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Article: Historic Mandamus Petition May Reduce Size of E.D. Tex. Patent Docket: In re TC Heartland LLC, Case No. 16-105 (Fed Cir. 2015)

April 01, 2016
Business Litigation Reports

Almost half the new patent cases filed in the 94 federal judicial districts in the United States in 2015 were filed in the Eastern District of Texas. The next most popular district, the District of Delaware, saw about one fourth as many cases. A petition for a writ of mandamus filed with the Federal Circuit is poised to alter this landscape significantly if the Petitioner is successful.

Petitioner TC Heartland LLC seeks to remove an ongoing patent suit related to liquid water sweeteners filed by Respondent Kraft Foods Group Brands LLC from the District of Delaware to the Southern District of Indiana, where it is based. Respondent is a Delaware corporation. Petitioner had moved for the district court to dismiss or transfer the case, and it filed a writ of mandamus with the Federal Circuit when the district court denied its motion. Highlighting the petition’s importance is the fact that several major technology firms have filed amicus curiae briefs. The central question is whether 28 U.S.C. § 1400(b) precludes the district court from hearing a patent infringement case in a district other than those where defendants are incorporated or where they have a regular and established place of business. Should Petitioner succeed, proper venue in patent suits in the Eastern District of Texas would be much more difficult to establish. Meanwhile, other districts such as the District of Delaware or the Northern District of California would likely see a marked increase in patent cases on their dockets.

The text of 28 U.S.C. § 1400(b) states that “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.” At issue is the proper interpretation of the term “resides.” 28 U.S.C. § 1391(c) defines the term to include both the district in which a defendant is domiciled as well as any district in which the defendant is subject to the court’s personal jurisdiction with respect to the civil action in question.

Competing Interpretations
Petitioner argues that the broad definition of “resides” advanced in § 1391(c) does not supplement the language in § 1400(b). The Supreme Court reached the same conclusion in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957). However, Congress amended § 1391(c) in 1988, which provided the basis for the Federal Circuit in VE Holding Corp. v. Johnson Gas Appliance Co. to determine that Congress had overturned Fourco by adding language indicating that the provision supplied the residency definition “for the purposes of venue under this chapter,” which would have included § 1400(b). 917 F.2d 1574 (Fed. Cir. 1990). In 2011 Congress again amended § 1391, but this time it removed the language the Federal Circuit had relied upon in VE Holding and replaced it with language stating that § 1391 governed venue in all civil actions brought in district courts of the United States “except as otherwise provided by law.” In light of this history, Petitioner argues that because § 1400(b) provides venue requirements separately from § 1391, the 2011 amendments exclude it from the “resides” definition of § 1391(c). Alternatively, Petitioner argues that the Federal Circuit’s holding in VE Holding was a mistaken interpretation of the 1988 amendments to § 1391(c), which Congress never intended to have the effect of overturning Fourco, and the Federal Circuit should revisit the question en banc. Because the Federal Circuit may only overturn its own precedent en banc, Petitioner would first need to convince the Federal Circuit to hear the petition en banc before it could ultimately succeed on the basis of the VE Holding argument in front of the entire Federal Circuit bench. Finally, Petitioner also advances a third argument that district courts lack specific jurisdiction over acts of infringement that occurred outside of the forum, so defendants would not “reside” within the forum under either interpretation of § 1391(c) for the purposes of such acts of infringement.

Respondent argues in response that the 2011 amendments to § 1391 actually broadened the ambit of the provision by extending it from one specific chapter to all venue statutes in the U.S. Code, so interpreting these amendments as limiting its effect on § 1400(b) would be misguided. Further, Respondent challenges the applicability of the “except as otherwise provided by law” language in § 1391, arguing that § 1400(b) does not actually provide a separate definition of corporate residence as § 1391(c) does. Respondent also makes a separation of powers argument that the Federal Circuit should not disrupt Congress’s intent by drastically altering venue law and overturning VE Holding en banc. Finally, Respondent contends that Petitioner’s personal jurisdiction arguments disregard existing precedent and the language of The Patent Act authorizing redress for acts of infringement regardless of where they occurred.

An amicus brief filed by many frequent defendants argued that the current state of patent venue law has empowered forum shopping. Though Amici did not name the Eastern District of Texas directly, the brief refers to a “single district” where “40 percent of patent suits are filed.” They argued that patent owners with “questionable patents” purposely filed suit in districts that would favor them strategically because they were “least likely to promptly stay a patent suit pending patent office review proceedings, least likely to grant an early motion to dismiss under Section 101 of the Patent Act, and least likely to allow an early summary judgment motion of noninfringement or invalidity.” They contend that this situation runs “plainly contrary to Congress’s intent in enacting laws about venue.” The brief went on to argue that such a regime “shields the weakest patents from the necessary scrutiny” and discourages negotiation as an alternative to filing suit. They also argue, like Petitioner, that the Federal Circuit’s holding in VE Holding was an incorrect interpretation of the changes to the venue statutes.

Another amicus brief filed by patent licensors and inventors argued against granting the petition on the basis that it would lead to “absurd results.” The brief suggested that Petitioner’s proposed interpretation would work a de facto grant of immunity for foreign defendants against patent infringement claims, as plaintiffs would be left without any venue in which to sue such defendants not incorporated in the United States. Amici also contend that Petitioner’s reliance on Fourco is misplaced, as there the Supreme Court relied heavily for its definition of corporate “residency” on Shaw v. Quincy Mining, which had been decided in 1892. They contend that, at the very least, Congress had overturned these decisions when it enacted its 2011 amendments broadening the definition of “residency.” They also attacked the arguments advanced in the opposing amici about forum shopping as having “falsely accused U.S. Courts of corruption,” and calling such accusations “highly inappropriate and inflammatory.” Finally they contend that such efficiency arguments do not withstand scrutiny as defendants often “seek to make the matter less efficient and more burdensome to patent holders” by endeavoring to have their cases transferred. Should the Federal Circuit grant rehearing en banc, it is expected that many other companies would use the longer briefing period to file their own amicus briefs in support or opposition to the petition.

Coming Resolution
Oral argument was held on March 11, 2016. Opening its oral argument, Petitioner argued that “This case turns on the meaning of six words: ‘Except as otherwise provided by law.’” The judicial panel hearing the case was composed of Judge Kimberly A. Moore, Judge Evan J. Wallach, and Judge Richard Linn. The panel asked pointed questions during Petitioner’s argument, suggesting that they may not be sympathetic to the arguments in favor of granting the writ. At one point Judge Moore asked, without giving an opinion on the merits of the effects of the current patent venue regime, whether this was a decision better left to the legislature rather than the Federal Circuit. When she went on to express suspicion about Petitioner’s statutory arguments, pointing to the recent failure of several patent reform bills, Petitioner responded that the Supreme Court had found “congressional inaction is to be given very little weight in the interpretive process.” Judge Wallach questioned why a writ of mandamus was necessary absent some showing of irreparable harm that Petitioner could not cure through a standard appeal. Drawing on this suggestion, Respondent pointed out that it was the only party who would be harmed by litigating in Delaware, because when it sought a stay of the case pending IPR proceedings, TC Heartland pushed for the Delaware case to proceed. Respondent also argued that, if the central problem is a surfeit of patent litigation in the Eastern District of Texas, then the Federal Circuit should not decide this issue in a case originating in the District of Delaware. Instead, the Federal Circuit should wait to decide this question until a litigant had suffered injury in virtue of a case which had been brought in that venue. The panel was less active during Respondent’s oral argument than it had been during that of Petitioner.

Even if Petitioner is unsuccessful before the three-judge panel who heard oral arguments on March 11th, the Federal Circuit may still decide to hear the case en banc, where it would be able to overturn its decision in VE Holding. It is possible that such a panel would be willing to revisit the standard, as the Federal Circuit has seen significant turnover in recent years. Over half of the 12 judges currently on the bench have been appointed since 2010—twenty years after the Federal Circuit first announced the rule in VE Holding.

Congress may step in to resolve this question on its own. A bill currently under consideration, Innovation Act, H.R. 9, would make it so that patent cases could only be filed in districts where the Defendant has its principal place of business, a party has a facility related to the infringement—such as a research or manufacturing facility related to the patented invention—or districts where the inventor named on the patent conducted research or development. This would effectively overturn the Federal Circuit’s precedent in VE Holding. The House Judiciary Committee voted 24-8 to approve the bill in June of 2015. Committee Chairman Bob Goodlatte, R-Va., then announced, “Today in this committee, we are taking a pivotal step toward eliminating the abuses of our patent system, discouraging frivolous patent litigation and keeping U.S. patent laws up to date.” Most recently, the Senate Committee on Small Business and Entrepreneurship held hearings on the bill in February along with a related Senate bill, Patent Act, S.1137. Opponents of the bill argue that it would weaken intellectual property rights and make it more difficult for legitimate patent owners to protect their inventions. However, it may be difficult for Congress to pass significant patent litigation during an election year in any case. Perhaps sensing this and instead attempting to enact piecemeal legislation, Senators Jeff Flake, R-AZ, and Cory Gardner, R-CO, recently teased plans to introduce a bill titled “Venue Equity and Non-Uniformity Elimination Act of 2016,” which is limited to the venue issue, adopts a construction similar to that of the Innovation Act, and explicitly allows for mandamus relief for any “clearly and indisputably erroneous denial” of a motion to dismiss or transfer in light of improper venue. Senators Flake and Gardner promise that they have arranged for bipartisan co-sponsorship of the bill’s introduction.

The Federal Circuit is likely to reach its decision before Congress enacts any reforms. Should the Federal Circuit grant the petition for writ of mandamus, it is clear that plaintiffs will have more difficulty availing themselves of proper venue in the Eastern District of Texas. This will significantly change the landscape of patent litigation. However, if the appellate court denies Petitioners their requested relief, it is unlikely to seriously consider this issue again in the near future as the structure adopted in VE Holding will have been explicitly adopted following Congress’s 2011 amendments, and the issues were ably and cogently briefed by all parties.