On May 22, 2017, the Supreme Court issued a decision in TC Heartland LLC v. Kraft Foods Group Brands LLC, 580 U.S. ___ (2017), finding that “a domestic corporation ‘resides’ only in its state of incorporation.” TC Heartland at 1. In doing so, the Supreme Court reversed the Federal Circuit’s more broad interpretation of “resides,” which allowed patent lawsuits to be filed anywhere a defendant does business.
Patent Venue Statute:
Congress enacted the first patent venue statute in 1897. This was the predecessor to §1400(b), and placed “patent infringement cases in a class by themselves, outside the scope of general venue litigation.” TC Heartland at 4. At the time the first statute was passed, it was understood that a corporation inhabited “only the state in which it was incorporated.” TC Heartland at 4. The Supreme Court addressed the precursor to §1400(b) in Stonite Products Co. v. Melvin Lloyd Co., 315 U. S. 561 (1942), and held that “the patent venue statute alone should control venue in patent infringement proceedings.” TC Heartland at 5.
In 1948, Congress, in conjunction with the enactment of the general venue statute (§1391), recodified the patent venue statute as §1400(b). §1400(b) remains unaltered today. TC Heartland at 2. After the new statute was enacted, lower courts were confused about the application of §1391 with respect to §1400(b). To clarify the misunderstanding, the Supreme Court issued the Fourco decision (353 U.S. 222 (1957)) and “reaffirmed Stonite’s holding that §1400(b) is the sole and exclusive provision controlling venue in patent infringement actions, and…is not to be supplemented by…§1391(c).” TC Heartland at 5. Therefore, the Supreme Court “concluded that ‘resides’ in the recodified version of §1400(b) bore the same meaning as ‘inhabit[s]’ in the pre-1948 version.” TC Heartland at 6.
In 1988, Congress amended the general venue statute and provided that “[f]or purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced.” Judicial Improvements and Access to Justice Act, §1013(a), 102 Stat. 4669. In 1990, the Federal Circuit issued the VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574 (1990) decision, stating that the amendment to the general venue statute altered the meaning of the patent venue statute. The Federal Circuit concluded that §1391(c) established the definition for all other venue statutes under the same “chapter,” which included §1400(b). Thus, the term “resides” was redefined.
In 2011, §1391 was amended again. This revision removed the phrase “[f]or purposes of venue under this chapter” and included the introductory phase “[e]xcept as otherwise provided by law….”
At issue was the Federal Circuit’s interpretation of the 1988 amendment in VE Holding. In TC Heartland, the Supreme Court overruled the Federal Circuit. Justice Thomas sets the tone for the decision by answering “whether Congress changed the meaning of §1400(b) when it amended §1391.” TC Heartland at 8. The Supreme Court concluded that it did not, finding that domestic corporations reside only in their State of incorporation.
First, the Supreme Court noted that “[w]hen Congress intends to effect a change of that kind, it ordinarily provides a relatively clear indication of its intent in the text of the amended provision.” TC Heartland at 8. Second, it stated that the “current version of §1391 does not contain any indication that Congress intended to alter the meaning of §1400(b) as interpreted in Fourco.” TC Heartland at 8. It further noted that the current version of §1391 “includes a saving clause expressly stating that it does not apply when ‘otherwise provided by law,’” thus strongly affirming Fourco’s holding. TC Heartland at 9. Lastly, the Supreme Court stated “there is no indication that Congress in 2011 ratified the Federal Circuit’s decision in VE Holding.” TC Heartland at 9. Thus, “[a]s applied to domestic corporations, ‘reside[nce]’ in §1400(b) refers only to the State of incorporation.” TC Heartland at 10.
Notably, the Court’s decision did not address foreign corporations or the portion of §1400(b) which allows a lawsuit to be filed where “the defendant has committed acts of infringement and has a regular and established place of business.” Further, the Court did not address what would happen to cases currently filed in district courts where a defendant does not “reside.”
This decision will probably lead to a decrease in patent lawsuits being filed in the Eastern District of Texas. Since January 1, 2015, there have been over 12,000 patent lawsuits, with 40% being filed in the Eastern District of Texas. Judges Gilstrap and Schroeder account for 26% and 13% of all patent litigations, respectively.
On the other hand, this decision may increase the number of patent litigations in the District of Delaware. According to the Delaware Division of Corporations, “[t]he State of Delaware is a leading domicile for U.S. and international corporations…More than 66% of all publicly-traded companies in the United States including 66% of the Fortune 500 have chosen Delaware as their legal home.” This would increase the burden on the District of Delaware, especially since it has two judicial vacancies. Judge Sue Robinson and Judge Gregory Sleet, two well-respected judges in the patent litigation arena, took senior status this year.