Patent Venue at the Supreme Court: Correcting a 26 Year Old Legal Error

TC Heartland v. Kraft Foods (Supreme Court 2016) [Petition for Writ of Certioari]

Patent litigation continues to be concentrated in a small number of venues.  This case is potentially a big deal because it could eliminate this concentration — especially patent cases in the E.D.Texas.  Both the PTO and Congress appear in favor of venue reforms, but statutory reforms will likely wait until the Supreme Court decides TC Heartland.

Background: The scope of patent venue is codified in 28 U.S.C. § 1400(b) and limits venue to judicial districts “where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.”  At first glance, this venue statute would seem to significantly limit venue — For instance, few patent infringement defendants actually reside or have a place of business in the E.D. Texas.  That narrowness was confirmed in the Supreme Court’s decision in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957).  The issue in Fourco Glass involved the parallel statute of 28 U.S.C. § 1391 (titled “Venue generally”) that broadly defined a corporation’s residence to include “any judicial district in which it is … licensed to do business or is doing business.” Despite the seeming broadening statutory definition, the Supreme Court held that the more general Section 1391(c) could not be used to expand venue beyond what was contemplated in Section 1400(b).  Rather, the court held that “where the defendant resides” in § 1400(b) is limited to “the state of incorporation only.” Fourco Glass.

We hold that 28 U.S.C. § 1400(b) is the sole and exclusive provision controlling venue in patent infringement actions, and that it is not to be supplemented by the provisions of 28 U.S.C. § 1391(c).

Id.

In 1988 Congress amended 1391(c) to expand the definition of residency “for all venue purposes” to include “any judicial district in which such defendant is subject to the court’s personal jurisdiction.” Based upon that change, the Federal Circuit determined in 1990 that Fourco Glass had been implicitly overruled and that the new provision of 1391(c) now does redefine and greatly expand Section 1400(b) even though the legislative history of the 1988 amendment did not discuss patent venue. VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990).

The chart below from the cert petition shows the 1988 statutory change that the Federal Circuit found sufficient to indicate an overruling of Fourco Glass.

1391cComparison

It is this 1990 combination of 1400(b)/1391(c) that is now the status quo – venue is proper in any any federal court that has personal jurisdiction over the accused infringer.*

TC Heartland challenges the VE Holding interpretation offering broad venue.  It writes:

The question in this case is thus precisely the same as the issue decided in Fourco: 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).

The Supreme Court previously decided patent venue in Stonite Products Co. v. Melvin Lloyd Co., 315 U.S. 561 (1942) and also held that the specific patent venue provisions should prevail and remain unmodified by the general venue provisions.

I’ll be happy if TC Heartland wins because it will make it much easier for me to watch patent cases here in Missouri.

The new petition is filed by James Dabney and John Duffy who were the forces behind KSR v. Teleflex.

= = = = = =

* The one major caveat is that Congress again amended 1391(c) in 2011 and the associated legislative history suggests a Congressional recognition that “VE Holding is the prevailing law.”  Update and Correction – On suggestion from a reader, I followed chased down the above quote – it does not actually come from the Congressional Record but instead is Judge Moore’s conclusion found in the TC Heartland case.  The opinion states:

In fact, before and after these [recent] amendments, in the context of considering amending the patent venue statute, Congressional reports have repeatedly recognized that VE Holding is the prevailing law.

For its conclusion, the court cites several Congressional reports that I have not read: “See H.R. Rep. No. 110–314, at 39–40 (2007); S. Rep. No. 110–259, at 25 (2008); H.R. Rep. No. 114–235, at 34 (2015) (stating that “Congress must correct” our holding in VE Holding by amending § 1400); cf. Venue Equity and Non-Uniformity Elimination Act of 2016, S. 2733, 114th Cong. § 2(a) (2016).”  An important note with this is that the court did not identify any record contemporaneously with the 2011 report that suggests a conscious choice to keep VE Holding as the prevailing law.

About Dennis Crouch

Law Professor at the University of Missouri School of Law. Co-director of the Center for Intellectual Property and Entrepreneurship.

33 thoughts on “Patent Venue at the Supreme Court: Correcting a 26 Year Old Legal Error

  1. The Supreme Court will definitely take a look at this case. The point of the Fourco rule was to prevent the kind of forum-shopping that existed before and has existed since (particularly given the Federal Circuit’s embrace of a far-too-broad “stream of commerce” theory for patent infringement that creates de facto nationwide personal jurisdiction in most patent suits).

    As an aside, am I right that because this was an appeal from a mandamus petition, the title should be TC Heartland v. U.S. District Court?

    1. (particularly given the Federal Circuit’s embrace of a far-too-broad “stream of commerce” theory for patent infringement that creates de facto nationwide personal jurisdiction in most patent suits)

      Why is that objectionable?

      (patents are a Federal animal and are nationwide enforceable, right? Or do you think that both sides of the coin should not be treated equally?)

      1. Well, there are actual a few pretty on-point cases:

        1. Quill v. North Dakota that explicitly rejects that premise with respect to taxation. A lot of states hate Quill because it makes it harder for them to raise their tax rates (this alone should convince you of its correctness).

        2. Asahi Metal Industry Co. v. Superior Court, this more or less indicates that the stream of commerce theory isa violation of due process.

        1. Alex, we are talking here about State long arm statutes. When the issue is framed as to whether there is a violation of due process to bring suit against the infringer of

          a United States patent

          in

          the United States of America,

          I hardly think there is a violation of due process.

      2. Because personal jurisdiction is determined by whether you have minimum contacts with that particular state. In a products liability case, merely selling a product that is distributed nationally while intending to sell it nationally does not give rise to personal jurisdiction everywhere. That’s McIntyre v Nicastro. But the Federal Circuit really applies the weak stream of commerce test from one set of 4 Justices in Asahi, which is certainly not the law. They also apply a watered down version of “stream of commerce plus” from the other 4 Justices in Asahi. That’s how you get de facto national personal jurisdiction over ANDA cases, for example, with the Mylan decision this year.

        1. Guest, I do not think you thinking clearly, either that or there is something fundamentally flawed with the Federal Circuit jurisprudence in this area.

          There is an entirely different question between whether a state, a particular state, can exercise judicial power over a person, and whether Congress can provide jurisdiction in its courts anywhere in the land with respect to a United States patent with respect to infringement of the patent.

          Can we not establish a national patent court and locate it in the District of Columbia? Would that violate due process?

          What if Congress only provided one District Court in the whole of the United States? What if they located that District Court in the District of Columbia. Would that violate due process?

          There is something fundamentally flawed with the thinking here.

          The territory we are looking at is the United States, not a particular state. What is involved here is United States patent and United States District Court’s. Congress can locate the District Court’s anywhere without violating due process with respect to federal causes of action. The hold otherwise is nonsense. Congress would be forced to create District Court here and there and everywhere simply to make it convenient for infringement defendants. That is ridiculous.

          1. Also, the issue here is venue, not personal jurisdiction. The CAFC’s decisions in VE Holding and TC Heartland are based on the fact that there is personal jurisdiction over the defendant in the forum. Therefore, once you get to the venue question, there is no longer an issue of due process.

            Whether the CAFC is correct in its personal jurisdiction analysis (e.g., stream of commerce) is a completely different question from its analysis and application of the venue statues.

            1. While that is certainly true, the combination of the reading of the venue statute with the expansive reading of the stream of commerce has caused the concentration of cases in E.D. Texas.

              1. Or maybe it is the Texas court operating within its “discretion” but in a way that draws desire to be there that is causing this.

                Maybe we should have more bright line rules and less court discretion to help change this.

                What do you think the Supreme Court would say to that?

                😉

          2. This is a matter of the Federal Rules of Civil Procedure, Rule 4(k). For most cases, Rule 4(k)(1) applies, and limits the question to whether a state court in the state (or district) in which the District Court sits could exercise personal jurisdiction over the defendant in a way that is consistent with the state long-arm statute and the U.S. Constitution. That’s the default rule at present. Rule 4(k)(2) only applies for foreign corporations that would not otherwise be subject to a state long-arm statute (which is rare).

            Both the Judicial Conference and Congress could absolutely set a different rule for patent cases than the current Rule 4(k), but they have chosen not to.

            Because the only limit on venue is that a party is subject to personal jurisdiction (which is the Rule 4(k) question), the expansive reading of the stream-of-commerce test is the cause of the flood of cases in E.D. Texas

            (k) Territorial Limits of Effective Service.

            (1) In General. Serving a summons or filing a waiver of service establishes personal jurisdiction over a defendant:

            (A) who is subject to the jurisdiction of a court of general jurisdiction in the state where the district court is located;

            (B) who is a party joined under Rule 14 or 19 and is served within a judicial district of the United States and not more than 100 miles from where the summons was issued; or

            (C) when authorized by a federal statute.

            (2) Federal Claim Outside State-Court Jurisdiction. For a claim that arises under federal law, serving a summons or filing a waiver of service establishes personal jurisdiction over a defendant if:

            (A) the defendant is not subject to jurisdiction in any state’s courts of general jurisdiction; and

            (B) exercising jurisdiction is consistent with the United States Constitution and laws.

            1. Thanks Guest. So this really is “rules” question and not a genuine due process question; and because the rule in question is focused on whether a state court has jurisdiction over a defendant, and that is the same question for the general venue statute, the rule and the general venue statute are aligned.

              But it seems to me that this is not a due process question from the federal point of view, but rather a venue question. The ultimate venue chosen should be the venue that is most convenient to the parties. This should be decided on a case-by-case basis after the lawsuit has been filed.

              1. It is a due process question because it asks whether a court of general jurisdiction in that state could exercise personal jurisdiction over that party in a way that is consistent with due process. But certainly, as the McIntyre v. Nicastro plurality opinion pointed out, you might be able to ask whether the United States writ large could exercise personal specific personal jurisdiction over a party – but that’s not how FRCP 4(k)(1) is written. And ultimately, it’s hard to justify how merely selling a product into the United States and targeting the entire US market should subject you to PJ in any federal court nationwide.

                Going to your other point, certainly the main point to be considered should be convenience of the forum. But I don’t think anyone would argue that the Eastern District of Texas is a convenient forum. Frankly, nor is Wilmington, Delaware (even though it could exercise general personal jurisdiction over most corporate defendants by virtue of its favorable corporate law). The problem is that once you get into a forum, the plaintiff’s choice of forum gets deference (significant deference in D. Del.). So it’s not about convenience, really.

                1. it’s hard to justify how merely selling a product into the United States and targeting the entire US market should subject you to PJ in any federal court nationwide.

                  Not hard at all when you consider the Federal nature of the patent (hint: it reaches everywhere in the Sovereign).

                  Or are we for some unknown reason not considering that?

                2. If Congress wants to treat patent suits differently, they have the power; they have chosen not to do so for PJ purposes. As has the Judicial Conference. So long as patent suits are like all other cases, they are bound to Rule 4(k)(1). And if that applies, it should apply to all cases the same way.

                3. Great – but the underlying issues remains a Federal matter – I keep on bringing this point up, and you keep on sliding away from the emphasis on Federal, and instead want to say the “patent” will be treated like some “State” matter – this is not a “State” versus “patent” comparison, this is as “Federal” and “patent” comparison.

                  The thrust then of “If wanted to treat patent differently” misses the emphasis that we are not talking about a State reach at all.

                4. Guest, tried putting the shoe on the other foot. Assume an American company is selling infringing products into Germany. Could we claim fundamental denial of due process if the German patent owner sued the American company in a German court? Do we have as Americans any particular right to have the suit brought in any particular German state? No we do not.

                  It makes no sense to say that the Germans cannot provide courts anywhere wants to in Germany for litigating patent infringement in Germany. So flip that. Why would it make any difference whatsoever where the American sues the German for patent infringement. None. It is not a denial of due process. And would not be a denial of due process for the American to sue the American anywhere in United States for patent infringement.

                  This is strictly a venue question and a federal rules question. Clearly the federal rules are anachronistic and need to be fixed.

              2. That is correct, but the venue rules of the Federal Courts exist because of Congress’s and SCOTUS’s recognition that the personal jurisdiction rules don’t only exist so that states don’t act in a power-hungry manner, they also act as a recognition that all courts are not the same, in practice.

                First, they understand that even though District courts are ostensibly Federal entities, the judges (and juries) that sit there are humans with local interests; and

                Second, they recognize the real costs associated with out of state litigation that contradict the interest of justice.

                Current patent venue practice stands in direct contradiction to all of the principles of the FROCP except for what is ostensibly supposed to be the tiebreaker of “plaintiff’s choice”.

                1. Alex,

                  It still comes down to whether or not any one district is acting within its discretion.

                  It still comes down to the opposite push by the Supreme Court NOT to have “bright line rules” and ALLOW lower court discretion.

                  Is the Texas court acting within its discretion or not?

                  If so, then you MUST deal with it.

                  If not, then the answer is NOT this attempt to change and control venue through a new law, but rather, the answer is in fixing the existing wayward court, and then applying that fix to all courts.

    2. Guest, The point of the Fourco rule was to prevent the kind of forum-shopping that existed before …

      Mr. Guest, I do not believe you really know what you talking about. Back in the late 1800s, Congress passed a specific statute to govern patent venue because of “abuses,” but for the life of me I cannot find out what those abuses were. Certainly the Fourco case was not about abuses of some prior venue statute, but strictly whether a general vendor statute was intended to replace or modify the specific patent venue statute.

      Like I said, could not find anything about the abuses that Congress was addressing in the late 1800s. But if you know what they were, please inform us.

  2. Put aside for a moment the issue of statutory interpretation and the interplay of multiple statutes.

    Why, as a matter of policy, should venue in a patent case be different than in any other case? In any case where a company ships goods to another state, then it is established that it is subject to suit for any claim arising out of those goods — trademark, copyright, product liability, breach of contract or warranty (assuming there has been no contractual limitation of venue). What is special about patent cases that requires a different rule?

    1. That is an interesting question. I may be wrong on this, but based on my quick reading of Stonite Products v. Melvin Lloyd Co., 315 U.S. 561 (1943), it appears that the original policy reason to adopt a specific patent venue statute was to bring patent venue more in line with the venue rules in other cases in Federal court, and not necessarily to make patent venue more restrictive as compared to other cases.

      According to Stonite, the original judiciary act of 1789 allowed cases to be brought in any forum where the defendant was an inhabitant or where he was found. This led to “abuses,” which triggered an 1887 Act, which limited venue to only the district of which the defendant was an inhabitant (or the district of plaintiff’s or defendant’s residence in diversity cases).

      Subsequent Supreme Court cases, however, held that the 1887 Act was not applicable to patent cases because exclusive jurisdiction over patent cases had been granted to the circuit courts, and general provisions regulating the courts of the United States (like the 1887 Act) did not apply. Therefore, despite the more restrictive venue provisions in non-patent cases, courts held that infringers could be sued wherever they could be found.

      According to Stonite, the Act of 1897 (which included the specific patent venue statute) was adopted to define the exact jurisdiction of courts in patent cases and eliminate the confusion as to whether the 1887 Act applied. So the original patent venue statute in the 1897 Act allowed suit to be brought in the district of which the defendant is an inhabitant (as with the general venue statute applicable to non-patent cases) and also in any district where the defendant committed acts of infringement and has a regular and established place of business.

      It seems that when the patent venue statute was enacted, it paralleled the general venue statutes (setting aside diversity and multi-defendant cases) in that it limited venue to districts of which the defendant was an inhabitant, and slightly expanded venue to districts where infringement occurred where the defendant had a regular and established place of business. It appears, however, that as the general venue statutes were amended to expand venue options, the more specific patent venue statute did not keep up. At least until VE Holdings.

      1. Pilgrim, excellent summary. It tells us that the “abuses” were regarding the general of venue statute passed in 1789 and that reform had nothing specifically to do with abuses in patent infringement cases. Even after the general venue statute was amended to limit venue, the courts did not believe that it applied to patent cases. This doubles down on the conclusion that the abuses being addressed in the 1887 general venue reform statute had nothing to do with patent cases.

        It is interesting to note that the specific patent statute enacted in 1897 was an attempt to clarify that the general venue statute of 1887 applied to patents.

        Viewed in this light, from a policy point of view, patent venue should not have a special statute for it because the point of 1897 statute was to clarify that patent cases should follow the general venue statute.

        The courts, and Congress, should be guided by this history. Kudos to Pilgrim.

        1. Again, my interpretation is based only on a quick reading of Stonite, but it seems Congress might be guided by this history to say patent venue shouldn’t be treated differently from general venue. But courts have to face the fact that in 1897, Congress chose to address the problem of patent venue not by making the general venue provisions applicable to patent cases, but by creating a specific venue statute.

          Also, despite what the original intent of the 1987 act might have been, the Supreme Court has repeatedly found (Stonite, Fourco) that expansions in venue for general civil cases are not applicable to the specific patent venue statute. As stated in Stonite, “That purpose [of the 1897 Act] indicates that Congress did not intend the Act of 1897 to dovetail with the general provisions relating to the venue of civil suits, but rather that it alone should control venue in patent infringement proceedings.”

          1. Right. And the Court has explained in a footnote in a recent case that “Section 1391 governs “venue generally,” that is, in cases where a more specific venue provision does not apply. Cf., e.g., §1400 (identifying proper venue for copyright and patent suits).”

            The question is how do those provisions interplay – is it the longstanding understanding before VE Holding, or did the changes in 1391 really change it? That’s why this is a ripe question for the Court to hear, because it’s a pure statutory interpretation question that happens to have a practical effect.

  3. Dennis, shouldn’t the cite to VE Holding be like this:

    VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed.
    Cir. 1990), cert denied, 499 US 922 (1991)

    given that this is essentially the second time the very same issue is being referred to the Supreme Court? I think part of the reason that Congress might have thought this issue settled.

  4. “I’ll be happy if TC Heartland wins because it will make it much easier for me to watch patent cases here in Missouri.”

    I know right? Congress seems to think it fair that some venues will be bereft of all the patent litigation spectating.

  5. Actually, the one major caveat is that in 2011, Congress removed the very language that the Federal Circuit said overruled Fourco. If we’re going to infer anything from that, it should be that Congress intended to restore Fourco’s holding. But the Federal Circuit somehow concludes that even though very specific statutory language was required to overrule the higher court’s interpretation, even with that language gone, once overruled, always overruled. There’s no reasonable way to distinguish the current statute from the Court’s reasoning in Fourco.

    1. No, the 2011-amended 1391(c) is arguably even broader, since it begins “For all venue purposes…” not merely “For purposes of venue under this Chapter…”

      I frankly don’t see how you can construe “all” to be limited to less than all, and Bob Matthew’s legislative history appears to seal the deal. Then again, once the Supreme Court gets involved…

      1. The language you quote is cabined by, “Except as otherwise provided by law . . .” The Supreme Court has already determined that venue in patent cases, including the definition of residency, is “otherwise provided by law.” VE Holding recognized that and the decision hung on very specific language–that isn’t there anymore.

  6. Although not expressly mentioning VE Holding, the 2011 legislative history further explains “proposed subsection 1391(c) would apply to all venue statutes, including venue provisions that appear elsewhere in the United States Code.” H.R. Rep. 112-10, H.R. Rep. No. 10, 112th Cong., 1st Sess. 2011, 2011 WL 484052, at *18 (Feb. 11, 2011). Thus, the rationale applied in VE Holding Corp., that § 1391(c) supplements the patent venue statute, arguably appears to be confirmed by the 2011 amendments to § 1391.

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