Tag Archives: Venue

Supreme Court Reins In Patent Venue

by Dennis Crouch

In TC Heartland LLC v. Kraft Foods Group Brands LLC, the Supreme Court has significantly shifted the balance away from the geographically fringe Eastern District of Texas – holding that the residence requirement of 28 U.S.C. § 1400(b) refers only to a defendant’s State of Incorporation for patent infringement venue purposes.

Read the Decision: 16-341_8n59.

The short (10-page) unanimous opinion authored by Justice Thomas reaffirms the court’s prior decision in Fourco Glass Co. v. Transmirra Products Corp., 353 U. S. 222, 226 (1957) — holding again that “for purposes of §1400(b) a domestic corporation ‘resides’ only in its State of incorporation” and rejecting the notion that a much broader definition of venue (found in §1391) applies.

Although the Supreme Court law appears continuous.  The Federal Circuit created a major blip in its 1990 decision of VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574 (1990).  In that case, the appellate court held that patent infringement venue is proper in any court having personal jurisdiction over the defendant.  That expansive change allowed for the rise of patent-focused venues such as the Eastern District of Texas where the majority of infringement lawsuits have been filed over the two decades (heat map below). PatentLawPic984

What next:  Section 1400(b) limits patent cases to the judicial district (1) “where the defendant resides,” or (2) “where the defendant has committed acts of infringement and has a regular and established place of business.”  This means a likely large boost of lawsuits in Delaware.  National retailers will still be amenable to suit essentially everywhere, but many would-be defendants will be able to avoid E.D.Texas at least. There will also be new litigation on the implications for foreign companies with no established place of business in the US.  The decision here expressly refuses to address that question other than noting that it did previously decide that foreign corps can be an exception to 1400(b). Although possible, it is unlikely the court will adapt the “established place of business” to include the internet, although that portion of 1400(b) has not been explored since the e-tailing explosion.  With less concentrated venue, I we can also expect a rise in multi-district litigation.  For more, consider Prof Janicke’s article on the Imminent Outpouring from the Eastern District of Texas.

 

Congress Continues to See Need to Reduce Abusive Patent Litigation

I just watched a couple-month old Federalist Society Speech by House Judiciary Chair Goodlatte who offered his agenda for the committee over the next year, including further reforms to “reduce abusive patent litigation.”   Rep. Goodlatte’s prepared remarks on the topic are fairly short:

We’ll also work on reforms to discourage abusive patent litigation and keep U.S. patent laws up to date. Collectively, these reforms will help alleviate the wasteful burden of unnecessarily expensive litigation costs, thereby freeing small businesses to flourish, unleash innovation, and create new jobs for Americans.

Following his prepared statement, Chair Goodlatte expanded upon his approach:

Q: Can you give us a sense on Where the committee will go on patents?

A: We are definitely going to continue to pursue patent litigation reform.

Fortunately, the courts are also reviewing our patent laws particularly as they pertain to litigation. Some of the decisions they have made in recent years have had, what I think, is a positive impact on reducing the problem of patent trolling and making sure we have a system more reflective of incentivizing people to innovate; as opposed to attempting to profit from a false claim about a patent or a process whereby they threaten litigation which is extraordinary expensive in this field; and then say ‘well we’ll take 40 or 50 thousand dollars to settle.’ There was/is a big industry – I’m told a billion dollar plus industry to do that [i.e. patent trolling].

One of the issues the Court recently agreed to take is with regard to the issue of venue. . . In the legislation we introduced in the past Congress, we added venue reform to that, and we look looking to see what the court does, which may inform some of our work.  We are also looking at a number of other areas and reaching out to people affected by this.

[Our goal is to] both make sure litigation process is fair ,it is not abused, but also make sure that creative works, inventions, are protected, whether the inventor is large or small.

The approach here is that patent litigation reform is being linked with civil litigation reform generally – and Republican control suggests making it more difficult to bring claims.   Recognize that a number of influential parties, including IPO, have called for reforms to strengthen patent rights – so far that is getting no traction among Republican leadership.

 

Unwired Planet v. Huawei: An English Perspective on FRAND Royalties

FRONDGuest Post by Professor Jorge L. Contreras

In the latest decision by the UK High Court of Justice (Patents) in Unwired Planet v. Huawei ([2017] EWHC 711 (Pat), 5 Apr. 2017], Mister Justice Colin Birss has issued a detailed and illuminating opinion regarding the assessment of royalties on standards-essential patents (SEPs) that are subject to FRAND (fair, reasonable and non-discriminatory) licensing commitments.  Among the important and potentially controversial rulings in the case are:

  1. Single Royalty: there is but a single FRAND royalty rate applicable to any given set of SEPs and circumstances,
  2. Significance of Overstep: neither a breach of contract nor a competition claim for abuse of dominance will succeed unless a SEP holder’s offer is significantly above the true FRAND rate,
  3. Global License: FRAND licenses for global market players are necessarily global licenses and should not be limited to a single jurisdiction, and
  4. Soft-Edge: the “non-discrimination” (ND) prong of the FRAND commitment does not imply a “hard-edged” test in which a licensee may challenge the FRAND license that it has been granted on the basis that another similarly situated licensee has been granted a lower rate, so long as the difference does not distort competition between the two licensees.

Background

This case began in 2014 when Unwired Planet, a U.S.-based patent assertion entity, sued Google, Samsung and Huawei for infringement under six UK patents (corresponding actions were filed in Germany).  Unwired Planet claimed that five of the asserted patents, which it acquired from Ericsson in 2013 as part of a portfolio comprising approximately 2000 patents, were essential to the 2G, 3G and 4G wireless telecommunications standards developed under the auspices of the European Telecommunications Standards Institute (ETSI).  Because Ericsson participated in development of the standards at ETSI, any patents shown to be SEPs would necessarily be encumbered by Ericsson’s FRAND commitment to ETSI.

The UK proceedings involved numerous stages, including five scheduled “technical trials” which would determine whether each of the asserted patents was valid, infringed and essential to the ETSI standards.  During these proceedings Google and Samsung settled with Unwired Planet and Ericsson (which receives a portion of the licensing and settlement revenue earned by Unwired Planet from the patents), leaving Huawei as the sole UK defendant.  By April 2016 three of the technical trials had been completed, resulting in findings that two of the asserted patents were invalid and that two were both valid and essential to the standards.  These findings are currently under appeal. The parties then agreed to suspend further technical trials.  In October 2016 a “non-technical” trial began regarding issues of competition law, FRAND, injunction and damages.  Hearings were concluded in December 2016, and the court’s opinion and judgment were issued on April 5, 2017.

A. The High Court’s Decision – Overview

The principal questions before the court were (1) the level of the FRAND royalty for Unwired Planet’s SEPs, (2) whether Unwired Planet abused a dominant position in violation of Section 102 of the Treaty for the Formation of the European Union (TFEU) by failing to adhere to the procedural requirements for FRAND negotiations outlined by the European Court of Justice (CJEU) in Huawei v. ZTE (2014), and (3) whether an injunction should issue in the case.  In the below discussion, Paragraph numbers (¶) correspond to the numbered paragraphs in the High Court’s April 2017 opinion.

B. FRAND Commitments – General Observations

Justice Birss begins his opinion with some general observations and background about the standard-setting process and FRAND commitments.  A few notable points emerge from this discussion. (more…)

TC Heartland LLC v. Kraft Foods Oral Arguments.

Last week’s oral arguments in TC Heartland LLC v. Kraft Foods (SCT 16-341) went well for the petitioner. [TRANSCRIPT: 16-341_8njq]  In the case, the accused infringer TC Heartland argues that Delaware is an improper venue for its patent case since 28 U.S.C. 1400(b) limits patent venue to “judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.”  TC Heartland is an Indiana LLC that is also HQed in Indiana and has no regular place of business in Delaware – seemingly excusing it from defending a patent case in Delaware.  The big catch, however, is that 28 U.S.C. 1391(c) provides a broad definition of “reside” –

Except as otherwise provided by law . . . For all venue purposes . . .  an entity . . . 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.

28 U.S.C. 1391(c).  This provision appears to greatly extend the reach of proper venue for all federal cases to the limits of personal jurisdiction as well. Operating from a blank slate, I expect that the best reading of the statute is that 1391(c) controls and broad venue is available.  The problem though, is that the Supreme Court previously held the other way in Fourco Glass (1957).  And, although the statute has been somewhat amended, there is no suggestion in the record that Congress intended to overrule Fourco.

Arguing for TC Heartland, James Dabney begins:

MR. DABNEY: The Court in this case is presented with an historic choice. That choice is between upholding or destroying venue protections that Congress provided in 28 U.S.C. 1400(b), and that this Court interpreting that statute declared to exist in its Fourco Glass decision. And the correct choice, we submit, is to adhere to this Court’s existing, long-established interpretation of Section 1400(b) and to reject the new call for a new revisionist interpretation that would render Section 1400(b) nugatory in this case and in all but the most unusual cases. . . .

In the Fourco Glass case, the Court considered statutory language that was not materially different in this respect from current 1391 and held that 1400(b) when it says the judicial district where the defendant resides, that means domicile.

Justice Kagen appeared to agree that Fourco controls – and that the Federal Circuit has been going the wrong way for some time:

JUSTICE KAGAN: One oddity of this case is usually, when we say something, when we issue a decision, we can be pretty confident that Congress is acting against the backdrop of that — that decision. But I think that that would be an odd thing to say in this case, given that for 30 years the Federal Circuit has been ignoring our decision and the law has effectively been otherwise. And then It seems actually that if I were a congressman, I’d think that the practical backdrop against which I’m legislating is not Fourco; it is instead the Federal Circuit’s decision in VE Holding, which is the decision that the practice has conformed to.  . . . When 30 years of practice goes against you, what happens?

MR. DABNEY: I heard Justice Souter say something like that in the KSR case, you know, the teaching-suggestion-motivation test had been around so long that, at some point, the mistake becomes the law. And this Court has again and again and again stood up for its authority to declare what the law is.

On issues of patent law, there’s actually a precedent, Andrews v. Hovey that says no issue of patent law is settled until we have settled it.

Chief Justice Roberts, who tends to focus on precedent, seems to also agree that congressional action since then had no intent to overrule the patent venue cases:

CHIEF JUSTICE ROBERTS: No — [the recent amendment to 1391] wasn’t intended to overrule VE Holding, but I suspect it wasn’t intended to overrule Fourco at all either. And Fourco is a decision of this Court.

For his part, William Jay, arguing on behalf of Kraft focused on the statutory language.

MR. JAY: [The post-Fourco amendment] it isn’t here a change from “for venue purposes” just to “for all venue purposes.” [there are several other amendments to the statute] . . . [Although] the principles by which Fourco interpret the statutes are still good law — the definition that Fourco applied is no longer the controlling definition of “residence.”

So Fourco is based on two things. Number one, the fact that 1400 was recodified in the 1948 revision of the Judicial Code. [That is interpreted differently than ordinary amendments, which presume an intent to change and overrule.]

The other thing is the specific and the general canon. This Court said that 1391(c), as it then existed, was clearly a general corporation venue statute, and so it was. It provided where a corporation could be sued. It doesn’t do that anymore. 1391(c) is now a purely definitional provision, and it was adopted specifically to clear up a number of the nagging problems that the members of the Court have been asking my friend about, including where do you sue an artificial entity that is not a corporation? Where does it reside.

An important statutory interpretation question is whether the Supreme Court’s Fourco interpretation of 1400(b) should be included within the “except as otherwise provided by law” limitation of 1391(c).  Interesting question about what Congress intended when it said “provided by law.”

Only a small portion of the discussion involved policy questions of the focus of patent cases in E.D. of Texas and the pending congressional legislation. This, I think brought out a good point by Mr. Jay.

MR. JAY: I think that the issue is not the definition of residence. The [real] issue is how do we come up with a different patent venue statute altogether? And that is something that Congress has been working on, trying to come up with something more calibrated, so that, for example, a research university would be able to bring suit in its home district, because that’s where it did the invention; it’s where the inventor’s lab is and so forth, you know, where they would want to be able to sue a defendant in its own principal place of business, even if it doesn’t commit the relevant act of infringement there.

Big picture here – the statutory interpretation is messy enough that there is not a clean pathway to an answer for the Supreme Court.  If we have a reversal – we’ll see more big changes to patent litigation.

The Imminent Outpouring from the Eastern District of Texas

The following guest post by Professor Paul Janicke ties-in with his new article published at: Paul M. Janicke, The Imminent Outpouring from the Eastern District of Texas, 2017 Patently-O Patent Law Journal 1. – DC

by Paul M. Janicke

When the Supreme Court reverses the Federal Circuit’s venue ruling in the TC Heartland case, a reversal widely expected, it will return patent venue to the time prior to 1988, when the residence of a corporation for patent venue purpose was limited to (i) a district within the state of incorporation, or (ii) a district where the corporation has a regular and established place of business and has allegedly committed an act of infringement. Presently pending in the Eastern District of Texas are 1,000+ patent cases. The number may go up or down a little before the Court’s ruling, but it’s not likely to change much in that short time.[1] My inquiry is: What will happen to those cases?  My analysis on this subject can be found at Paul M. Janicke, The Imminent Outpouring from the Eastern District of Texas, 2017 Patently-O Patent Law Journal 1..

The new venue statute upon which the Court will base its ruling became effective in January 2012. That means it applies to nearly all the cases now on the Eastern District’s docket, and the venue for hundreds of those cases was likely improper. Those defendants who are not Texas corporations and who lacked any regular and established place of business in Eastern Texas when suit was filed will be entitled to dismissal or transfer to a district that would have been proper under the new law, unless they have waived the improper venue defense. Let’s take a look at the groups of possibly affected defendants.

Local Merchants

Some defendants are local merchants in the Eastern District, accused of infringement only because they sell products made by others. Venue as to these merchants will be proper under either the old or new venue rules, so they are entitled to neither dismissal nor transfer. If the case against a merchant’s vendor is transferred, the merchant’s best bet is to seek a stay of the case against it. While stays are not particularly favored in the Eastern District, a situation like the present one has not likely been encountered before. It may work.

Active Players As Defendants

These are typically manufacturers of high-tech products or vendors of software. Computer-related technology is said to be the subject of over 90% of patent case filings in the district. Most of them lack any regular place of business in Eastern Texas, although we have found some 70 companies who employ 100 or more persons in the district and are defendants in pending patent cases there. Most of these businesses are in Plano, with a few in Beaumont. They too will have to stay put. It isn’t required that the place of business be related to the accused infringing activity.

The Many Other Defendants, And the Problem of Waiver

Those companies lacking a regular business location in the Eastern District will, for the most part, want to exit that district. Some may choose to stay there in order to effect a quick settlement or to show support for their beleaguered customers who have been sued in the district, but I estimate at least 800 will consider seeking a transfer. These break down into two roughly equal groups, those who have waived improper venue and those who have not. Waiver of this defense most typically occurs by failure to plead it in the answer or in an early motion under Rule 12. A sampling of pleadings in pending Eastern District patent cases reveals that in roughly 400 cases the main defendant did not plead improper venue or make a Rule 12 motion. (Note that this is a different subject from inconvenient venue, which is handled under a different statutory section and was sometimes pleaded in the answers.) It is understandable why the improper venue pleading was missing in so many cases: No one knew or even suspected until very recently that the venue rules had been changed by Congress in 2011, effective for all cases filed after January 2012. Good ethical lawyers know they shouldn’t plead a matter for which they have no legal or factual basis, and so they didn’t, and therein lies the waiver. Unfortunately, they cannot undo it by arguing “change in the law.” The change occurred in 2012.

The other group of defendants may have been insightful, but more likely were just following a form-book shotgun answer, and so they did plead improper venue in their answers. Answering this way is usually enough to preserve this defense, but not always. It has been held that taking discovery does not trigger a waiver, nor does proceeding to trial. It is thought that the corporate defendant who has pleaded the defense unsuccessfully has been forced to remain in the improper forum, so these litigation activities are not held against it. However, some courts have held that moving for summary judgment (unsuccessfully of course) is a different matter and does cause a waiver. You are not obliged to seek summary judgment, and you are invoking the court’s power. So some in the second group may find they too have waived.

For Those Exiting, Where Will They Be Sent?

This leaves about 400 non-waived cases. The case law on improper venue cases shows a distinct judicial preference for transfers rather than dismissals. To what districts will these non-waived defendants be transferred? Whatever districts are chosen, we should bear in mind that some of the NPE plaintiffs may not wish to follow, due to the expense involved, so those cases may effectively end. For more serious plaintiffs, we do not know where the cases will go. It depends on subjective factors applicable to each case, but here are some possible options: (1) Choose a district that one or both parties ask for. (2) Select a proper district that has a number of patent pilot judges, the three largest being Northern Illinois, Southern New York, and Central California. (3)  Use history as a guide: In 1997, one year before the large influx to Eastern Texas began, the busiest patent districts were Northern California (172 filings), Central California (162 filings), and Northern Illinois (116 filings). In that year the number of patent cases filed in the Eastern District of Texas was: 10. We shall soon see.

= = = = =

Professor of Law, University of Houston Law Center

[1] The case is set for argument March 27, with a decision very likely before the end of the Court’s term in June.

= = = = =
Read the ArticleJanicke.2017.Venue

Prior Patently-O Patent L.J. Articles:

  • Mark A. Lemley, Erik Oliver, Kent Richardson, James Yoon, & Michael Costa, Patent Purchases and Litigation Outcomes, 2016 Patently-O Patent Law Journal 15 (Lemley.2016.PatentMarket)
  • Bernard Chao and Amy Mapes, An Early Look at Mayo’s Impact on Personalized Medicine, 2016 Patently-O Patent Law Journal 10 (Chao.2016.PersonalizedMedicine)
  • James E. Daily, An Empirical Analysis of Some Proponents and Opponents of Patent Reform, 2016 Patently-O Patent Law Journal 1. (Daily.2016.Professors)
  • Tristan Gray–Le Coz and Charles Duan, Apply It to the USPTO: Review of the Implementation of Alice v. CLS Bank in Patent Examination, 2014 Patently-O Patent Law Journal 1. (GrayLeCozDuan)
  • Robert L. Stoll, Maintaining Post-Grant Review Estoppel in the America Invents Act: A Call for Legislative Restraint, 2012 Patently-O Patent Law Journal 1 (Stoll.2012.estoppel.pdf)
  • Paul Morgan, The Ambiguity in Section 102(a)(1) of the Leahy-Smith America Invents Act, 2011 Patently-O Patent Law Journal 29.  (Morgan.2011.AIAAmbiguities)
  • Joshua D. Sarnoff, Derivation and Prior Art Problems with the New Patent Act, 2011 Patently-O Patent Law Journal 12 (sarnoff.2011.derivation.pdf)
  • Bernard Chao, Not So Confidential: A Call for Restraint in Sealing Court Records, 2011 Patently-O Patent Patent Law Journal 6 (chao.sealedrecords.pdf)
  • Benjamin Levi and Rodney R. Sweetland, The Federal Trade Commission’s (FTC) Recommendations to the International Trade Commission (ITC):  Unsound, Unmeasured, and Unauthoritative, 2011 Patently-O Patent Law Journal 1 (levi.ftcunsound.pdf)
  • Kevin Emerson Collins, An Initial Comment on King Pharmaceuticals: The Printed Matter Doctrine as a Structural Doctrine and Its Implications for Prometheus Laboratories, 2010 Patently-O Patent Law Journal 111 (Collins.KingPharma.pdf)
  • Robert A. Matthews, Jr., When Multiple Plaintiffs/Relators Sue for the Same Act of Patent False Marking, 2010 Patently-O Patent Law Journal 95 (matthews.falsemarking.pdf)
  • Kristen Osenga, The Patent Office’s Fast Track Will Not Take Us in the Right Direction, 2010 Patently-O Patent L.J. 89 (Osenga.pdf)
  • Peter S. Menell,  The International Trade Commission’s Section 337 Authority, 2010 Patently-O Patent L.J. 79
  • Donald S. Chisum, Written Description of the Invention: Ariad (2010) and the Overlooked Invention Priority Principle, 2010 Patently‐O Patent L.J. 72
  • Kevin Collins, An Initial Comment on Ariad: Written Description and the Baseline of Patent Protection for After-Arising Technology, 2010 Patently-O Patent L.J. 24
  • Etan Chatlynne, Investigating Patent Law’s Presumption of Validity—An Empirical Analysis, 2010 Patently-O Patent L.J. 37
  • Michael Kasdan and Joseph Casino, Federal Courts Closely Scrutinizing and Slashing Patent Damage Awards, 2010 Patently-O Patent L.J. 24 (Kasdan.Casino.Damages)
  • Dennis Crouch, Broadening Federal Circuit Jurisprudence: Moving Beyond Federal Circuit Patent Cases, 2010 Patently-O Patent L.J. 19 (2010)
  • Edward Reines and Nathan Greenblatt, Interlocutory Appeals of Claim Construction in the Patent Reform Act of 2009, Part II, 2010 Patently‐O Patent L.J. 7  (2010) (Reines.2010)
  • Gregory P. Landis & Loria B. Yeadon, Selecting the Next Nominee for the Federal Circuit: Patently Obvious to Consider Diversity, 2010 Patently-O Patent L.J. 1 (2010) (Nominee Diversity)
  • Paul Cole, Patentability of Computer Software As Such, 2008 Patently-O Patent L.J. 1. (Cole.pdf)
  • John F. Duffy, The Death of Google’s Patents, 2008 Patently O-Pat. L.J. ___ (googlepatents101.pdf)
  • Mark R. Patterson, Reestablishing the Doctrine of Patent Exhaustion, 2007 Patently-O Patent L.J. 38
  • Arti K. Rai, The GSK Case: An Administrative Perspective, 2007 Patently-O Patent L.J. 36
  • Joshua D. Sarnoff, BIO v. DC and the New Need to Eliminate Federal Patent Law Preemption of State and Local Price and Product Regulation, 2007 Patently-O Patent L.J. 30 (Download Sarnoff.BIO.pdf)
  • John F. Duffy, Are Administrative Patent Judges Unconstitutional?, 2007 Patently-O Patent L.J. 21. (Duffy.BPAI.pdf)
  • Joseph Casino and Michael Kasdan, In re Seagate Technology: Willfulness and Waiver, a Summary and a Proposal, 2007 Patently-O Patent L.J. 1 (Casino-Seagate)

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In Defense of the Federal Circuit: TC Heartland and Patent Venue

Guest Post by Professors Megan M. La Belle & Paul R. Gugliuzza

Patent litigation is, as we all know, highly concentrated in a small number of districts.  Most notably—some might say, notoriously—the rural Eastern District of Texas hears about forty percent of all patent cases nationwide.  Many lawyers and scholars consider this case concentration to be a critical flaw in the patent system.

Against this background, TC Heartland doesn’t seem like a case the Supreme Court would hear simply to affirm.  As Dennis reported last week, nearly twenty amicus briefs have been filed urging reversal, including one signed by sixty-one law professors and economists.  Predictions of a unanimous ruling against the Federal Circuit are not hard to find.  Indeed, TC Heartland looks like other recent cases in which the Supreme Court has reversed the Federal Circuit without breaking a sweat:  It involves a procedural-type rule so favorable to patent owners that, one could easily assume, it must conflict with the rules in other areas of federal litigation.

The Federal Circuit, in the caselaw on review in TC Heartland, has interpreted the patent venue statute to allow patentees to sue corporations for patent infringement in any district where personal jurisdiction exists.  For companies that sell products nationwide, venue is proper almost anywhere, and that enables litigation to cluster in places like East Texas.  Surely, the conventional wisdom seems to be, the Supreme Court will not permit the Federal Circuit to make the venue statute a dead letter in most patent cases.

In our forthcoming article, we defend the Federal Circuit’s venue doctrine, and we challenge the notion that Federal Circuit venue law is outside the mainstream.  As we explain in detail, the expansive venue options available in patent cases are consistent with historical trends in venue law more generally.  For over a century, Congress has steadily expanded plaintiffs’ venue choices, particularly in cases against corporations.  In fact, the Wright and Miller treatise has gone so far as to say that Congress has “nearly eliminate[d] venue as a separate restriction in cases against corporations.”  Venue in patent cases, simply put, is just like venue in other federal cases.

In the article, we also explain why the Federal Circuit’s interpretation of the venue statute is doctrinally sound.  Though the relevant statutes are somewhat complicated and have been amended several times, our defense of the Federal Circuit’s venue law is simple.  It is based on the plain language of two sections of the Judicial Code:  28 U.S.C. §§ 1391(c) and 1400(b).  Section 1391(c)(2), a subsection of the general venue statute, says that, “[f]or all venue purposes,” corporate defendants “reside” in any district in which they are subject to personal jurisdiction.  Section 1400(b), a venue statute specifically for patent infringement cases, says that infringement suits may be brought, among other places, “where the defendant resides.”  Reading the two statutes together, a corporation can be sued for patent infringement in any district in which it is subject to personal jurisdiction—just like in all other types of federal cases.  That is precisely what the Federal Circuit held in its seminal 1990 decision, VE Holding Corp. v. Johnson Gas Appliance Co.

Of course, there’s more law on this issue than the statutes alone.  The petitioner in TC Heartland argues that the question presented is “precisely the same” as in Fourco Glass Co. v. Transmirra Products Corp., a 1957 decision in which the Supreme Court held that the general venue statute—as it read at the time—did not supplement the patent venue statute.  The Court in Fourco relied heavily on its 1942 decision, Stonite Products Co. v. Melvin Lloyd Co., in which the Court interpreted an even older version of the venue statute and held that, in patent infringement cases, a defendant “resided” only in the state in which it was incorporated.

The petitioner in TC Heartland, building on the theme of “patent exceptionalism” that has resonated with the Supreme Court in recent years, claims that the Federal Circuit has ignored this authoritative Supreme Court precedent.  As we explain in the article, however, even if the Supreme Court decided Fourco correctly (which is not beyond doubt), the general venue statute today is far different than it was at the time of Fourco.  Recent amendments to the statute make plain that the definition of corporate residence in the general venue statute does in fact apply to the patent venue statute.

To be sure, as a matter of policy, granting plaintiffs unbridled discretion over choice of forum in patent litigation may be problematic.  It has incentivized judges, particularly in East Texas, to adopt rules and practices favorable to patent holders in an effort to attract cases.  It has encouraged litigants to engage in unseemly tactics to influence prospective jurors. Ultimately, discretion in forum choice can threaten innovation by facilitating nuisance litigation.  But, contrary to the prevailing wisdom, these problems are emphatically not the result of a misinterpretation of the venue statute by the Federal Circuit, nor does Federal Circuit venue doctrine reflect any sort of patent exceptionalism.

There are better ways to reform the law of forum selection in patent cases.  Congress could amend the venue statute.  Or it could reduce the incentive for litigants to forum shop—and the ability of district judges to “forum sell”—by mandating increased procedural uniformity in patent cases.  Or the Supreme Court could alter personal jurisdiction doctrine, which, for corporate defendants, is tightly linked to venue.  Later this Term, the Court will decide a personal jurisdiction case that could have major consequences for patent litigation.

For a more detailed explanation of these points, read our draft article, which is forthcoming in a terrific symposium issue of the American University Law Review.

Megan La Belle is Associate Professor of Law at Catholic University of America.
Paul Gugliuzza is Associate Professor of Law at Boston University School of Law. 

“Consisting Of” Creates Closed Group and Provides Avenue to Avoid Infringement

Shire Development v. Watson Pharma (Fed. Cir. 2017) [16-1785-opinion-2-8-2017-11]

In a short opinion, the Federal Circuit has reversed a lower court infringement claim — holding instead that Watson’s generic product does not infringe.

In U.S. Patent law, it is an act of infringement to file an Abbreviated New Drug Application (ANDA) with the Food and Drug Administration (FDA) seeking to market a generic version of a patented drug listed in the FDA Orange Book.  That is just what Watson did here and Shire sued on its U.S. Patent No. 6,773,720.  The drug at issue is LIALDA, a mesalamine drug used to treat ulcerative colitis.  The claimed compound includes the following limitation:

said outer hydrophilic matrix consists of compounds selected from the group consisting of polymers or copolymers of acrylic or methacrylic acid, alkylvinyl polymers, hydroxyalkyl celluloses, carboxyalkyl celluloses, polysaccharides, dextrins, pectins, starches and derivatives, alginic acid, and natural or synthetic gums;

The basic question on appeal the scope of the claimed Markush group and whether it is a “closed group.”   In other words: is the hydrophilic matrix limited only to substances in the list.  This issue is a deciding factor in the case because Watson’s proposed generic version includes an inner hydrophilic matrix with additional substances not listed.

Consisting Of: In its analysis, the Federal Circuit began by recognizing that the phrase “consisting of” and “consists of” are terms of art in patent claims and “creates a very strong presumption that that claim element is ‘closed’ and therefore ‘exclude[s] any elements, steps, or ingredients not specified in the claim.'” quoting Multilayer Stretch Cling Film Holdings, 831 F.3d 1350, 1358 and AFG Indus., Inc. v. Cardinal IG Co., 239 F.3d 1239, 1245 (Fed. Cir. 2001). Although the presumption of standard meaning can be overcome, it requires that the patentee have documented the redefinition during prosecution in ways ““unmistakably manifest.”  However, as an exception to the standard meaning, the court may still find infringement when elements are added to the group that are “unrelated to the invention.” Norian Corp. v. Stryker Corp., 363 F.3d 1321, 1331 (Fed Cir. 2004).

Here, the generic proposal includes magnesium stearate within the matrix.  Citing Noriam, the district court still found infringement – noting that magnesium stearate is lipophilic and therefore including it within the hydrophilic outer matrix was “unrelated to the invention.”

On appeal, the Federal Circuit has reversed – noting that the “unrelated” exception is a “rare exception” to the general rule that “consisting of” closes the group.  The court explained here that the existence of magnesium stearate would certainly impact the invention by placing a lipophilic compound in an area designed to be hydrophilic.

When the outer, hydrophilic matrix interacts with a person’s digestive fluids, the matrix creates a swollen barrier preventing aqueous solution from reaching the inner, lipophilic matrix. This delay permits the product to proceed through the digestive system until the water breaks apart the outer matrix, releasing the lipophilic granules.

The court here found that the adding mag stearate to the outer layer has the potential of changing this process.  As such, the Norian exception does not apply, and Shire’s Markush claim is closed.  No infringement.

Question: Tell me why did Shire use “consisting of” instead of “comprising” or “consisting essentially of”?

Answer: In response to this inquiry, a reader correctly pointed us to MPEP 2173.05(h), which states” “It is improper to use the term ‘comprising’ instead of ‘consisting of’ [in a Markush group.]”  Citing Ex parte Dotter, 12 USPQ 382 (Bd. App. 1931).  In Dotter, the patentee sought a patent on an air purifier apparatus that relied upon a “mass of loose granules of a natural material of the group comprising wood and grains.”  Although the Board objected to the use of “comprising”, it did not explain the legal basis for its objection. Board wrote:

The word “comprising” does not exclude other materials besides wood and grains. It is considered that the word “consisting” would be more appropriate in this relation in confining the material strictly to these materials –wood and grains. If this formal change is made in claim 17 it may be allowed.

The word “comprising” does not exclude other materials besides wood and grains. It is considered that the word “consisting” would be more appropriate in this relation in confining the material strictly to these materials –wood and grains. If this formal change is made in claim 17 it may be allowed.

It turns out that the MPEP’s quote is from a case, just not Dotter.  It comes from In the precedential case In re Harnish, 631 F.2d 716, 723 (C.C.P.A. 1980)(“It is improper to use the term ‘comprising’ instead of ‘consisting of.'”)  Again, however, the court fails to justify its reasoning or basis for that objection. However, there is a slight suggestion elsewhere in the decision that the objection might be based on lack of unity of invention.

An interesting bit of the claim at issue here is that they make double-use of the consist/consisting of language.

said outer hydrophilic matrix consists of compounds selected from the group consisting of

I wonder whether the PTO would object to a reformulation claiming the “matrix comprising compounds selected from the group consisting of …” Thoughts?

Eligibility: Explaining the IPO Legislative Proposal

by Dennis Crouch

Following Bilski, Prof. Rob Merges and I published a paper titled “Operating Efficiently Post-Bilski by Ordering Patent Doctrine Decision-Making” arguing, inter alia, that eligibility decisions are largely out of the normal bailiwick of PTO examiners.  As imagined by the Supreme Court, the eligibility doctrine really became too philosophical and policy based to be administrable.  Alice and Mayo were subsequently released and did not help the situation.  Under Dir. Lee, the USPTO did figure out a way to administer the test — by not following the test set-out by the Supreme Court.  Rather than looking for abstract ideas and laws of nature as imagined by the Supreme Court, examiners are guided to look specifically only for concepts that the courts have already identified as problematic.  Of course, as the number of court cases finding ineligible subject matter rises, the PTO’s approach has necessarily expanded as well.

The administration concern is one factor behind the IPO’s newly proposed legislative change to 35 U.S.C. 101.   For the IPO, though, the larger issue though is “revers[ing] the recent Supreme Court rulings and restore the scope of subject matter eligibility to that intended by Congress in the passage of the Patent Act of 1952.”

IPO Steps Up: Proposes Statute to Overturn Mayo and Alice

In a newly published whitepaper, the IPO explains its proposed legislative amendment. [PDF20170207_ipo-101-tf-proposed-amendments-and-report]

Following an explanation rejected by the Supreme Court in its eligibility doctrine, IPO explains that the traditional subject matter exceptions including abstract ideas and laws of nature were part of the pre-1952 “invention” requirement.  That requirement was eliminated in the 1952 Act in a way that, according to the IPO, should have opened the door to broad subject matter jurisprudence.  As the organization sees it, the Supreme Court began to go off track in the 1970s – a path revived in recent years.

With this avenue of legal argument rejected by the courts, the IPO sees itself forced to appeal to Congress for a more direct statement of broad subject matter eligibility.

The IPO’s proposed amendment is as follows:

101 Inventions patentable.

101(a) ELIGIBLE SUBJECT MATTER: Whoever invents or discovers, and claims as an invention, any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereto, shall be entitled to thereof, may obtain a patent for a claimed invention thereof therefor, subject only to the exceptions, conditions, and requirements set forth in this Title of this title.

101(b) SOLE EXCEPTION TO SUBJECT MATTER ELIGIBILITY: A claimed invention is ineligible under subsection (a) if and only if the claimed invention as a whole, as understood by a person having ordinary skill in the art to which the claimed invention pertains, exists in nature independently of and prior to any human activity, or exists solely in the human mind.

101(c) SOLE ELIGIBILITY STANDARD: The eligibility of a claimed invention under subsections (a) and (b) shall be determined without regard as to the requirements or conditions of sections 102, 103, and 112 of this Title, the manner in which the claimed invention was made or discovered, or the claimed invention’s inventive concept.

In describing the 101(a) amendment, the IPO explains that, in the amended structure “utility [is] the sole basis of eligibility.”  The requirement that the entitlement to a patent is “subject only to the exceptions and conditions set forth in this Title” is, according to the IPO, intended “to foreclose the development of any future ‘judicial exceptions” to section 101.” and to recognize that the “only exceptions to the entitlement to a patent … are those defined in the statute.”  The IPO statement does not consider the impact of other already-existing non-statutory exceptions such as double-patenting, but presumably those will disappear unless a sufficient statutory hook is found.

Proposed 102(b) includes a very narrow exception to eligibility.  I would suggest that there is almost nothing on earth that provably “exists in nature independently of and prior to any human activity” leaving the only actual exception that the invention “exists solely in the human mind.”  On this second exception, IPO writes:

This ineligibility criterion … makes eligible any claim limitation that requires some external involvement with the physical world or any representation thereof (e.g., data in a computer).
. . . [However] ideas that do not have physical or tangible aspects . . . are not patentable.

The IPO does not indicate whether the exception would be triggered if a single embodiment of the invention could conceivably exist solely in a human mind.  I expect that it would.

According to the IPO, 101(c) is designed to ensure that eligibility is not determined based upon the novelty, obviousness, or definiteness of a patent claim.  I would suggest that the language does not quite achieve the purpose suggested.  A more effective revision might state instead that “eligibility of a claimed invention. . . shall be determined without regard to its novelty, obviousness, or definiteness, or lack thereof.”

I compliment the IPO on taking this major step and beginning a conversation on legislative fixes to the eligibility doctrine.

I agree with the IPO members that the current situation is quite problematic both because the lines are so unclear and because they are ruling-out many inventions that should qualify in my conception.  That said, I believe that the provision likely goes too far.  I would suggest that the proposal take at least two further steps: (1) include a third exception to eligibility derived from the printed matter doctrine; and (2) include a new 102(d) that expressly defines the scope of the utility doctrine so that it becomes clear what work will be going on there.  It should be clear from the statute that ordinary works of authorship, for instance, are not patent eligible.

Supreme Court Update: Are Secondary Indicia of Invention Relevant to Eligibility?

by Dennis Crouch

The Supreme Court is on recess until Feb 17.

I don’t know if my end-of-April prediction will hold true, but I do expect Neil Gorsuch to become a Justice on the United States Supreme Court.  As a 10th Circuit Judge, Gorsuch never decided a patent case, but does have a handful of interesting IP cases.

There are a few petitions filed that we have not discussed here: 

 In its newest petition, DataTreasury takes 101 for a new spin by taking the 101/103 analysis to its next logical level.  If we are going to include a 103 analysis as part of the eligibility doctrine then lets go whole hog.  Thus, DataTreasury asks: whether a court must consider secondary indicia of invention as evidence in its eligibility analysis? In the case, the Federal Circuit had affirmed the PTAB judgment without opinion under R.36. A second eligibility petition is found in TDE Petroleum Data Solutions, Inc. v. AKM Enterprise, Inc., dba Moblize, Inc. TDE asks the court to “please reconcile Diehr and Alice.” (I’m not literally quoting here).  The patent at issue (No. 6,892,812) claims a four-step process of “determining the state of a well operation.” (a) store several potential “states”; (b) receive well operation data from a plurality of systems; (c) determine that the data is valid by comparing it to a threshold limit; and (d) set the state based upon the valid data.

In Wi-LAN v. Apple, the patentee revives both Cuozzo and Markman claim construction arguments – this time focusing on “whether claim terms used to define the metes and bounds of an invention are generally given their “plain and ordinary meaning,” or are redefined (limited) to match the scope of the exemplary embodiments provided in the specification.”

duPont v. Macdermid asks whether summary judgment of obviousness is proper because of the factual disputes at issue.  Similarly, in Enplas v. Seoul Semiconductor, the petitioner argues that a finding of anticipation by the PTAB must be supported by findings each and every element of the subject patent claim is disclosed in the prior art.  In Enplas, the Federal Circuit affirmed the PTAB on a R.36 Judgment Without Appeal — it difficult for the petitioner to point to the particular deficiencies.

 

=== THE LIST===

1. 2016-2016 Decisions:

  • Design Patent Damages: Samsung Electronics Co. v. Apple Inc., No 15-777 (Total profits may be based upon either the entire product sold to consumers or a component);  GVR order in parallel case Systems, Inc. v. Nordock, Inc., No. 15-978.  These cases are now back before the Federal Circuit for the job of explaining when a component

2. Petitions Granted:

3. Petitions with Invited Views of SG (CVSG): 

4. Petitions for Writ of Certiorari Pending:

  • Claim Construction: Wi-LAN USA, Inc., et al. v. Apple Inc., No. 16-913 (“plain and ordinary meaning”)
  • Is it a Patent Case?: Boston Scientific Corporation, et al. v. Mirowski Family Ventures, LLC, No. 16-470 (how closely must a state court “hew” federal court patent law precedents?) (Appeal from MD State Court)
  • Anticipation/Obviousness: Google Inc., et al. v. Arendi S A.R.L., et al., No. 16-626 (can “common sense” invalidate a patent claim that includes novel elements?) (Supreme Court has requested a brief in response)
  • Anticipation/Obviousness: Enplas Corporation v. Seoul Semiconductor Co., Ltd., et al., No. 16-867 (“Whether a finding of anticipation under 35 U.S.C. § 102 must be supported by findings that each and every element of the subject patent claim is disclosed in the prior art?”)
  • Anticipation/Obviousness: E.I. du Pont de Nemours and Company v. MacDermid Printing Solutions, L.L.C., No. 16-905 (summary judgment of obviousness proper)
  • Jury Trial: Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, et al., No. 16-712 (“Whether inter partes review … violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.”) [oilstatespetition]
  • Jury Trial: Nanovapor Fuels Group, Inc., et al. v. Vapor Point, LLC, et al., No. 16-892 (Can a party forfeit a properly demanded trial by jury without an explicit, clear, and unequivocal waiver?)
  • Is it a Patent Case?: Big Baboon, Inc. v. Michelle K. Lee, No. 16-496 (Appeal of APA seeking overturning of evidentiary admission findings during reexamination – heard by Federal Circuit or Regional Circuit?)
  • LachesMedinol Ltd. v. Cordis Corporation, et al., No. 15-998 (follow-on to SCA); Endotach LLC v. Cook Medical LLC, No. 16-127 (SCA Redux); Romag Fasteners, Inc. v. Fossil, Inc., et al, No. 16-202 (SCA Redux plus TM issue)
  • Eligibility: TDE Petroleum Data Solutions, Inc. v. AKM Enterprise, Inc., dba Moblize, Inc., No. 16-890 (Please reconcile Diehr and Alice)
  • Eligibility: DataTreasury Corporation v. Fidelity National Information Services, Inc., No. 16-883 (secondary indicia as part of eligibility analysis).
  • Eligibility: IPLearn-Focus, LLC v. Microsoft Corp., No. 16-859 (evidence necessary for finding an abstract idea)

5. Petitions for Writ of Certiorari Denied or Dismissed:

(more…)

TC Heartland: Statutory Interpretation, Fairness, and E.D.Texas

by Dennis Crouch

The topside briefs have been filed in TC Heartland with strong support for the petitioner who is looking to dismantle the notion of nationwide venue against accused patent infringers.  The question presented in the case is one of basic statutory interpretation of Congress’s venue statute: 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).

28 U.S.C. § 1400(b) appears to severely limit venue in patent cases to “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.”  Section 1391(c), however seems to broaden the definition of residence “For all venue purposes . . . (2) . . .[defendant] shall be deemed to reside … in any judicial district in which such defendant is subject to the court’s personal jurisdiction.”  Since most patent defendants are subject to nationwide personal jurisdiction, venue is then proper in any jurisdiction.

This first-level statutory interpretation seems to make TC Heartland’s case a loser. The thing is, the Supreme Court already decided what is almost the exact same case in its 1957 decision Fourco Glass (limiting patent venue) and the unusual concentration of patent cases in the E.D.Texas has certainly reached the ears of the high court in a way that may influence the outcome.

TC Heartland’s attorneys Dabney & Duffy write:

This is an extraordinary case because it presents a question of statutory interpretation that this Court specifically answered more than a half century ago.

[Petitioner’s Merits Brief: 16-341_pet-authcheckdam1]

In addition to stare decisis, the brief offers a cogent explanation that the narrower, specific interpretation makes sense and that the “for all venue purposes” phrase in the broader statute is limited by its preparatory statement “except as otherwise provided by law.”

One debate here that may arise is a question of what is the “settled law.”  The Federal Circuit broad-venue doctrine has been the approach since its 1990 VE Holdings decision.  Here, however, TC Heartland raises the little known case of  Andrews v. Hovey (1888) for the proposition that a patent statute’s interpretation “cannot be regarded as judicially settled [until] so settled by the highest judicial authority which can pass upon the question.” I wonder though, whether creation of the Federal Circuit should be seen as overruling that prior statute – likely not.

A strong set of amicus briefs have been filed in support.  Most briefs are fairly similar – arguing the statutory interpretation and that the result is bad policy / unfair.  See Bankers Brief [16-341-tsac-aba];  ABA [16-341-tsac-american-bar-association]; APP Ass’n [16-341-tsac-act]; Internet Companies and Retailers [16-341-tsac-48-internet-companies]

The only party in opposition thus far is AIPLA who argues, inter alia, that if a policy needs changed then congress should do the changing. [16-341-ac-aipla]

Although I do not expect the Federal Government (SJ) to weigh-in on the case, one interesting brief comes from a group of 17 state attorneys general, including Texas whose “citizens [have been facing] abusive claims of patent infringement, which businesses and residents confirm are a drag on economic growth.” [16-341-texas-et-al]

Without the Government Brief, Mark Lemley’s brief (on behalf of 61 professors) may be seen as the most influential.  However, I would suggest that the brief loses some amount of its “law professor” credibility by being so one-sided in its statutory construction. [16-341-tsac-61-prof-of-law] Alongside Lemley’s brief is that filed by Stanford’s IP Clinic that argues, inter alia, harm to small businesses and start-ups: “frivolous PAE litigation is negatively correlated with venture capital (VC) investment.” Implicit (and often explicit) in these briefs is the argument that E.D.Texas is supporting frivolous litigation. Stanford writes:  “The Eastern District of Texas Exhibits Abnormal Forum-Selling and Litigant Gamesmanship That Undermine the Appearance of Integrity of the Patent Litigation System.” [16-341tsacengineadvocacy] Orange County IP Law Association’s brief filed by Bill Brown raises the real argument that E.D. Texas Judges now have “de facto policy making authority.” [16-341-tsac-ocipla]; See also Unified Patents [16-341-tsac-unified-patents]

Intel and Dell also offered a strong brief filed by Donald Verrilli in his new role at Munger Tolles: All indicia of statutory meaning show that Congress narrowed patent venue in 1897 and has never expressed an intent to expand it.” [16-341tsacintelcorporation].  Following onto Intel’s intent argument, WLF explains that post-Fourco amendments by Congress should be considered “within the context of a century of special rules governing patent cases. [16-341tsacwashingtonlegalfoundation] The Intel brief also focuses on a common complaint against the Federal Circuit – that it fails to really respect and follow the principles of statutory interpretation.  Here though, the issue is failing to follow Supreme Court precedent.  Intel argues that the “Court does not depart from the doctrine of stare decisis without some compelling justification.” (quoting Hilton v. S. Carolina Pub. Rys. Comm’n, 502 U.S. 197, 201 (1991).

GiantCo GE offers some crocodile tears at the “unfairness” of the provision to nice companies like GE.  Astutely foreshadowing a likely upcoming challenge, GE also reflects that part of the problem is “the Federal Circuit’s expansive approach to personal jurisdiction [that] has further stretched the boundaries of permissible venue in patent cases.” (citations omitted). [16-341-ac-ge]

Although GE’s unfairness arguments likely fall flat, one of the best briefs is that filed by EFF who does a great job of explaining how venue’s primary concern is that of fairness and that the Federal Circuit’s interpretation completely ignores that import. [16-341-tsac-electronic-frontier-foundation]

Generic Pharma adds to the statutory construction by explaining that the venue provisions in Hatch-Waxman Act are inconsistent with the Federal Circuit’s interpretation. [16-341-tsac-generic-pharmaceutical-association]

Finally, last but not least, Chicago’s IP Law Ass’n offers its analysis that patent venue battles over the “best venue” are wasting time and would be unnecessary under Fourco. [16-341-ac-intellectual-property-law-association] [16-341-ac-appendix]

N.D. Cal New Disclosure Rules

disclosureBy Dennis Crouch

The N.D. California Court has amended its local rules used for patent infringement cases. [patent_local_rules_1-2017]. One of the most interesting change is the required “damages contentions.”

Initial Case Management: The parties shall provide the court with a non-binding, good-faith estimate of the damages range expected for the case along with an explanation for the estimates. If either party is unable to provide such information, that party shall explain why it cannot and what specific information is needed before it can do so. Such party shall also state the time by which it should be in a position to provide that estimate and explanation. . . .

Damages Contentions Within 50-days of Invalidity Contentions: Identify each … category[] of damages it is seeking for the asserted infringement, as well as its theories of recovery, factual support for those theories, and computations of damages within each category, including: 1. lost profits; 2. price erosion; 3. convoyed or collateral sales; 4. reasonable royalty; and 5. any other form of damages. (b) To the extent a party contends it is unable to provide a fulsome response to the disclosures required by this rule, it shall identify the information it requires.

Responsive Damages Contentions within 30 days: [E]ach party denying infringement shall identify specifically how and why it disagrees with those contentions. This should include the party’s affirmative position on each issue. To the extent a party contends it is unable to provide a fulsome response to the disclosures required by this rule, it shall identify the information it requires.

Early damages contentions has been pushed by former Chief Judge Rader for several years, with the intent of ensuring proportionality in litigation.  The basic idea is that cases worth lots of money justify more ‘lawyering’ and thus may be tied to reasonable attorney fees collected in exceptional cases.  The German approach is something like this.  Of course US legal tradition does not require defendants (or plaintiffs) to settle cases and traditionally does not penalize them even when the lawyer fees exceed any expected payout.

In general, I would expect that patentees will continue to take steps to avoid N.D. California for filing its patent cases.  However, that option will be severely limited if the Supreme Court tightens patent venue in the pending TC Heartland case.

Supreme Court 2017 – Patent Preview

by Dennis Crouch

A new Supreme Court justice will likely be in place by the end of April, although the Trump edition is unlikely to substantially shake-up patent law doctrine in the short term.

The Supreme Court has decided one patent case this term. Samsung (design patent damages).  Five more cases have been granted certiorari and are scheduled to be decided by mid June 2017. These include SCA Hygiene (whether laches applies in patent cases); Life Tech (infringement under 35 U.S.C. § 271(f)(1) for supplying single component); Impression Products (using patents as a personal property servitude); Sandoz (BPCIA patent dance); and last-but-not-least TC Heartland (Does the general definition of “residence” found in 28 U.S.C. 1391(c) apply to the patent venue statute 1400(b)).

Big news is that the Supreme Court granted writs of certiorari in the BPCIA dispute between Sandoz and Amgen.   The BPCIA can be thought of as the ‘Hatch Waxman of biologics’ – enacted as part of ObamaCare.   The provision offers automatic market exclusivity for twelve years for producers of pioneer biologics.   Those years of exclusivity enforced by the FDA – who will not approve a competitor’s expedited biosimilar  drug application during the exclusivity period.   The statute then provides for a process of exchanging patent and manufacturing information between a potential biosimilar producer and the pioneer – known as the patent dance.  The case here is the Court’s first chance to interpret the provisions of the law – the specific issue involves whether the pioneer (here Amgen) is required to ‘dance.’ [Andrew Williams has more @patentdocs]

A new eligibility petition by Matthew Powers in IPLearn-Focus v. Microsoft raises eligibility in a procedural form – Can a court properly find an abstract idea based only upon (1) the patent document and (2) attorney argument? (What if the only evidence presented supports eligibility?).  After reading claim 1 and 24 (24 is at issue) of U.S. Patent No. 8,538,320, you may see why the lower court bounced this. Federal Circuit affirmed the district court’s ruling without opinion under Federal Circuit Rule 36 and then denied IPLF’s petition for rehearing (again without opinion).

1. A computing system comprising:

a display;

an imaging sensor to sense a first feature of a user regarding a first volitional behavior of the user to produce a first set of measurements, the imaging sensor being detached from the first feature to sense the first feature, the first feature relating to the head of the user, and the first set of measurements including an image of the first feature, wherein the system further to sense a second feature of the user regarding a second volitional behavior of the user to produce a second set of measurements, the second feature not relating to the head of the user; and

a processor coupled to the imaging sensor and the display, the processor to:

analyze at least the first set and the second set of measurements; and determine whether to change what is to be presented by the display in view of the analysis.

24. A computing system as recited in claim 1, wherein the system capable of providing an indication regarding whether the user is paying attention to content presented by the display.

=== THE LIST===

1. 2016-2016 Decisions:

  • Design Patent Damages: Samsung Electronics Co. v. Apple Inc., No 15-777 (Total profits may be based upon either the entire product sold to consumers or a component);  GVR order in parallel case Systems, Inc. v. Nordock, Inc., No. 15-978.  These cases are now back before the Federal Circuit for the job of explaining when a component

2. Petitions Granted:

3. Petitions with Invited Views of SG (CVSG): 

4. Petitions for Writ of Certiorari Pending:

  • Is it a Patent Case?: Boston Scientific Corporation, et al. v. Mirowski Family Ventures, LLC, No. 16-470 (how closely must a state court “hew” federal court patent law precedents?) (Appeal from MD State Court)
  • Anticipation/Obviousness: Google Inc., et al. v. Arendi S A.R.L., et al., No. 16-626 (can “common sense” invalidate a patent claim that includes novel elements?) (Supreme Court has requested a brief in response)
  • Civil Procedure – Final Judgment: Johnson & Johnson Vision Care, Inc. v. Rembrandt Vision Technologies, L.P., No. 16-489 (Reopening final decision under R.60).
  • Anticipation/Obviousness: Enplas Corporation v. Seoul Semiconductor Co., Ltd., et al., No. 16-867 (“Whether a finding of anticipation under 35 U.S.C. § 102 must be supported by findings that each and every element of the subject patent claim is disclosed in the prior art?”)
  • Post Grant Admin: Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, et al., No. 16-712 (“Whether inter partes review … violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.”) [oilstatespetition]
  • Eligibility: IPLearn-Focus, LLC v. Microsoft Corp., No. 16-859 (evidence necessary for finding an abstract idea)
  • Post Grant Admin: SightSound Technologies, LLC v. Apple Inc., No. 16-483 (Can the Federal Circuit review USPTO decision to initiate an IPR on a ground never asserted by any party)
  • Is it a Patent Case?: Big Baboon, Inc. v. Michelle K. Lee, No. 16-496 (Appeal of APA seeking overturning of evidentiary admission findings during reexamination – heard by Federal Circuit or Regional Circuit?)
  • LachesMedinol Ltd. v. Cordis Corporation, et al., No. 15-998 (follow-on to SCA); Endotach LLC v. Cook Medical LLC, No. 16-127 (SCA Redux); Romag Fasteners, Inc. v. Fossil, Inc., et al, No. 16-202 (SCA Redux plus TM issue)
  • Eligibility and CBM: DataTreasury Corporation v. Fidelity National Information Services, Inc., No. 16-883 (I have not seen the petition yet, but underlying case challenged whether (1) case was properly classified as CBM and (2) whether PTAB properly ruled claims ineligible as abstract ideas) (Patent Nos. 5,910,988 and 6,032,137).

5. Petitions for Writ of Certiorari Denied or Dismissed:
(more…)

Guest Post: TC Heartland and Statutory Interpretation

By: Michael Risch, Professor of Law, Villanova University Charles Widger School of Law

After the certiorari grant in TC Heartland, Dennis solicited a blog post from anyone who thought the case was not a slam dunk. Always the contrarian, I took him up on the offer. In a prior blog post at my own blog, Written Description, I detail some of the history of the statute and highlight why I think that Fourco does not necessarily answer the question. Colleen Chien and I flesh out the history and interpretation a bit more in our article, which we’ve blogged about here in the past.

I should note that the outset that I favor TC Heartland’s position from a policy point of view. I’ve long said in a variety of venues (including comment threads on this very blog) that there are significant problems with any system in which so much rides on where the case is filed. And I think that’s true whether you think they are doing a great or terrible job in the Eastern District of Texas.

Now, on to the interpretive issues. In general, I favor the application of longstanding original norms of statutory interpretation unless there’s good reason to depart from them (see, e.g., my new paper on reasonable royalties). I think this is doubly true where no one ever challenged the original interpretation (see, e.g. the ridiculous claims that common law copyright grants a performance right to sound recordings, despite the fact that no one ever thought so in the history of common law copyright). But in this case, I don’t think one can simply rely on the fact that no one challenged VE Holdings for 25 years. After all, the Supreme Court just overturned our understanding of design patent damages despite a tacit understanding that was more than 100 years old. As I noted here, this bothered me a bit given my general views, but I also think it was the correct statutory interpretation.

But, as I noted in my prior blog post, I don’t think one can just say “Fourco controls.” As I noted there: “Stonite and Fourco were statutory interpretation problems…. [T]his is a statutory interpretation problem. But the statute in Fourco is different from the statute today and has been amended twice since. We cannot rely on a supposed ‘rule’ about a statute that no longer exists.”

Instead, we have to return to first principles. In Stonite, the court clearly held that the patent venue statute was a special statute, to be specially applied differently than the general venue statute.  After Stonite, the general venue statute was amended. But let’s look at the statutes of the time. Right out of Fourco:

Section 1400 is titled “Patents and copyrights,” and subsection (b) reads:

“(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.”

Section 1391 is titled “Venue generally,” and subsection (c) reads:

“(c) A corporation may be sued in any judicial district in which it is incorporated or licensed to do business or is doing business, and such judicial district shall be regarded as the residence of such corporation for venue purposes.”

The court ruled that not enough changed since Stonite: we still had two separate venue tracks, and the patent statute was separate. The question now: is there a way for Congress to have changed this? could it have done so unintentionally? Let’s look at the 1988 change to 1391(c):

“For purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced.”

There is a key change here: 1391(c) no longer talks about a “separate” track where corporations can be sued “for venue purposes.” Instead, it says that “for purposes of venue under this chapter…” the definition of resides has now been set (emphasis added). The question is whether the Fourco precedent means that Congress had to do more than this to change the meaning of 1400(b) (which is in the same chapter). In VE Holdings, the Federal Circuit said no, it didn’t – that the plain language modified 1400, and, essentially, that Congress had said there were no more tracks here.

And that, I think, is the core question here. This is not a Supreme Court policy. This is the Court interpreting the statute. What did Congress do? In Stonite and Fourco, the Court said that Congress intended two separate tracks. The Federal Circuit says that in 1988, Congress merged those tracks by changing the definition of “venue” “under this chapter.”

The only other information we have is that in 2011, more than 20 years after VE Holdings, Congress expanded 1391 again. Section 1391(a) says the section applies to all civil actions “except as otherwise provided by law” (and as we detail in our article, the legislative history is clear that this referred to a list of statutes compiled by the ALI, and 1400 is not among them.) Further, 1391(c) expanded from “under this chapter” to “all venue purposes.” In other words, knowing that the Federal Circuit had interpreted 1391(c) and 1400 to be in a single track, Congress further expanded 1391 even more broadly and did nothing to clarify that no, really, “resides” in 1400(b) was really intended to continue to have the narrow definition. We know from many other contexts, in patent law and otherwise, that Congress is fully capable of correcting erroneous court interpretations, and the agglomeration of cases in Texas was known in 2011. Indeed, the AIA was passed in close proximity, and it included special provisions to deal with filings in Texas, but never once attempted to clarify that VE Holdings interpretation was wrong. For Congress to have expanded the venue statute and pass the AIA without addressing this point is particularly salient.

I, frankly, have no idea how this statutory interpretation issue will or even should come out. I don’t think this is a statutory slam dunk either way. TC Heartland is represented by outstanding lawyers who make outstanding arguments to the contrary. And the Court even granting cert. says something. You could dismiss all I’ve written with a wave of the hand: Fourco stands for the proposition that 1400(b) is separate and the current 1391(c) is no different in structure than the 1391(c) that faced the court then. I am troubled by this argument, but I can see how others might reasonably embrace it.

Patentlyo Bits and Bytes by Anthony McCain

Get a Job doing Patent Law                  

Goodbye E.D.Texas as a Major Patent Venue

by Dennis Crouch

In a case with the potential to truly shake-up the current state of patent litigation, the Supreme Court has granted certiorari in the patent venue case TC Heartland v. Kraft Food (SCT Docket No. 16-341).  An 8-0 reversal of the Federal Circuit is quite likely, although my headline is likely premature.

The case centers on the patent litigation venue statute which states rather simply that patent infringement actions “may be brought” either (1) in “the judicial district where the defendant resides”; or (2) “where the defendant has committed acts of infringement and has a regular and established place of business.” 28 U.S.C. § 1400(b).  Under any normal interpretation of the provision, very few cases would be amenable to proper venue in the Eastern District of Texas because almost none of the accused infringers “reside” in that district or even have a place of business in that district.  However, the “normal” interpreation was seemingly thrown under the bus by a congressional provision that expands the definition of a corporation’s residence to all districts where the company has minimum contacts.  See 28 U.S.C. § 1391.  For its part, the Federal Circuit found that Section 1391 applies to expand the scope of 1400(b) to all for, inter alia, the filing of infringement lawsuits in the Eastern District of Texas.

It turns out that the Supreme Court has already decided almost this exact case in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957). In Fourco, the Court held that “§ 1400(b) is not to be supplemented by § 1391(c), and that as applied to corporate entities, the phrase “where the defendant resides” in § 1400(b) “mean[s] the state of incorporation only.” (quoting from the certiorari petition). Although the provisions have been amended since 1957, non of the amendments appear to warrant such a dramatic change in the Supreme Court’s analysis of the statutes.

In its 1990 VE Holdings decision, the Federal Circuit rejected Fourco based upon some reasoning, but without any good reasons.  There are two reasons to stick with the Federal Circuit’s 26 year old rule: (1) The rule is 26 years old and well settled with almost every patents now in force applied-for after the rule change.  At this point, it is Congress’s turn (not the courts) to amend the statute if its wants a policy change. (2) The actual reasoning of Fourco is quite dodgy – not the most stellar statutory interpretation.  If the Supreme Court actually takes a fresh look at the statute it may well overturn Fourco of its own accord.   Still, I expect that these arguments will not carry the day and instead that the Supreme Court will reverse the Federal Circuit.  The result would then be a major redistribution of patent infringement cases.

More Reading:

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

Guest Post: What Would Happen to Patent Cases if They Couldn’t all be Filed in Texas?

Guest Post: Recalibrating Patent Venue

TC Heartland Law Professor Amicus Brief

Guest Post: The Problematic Origins of Nationwide Patent Venue.

 

 

 

Director Lee: IP is a Necessary Key Piece of President-Elect Trump’s Promised Economic Growth and Job Creation

Today, USPTO Director provided her first Post-Election speech that includes some thoughts on IP policy after Obama.

I believe the incoming administration must and will continue our effort to promote innovation fueled by a strong and robust IP system. Support for IP in the United States has a long history of bipartisanship, and there’s no reason to imagine that changing with a new president and a new Congress, both of whom have economic growth as a top priority. . . .

I’m optimistic the incoming administration will share our appreciation of the importance of intellectual property as a driver of economic growth. As I look ahead, I foresee legislative patent reform changes will continue to be discussed in Congress, though those conversations will likely occur later in the term after some of the other priorities including filling a Supreme Court vacancy, immigration and tax reform are addressed, and any legislative patent reform will likely be more targeted, rather than the comprehensive reforms we’ve seen in prior Congresses. I would hope any legislative proposal will take into account the numerous positive changes that have occurred recently in the patent system including: through the courts, including on attorneys fees, pleading requirements and discovery limits, and at the USPTO through the PTAB and the agency’s efforts to improve the quality of patents in our system. As far as issues, I predict legislative discussions may include venue reform and possibly changes to Section 101 and PTAB. On venue, with nearly half of the patent cases filed in 2015 filed in a single district out of 94 federal judicial districts, it is easy for critics to contend that plaintiffs seek out this district preferentially for the wrong reasons. And the mere perception that there are advantages to be gained by forum-shopping challenges the public’s faith in the patent system. So there will be continuing pressure for legislative (and likely judicial) action on the issue of venue. The scope of any legislative reform remains is to be determined, but I predict that the focus will be on more targeted, rather than comprehensive reform as we saw these past couple Congresses. Further, I anticipate that the USPTO’s work across the globe to ensure that other countries have strong IP protections adequate enforcement mechanisms and remedies, and appropriate technology transfer (or licensing and competition) policies, will continue in the next Administration particularly in such countries as China and others. This is a President-elect that has promised economic growth and job creation in our country, and IP will necessarily be a key piece to achieving that goal. . . .

I firmly believe that the USPTO is healthy, well-functioning and poised to successfully handle whatever challenges and opportunities lie ahead.  . . . When President Obama was inaugurated in 2009, his focus was on leading this nation’s recovery from the Great Recession. One of his first acts was to ask the Smithsonian to provide for display in the Oval Office some patent models that demonstrated past American innovation that led to new jobs and new industries. The president said that throughout our history, Americans solved problems through innovation and IP. He wanted to see reminders of that every day as he encountered the challenges he faced. The Smithsonian provided him with three models: Samuel Morse’s telegraph (1849),  John Peer’s gear cutter (1874), and Henry Williams’ steamboat wheel (1877). As I stood behind the President in the Oval Office earlier this year when he signed the Defend Trade Secrets Act, I couldn’t help but notice those three models along the wall to my left—still there almost eight years later—and feel extraordinarily humbled and honored. I feel that same honor and humility today standing before all of you and reflecting on just how much we have accomplished under this administration.  I’ve been fortunate to lead the USPTO at a time when intellectual property issues have been front and center on the consciousness of the American public and President and to have had the opportunity to help guide the direction in a small way. My hope is that the President-elect keeps the patent models from Morse, Peer and Williams in his office as a reminder of the importance of intellectual property to the economic prosperity that I know he wants for our country.

Read the full remarks here.

Supreme Court Patent Cases: Post Sale Exhaustion

by Dennis Crouch

Substantive Patent Law: Newly filed petition in Merck & Cie v. Watson Labs raises a core substantive patent issue – does the on sale bar apply to secret sales? The defendant asks:

Whether the “on sale” bar found in § 102(b) applies only to sales or offers of sale made available to the public, as Congress, this Court, and the United States have all made clear, or whether it also applies to non-public sales or offers of sale, as the Federal Circuit has held.

The Merck petition is focused on pre-AIA patents.  The PTO (and patentees) are arguing more forcefully that the AIA certainly intended to exclude secret sales from the scope of prior art in cases now pending before the Federal Circuit.

The second new substantive patent law case is Google v. Arendi that challenge’s the Federal Circuit’s limitations on the use of common sense in the obviousness analysis.  In its decision, the Federal Circuit limited KSR to combination patents and held that “common sense” cannot be used to supply missing limitations.  Google argues that the Federal Circuit’s approach is contrary to the broad and flexible obviousness analysis required by KSR.  Patentees bristle term “common sense” – they see an overly flexible analysis as providing opportunities to invalidate patents without evidence.  The question: “Did the Federal Circuit err in restricting the Board’s ability to rely on the common sense and common knowledge of skilled artisans to establish the obviousness of patent claims?”

As these new petitions were being filed, the Supreme Court has also denied the pending obviousness, anticipation, and eligibility petitions.  In addition, Cooper v. Square has also been denied.

Civil Procedure: In J&J v. Rembrandt, the defendant J&J won at trial. However, Rembrandt later learned that J&J’s expert had testified falsely and the Federal Circuit ordered the case re-opened under R.60(b)(3) that empowers district courts to revisit final judgments after a showing of “fraud …, misrepresentation, or misconduct by the opposing party.”  The various circuits follow different standards and procedures for analyzing process and J&J has asked the Supreme Court to reconcile these (in its favor).  Another CivPro petition was also filed by Eon Corp that questions whether an appellee needed to file a R.50 JMOL motion to overturn a jury verdict that was based upon a faulty legal conclusion by the district court (here claim construction).  The Question Presented is:

Whether the Federal Circuit erred in ordering entry of judgment as a matter of law on a ground not presented in a Rule 50 motion in the district court, even though the ground presented a purely legal question.

Both J&J and Eon are only marginally patent cases, the core procedure case now pending is TC Heartland that would substantially upset the status quo of patent lawsuit concentration in E.D. Texas. Briefing continues in TC Heartland. In recent weeks a set of seven amici briefs were filed on the top side.

Next week Supreme Court conference includes review of the most likely-to-be-granted petition of Impression Products, Inc. v. Lexmark International, Inc. that focuses on important questions of post-sale exhaustion of patent rights.  The setup – If I buy a used product that was made and sold by the patentee, do I still need to worry that I might get sued for patent infringement?  The Federal Circuit says yes. The Supreme Court is likely to add some caveats to that.  The US Government (Obama Administration via DOJ) has argued that the case should be reviewed and that the Federal Circuit’s position should be rejected. Both parties then filed supplemental responsive briefs.  Lexmark’s best argument here is that these principles are well settled and that Congress can take on the role of tweaking them if needed.

Upcoming Supreme Court Oral Argument: Life Tech (export of components) set for December 6, 2016.

(more…)

TC Heartland Law Professor Amicus Brief

In TC Heartland, the accused infringer has asked the Supreme Court to reset the law of venue and give effect to the statutory statement that infringement actions be brought either (1) “in the judicial district where the defendant resides” or (2)” where the defendant has committed acts of infringement and has a regular and established place of business.”  28 U.S.C. § 1400(b).   In its 1957 Fourco decision, the Supreme Court affirmatively answered this question.  However, Fourco has been undermined by subsequent Federal Circuit decisions.  Thus, the question presented again is the same as what was originally asked 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).”

From a policy perspective, the case is seen as a vehicle for defendants who do not like being sued in the Eastern District of Texas and into more venues perceived as more defendant friendly.

A group of 50+ law and economics professors led by Mark Lemley, Colleen Chien, Brian Love, and Arti Rai have filed an important brief in support of the TC Heartland petition that I have copied below.  Their position is (1) the Federal Circuit has erred on interpreting the law; and (2) the permissive venue result has fueled many of the problems of our patent system.

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INTEREST OF AMICI[1]

Amici are 53 professors and researchers of law and economics at universities throughout the United States. We have no personal interest in the outcome of this case, but a professional interest in seeing patent law develop in a way that encourages innovation and creativity as efficiently as possible.

SUMMARY OF ARGUMENT

28 U.S.C. § 1400(b) provides that a defendant in a patent case may be sued where the defendant is incorporated or has a regular and established place of business and has infringed the patent. This Court made clear in Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222, 223 (1957), that those were the only permissible venues for a patent case.  But the Federal Circuit has rejected Fourco and the plain meaning of § 1400(b), instead permitting a patent plaintiff to file suit against a defendant anywhere there is personal jurisdiction over that defendant.  The result has been rampant forum shopping, particularly by patent trolls. 44% of 2015 patent lawsuits were filed in a single district: the Eastern District of Texas, a forum with plaintiff-friendly rules and practices, and where few of the defendants are incorporated or have established places of business.  And an estimated 86% of 2015 patent cases were filed somewhere other than the jurisdictions specified in the statute. Colleen V. Chien & Michael Risch, Recalibrating Patent Venue, Santa Clara Univ. Legal Studies Research Paper No. 10-1 (Sept. 1, 2016), Table 3. This Court should grant certiorari to review the meaning of 28 U.S.C. § 1400(b) because the Federal Circuit’s dubious interpretation of the statute plays an outsized and detrimental role, both legally and economically, in the patent system.

ARGUMENT

1. The Federal Circuit’s Expansive and Incorrect Interpretation of 28 U.S.C. § 1400(b) Allows Patentholders to Sue Anywhere in the Nation

Section 48 of the Judiciary Act of 1897 limited jurisdiction in patent cases to districts that the defendant inhabited or had a place of business and committed infringing acts. Act of March 3, 1897, c. 395, 29 Stat. 695. In 1942, this Court confirmed 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.” Stonite Prods. Co. v. Melvin Lloyd Co., 315 U.S. 561, 563 (1942).

In 1948, Congress enacted 28 U.S.C. § 1400(b), specifying that “patent venue is proper 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 1957, this Court confirmed that patent venue should not be interpreted with reference to the general jurisdiction statute, holding 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).” Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222, 223 (1957).

In 1990, the Federal Circuit declined to apply this Court’s longstanding precedent and decided that the general venue statute should define interpretation of the patent venue statute.  It made this decision on the basis of a ministerial change Congress made in 1988 to 28 U.S.C. § 1391. VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1583 (Fed. Cir. 1990). That statutory language changed the wording in 28 U.S.C. § 1391, from defining residence “for venue purposes” to defining residence “for purposes of venue under this chapter.” There was no indication that Congress intended this change to impact the patent venue statute.

The Federal Circuit’s conclusion that Congress’s ministerial change overruled this Court’s longstanding precedent is incorrect for at least two reasons.  First, it violates fundamental rules of statutory construction.  It is well-established that Congress “does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions—it does not, one might say, hide elephants in mouseholes.” Whitman v. American Trucking Assns., Inc., 531 U.S. 457, 468 (2001) (citing MCI Telecomm. Corp. v. American Tel. & Tel. Co., 512 U.S. 218, 231 (1994); FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 159-60 (2000)).

Second, the Federal Circuit’s interpretation renders the second half of § 1400(b) largely superfluous.  That section provides:

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.

The term “resides” in § 1400(b) must mean something different than having “a regular and established place of business.” Otherwise, there would have been no reason to include both provisions in the venue statute, or to link them through the disjunctive term “or.”  In Brunette, this Court, interpreting 28 U.S.C. § 1400(b) as well as 28 U.S.C. § 1391(d), confirmed that where a corporation “resides” is where it is incorporated. Brunette Mach. Works v. Kockum Indus., 406 U.S. 706, n.2 (1972).

Instead of parsing § 1400(b) carefully, the Federal Circuit has chosen to read the § 1391(c)(2) definition of corporate residence for general venue purposes into the specific patent venue provision.  In relevant part, § 1391(c)(2) provides that corporate defendants:

shall be deemed to reside . . . in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question . . . .

For patent infringement cases, the relevant aspect of personal jurisdiction is typically specific jurisdiction, which focuses on whether the defendant’s suit-related conduct establishes a “substantial connection” with the judicial forum in question.  Walden v. Fiore, 134 S.Ct. 1115, 1121 (2014).  But a corporation will have established a suit-related “substantial connection” with, and thus be subject to jurisdiction in, any district in which it “has committed acts of infringement and has a regular and established place of business.” So the Federal Circuit’s decision to read the § 1391(c) definition of “resid[ing]” into § 1400(b) renders the second half of the latter section superfluous as to corporations, a category which includes virtually all patent defendants.  A judicial reading that renders half of a statutory provision superfluous is strongly disfavored.  United States v. Jicarilla Apache Nation, 131 S.Ct. 2313, 2330 (2011) (“‘As our cases have noted in the past, we are hesitant to adopt an interpretation of a congressional enactment which renders superfluous another portion of that same law.’” (quoting Mackey v. Lanier Collection Agency & Serv., Inc., 486 U.S. 825, 837 (1988))); Babbitt v. Sweet Home Chapter of Communities for a Great Oregon, 515 U.S. 687, 698 (1995) (noting “[a] reluctance to treat statutory terms as surplusage”).

The Federal Circuit’s expansive, and we believe incorrect, interpretation of 28 U.S.C. § 1400(b) effectively allows patent owners to file suit in any federal district where an allegedly infringing product is sold.  In re TC Heartland, LLC, No. 2016-105, at 10 (Fed. Cir. Apr. 29, 2016) (holding that jurisdiction is proper in a patent suit “where a nonresident defendant purposefully shipped accused products into the forum through an established distribution channel and the cause of action for patent infringement was alleged to arise out of those activities”).  The widespread availability of products over the internet means, in effect, that patentholders can bring their suits in any district in any state in the country.

2. Permissive Venue has Fueled and Enabled Forum Shopping and Selling, Patent Trolls, and Case Concentration

The Federal Circuit’s expansive interpretation of 28 U.S.C. §1400(b) has harmed the patent system in three distinct ways. It has led to forum selling and forum shopping, it has contributed to the growth of opportunistic patent litigation by patent trolls, and it has led to undue case concentration.

Patent lawyers today spend a great deal of time figuring out the best districts in which to file patent cases, and for good reason. The district in which you file your patent case has consequences for how much your case will cost, how long it will last, and whether you will prevail in court. Mark A. Lemley, Where to File Your Patent Case, 38 AIPLA Q.J. 401 (2010); Brian J. Love & James C. Yoon, Predictably Expensive: A Critical Look at Patent Litigation in the Eastern District of Texas, Stan. Tech. L. Rev. ___ (forthcoming, 2016).

The choice of venue enabled by the Federal Circuit’s liberal interpretation of the statute has created an incentive for courts to differentiate themselves in order to compete for litigants and “sell” their forum to prospective plaintiffs. See J. Jonas Anderson, Court Competition for Patent Cases, 163 U. Pa. L. Rev. 631 (2015); Daniel M. Klerman & Greg Reilly, Forum Selling, 89 S. Cal. L. Rev. 241 (2016).

Among district courts, the Eastern District of Texas is the clear forum of choice for patent plaintiffs. It has been the most popular venue for patent cases in eight of the last ten years. Chien & Risch, supra at 3.  Whether intentionally or not, judges in the Eastern District of Texas have adopted rules and practices relating to case assignment, joinder, discovery, transfer, and summary judgment that attract patent plaintiffs to their district. Klerman & Reilly, supra; Matthew Sag, IP Litigation in U.S. District Courts: 1994-2014, 101 Iowa L. Rev. 1065 (2016) (detailing evidence of “forum selling” and five advantages to plaintiffs of filing suit in the Eastern District of Texas).

A study of all patent cases filed from 2014 to June 2016 quantifies some of the advantages. Love & Yoon, supra.  Compared to their colleagues across the nation, judges in the Eastern District of Texas take 150 additional days on average to rule on motions to transfer, id. at 15, and are 10 percentage points less likely to stay the case in favor of an expert adjudication on the validity of the patent by Patent and Trademark Office (PTO) in inter partes review, id. at 26., despite the fact that patents asserted in the Eastern District of Texas are challenged in inter partes review more often than patents asserted in any other district. Saurabh Vishnubhakat, Arti Rai, & Jay Kesan, Strategic Decision Making in Dual PTAB and District Court Proceedings, 31 Berkeley Tech. Law J. 45, 109 (2016).  At the same time, judges in the Eastern District of Texas have adopted discovery rules that begin earlier, end sooner, and require broader disclosure than just about anywhere else in the country. Love and Yoon, supra at 19-22 (comparing discovery and other pretrial deadlines applicable in the Eastern District of Texas and District of Delaware).  In combination, relatively early and broad discovery requirements and relatively late rulings on motions to transfer ensure that defendants sued in the Eastern District of Texas will be forced to incur large discovery costs, regardless of the case’s connection to the venue.

However, not all types of plaintiffs choose to take advantage of the leverage that these rules and procedures make possible.  Patent assertion entities (PAEs), or patent “trolls” use patents primarily to gain licensing fees rather than to commercialize or transfer technology. Colleen V. Chien, From Arms Race to Marketplace: The Complex Patent Ecosystem and Its Implications for the Patent System, 62 Hastings L.J. 297 (2010) Trolls make particular use of the advantages provided by the Federal Circuit’s permissive approach to forum shopping. Since 2014, over 90 percent of patent suits brought in the Eastern District of Texas were filed by trolls established for the purpose of litigating patent suits.  Love & Yoon, supra at 9. By contrast, operating companies, individuals, and universities are more likely to sue in other districts.  Chien & Risch, supra at 3-4, 40.

The troll business model explains this difference in behavior. As the FTC’s recent report describes, “litigation PAEs” sign licenses that are “less than the lower bounds of early stage litigation costs,” a finding “consistent with nuisance litigation, in which defendant companies decide to settle based on the cost of litigation rather than the likelihood of their infringement.” Federal Trade Commission, Patent Assertion Entity Activity: An FTC Study, https://www.ftc.gov/reports/patent-assertion-entity-activity-ftc-study.   Rather than a decision on the merits and damages commensurate with the value of patented technology, litigation PAEs instead seek to leverage the high cost of litigation to coerce nuisance-value settlements keyed not to the merits of the lawsuit, but the cost of litigation.  Mark A. Lemley & A. Douglas Melamed, Missing the Forest for the Trolls, 113 Colum. L. Rev. 2117 (2013). Further, unlike operating companies that sell products, litigation PAEs generally lack customers and regular operations and therefore have the flexibility to incorporate and file suit based solely on litigation considerations, through shell companies or otherwise.

While forum shopping in general impairs the operation of law, disadvantages those who lack the resources to engage in forum shopping, and creates economic waste, Jeanne C. Fromer, Patentography, 85 N.Y.U. L. Rev. 1444, 1464-1465 (2010), the rise of the troll business model exacerbates these problems in patent litigation, creating a particularly urgent need for the Court to hear this case. This Court has previously warned against the problems of abusive patent litigation.  More than a century ago, it worried about the rise of “a class of speculative schemers who make it their business to watch the advancing wave of improvement, and gather its foam in the form of patented monopolies, which enable them to lay a heavy tax upon the industry of the country, without contributing anything to the real advancement of the arts.”  Atlantic Works v. Brady, 107 U.S. 192, 200 (1883).  And in Commil v. Cisco, this Court said:

The Court is well aware that an “industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees.” eBay Inc. v. MercExchange, L. L. C., 547 U. S. 388, 396 (2006) (KENNEDY, J., concurring). Some companies may use patents as a sword to go after defendants for money, even when their claims are frivolous.

576  U.S. __, 135 S.Ct. 1920 (2015).

Because troll suits now dominate patent litigation nationwide, their filing patterns have led to an overall concentration of 44% of all patent cases in the Eastern District of Texas in 2015. Among cases initiated 2014 through 2016, one U.S. District Judge on the Eastern District of Texas—Judge Rodney Gilstrap of Marshall, Texas—was assigned almost one quarter of all patent case filings nationwide, more than the total number of patent cases assigned to all federal judges in California, New York, and Florida combined.[2]

This level of concentration is a problem for the legal system whatever one thinks of the decisions of the Eastern District of Texas and regardless of how fair and capable the judges there are. Simply from a logistical standpoint, the current caseload in the Eastern District of Texas is problematic.  If even 10 percent of the 1,686 patent cases assigned to Judge Gilstrap in 2015 go to trial, he will need to preside over three to four patent trials per week every week for an entire year to avoid creating a backlog.

Further, when Congress decided to consolidate patent appeals in the newly-created United States Court of Appeals for the Federal Circuit, it deliberately chose to include both appeals from the United States Patent and Trademark Office and the district courts, so the new court would not hear only appeals from patent owners.  And it considered and rejected proposals to create a specialized district court to hear patent cases.  But the Federal Circuit’s interpretation of § 1400(b) has in practice created just such a court.

The current distribution of patent litigation filings is the result of strategic behavior by a specific type of patent enforcer, not an artifact of proximity to the original locus of invention or alleged infringement. Forum-shopping plaintiffs will naturally gravitate towards whatever district seems to have the most favorable rules. The effect of the Federal Circuit’s decision to expand patent venue beyond the scope of the statute and this Court’s decisions has been to create a de-facto specialized patent trial court, one chosen by litigants on one side rather than by Congress.

CONCLUSION

The Federal Circuit’s permissive venue rule has fundamentally shaped the landscape of patent litigation in ways that harm the patent system, by enabling extensive forum shopping and forum selling, supporting opportunistic patent litigation by patent trolls, and creating undue case concentration.  This Court should grant certiorari in order to curb abuse of venue based on its misinterpretation of § 1400(b).

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[1] No person other than the amici and their counsel participated in the writing of this brief or made a financial contribution to the brief. Letters signifying the parties’ consent to the filing of this brief are on file with the Court.

[2] According to Lex Machina, between January 1, 2014 and June 30, 2016 Judge Gilstrap was assigned 3,166 new patent suits, more than the combined total of all district courts in California, Florida, and New York: 2,656. Love & Yoon, supra, at 5 (collecting these statistics).

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Signed, Professor John R. Allison (Texas); Professor Margo Bagley (Emory); Professor James Bessen (BU); Professor Jeremy Bock (Memphis); Professor Daniel H. Brean (Akron); Professor Michael A. Carrier (Rutgers); Professor Michael W. Carroll (American); Professor Bernard Chao (Denver); Professor Tun-Jen Chiang (George Mason); Professor Colleen V. Chien (Santa Clara); Professor Andrew Chin (UNC); Professor Robert Cook-Deegan (ASU); Professor Rochelle Dreyfuss (NYU); Dr. Dieter Ernst (Honolulu); Professor Robin C. Feldman (Hastings); Professor Lee Fleming (Berkeley); Professor Brian Frye (Kentucky); Professor William Gallagher (Golden Gate); Professor Shubha Ghosh (Wisconsin); Professor Eric Goldman (Santa Clara); Professor Bronwyn H. Hall (Berkeley); Professor Yaniv Heled (Georgia State); Professor Christian Helmers (Santa Clara); Professor Joachim Henkel (Technische Universität München); Professor Susan Helper (CWRU); Professor Tim Holbrook (Emory); Professor Herbert Hovenkamp (Iowa); Professor William Hubbard (Baltimore); Dr. Xavier Jaravel (Stanford); Professor Dennis S. Karjala (ASU); Professor Peter Lee (UC Davis); Professor Mark A. Lemley (Stanford); Professor David K. Levine (WashU); Professor David S. Levine (Elon); Professor Doug Lichtman (UCLA); Professor Yvette Joy Liebesman (SLU); Professor Orly Lobel (USD); Professor Brian Love (Santa Clara); Professor Phil Malone (Stanford); Professor Michael J. Meurer (BU); Dr. Shawn Miller (Stanford); Professor Matthew Mitchell (Toronto); Professor Susan Barbieri Montgomery (Northeastern); Professor Sean Pager (Michigan State); Professor Arti K. Rai (Duke); Professor Jacob H. Rooksby (Duquesne); Professor Jorge R. Roig (Charleston); Professor Matthew Sag (Loyola Chicago); Professor Pamela Samuelson (Berkeley); Ana Santos Rutschman (DePaul); Professor Lea Bishop Shaver (Indiana); Professor John L. Turner (Georgia); Professor Jennifer Urban (Berkeley); Professor Eric von Hippel (MIT).

Supreme Court Update: Extending the ITC’s Reach Beyond US Borders

by Dennis Crouch

Constitutional Challenge to Inter Partes Review: Although the Constitutional issues in Cooper v. Lee and MCM v. HP were law-professor-interesting, they were not substantial enough for certiorari.  The Supreme Court has now denied the Cooper and MCM petitions — leaving the IPR regime unchanged.  Although Cooper v. Square is still pending, its chances are slight. The Supreme Court has also denied certiorari in Encyclopaedia Britannica (malpractice), Gnosis (appellate review), and GeoTag (case-or-controversy).

A new 101 Challenge: In its first conference of the term, the Supreme Court denied all of the pending petitions regarding patent eligibility.  However, Trading Technologies has filed a new petition asking whether a new card game is categorically unpatentable so long as it uses a standard deck (rather than a novel deck) of cards.  My post on the case asks: Does the Patent Statute Cabin-in the Abstract Idea Exception?  That question references Section 100 of the Patent Act that expressly allows for the patenting of new use of a known manufacture.

Extra Territoriality of Trade Secrecy Law: On the trade secrecy front, Sino Legend has petitioned to review the Federal Circuit’s affirmance of the International Trade Commision’s ban on Legend’s importation of rubber resins used for tire production. The underlying bad-act was a trade secret misappropriation that occurred in China and the question on appeal asks: Whether Section 337(a)(1)(A) permits the ITC to adjudicate claims regarding trade secret misappropriation alleged to have occurred outside the United States.  A Chinese court looked at the same case and found no misappropriation.

Design Patent Damages: Oral arguments were held earlier this week in Samsung v. Apple. During the arguments, all parties agreed that (1) the statute does not allow for apportionment of damages but rather requires profit disgorgement; (2) the article-of-manufacture from which profits can be calculated may be a component of the product sold to consumers; and (3) the determination of what counts as the article-of-manufacture is a question of fact to be determined by the jury.   The only dispute then was on the factors that a jury should be considered and when the “inside gears” of a product should ever be included in the calculation.

Upcoming Supreme Court Oral Argument: SCA Hygiene (laches) on November 1; Star Athletica (copyright of cheerleader outfit) on October 31.

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