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Article: August 2017: Supreme Court Highlights Importance of Statute-Specific Venue Rules

Business Litigation Reports

The Supreme Court upended nearly thirty years of practice when it ruled, in the TC Heartland LLC v. Kraft Foods Group Brands LLC U.S. , 137 S.Ct. 1514 (May 22, 2017), that actions for patent infringement may only be brought in the location the alleged infringement occurred or in the alleged infringer’s state of incorporation. The decision alters the approach patent plaintiffs and courts must use to determine what venue is appropriate for each case. The decision also shines a spotlight on one of the more confusing aspects of federal civil procedure: the question of residence for the purpose of venue.

Venue and Residence: A Historical Overview
Unlike the doctrines of personal and subject-matter jurisdiction, which concern the authority of a court to adjudicate a dispute, the rules of venue dictate which courts among the 94 federal judicial districts are available as a forum for the litigants. Since 1789, Congress has provided specific criteria for identifying the appropriate court or courts—but those criteria have changed over time.

Initially, venue in a civil suit was proper both where the defendant was an “inhabitant” and where the defendant could “be found” to be served with process. This came to be seen as subject to abuse, as it allowed plaintiffs to force defendants to litigate away from their home states if they happened to become subject to service of process by, for example, travelling to another state. Congress therefore amended the law in the late 19th century, restricting venue to the district in which the defendant was an “inhabitant” (or, in a case between citizens of different states, the district where either party was an “inhabitant”).

These early venue statutes naturally raised the question of where exactly a party was an “inhabitant,” especially if the party in question was a corporation. The answer, according to an 1892 Supreme Court case, was that a corporation was an “inhabitant” only of the state in which it was incorporated.

As a result, a corporation could only be sued in a civil suit in the federal courts in its state of incorporation (or in the state of the plaintiff’s incorporation, if different), regardless of where the alleged wrongdoing took place and regardless of whether the corporation was subject to the jurisdiction of federal courts in other states.

With the continued growth and increased national scope of corporate activity in the first half of the twentieth century, the strict limits on venue in cases involving corporate defendants came to be seen as unfair to plaintiffs. If, for example, a Connecticut corporation was doing business in New Jersey and its activities caused injury to a resident of Virginia travelling through New Jersey on her way to New York, the plaintiff would be forced to choose between filing suit in Virginia or in Connecticut; the federal courts in New Jersey, closest to the activities giving rise to the claim, would be unavailable as a venue for the claim.

In response to such concerns, Congress once again liberalized the venue rules in 1948 by passing what has come to be known as the “General Venue Statute” (codified at 28 U.S.C. § 1391), which substituted the term “resident” for “inhabitant” in the prior law and also, for the first time, expressly defined the residence of a corporate defendant as “any judicial district in which it is incorporated or licensed to do business or is doing business.” Together with further amendments in the 1960s that permitted venue in the locations where the events giving rise to the claim occurred (so-called “transactional venue”), the 1948 law represented a clear shift away from the strict approach to corporate residence that had been embodied in the earlier venue statutes.

Additional amendments to the General Venue Statute in 1988 and 2011 furthered the expansion of venue in cases involving corporate parties. In 1988, Congress redefined the residence of a corporate defendant to include “any judicial district in which it is subject to personal jurisdiction at the time the action is commenced.” Congress further refined the definition in 2011, providing that “for all venue purposes,” the residence of a corporate defendant includes any judicial district in which it “is subject to personal jurisdiction with respect to the civil action in question.” Since personal jurisdiction essentially depends on the availability of lawful service of process on the defendant, the 2011 amendments to the General Venue Statute appeared to take the general federal venue rules full circle: as in the earliest federal venue statute, a corporate defendant could again be sued not only in its state of incorporation but in any state where it is subject to service of process.

TC Heartland and the Patent Venue Statute
The 2011 amendments to the General Venue Statute appear to provide a simple framework for determining whether venue is proper in a civil suit against a corporate defendant: if the defendant is incorporated in the state in which the court sits, or if it has sufficient contacts with the state to be properly served with process and thereby become subject to the court’s personal jurisdiction, then venue is proper. The Supreme Court’s decision in TC Heartland is a reminder that things are not always that simple.

Kraft Foods Group Brands LLC, the plaintiff in the case, filed suit against TC Heartland LLC in federal court in Delaware, alleging patent infringement. TC Heartland, 137 S.Ct. 1517. Although the allegedly infringing products had been shipped into Delaware— an act that could give rise to personal jurisdiction over TC Heartland in Delaware federal courts—the company sought a transfer of venue to Indiana where it was incorporated and headquartered, arguing that a 1957 Supreme Court case had interpreted a venue- related provision of the Patent Act to mean that an alleged infringer could only be sued in its state of incorporation Id. Relying on a 1990 decision of the Federal Circuit, the district court and the Court of Appeals both rejected TC Heartland’s argument, ruling that the word “resident” in the Patent Act’s venue provision (the ‘Patent Venue Statute’) had the same meaning as the word “resident” in the General Venue Statute—namely any state in which a corporate defendant “is subject to personal jurisdiction with respect to the civil action in question.” Id. at 1517-18.

In an 8-0 opinion, the Supreme Court reversed. Writing for the Court, Justice Thomas noted that as far back as 1897, Congress had provided separate venue rules specifically applicable to cases under the Patent Act that limited venue to the district in which the defendant was an “inhabitant” (as well as districts in the location where the alleged infringement occurred). Id. at 1518. Although Congress had subsequently replaced the word “inhabitant” with the word “resident” in the Patent Venue Statute (now codified at 28 U.S.C. § 1400(b)), it had neither included a further definition of “resident” in the Patent Venue Statute nor indicated, explicitly or implicitly, that the words of the Patent Venue Statute were to be interpreted according to the terms of the General Venue Statute. Id. at 1520. In fact, even though the General Venue Statute expressly states that its definition of “resident” is to apply “for all venue purposes,” the Supreme Court held that the General Venue Statute’s introductory phrase “Except as otherwise provided by law” constituted a “safe- harbor” that preserved the separate and independent effect of special venue rules in other statutes. Id. at 1521. As a result, although both the General Venue Statute and the Patent Venue Statute allow for venue in the district where a corporate defendant is a “resident,” the term “resident” can—and does— mean different things in each statute. In the General Venue Statute, it is expressly defined as any district in which the defendant is subject to personal jurisdiction. In the Patent Venue Statute, it retains the meaning it has always had: a corporate defendant in a patent infringement suit resides only in its state of incorporation.

Applying its reasoning to the facts of the case, the Supreme Court held that because TC Heartland was not incorporated in Delaware it was therefore not a “resident” of Delaware for purposes of the Patent Venue Statute. Id. Coupled with the fact that TC Heartland was an Indiana corporation headquartered in Indiana, the Court’s ruling meant that the federal courts in Delaware constituted an impermissible venue for Kraft’s patent infringement suit under the Patent Venue Statute.

The Continued Importance of Special Venue Statutes
The Supreme Court’s decision in TC Heartland has attracted considerable attention among the patent bar, because its holding may effect a significant change in the practice of patent litigation in the United States. Since 1990, plaintiffs alleging patent infringement have taken advantage of the Federal Circuit’s now- overruled interpretation of “residence” in the Patent Venue Statute to file suit in specific federal districts— most famously the Eastern District of Texas—that are perceived as more favorable to infringement claims but that often have no immediate connection to the parties or the dispute. In the wake of TC Heartland, patent plaintiffs may have to make a greater showing of a connection between their desired forum and the acts of infringement and business activities of the alleged infringer, or risk transfer to the courts in the state of the defendant’s incorporation.

Yet TC Heartland is important beyond the world of patent litigation, because it highlights the importance and continued viability of special venue provisions in federal statutes. The Patent Act is not unique in providing specific venue rules for claims arising under it; commentators have identified at least a hundred separate federal statutes that establish special venue rules, many of which tie venue in at least certain circumstances to the “residence” of one or both of the parties.

In fact, TC Heartland can be seen as simply the latest in a series of Supreme Court decisions exploring the relationship between the General Venue Statute and the various specific venue provisions of other federal statutes. In 1942, and again in 1957, the Supreme Court held that the Patent Venue Statute was the “exclusive provision controlling venue in patent infringement proceedings” which was “not to be supplemented by” the General Venue Statute. But in the 1966 case Pure Oil Company v. Suarez, the Supreme Court came to the opposite conclusion with respect to the venue provisions of the Jones Act governing certain claims involving merchant mariners. Distinguishing its Patent Act decisions, the Supreme Court ruled that the General Venue Statute provided a default rule “that applies to all venue statutes using residence as a criterion, at least in the absence of contrary restrictive indications in any such statute.” 384 U.S. 202, 204-05 (1966). More recently, in the 2000 case Cortez Byrd Chips, Inc. v. Bill Harbert Construction Co., the Supreme Court noted that it had applied a restrictive interpretation to the special venue provisions of statutes governing not only patent infringement claims but also litigation against national banks and Title VII employment discrimination claims; according to the Court, these cases “simply show that analysis of special venue provisions must be specific to the statute.” 529 U.S. 193, 204 (2000).

In light of TC Heartland, therefore, litigants in cases arising under federal statutes should take a close look at any such specific venue rules to determine whether the litigation is proceeding in the right court. An example illustrates the issue. The Federal Interpleader Act allows a party in possession of property to sue two or more people who each have competing claims to the property, effectively forcing the claimant-defendants to resolve their dispute rather than subjecting the stakeholder-plaintiff to multiple separate claims on the same property. Like the Patent Act, the Federal Interpleader Act contains a special venue provision stating that an interpleader action under the Act may be filed “in the judicial district in which one or more of the claimants reside[s].” 28 U.S.C. § 1397.

Does “resides” in the Federal Interpleader Act mean the same thing as “resides” under the General Venue Statute, or—as in the Patent Venue Statute— does it have a different meaning? The answer might significantly affect a stakeholder’s venue options. As noted above, the General Venue Statute defines the residence of a corporate defendant in terms of its susceptibility to personal jurisdiction, which can be established through lawful service of process. The Federal Interpleader Act, however, allows for nationwide service of process by stakeholders on claimants. 28 U.S.C. § 2361. If the definition of “residence” in the General Venue Statute applies to the Federal Interpleader Act, then venue would at least arguably be proper in an interpleader action in any district court in the country, so long as one of the claimants had sufficient ties to the state in question to allow lawful service of process.

In fact, one district court has come to exactly that conclusion. In Fort Dearborn Life Insurance Co. v. Jarrett, an Illinois insurer filed an interpleader action in the Western District of Michigan against two individual defendants—both residents of the Eastern District of Michigan—and a corporate defendant incorporated in Delaware with its principal place of business in Indiana. Absent any controlling decisions from higher courts, and absent any specific definition of “resident” in the Federal Interpleader Act, the district court concluded that the definition of “resident” in the General Venue Statute should apply. The district court then concluded that because the Federal Interpleader Act permits nationwide service of process, “there effectively is nationwide venue in any statutory-interpleader action having a corporate claimant.” --- F. Supp. 2d ---, 2010 WL 203537, at *2 (W.D. Mich. May 20, 2010).

Notably, the Seventh Circuit Court of Appeals came to a contrary conclusion when interpreting the special venue provisions of the Employee Retirement Income Security Act (ERISA). In the 2002 case Waeltz v. Delta Pilots Retirement Plan, the court reasoned that if Congress had intended nationwide service of process to suffice to give rise to nationwide venue, it would not have specified other statutory bases for venue such as the place where a retirement plan is administered. 301 F.3d 804, 808-09 (7th Cir. 2002).While the ERISA venue provision focuses on where a party “may be found” rather than where it “resides,” the Seventh Circuit’s logic could at least arguably apply to statutory venue provisions that include residency among various alternative bases for venue.

TC Heartland is therefore a useful reminder to litigants that even when a federal statute gives rise to a cause of action, that does not mean the cause of action may be litigated in any district court—nor even the district court most convenient to the plaintiff. Parties should be careful to read any special venue provisions closely to determine whether they are likely to be governed by the General Venue Statute, which makes venue co-extensive with personal jurisdiction over a corporate defendant, or whether instead Congress has chosen to restrict—or expand—the list of district courts in which the action can proceed.