SCOTUS decision in TC Heartland curtails venue in patent cases

In TC Heartland LLC v. Kraft Foods Group Brand LLC, decided May 22, 2017, the Supreme Court clarified where venue is proper in patent infringement cases.  In particular, the Supreme Court’s decision spelled out that a defendant’s “residence” for determining venue is limited to its state of incorporation.

The patent venue statute, 28 USC 1400(b), provides that “[a]ny civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” Many courts, including the Federal Circuit, previously concluded that the meaning of “resides,” as stated in the first clause of Section 1400(b), necessarily incorporated the expansive definition of “residence” found in the general venue statute, 28 U.S.C. 1391.  Section 1391 states “[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.”  Practically, then, under previous case law a defendant could be sued for patent infringement in any judicial district in which it conducted business.

In TC Heartland, the Supreme Court rejected this expansive interpretation, holding that under Section 1400, “residence” is limited to only the corporation’s state of incorporation.  The decision reverses the Federal Circuit’s twenty-five year old decision in VE Holding, but aligns with the Supreme Court’s previous (and unambiguous) ruling in Fourco Glass Co. v. Transmirra Products Corp., 353 U. S. 222 (1957).  As a result of TC Heartland, plaintiffs are now limited to selecting venue in either a defendant’s state of incorporation, or alternatively, districts in which infringement occurred and the defendant has an established place of business.

By limiting the definition of residence, the TC Heartland decision renews the importance of the second clause of 28 USC 1400(b), which states venue is proper where “the defendant has committed acts of infringement and has a regular and established place of business.”  To determine where a company has a regular and established place of business, one should look to the Federal Circuit’s In re Cordis decision. In re Cordis Corp., 769 F.2d 733, 737 (Fed. Cir. 1985). In re Cordis states the key inquiry is “whether the corporate defendant does its business in that district through a permanent and continuous presence” and not “whether it has a fixed physical presence in the sense of a formal office or store.”  Factors used in determining whether a company has an established place of business in a district include a company’s control over its physical space in the district, permanence of any presence in the district, the authority of employees to bind the company in the district, and the exclusivity of employees operating on behalf of the company within the district. Id. at 735.

Moving forward, districts with the lion’s share of patent litigation will likely be those with the greatest number of patent infringement defendants incorporated within the state (e.g., Delaware), districts with the greatest number of corporations having a principal place of business (e.g., headquarters) within the state, and districts with the greatest number of corporations with physical facilities (e.g., manufacturing facilities).

Finally, the Court did not answer the question of how its ruling impacts foreign corporations, perhaps paving the way for an increase in venue disputes in cases involving foreign defendants. With that in mind, currently-popular patent litigation venues may remain so for cases against foreign defendants over the short term.