October 6, 2017
Over the past few months the venue landscape for patent infringement litigations has changed drastically. This is largely due to the Supreme Court’s May 22, 2017 landmark decision in TC Heartland, LLC v. Kraft Foods Group Brands LLC, where it reversed decades of practice by holding that a domestic corporation “resides” only in its state of incorporation for purposes of the patent venue statute, 28 U.S.C. § 1400(b).1
Section 1400(b) provides that a 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.”2 In 1957, the Supreme Court held in Fourco Glass Co. v. Transmirra Products that, under § 1400(b), a corporation “resides” only in the state in which it is incorporated, and that § 1400(b) is not to be supplemented by the general venue statute, 28 U.S.C. § 1391(c).3 However, in 1990, the Federal Circuit explained in VE Holding Corp. v. Johnson Gas Appliance Co. that because of the 1988 amendments to § 1391(c)—which defined “residence” broadly as being anywhere there is personal jurisdiction over the defendant—§ 1391(c) applies to § 1400(b) and thereby expands the scope of venue in a patent infringement litigation to include anywhere that there is personal jurisdiction over the defendant.4 As a result, there has been little dispute for the past 30 years regarding venue in patent cases. Moreover, reliance on the prong “where the defendant has committed acts of infringement and has a regular and established place of business” to satisfy venue in a patent litigation has been relatively ignored.
Now in light of the Supreme Court’s narrow interpretation of “resides” in TC Heartland, multiple venue-related issues have emerged.
Is TC Heartland an Intervening Change in Law?
The aftermath of TC Heartland brought an influx of motions to dismiss for improper venue, in which district courts have encountered the question of waiver. Federal Rule of Civil Procedure 12(h) provides that an improper venue defense is waived if a defendant fails to raise it in its initial responsive pleading. Thus, district courts have been addressing whether TC Heartland constitutes an intervening change in law sufficient to qualify as an exception to the waiver doctrine. However, there is no agreement on the answer to this question, to the extent that even courts within the same district have reached different conclusions.5 Some courts have held that TC Heartland represents an intervening change in law, reasoning that before TC Heartland, a venue challenge based on the contention that VE Holding was not controlling law would have been futile.6 Other courts have determined that the defense is waived because TC Heartland merely reaffirmed the Supreme Court’s 1957 decision in Fourco Glass, and litigants were always free to challenge the Federal Circuit’s decision in VE Holding.7 To date, the Federal Circuit has declined to weigh in on this issue.8
Although this waiver issue only directly effects a finite number of pending cases, a decision by the Federal Circuit or Supreme Court on whether TC Heartland represents an intervening change in law may have repercussions for litigants outside the venue context. If TC Heartland is not deemed an intervening change in law, litigants may feel compelled to challenge controlling theories of Circuit law to escape any potential risk of waiver. Litigants will then have to balance the possibility of sanctions under Federal Rule of Civil Procedure 11 for violating the frivolity requirement against the possibility of waiver.
How Does TC Heartland Impact Foreign Defendants?
In its 1972 decision Brunette Machine Works, Ltd. v. Kockum Industries, Inc.,9 the Supreme Court decided that foreign defendants in patent infringement actions may be sued in any district, basing its decision on the language of 28 U.S.C. § 1391(d).10 To reconcile this holding with its previous directive in Fourco Glass, which stated that the patent venue statute is not to be supplemented by § 1391(c), the Court explained that § 1391(d) was not a venue restriction, but rather “a declaration of the long-established rule that suits against aliens are wholly outside the operation of all the federal venue laws, general and special.”11 Thus, the Court made it clear that a foreign defendant could not rely on the patent venue statute to avoid an infringement suit in a particular district court.12
Section 1391(d) went relatively unnoticed until Congress made two amendments to the statute in 2011, “[s]hifting the focus from ‘alienage’ of a defendant to whether the defendant has his or her ‘residence’ outside of the United States.”13 First, it eliminated § 1391(d).14 It also amended § 1391(c)(1), which relates to residency of a natural person, to “permit permanent resident aliens domiciled in the United States to raise a venue defense.”15 This amendment was seemingly contradictory to the Supreme Court’s edict in Brunette that suits against aliens fall outside of venue statutes.
In TC Heartland, the Supreme Court appeared to acknowledge this tension, but declined to address the impact of its decision on foreign corporations and did not express any opinion on its previous holding in Brunette.16 Instead, the Court limited its venue holding to “domestic corporations.”17 Further complicating the venue scenario for a foreign defendant is the Court doubling down on its directive that § 1400(b) is the sole and controlling statute governing venue in a patent infringement suit, and is not to be supplemented by § 1391.18
While the current state of the law remains that a foreign business entity can be sued for patent infringement in any district, the interplay between Brunette, the 2011 amendments to § 1391, and TC Heartland invites a challenge to this long-standing precedent.
What About Unincorporated Entities?
TC Heartland also expressly limited its holding to corporations.19 Thus, the applicability of the Supreme Court’s holding to unincorporated entities, such as limited liability companies, was not addressed. At least one district court has since concluded that the TC Heartland holding applies with equal effect to unincorporated entities.20 The Eastern District of Tennessee explained that “[u]nincorporated associations, such as limited liability companies, are generally treated like corporations for purposes of venue,” noting that “the language of § 1400(b) refers to a ‘defendant’ and is not limited only to corporate defendants.”21 Unless and until the Federal Circuit or Supreme Court weighs in on this question, litigants should assume that the meaning of “resides” is the same regardless of the type of business entity a defendant may be.
The Forgotten Venue Alternative - How Does it Work?
Due to the broad interpretation of “resides” prior to TC Heartland, litigants and courts almost exclusively utilized this first alternative when demonstrating proper venue under § 1400(b). However, in light of TC Heartland, litigants have increasingly had to turn to the almost-forgotten second alternative: “where the defendant has committed acts of infringement and has a regular and established place of business.”22
Where Defendant Has a “Regular and Established Place of Business”
Before its recent decision in In re Cray,23 the Federal Circuit had not addressed the phrase “where the defendant . . . has a regular and established place of business” since its 1985 decision in In re Cordis Corp.24 Thus, in the wake of TC Heartland, litigants and courts grappled with this alternative for venue, particularly as they navigated its applicability in the modern corporate era. For example, the Eastern District of Texas, relying on In re Cordis, developed a four-factor test to determine this issue,25 while the District of Delaware focused on the need for “some physical presence” in the district.26 And, in a Hatch-Waxman litigation, the District of Delaware explained that the fact that a generic company participates in a large amount of litigation in the district “is a pertinent consideration” for this element.27
Recognizing the need for certainty and uniformity on this “unsettled and important issue,” on September 21, 2017, the Federal Circuit weighed in on the meaning of this phrase.28 In re Cray provides three general requirements that are relevant to the inquiry of whether a defendant has a “regular and established place of business”: 1) there must be a physical place in the district29; 2) it must be a regular and established place of business30; and 3) it must be the place of the defendant.31 The third requirement was described as “crucial,” and the Court concluded that the home of defendant’s employee was not a regular and established business of the defendant itself.32 Applying these factors, the Federal Circuit held that the facts did not demonstrate that the defendant had a regular and established place of business in the district, but merely showed that an employee of the defendant carried on certain work within the district.33
Implications of TC Heartland in conjunction with In re Cray could be extensive. For example, it may be harder for patent owners to sue multiple defendants in the same jurisdiction, because defendants may not “reside” or have a “regular and established place of business” in the same venue. Over the next few weeks, we will inevitably see developments in the law as district courts begin to apply the standards articulated in In re Cray. Judges in several districts have recently ordered parties to submit supplemental responses and/or briefing relating to pending venue issues in light of the decision.34 On September 26, 2017, the Northern District of Illinois issued an order to transfer for improper venue in what appears to be the first decision applying the Federal Circuit’s three requirements.35 And on September 28, 2017, the Eastern District of Virginia conducted a thorough analysis of In re Cray, ultimately concluding that venue did not lie in that district.36
Where Defendant Has “Committed Acts of Infringement”
In re Cray did not address the meaning of the phrase “where the defendant has committed acts of infringement,” and most district court analyses since TC Heartland have not focused on this element of § 1400(b). Due to this lack of guidance, there may be uncertainty with respect to this aspect of venue going forward.
Courts have consistently held that an allegation of infringement in the district is sufficient to establish this element of the venue statute.37 Demonstration of actual infringement in the district is not required.38 Thus, for patent owners alleging that an infringing product was already made, used, sold, or offered for sale within a particular jurisdiction, the analysis appears straightforward.
Application of this element may be more complicated under other circumstances. For example, the District of Delaware analyzed the “acts of infringement” language in the context of a Hatch-Waxman suit-an issue which the court pointed out appeared to be one of first impression.39 The court first noted that the choice of verb tense in the patent venue statute (“has committed”) is problematic in the Hatch-Waxman context, where the infringement analysis is focused on whether infringement will occur in the future, and not on past or present acts.40 Recognizing the forward-thinking nature of Hatch-Waxman litigations, the court concluded that “an ANDA filer’s future, intended acts must be included as part of the ‘acts of infringement’ analysis for purposes of determining if venue is proper.”41 The court relied heavily on the Federal Circuit’s decision in Acorda, which held that an ANDA filer’s “planned future conduct” that is “purposefully directed at the State” satisfies the “minimum contacts” standard for personal jurisdiction.42 Thus, the court concluded that the defendant’s submission of the ANDA, the future acts the defendant intended to take upon ANDA approval, plus an intent to market the ANDA product in the District of Delaware, were sufficient to show that the defendant has committed acts of infringement in the district.43
The “act of infringement” aspect of venue may also present challenges for parties alleging indirect infringement. While this issue has not yet been addressed in detail, at least two judges have seemingly implied that, for induced infringement, the “act of infringement” is committed in the district where the direct infringement will occur or has occurred, and not where the inducing party is located.44
Who Bears the Burden of Proof?
Due to the recent escalating use of the second test under § 1400(b), district courts are also facing the question of which party bears the burden of proving whether or not acts of infringement occurred in the relevant district and whether or not the accused infringer has a regular and established place of business in that district.
Prior to TC Heartland, the Circuit courts were not uniform in their views on this issue.45 Thus, it is unsurprising that district courts that have addressed this issue since TC Heartland are similarly split. The majority of district courts have held that the burden rests with the plaintiff to establish that venue is proper in their chosen forum,46 likely because the plaintiff is obligated to institute an action in a permissible forum. Other district courts-mainly in the Third and Fifth Circuits-have determined that the burden is on the defendant to demonstrate improper venue, reasoning that a venue objection is a personal privilege of the movant offering protection from inconvenience.47
Going forward, litigants should be cognizant of how jurisdictions handle this issue. When selecting where to institute an action, a plaintiff should be aware of their chosen forum’s position on burden in preparation for future potential venue challenges. Before filing a motion to dismiss for improper venue, a defendant should likewise consider who will bear the burden in that forum. And if the burden will likely rest with the defendant, it should be sure to include sufficient details in its opening motion (e.g., through accompanying affidavits) to demonstrate why venue is improper.
1 137 S. Ct. 1514, 1517 (2017).
2 28 U.S.C. § 1400(b).
3 353 U.S. 222, 226, 229 (1957).
4 Id. at 1578, 1583-84.
5 Compare Koninklijke Phillips N.V. v. ASUSTeK Comput. Inc., No. 15-1125-GMS, 2017 U.S. Dist. LEXIS 111889, at *11-12 (D. Del. July 19, 2017) (concluding that TC Heartland is not an intervening change in law), with Boston Sci. Corp. v. Cook Grp. Inc., No. 15-980-LPS-CJB, 2017 U.S. Dist. LEXIS 146126, at *19 (D. Del. Sept. 11, 2017) (concluding that TC Heartland is an intervening change in law); Compare Reebok Int'l Ltd. v. TRB Acquisitions LLC, No. 3:16-cv-1618-SI, 2017 U.S. Dist. LEXIS 109576, at *11(D. Or. July 14, 2017) (concluding that TC Heartland is not an intervening change in law), with Columbia Sportswear N. Am., Inc. v. Seirus Innovative Accessories, Inc., No. 3:15-cv-00064-HZ, 2017 U.S. Dist. LEXIS 143016, at *22-23 (D. Or. Sept. 5, 2017) (concluding that TC Heartland is an intervening change in law).
6 See, e.g., Westech Aerosol Corp. v. 3M Co., No. C17-5067-RBL, 2017 U.S. Dist. LEXIS 95768, at *4 (W.D. Wash. June 21, 2017); Maxchief Inv. Ltd. v. Plastic Dev. Grp, LLC, No. 3:16-cv-63, 2017 U.S. Dist. LEXIS 128432, at *7 (E.D. Ten. Aug. 14, 2017); CG Tech. Dev., LLC v. Fanduel, Inc., No. 2:16-cv-00801-RCJ-VCF, 2017 U.S. Dist. LEXIS 119193, at *7-11 (D. Nev. July 27, 2017); OptoLum, Inc. v. Cree, Inc., No: CV-16-03828-PHX-DLR, 2017 U.S. Dist. LEXIS 114717, at *10-12 (D. Ariz. July 24, 2017).
7 See Fox Factory, Inc. v. SRAM, LLC, No. 3:16-cv-00506-WHO, 2017 U.S. Dist. LEXIS 126799, at *8-11 (N.D. Cal. July 18, 2017); iLife Techs., Inc. v. Nintendo of Am., Inc., No. 3:13-cv-04987, 2017 U.S. Dist. LEXIS 98698, at *16-17 (N.D. Tex. June 27, 2017); Elbit Sys. Land v. Hughes Network Sys., LLC, No. 2:15-CV-00037-RWS-RSP, 2017 U.S. Dist. LEXIS 94495, at *59-60 (E.D. Tex. June 20, 2017); Cobalt Boats, LLC v. Sea Ray Boats, Inc., No. 2:15cv21, 2017 U.S. Dist. LEXIS 90728, at *6-9 (E.D. Va. June 7, 2017).
8 In re Nintendo of Am. Inc., No. 2017-127, 2017 U.S. App. LEXIS 14835 (Fed. Cir. July 26, 2017); In re Hughes Network Sys., LLC, No. 2017-130, 2017 U.S. App. LEXIS 13674 (Fed. Cir. July 24, 2017); In re: Sea Ray Boats, Inc., No. 2017-124, 2017 U.S. App. LEXIS 10921 (Fed. Cir. June 9, 2017).
9 406 U.S. 706 (1972).
10 At the time, 28 U.S.C. § 1391(d) stated that "[a]n alien may be sued in any district."
11 Brunette, 406 U.S. at 714.
13 H.R. REP. NO. 112-10, at 22 (2011).
14 Id. at 23.
16 TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S.Ct. 137, 1520 n.2 (2017).
17 Id. at 1517.
19 Id. at 1517 n.1.
20 Maxchief Inv. Ltd. v. Plastic Dev. Grp., LLC, No. 3:16-cv-63, 2017 U.S. Dist. LEXIS 128432, at *4-5 (E.D. Ten. Aug. 14, 2017).
21 Id. at *4.
22 28 U.S.C. § 1400(b).
23 No. 2017-129, 2017 U.S. App. LEXIS 18398 (Fed. Cir. Sept. 21, 2017).
24 769 F.2d 733 (Fed. Cir. 1985).
25 Raytheon Co. v. Cray, Inc., No. 2:15-CV-01554-JRG, 2017 U.S. Dist. LEXIS 100887, at *32-37 (E.D. Tex. June 29, 2017), vacated, No. 2017-129, 2017 U.S. App. LEXIS 18398 (Fed. Cir. Sept. 21, 2017). The Federal Circuit ultimately determined that this four-factor test "is not sufficiently tethered to [the] statutory language and this it fails to inform each of the necessary requirements of the statute." In re Cray, No. 2017-129, 2017 U.S. App. LEXIS 18398, at *14 (Fed. Cir. 2017).
26 Boston Sci. Corp. v. Cook Grp., Inc., No. 15-980-LPS-CJB, 2017 U.S. Dist. LEXIS 146126, at *32-33 (D. Del. Sept. 11, 2017).
27 Bristol-Myers Squibb Co. v. Mylan Pharms., Inc., No. 17-379-LPS, 2017 U.S. Dist. LEXIS 146372, at *48-49 (D. Del. Sept. 11, 2017).
28 In re Cray, 2017 U.S. App. LEXIS 18398, at *9.
29 The Federal Circuit rejected the District Court's notion that "a fixed physical location in the district is not a prerequisite to proper venue" and explained that, "[w]hile the 'place' need not be a 'fixed physical presence in the sense of a formal office or store' . . . there must still be a physical, geographical location in the district from which the business of the defendant is carried out." Id. (citing Cordis Corp., 769 F.2d at 737).
30 The Federal Circuit explained that a business is "regular" if it "operates in a steady, uniform, orderly, and methodical manner," and that a business is "established" if it is "settled certainly, or fixed permanently." Id. at *16-17 (internal citations omitted).
31 The Federal Circuit explained that "the defendant must establish or ratify the place of business. It is not enough that the employee does so on his or her own." Id. at *18.
32 Id. at *21.
33 Id. at *27.
34 See, e.g., Steyr Arms, Inc. v. Sig Sauer, Inc., No. 2-17-cv-00712, Dkt. No. 23 (N.D. Ala. Sept. 22, 2017); Susan McKnight, Inc. v. United Indus. Corp., No. 2-16-cv-02534, Dkt. No. 54 (W.D. Tenn., Sept. 22, 2017); Simio, LLC v. FlexSim Software Prods., Inc., No. 2-16-cv-01710, Dkt. No. 47 (W.D. Pa., Sept. 24, 2017); CDX Diagnostics, Inc. v. U.S. Endoscopy Grp., Inc., No. 7-13-cv-05669, Dkt. No. 67 (S.D.N.Y. Sept. 25, 2017); Virtual Fleet Mgmt., LLC v. Greenroad Tech., Inc., No. 2:17-00033-JRG, Dkt. No. 27 (E.D. Tex. Sept. 27, 2017).
35 See Talsk Research Inc. v. Evernote Corp., No. 16-cv-2167, 2017 U.S. Dist. LEXIS 157760, at *6-15 (N.D. Ill. Sept. 26, 2017) (applying the Federal Circuit's three requirements, and holding that the defendant's activities did not amount to defendant having a "regular and established place of business" in the Northern District of Illinois).
36 Symbology Innovations, LLC v. Lego Sys., Inc., No. 2:17-cv-86, 2017 U.S. Dist. LEXIS 161489, *16-26 (E.D. Va. Sept. 28, 2017).
37 See, e.g., Raytheon Co. v. Cray, Inc., No. 2:15-CV-01554-JRG, 2017 U.S. Dist. LEXIS 100887, at *32-37 (E.D. Tex. June 29, 2017) (citing Funnelcap, Inc. v. Orion Indus., 392 F. Supp. 938, 943 (D. Del. Apr. 10, 1975)), vacated on other grounds , No. 2017-129, 2017 U.S. App. LEXIS 18398 (Fed. Cir. Sept. 21, 2017); Kranos IP Corp. v. Riddell, Inc., No. 2:17-cv-443-JRG, 2017 U.S. Dist. LEXIS 138108, at *8 (E.D. Tex. Aug. 28, 2017); Jarratt v. Amazon.com, Inc., No. 5:16-CV-05302, 2017 U.S. Dist. LEXIS 126931, at *3 n.2 (E.D. Ark. Aug. 10, 2017).
38 See Raytheon, 2017 U.S. Dist. LEXIS 100887 at *32-37 (citing Funnelcap, 392 F. Supp. at 943), vacated on other grounds, 2017 U.S. App. LEXIS 18398.
39 Bristol-Myers Squibb Co. v. Mylan Pharms., Inc., No. 17-379-LPS, 2017 U.S. Dist. LEXIS 146372, at *14 (D. Del. Sept. 11, 2017).
40 Id. at *14-15.
41 Id. at *23-24.
42 Acorda Therapeutics, Inc. v. Mylan Pharm., Inc., 817 F.3d 755, 762-63 (Fed. Cir. 2016).
43 Bristol-Myers, 2017 U.S. Dist. LEXIS 146372, at *31.
44 Raytheon Co. v. Cray, Inc., No. 2:15-CV-01554-JRG, 2017 U.S. Dist. LEXIS 100887, at *12 (E.D. Tex. June 29, 2017) (concluding that "the Court will accept Raytheon's allegation that Cray induced users in this district to infringe the asserted patents" and such conduct is "sufficient to constitute an 'act of infringement' under § 1400(b).") (emphasis added), vacated on other grounds, No. 2017-129, 2017 U.S. App. LEXIS 18398 (Fed. Cir. Sept. 21, 2017); see also Symbology Innovations, LLC v. Lego Sys., Inc., No. 2:17-cv-86, 2017 U.S. Dist. LEXIS 161489, at *16 (E.D. Va. Sept. 28, 2017).
45 Compare Piedmont Label Co. v. Sun Garden Packing Co., 598 F.2d 491, 496 (9th Cir. 1979), with Myers v. Am. Dental Ass'n, 695 F.2d 716, 724 (3d Cir. 1982).
46 See, e.g., Smart Wearable Techs. Inc. v. Fitbit, Inc., No. 3:16CV00077, 2017 U.S. Dist. LEXIS 138969, at *4 (W.D. Va. Aug. 29, 2017); Free-Flow Packaging Int'l, Inc. v. Automated Packaging Sys., Inc., No. 17-cv-01803-SK, 2017 U.S. Dist. LEXIS 156997, at *10 (N.D. Cal. Aug. 29, 2017); NSixty, LLC v. uPost Media, Inc., No. 1:17-cv-335, 2017 U.S. Dist. LEXIS 134059, at *5 (S.D. Ohio Aug. 22, 2017); Cutsforth, Inc. v. LEMM Liquidating Co., No. 12-cv-1200 (SRN/LIB), 2017 U.S. Dist. LEXIS 123556, at *14 (D. Minn. Aug. 4, 2017); Ironburg Inventions Ltd. v. Valve Corp., No. 1:15-CV-4219-TWT, 2017 U.S. Dist. LEXIS 122219, at *4 (N.D. Ga. Aug. 3, 2017); Neonatal Prod. Grp., Inc. v. Shields, No. 13-2601-DDC-KGS, 2017 U.S. Dist. LEXIS 113568, at *4 (D. Kan. July 20, 2017).
47 See, e.g., Boston Sci. Corp. v. Cook Grp., Inc., No. 15-980-LPS-CJB, 2017 U.S. Dist. LEXIS 146126, at *11 (D. Del. Sept. 11, 2017); Bristol-Myers Squibb Co. v. Mylan Pharm., Inc., No. 17-379-LPS, 2017 U.S. Dist. LEXIS 146372, at *12-13 (D. Del. Sept. 11, 2017); Better Mouse Co. v. Razer U.S., Ltd., No. 2:17-CV-00317-JRG-RSP, 2017 U.S. Dist. LEXIS 144084, at *1 (E.D. Tex. Aug. 16, 2017); Soverain IP, LLC v. Apple, Inc., No. 2:17-cv-00204-RWS-RSP, 2017 U.S. Dist. LEXIS 140039, at *7 (E.D. Tex. July 25, 2017).