Supreme Court Decision Will Result in Fewer Patent Suits in Eastern District of Texas

In a decision likely to alter the current patent litigation landscape, the Supreme Court today ruled that patent infringement lawsuits may only be filed in a district where a defendant is either (a) incorporated or (b) has committed acts of infringement and has a regular and established place of business. Prior to today’s Supreme Court decision in TC Heartland v. Kraft Foods Group Brands, the Federal Circuit and district courts had interpreted the general federal venue section (28 U.S.C. § 1391) and the patent-specific venue section (28 U.S.C. § 1400(b)) together to permit suit anywhere a defendant is subject to personal jurisdiction. This interpretation allowed defendants to be sued in districts with which they had little connection such as, most notably, the Eastern District of Texas.

Today, the unanimous Supreme Court made clear that this decades-old interpretation is wrong. The decision marks a shift in patent venue and likely will result in an exodus of cases from the Eastern District of Texas to other popular jurisdictions such as the District of Delaware (where many patent litigation defendants are incorporated) or the Northern District of California (where many patent litigation defendants have established places of business). Although the decision is unlikely to reduce patent litigation, it will redistribute where in the country those cases are filed.

Sixty years ago, in Fourco Glass v. Transmirra Products (1957), the Supreme Court held that a defendant in a patent litigation could be sued only where it was incorporated or where it committed an act of infringement and had a regular and established place of business. While Fourco appeared to resolve the issue of venue in patent cases, Congress reanimated the issue when it amended the general venue section in 1988. In light of this amendment, the Federal Circuit in VE Holding v. Johnson Gas Appliance (1990) held that the definition of “resides” in the general venue section governed the meaning of that term in the patent-specific venue section, and therefore a defendant could be sued in any district that had personal jurisdiction over it.

Today, the Supreme Court reversed VE Holding. Because the patent-specific venue section has not been amended since the Fourco decision, the Court held that neither Congress’s 1988 amendment to the general federal venue section nor its subsequent amendment in 2011 were intended to alter Fourco’s interpretation of the patent-specific venue section. Accordingly, the Court concluded that Fourco remains the law and that a corporation may only be sued for patent infringement in the district of its incorporation or a district where it has both committed acts of infringement and has a regular and established place of business.

What now? Most scholars predicting the fall-out from TC Heartland expect that the Eastern District of Texas will lose a significant number of the patent cases it typically handles. For example, one study suggests that the percentage of all U.S. patent suits that are filed in the Eastern District of Texas will drop from 44% to 15%. To counterbalance that drop, other districts will see a sharp rise in the cases filed. The same study expects that the District of Delaware will become the top patent litigation district in the country with 24% of all patent suits filed there, while the Northern District of California would roughly match the recalibrated popularity of the Eastern District of Texas with 13% of all patent suits.

As for existing suits, while each case is different, defendants currently finding themselves litigating in a judicial district in which they are neither incorporated nor operating a regular and established place of business may look to exit the district via motions to dismiss or transfer. Such future motions will begin to resolve questions left unresolved by TC Heartland, such as just how “regular” and “established” a place of business must be under the patent-specific venue section and where an unincorporated entity “resides.” Some decisions suggest that even the relatively transitory presence of a sales representative in a state, without any formal office or other facilities, can amount to having a regular and established place of business. On remand, and in future cases, the Federal Circuit may begin to provide clarity to these questions and others.

Although TC Heartland makes it more difficult for non-practicing entity plaintiffs to file suits against non-Texas companies in the Eastern District of Texas, it is reasonable to expect that such plaintiffs will implement creative strategies to secure their preferred forum. For example, a plaintiff may sue only the foreign parent corporation of a U.S. company. As such foreign parent corporations may in some cases be subject to venue in any judicial district, the plaintiff would be able to file suit in the Eastern District of Texas and bring pressure on the unnamed U.S. subsidiary to join the suit in that forum. Similarly, plaintiffs may be more inclined to sue customers that have a “regular and established” place of business in the Eastern District of Texas even if the true target of the suit is a non-Texas manufacturer.

Please feel free to contact us if you have any questions or would like to discuss how this decision affects your IP strategy.