can be filed against corporate defendants. Now, Section 1400(b)’s “resides” prong refers only to a defendant’s “State of incorporation.” As a practical matter, TC Heartland significantly limits where patentees can file suit. Now, in order to get into a patent-favorable jurisdiction, plaintiff will need to demonstrate that the defendant is incorporated in the desired State (e.g., Texas) or has a “regular and established place of business” within the desired judicial district (e.g., Eastern District of Texas).

The TC Heartland opinion has impacted pending patent cases. Since TC Heartland was decided, a number of patent cases have been transferred from the court in which the case was filed to a court where the defendant resides.[i] But the application of TC Heartland raises some significant issues, including:

• In pending cases, did the defendant waive the venue defense by not raising it even though such a challenge would have been futile under prior Federal Circuit precedent (VE Holding)? In other words, was TC Heartland a change in the law sufficient to avoid waiver?
• What is a “regular and established place of business” sufficient to establish proper venue?

Post-TC Heartland, Courts Must Grapple With Issues of Waiver.

We have seen a flurry of activity in pending cases with defendants arguing that venue is no longer proper in their case in light of TC Heartland. In each case, the courts have had to determine whether the defendant waived a right to challenge venue by not raising it at the outset of the case. Under the Federal Rules of Civil Procedure, certain defenses — including venue — must be raised early in a case or they were deemed waived. In early post-TC Heartland decisions, courts found that defendants waived venue by failing to raise the defense at the outset of the case.See Cobalt Boats, LLC v. Sea Ray Boats, Inc., 2017 WL 2556670, Civil Action No. 2:15cv21. (E.D. Va. June 7, 2017). In Cobalt, the district court denied a motion to dismiss based on improper venue that the defendant filed just two weeks before the trial was scheduled to begin.Id.Other cases similarly denied motions to dismiss/transfer based on the defendant’s waiver of that defense in its initial pleadings.[ii]

More recently, a number of district courts have reached the opposite conclusion, finding that defendants did not waive an improper venue defense because TC Heartland changed the law. Because the Federal Circuit’s decision in VE Holding had been accepted as settled law for decades, these district courts have held that a defendant did not waive a venue challenge by not raising it in its initial pleadings:

TC Heartland changed the venue landscape. For the first time in 27 years, a defendant may argue credibly that venue is improper in a judicial district where it is subject to a court’s personal jurisdiction but where it is not incorporated and has no regular and established place of business. Defendants could not have reasonably anticipated this sea change, and so did not waive the defense of improper venue by omitting it from their initial pleading and motions.

Westech Aerosol Corp. v. 3M Co., 2017 WL 2671297, Case No. C17-5067-RBL (WD WA June 21, 2017). While Westech was the first case to reject waiver, other cases soon adopted similar reasoning.[iii]

The Court of Appeals for the Federal Circuit has not yet addressed whether TC Heartland constituted a “change” in the law in spite of two opportunities to do so.[iv]Given the split among district courts on the issue of waiver, we anticipate that the Federal Circuit will step in soon to resolve the dispute.

What Constitutes a “Regular and Established Place of Business”?

Post-TC Heartland, courts have also had to grapple with how the “regular and established place of business” prong of Section 1400(b) should be defined. In Raytheon Co. v. Cray, Inc., 2017 WL 2813896, Civil Action No. 2:15-cv-1554-JRG (E.D. Tex. June 6, 2017), the district court in the Eastern District of Texas adopted a four-part “totality of the circumstances” test to determine venue. The factors include: (1) physical presence, (2) defendant’s representations, (3) benefits received, and (4) targeted interactions with the district. Significantly, the court rejected the notion that a “fixed physical location” in the district was necessary to establish a regular and established place of business in the venue. The court found that venue was appropriate because Cray had one sales executive who lived in and conducted sales activities from the Eastern District for seven years.[v]Other courts have disagreed, holding that (1) a corporate officer’s residence in the district was insufficient to establish venue;[vi] and (2) participation in a trade show was insufficient to establish venue.[vii]

The Raytheon v. Cray decision is currently on appeal to the Court of Appeals for the Federal Circuit. Cray has filed a writ of mandamus, arguing that the mere presence of its sales executive in the Eastern District of Texas is insufficient. Briefing on the writ is complete, and a decision is expected at any time. We hope that the Federal Circuit’s ruling will bring some clarity to the rules to be applied in the venue analysis.

[i]Simpson Performance Prods., Inc. v. NecksGen, Inc., No. 5:16-cv-00153, 2017 WL 3616764 (W.D.N.C. Aug. 23, 2017); Simpson Performance Prods., Inc. v. Mastercraft Safety, Inc., No. 5:16-cv-00155, 2017 WL 3620001 (W.D.N.C. Aug. 23, 2017); Ironburg Inventions Ltd. v. Valve Corp., No. 1:15-cv-4219, 2017 WL 3307657 (N.D.Ga. Aug. 3, 2017); CG Tech. Dev., LLC v. FanDuel, Inc., No. 2:16-cv-00801, 2017 WL 3207233 (D. Nev. Jul. 27, 2017); Cutsforth, Inc. v. LEMM Liquidating Co., LLC, No. 12-cv-1200, 2017 WL 3381816 (D. Minn. Aug. 4, 2017); OptoLum, Inc. v. Cree, Inc., No. 16-03828, 2017 WL 3130642 (D. Ariz. July 24, 2017); Hand Held Prods., Inc. v. Code Corp, No. 2:17-167, 2017 WL 3085859 (D.S.C. July 18, 2017).

[ii]Infogation Corp. v. HTC Corp., No. 16-CV-01902-H-JLB, 2017 WL 2869717, at *4 (S.D. Cal. July 5, 2017);Amax, Inc. v. ACCO Brands Corp., No. CV 16-10695-NMG, 2017 WL 2818986 (D. Mass. June 29, 2017); Elbit Sys. Land & C4I Ltd. v. Hughes Network Sys., LLC, No. 2:15-CV-00037-RWS-RSP, 2017 WL 2651618, at *20 (E.D. Tex. June 20, 2017).

[iii]See supra fn.i; see also Nitto Denko Corp. v. Hutchinson Tech. Inc., Civil Action No.: 16-cv-3595-CCC-MF (D. N.J. Aug. 22, 2017) Document 105 at 3 (“While in the wake of TC Heartland, some courts, often faced with more advanced proceedings, have found defendants’ venue defenses waived, this Court finds the string of cases reaching the opposite conclusion more compelling.”)

[iv]See In re Hughes Network Sys., LLC, 2017 WL 3167522 (Fed. Cir. Jul. 24, 2017) (declining writ of mandamus to direct district court to transfer case in view of TC Heartland, but “[w]ithout necessarily agreeing . . . that the Supreme Court’s decision in TC Heartland did not effect a change in the law”); In re Sea Ray Boats, Inc., 2017 WL 2577399 (Fed. Cir. Jun. 9, 2017) (declining writ of mandamus to direct the district court to transfer the case in view of TC Heartland).

[v] The District Court for the Eastern District of Texas recently applied the four-factor analysis and concluded that the presence of two sales representatives in the district was sufficient to establish venue. See Kranos IP Corp. v. Riddell, Inc., Civil Action No. 2:17-cv-443-JRG, 2017 U.S. Dist. LEXIS 138108 at *23 (E.D. Tex. Aug. 28, 2017). The court transferred the case, however, because it found that the Eastern District of Illinois was a more convenient forum. Id. at *24 (“In many cases, even where venue is found to be proper in this District, the reality remains that another district may nonetheless be a clearly more convenient venue. Such is the case here.”).

[vi]Prolacta Bioscience, Inc. v. Ni-Q, LLC, Case No. CV 17-04071 SJO (Ex) (August 7, 2017) (Page ID #: 506) at 8-9.

[vii]See Percept Technologies v. Fove, Inc., No. 2:15-cv-02387, 2017 WL 3427971 (D. Nev. Aug. 8, 2017) (finding that defendant’s attendance at a trade show conference and sale of a product to a Nevada resident is in sufficient to satisfy Section 1400(b)).