Supreme Court might end Texas’ preferred patent venue status, attorneys say

December 21, 2016

The Kraft logo is pictured outside its headquarters in NorthfieldThe U.S. Supreme Court has agreed to hear an appeal over where Kraft Foods can sue TC Heartland for patent infringement, and some attorneys observing the case say it could result in fewer patent litigants heading to Texas.

The high court accepted sweetener maker TC Heartland LLC’s petition to consider whether the proper venue for an infringement suit should be only where an accused infringer is either incorporated or has a place of business.

TC Heartland had argued to the U.S. Court of Appeals for the Federal Circuit that the patent venue statute, 28 U.S.C.A. § 1400(b), dictates this result, but a three-judge panel rejected the company’s argument. In re TC Heartland LLC, 821 F.3d 1338 (Fed. Cir. 2016).

Kraft Foods Group Brands LLC is based in Northfield, Illinois, and incorporated in Delaware. TC Heartland is headquartered in Carmel, Indiana, and operates under Indiana laws.

The Federal Circuit affirmed Kraft’s choice to sue TC Heartland in the U.S. District Court for the District of Delaware, saying changes made in 1988 to the general venue statute, 28 U.S.C.A. § 1391, allowed the food giant to file its suit in that venue.

TC Heartland’s objection to Kraft’s venue choice reflects concerns that accused infringers are sometimes disadvantaged by where patent holders file their suits.

Victor C. Johnson

Victor C. Johnson

Hot topic

“Venue has become a hot topic for patent cases over the last few years, with the concentration of patent cases being filed year after year in the Eastern District of Texas,” Dykema intellectual property attorney Victor Johnson said.

Johnson, who works in Texas, noted that nearly 45 percent of all U.S. patent cases filed in 2015 were in the U.S. District Court for the Eastern District of Texas.

“If the court reverses the Federal Circuit … such a change could fundamentally change where patent cases are heard and even potentially end the Eastern District of Texas’ dominance over the cases filed in that venue,” Johnson said.

Byron L. Pickard

Byron L. Pickard

Byron L. Pickard, director of Sterne, Kessler, Goldstein & Fox’s litigation group in Washington, agreed that the high court’s decision could end the Eastern District of Texas’ role as a major patent venue.

“This case presents the court with an opportunity to severely curtail, if not entirely eliminate, a plaintiff’s ability to pick [the] venue in a patent infringement suit by restricting patent suits to the defendant’s place of incorporation,” Pickard said.

Tom Duston, an IP partner at Marshall, Gerstein & Borun in Chicago, made a prediction about Delaware, a state where a disproportionately large number of U.S. companies are incorporated.

“If TC Heartland prevails, the vast majority of patent cases will be heard in the District of Delaware, and the patent infringement industry in East Texas will evaporate,” Duston said. “Delaware is going to need some more judges.”

Tom Duston

Tom Duston

Forum-shopping

Before the high court accepted TC Heartland’s appeal, a group of internet companies, retailers and associations supported the petition, criticizing the Federal Circuit’s decision and a system that they said permits “rampant forum-shopping.” TC Heartland LLC v. Kraft Foods Grp. Brands LLC, No. 16-341, amici brief filed, 2016 WL 5543364 (U.S. Sept. 27, 2016).

“If plaintiffs can sue alleged corporate infringers in any district in the country, it only stands to reason that they will choose to do so in the handful of districts where they are most likely to prevail or to extract a settlement,” the amici brief said.

A group of 56 law professors filed another friend-of-the-court brief in October that echoed the internet companies’ views. The professors said allowing patent holders to file suit where any alleged infringing product is sold enables “patent trolls.” TC Heartland LLC v. Kraft Foods Grp. Brands LLC, No. 16-341, amici brief filed, 2016 WL 6124403 (U.S. Oct. 17, 2016).

Such forum-shopping is unfair to those who lack the resources to “shop” for a forum that might provide a litigation advantage, according to the brief. It is a strategy the professors say is part of the “troll business model.”

These so-called patent trolls have chosen the Eastern District of Texas as a “clear forum of choice,” the brief says.

“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,” the brief said.

Kraft in Delaware

Kraft chose the Delaware federal court for its 2014 suit accusing TC Heartland of infringing U.S. Patent Nos. 8,293,299; 8,511,472; and 8,603,557, each covering containers and methods for dispensing concentrated liquids. Kraft Foods Grp. Brands LLC v. TC Heartland, No. 14-cv-28, complaint filed, 2014 WL 189801 (D. Del. Jan. 14, 2014).

TC Heartland objected, saying it only shipped products to Delaware for two national accounts — it did not enter into supply contracts in or solicit sales from the state — and that the connection was insufficient to support the venue choice.

The zero-calorie sweetener maker asked the court to dismiss for lack of personal jurisdiction or transfer the dispute to the Southern District of Indiana.

U.S. Magistrate Judge Christopher J. Burke of the District of Delaware recommended denying the motion. Kraft Foods Grp. Brands LLC v. TC Heartland, No. 14-cv-28, 2015 WL 4778828 (D. Del. Aug. 13, 2015).

Judge Burke also ruled out the venue-change request, saying a patent infringement action can be brought in any forum that has personal jurisdiction over the defendant.

U.S. District Judge Leonard P. Stark agreed with the recommendations and denied the dismissal motion and transfer request. Kraft Foods Grp. Brands LLC v. TC Heartland, No. 14-28, 2015 WL 5613160 (D. Del. Sept. 24, 2015).

VE Holding

TC Heartland sought immediate relief from the Federal Circuit.

The Federal Circuit had said in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), that 1988 amendments to the general venue statute, 28 U.S.C.A. § 1391, impacted venue choices for patent holders.

As a result of those 1988 changes, a patent infringement action has been allowed in any forum that has personal jurisdiction over the defendant.

TC Heartland did not dispute this, but argued that the 2011 Federal Courts Jurisdiction and Venue Clarification Act, Pub. L. 112-63, §202, 125 Stat. 758, which amended Section 1391(c) of the same statute, overturned VE Holding.

The company said Congress intended for the 2011 amendments to include federal common law, and this reverted venue rules to their pre-1988 status, when venue choices were more restrictive.

“We find this argument to be utterly without merit or logic,” the three-judge Federal Circuit panel said.

TC Heartland could neither show that the 2011 act was intended to embrace common law nor that the common law supports its position, the panel said, denying mandamus relief.

Practical effects

TC Heartland filed its certiorari petition in September, asking the high court to find that VE Holding is no longer good law. TC Heartland LLC v. Kraft Foods Grp. Brands LLC, No. 16-341, petition for cert. filed, 2016 WL 4983136 (U.S. Sept. 12, 2016).

TC Heartland listed numerous reasons for granting the petition, arguing that forum-shopping has been undermining public patent policy.

After TC Heartland filed its petition, the Electronic Frontier Foundation and Public Knowledge filed an amici brief noting the “practical effects” of current patent venue law. TC Heartland LLC v. Kraft Foods Grp. Brands LLC, No. 16-341, amici brief filed, 2016 WL 5957541 (U.S. Oct. 12, 2016).

That brief said one judge in the Eastern District of Texas heard almost a fourth of all U.S. patent cases from 2014 through 2016, despite the fact that the district has a small population and no major technology industry.

“It is clear that parties are engaged in forum-shopping. It is also clear that the Eastern District of Texas is not an appropriate forum for many of those that are sued for patent infringement,” the brief said.

Leave it to Congress?

Kraft filed its opposition brief in November, supporting the Federal Circuit’s interpretations of the 1988 venue statute and the 2011 amendments. TC Heartland LLC v. Kraft Foods Grp. Brands LLC, No. 16-341, opposition brief filed, 2016 WL 6873253 (U.S. Nov. 16, 2016).

The brief recognized the prevalence of Texas patent cases but said current venue laws give patent holders choices.

The brief also recognized that some have urged Congress to introduce new legislation to prevent forum-shopping.

“However urgent the issue of patent venue reform may be, it is an issue that must be left to Congress,” Kraft said.

The high court should hear arguments in the case in 2017.

TC Heartland LLC v. Kraft Foods Group Brands LLC, No. 16-341, cert. granted, 2016 WL 4944616 (U.S. Dec. 14, 2016).