Venue in Multi-District States

by Dennis Crouch

One post-Heartland topic of some interest is the question of proper venue in multi-district states such as Illinois, which has a northern, central, and southern district.

District vs State: The patent venue statute states that a “civil action for patent infringement may be brought in the judicial district where the defendant resides…” 28 U.S.C. 1400(b).  In TC Heartland the Supreme Court held that “a domestic corporation ‘resides’ only in its State of incorporation for purposes of the patent venue statute.”  TC Heartland LLC v. Kraft Foods Group Brands LLC, 137 S. Ct. 1514 (2017).

The problem: TC Heartland defines residence at the state level, but 1400(b) requires a district-by-district focus — “the judicial district where the defendant resides.”

In Missouri, for instance, we have an Eastern and Western District with our state capitol Jefferson City (home of the corporate registration database) situated on the Western side.  Does a Missouri corporation reside in the W.D. since that is the true birthing site of the legal corporation?; Rather does the company reside solely in the district of its HQ?; What if the company is merely registered in Missouri, but no longer operates here?; What about 1391(d)’s focus on the district of “most significant contacts”?

JudicialDistricts

The most compelling case-in-point is likely Stonite Products Co. v. Melvin Lloyd Co., 315 U.S. 561 (1942).  In Stonite the Supreme Court was interpreting a prior version of 1400(b), but confirmed that “an inhabitant of the Eastern District of Pennsylvania” could not be sued in the “in the Western District of that State” without a “regular and established place of business” in that western district.  A problem with Stonite is its cryptic language and that the prior statute used the word “inhabitant” instead of “resident.”

In the one post-Heartland decision on the subject, E.D. Tex. Judge Gilstrap disagreed with the Supreme Court’s Stonite decision – holding instead that “a domestic corporation resides in the state of its incorporation and if that state contains more than one judicial district, the corporate defendant resides in each such judicial district for venue purposes.” Diem LLC v. BigCommerce, Inc., 6:17-CV-00186, 2017 WL 3187473, at *2–3 (E.D. Tex. July 26, 2017). Distinguishing Stonite, Judge Gilstrap wrote that the particular issue was not actually before the court in Stonite but rather, “The only question presented … is whether Section 48 of the Judicial Code … is the sole provision governing the venue of patent infringement litigation.” Stonite. Gilstrap writes: 

This Court … sees no basis to impose an additional requirement, neither present in the statute nor discussed by the Supreme Court in TC Heartland, absent a clear directive to do so.

Diem (2017).

There are at least a handful of pre-Federal-Circuit court decisions as well.  Perhaps most on-point is Action Communication Systems, Inc. v. Datapoint Corp., 426 F.Supp. 973 (N.D. Tex. 1977), which disagrees with Judge Gilstrap’s decision – holding instead that under § 1400(b) a defendant resides “only in the judicial district where its principal place of business is located.” See also Samsonite Corp. v. Tex. Imperial Am., Inc., No. 3-81-1038-H, 1982 WL 52203 (N.D. Tex. Apr. 15, 1982); Sterling Drug Inc. v. Intermedics, Inc., No. A-82-CA-578, 1986 WL 15561 (W.D. Tex. Aug. 6, 1986); Cal. Irr. Servs., Inc. v. Bartron Corp., 654 F. Supp. 1 (N.D. Cal. 1985); Hydro-Clear Corp. v. Aer-O-Flo Corp., 317 F. Supp. 1317 (N.D. Ohio 1970).

A number of old decisions also support Gilstrap’s position: B.W.B. Controls, Inc. v. C.S.E. Automation Eng’g, 587 F. Supp. 1027 (W.D. La. 1984) (Under 1400(b), “venue is proper under section 1400(b), in any judicial district in its state of incorporation”; expressly refusing to follow Action Comm.); Brynes v. Jetnet Corp., No. CV-84-0-661, 1986 WL 15148 (D. Neb. June 2, 1986); Hansa Med. Prods., Inc. v. Bivona, Inc., 1987 WL 14496 (S.D. Ind. Jan. 14, 1987) (“Although there is some split of authority, as a general rule, a corporate defendant resides in all districts of the state in which it is incorporated.”).  Note here that the case law creates a substantial amount of confusing jumping back and forth between residence definitions in 1400 and 1391.

Finally, I’ll note here that 28 U.S.C. 1391(d) does address this situation –

Residency of Corporations in States With Multiple Districts.— [I]n a State which has more than one judicial district and in which a defendant that is a corporation is subject to personal jurisdiction at the time an action is commenced, such corporation shall be deemed to reside in any district in that State within which its contacts would be sufficient to subject it to personal jurisdiction if that district were a separate State, and, if there is no such district, the corporation shall be deemed to reside in the district within which it has the most significant contacts.

The problem with applying this statute is that the whole point of TC Heartland was to focus attention on the patent venue statute and away from these more general definitions.

9 thoughts on “Venue in Multi-District States

  1. This is a very unfortunate development, one of many examples of how E.D. Texas is economically damaging the rest of the State of Texas. This ruling is going to push companies who happen to be incorporated in Texas to change their state of incorporation to somewhere else, like Delaware or Nevada.

    Texas is not like Delaware, there’s not really a compelling legal reason for companies to incorporate there. People will keep incorporating in Delaware, despite venue concerns, because of its chancery court system (no juries!), its well-developed body of corporate governance, and the basic familiarity that essentially every U.S. corporate lawyer has with Delaware law.

    But Texas does not have those same benefits. Texas companies incorporate there simply because that’s where they are, and it helps the state to have its resident companies incorporated there. But a ruling like this makes an Austin technology startup with no E.D. Tex. connections vulnerable to a frivolous yet economically ruinous patent suit far away in Marshall. So the obvious impact will be for startups to incorporate elsewhere.

    This type of ruling only makes the whole state look even more inhospitable to technology startups, and the putrid reputation of E.D. Tex. for unfairness and biased (whether justified or not) it’s already starting to affect commercial real estate in communities that are on the E.D. Tex. border (like Richardson and Plano), which identify more with Dallas but are nevertheless technically on the Eastern District side of the line.

  2. Perhaps this is yet another piece of evidence showing that Congress did in fact intend for section 1391 to supplant (or at least be read in conjunction with) section 1400 and that TC Heartland was wrongly decided.

  3. BTW, another open question from TC Heartland is foreign corporation. The Court noted that in a footnote.

    Have any courts considered that since the decision?

    1. No, that’s not an “open question.” TC Heartland revived the previous body of case law on venue in patent cases. The Supreme Court long ago, in the same line of cases as Fourco, held that that foreign corporations can basically be sued in any district, see Brunette Machine Works, Ltd. v. Kockum Indus., Inc., 406 U.S. 706 (1972), and fall outside the patent venue statute. No one today is really questioning that Brunette is still good law with respect to venue in patent cases as against foreign corporations.

      This is why you’re seeing a flood of new lawsuits in E.D. Texas against foreign companies, because they’re the “safe” targets for venue purposes. (Them and Apple, who still inexplicably maintains retail stores in the Eastern District of Texas!) As to foreign defendants, the plaintiffs in E.D. Texas get the benefit of the occasional jingoism and xenophobia that trolls can exploit with juries in that district, a definite plus when you’re suing Asian defendants.

      The Silicon Valley mainstay defendants like Google are no longer viable targets for E.D. Texas venue. Trolls gotta eat, so to make up for that, the foreign corporations are just getting slammed.

  4. Thanks – an issue of particular interest for those states in which the furthest North to South or East to West districts are a long trip apart.

    1. …or (perhaps) subject to forum shopping.

      Let’s not forget that “proximity” is not always the best harbinger of Justice.

      Let’s also not forget that in regards to patents, the property right in question (if the right itself is questioned) is a Federal property right – applicable equally everywhere. If say validity is not questioned and the issue is merely infringement, then I can see why being more strict on venue might be more of a factor.

    2. Yes. Take New York, for example. From the the federal courthouse in Islip, NY (EDNY) to the federal courthouse in Buffalo (WDNY), it’s over 400 miles!

      So if there is a NY corporation based on Long Island, it can be sued in Buffalo in a patent case?

      1. It is 831 driving miles from the District Court in El Paso, Texas to the District Court in Texarkana, Texas.

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