Supreme Court dramatically limits available venue in patent infringement suits
In a highly anticipated decision, the Supreme Court significantly limited the choice of venue afforded to patent infringement plaintiffs. The Court’s opinion in TC Heartland LLC v. Kraft Food Brands Group LLC upended nearly three decades of jurisprudence that had allowed such suits to be filed almost anywhere in the country.
Before the Court’s unanimous May ruling, patent plaintiffs could pursue cases in district courts with plaintiff-friendly reputations. This new decision limits the options to jurisdictions where the defendant is incorporated, or where the defendant has committed acts of infringement and has a regular and established place of business. The impact of T.C. Heartland on the future of patent infringement cases cannot be overstated, says H. Michael Hartmann, a member in Leydig’s Chicago office.
“For decades, patent plaintiffs had the luxury of being able to choose almost any venue in the country where a defendant conducted even a minute amount of business,” Hartmann says. “Now, plaintiffs can no longer select a forum, such as the Eastern District of Texas, based primarily on its convenience or perceived friendliness to patent holders.”
28 U.S.C. § 1400(b) limits venue in patent cases to judicial districts “where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” In 1957, the Supreme Court held in Fourco Glass Co. v. Transmirra Products Corp that § 1400(b) was not to be interpreted in conjunction with the general venue statute, 28 U.S.C. § 1391, which broadly defines “residence” for venue purposes as “any judicial district in which it is … licensed to do business or is doing business.” Rather, the court held that “where the defendant resides,” as used in § 1400(b), only means the defendant’s state of incorporation.
In 1988, Congress amended the general venue statute to expand the definition of residency “for all venue purposes” as “any judicial district in which such defendant is subject to the court’s personal jurisdiction.”
The U.S. Court of Appeals for the Federal Circuit had consistently held that the 1988 amendment implicitly overruled the Supreme Court’s decision in Fourco Glass. Since most patent defendants are now subject to personal jurisdiction almost anywhere they conduct business, this allowed plaintiffs to choose the venue they believed would be the most advantageous, regardless of where the defendant is located.
The Supreme Court soundly rejected the Federal Circuit’s interpretation of those amendments. Writing for the Court, Justice Thomas asserted that the Federal Circuit had been wrong in deviating from earlier Supreme Court precedent since 1990. The Court held that the more limited venue provisions set forth in § 1400(b) were the sole basis for determining proper venue in patent cases.
With this decision, the center of gravity in patent litigation may shift dramatically, Hartmann says.
“I think you can expect a pretty big increase in patent infringement suits in states like Delaware, where so many companies are incorporated, as well as in places like Illinois, New York, and California, where major corporations have a significant physical presence,” Hartmann predicts. “Correspondingly, I’d bet that things slow down substantially in the Eastern District of Texas, which will no longer be an option in most cases, much to plaintiffs’ chagrin.”
Supreme Court rules in favor of broad ‘patent exhaustion’
Addressing the question of whether a patent owner can control a patented product after an initial sale of the product, the Supreme Court recently held in Lexmark v. Impression Products that purported post-sale restrictions cannot be enforced through a patent infringement lawsuit.
“The Court’s broad endorsement of the principle of patent exhaustion is a major victory for the numerous companies that sell products that include patented components by potentially negating the threat of an infringement suit,” says Wesley O. Mueller, a member in Leydig’s Chicago office.
Lexmark manufactures and sells printer cartridges, at a discounted price, with a restriction that prohibits purchasers from reusing or transferring them. Notwithstanding that limitation, Impression buys and refurbishes those discounted cartridges to sell on the aftermarket. Impression also buys and refurbishes cartridges that were first sold by Lexmark outside the U.S.
In the district court, Impression successfully argued that patent exhaustion prohibited Lexmark’s post-sale restriction for discounted cartridges sold in the U.S. and abroad. Also known as the “first sale” doctrine, patent exhaustion is the principle that an initial authorized sale of a patented item terminates all patent rights to that item because title in the patented item has transferred.
An en banc U.S. Court of Appeals for the Federal Circuit sided with Lexmark, however, confirming support of the “conditional sale” doctrine, which allows a patent owner to retain rights in a patented product after its sale, provided the restrictions are “clearly communicated.”
The Supreme Court disagreed. Writing for the Court, Chief Justice Roberts stated that “Patent exhaustion reflects the principle that, when an item passes into commerce, it should not be shaded by a legal cloud on title as it moves through the marketplace.”
Accordingly, “We conclude that a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose or the location of the sale.”
The Court made no distinction between domestic and international sales, holding that “patent exhaustion is uniform and automatic.”
Mueller cautions that post-sale restrictions on patented products aren’t entirely dead– they just cannot be used as the basis of an infringement suit.
“The Court noted that its decision was simply one of patent law, not contract law,” Mueller says. “A patentee remains free to set contractual limitations, which can be enforced in a breach of contract claim.”
Time runs out for laches as a defense in patent cases
Patent infringement defendants can no longer assert laches as a defense. That was the Supreme Court’s conclusion in SCA Hygiene Products AB v. First Quality Baby Products LLC, a May decision that followed in the footsteps of the Court’s 2014 elimination of laches as a defense in copyright suits.
In holding that the six-year statute of limitations on patent damages cannot be shortened, regardless of how long a plaintiff waits to bring its claims, the Court may be emboldening inactive patent holders who may lay in the weeds for a long time before filing suit, says David M. Airan, a member in Leydig’s Chicago office.
“Technology companies and others who often find themselves in the crosshairs of patent trolls will now have to take a longer look in the rearview mirror,” Airan says. “They cannot rely on a plaintiff’s unreasonable delay to cut off a portion of a claim for monetary damages.”
In reversing an en banc decision by the U.S. Court of Appeals for the Federal Circuit, the Court, in SCA Hygiene, relied heavily on its 2014 decision in Petrella v. Metro Goldwyn-Mayer, Inc., in which it held that “in the face of a statute of limitations enacted by Congress, laches cannot be invoked to bar legal relief.”
Writing for the Court, Justice Alito framed the issue in SCA Hygiene simply: “[t]he question in this case is whether Petrella’s reasoning applies to a similar provision of the Patent Act, 35 U.S.C. § 286 … We hold that it does.”
As such, “By the logic of Petrella, we infer that [the Patent Act’s statute of limitations] represents a judgment by Congress that a patentee may recover damages for any infringement committed within six years of the filing of the claim,” the Court wrote.
The Court’s 7-1 decision to end laches as a defense in patent cases represents a reversal of decades of patent law practice in which the defense was regularly asserted against patent holders who waited for years after discovering alleged infringement before acting.
The decision, however, does not necessarily give unscrupulous patentees carte blanche to delay claims, Airan says.
“The Supreme Court also recognized the continuing vitality of the equitable estoppel defense,” Airan notes. “This means that companies induced by trolls into producing an arguably infringing product may still have a viable defense, based on the patent holder knowingly holding its fire to increase the potential damages that it can recover.”
Supreme Court clarifies separability test for useful articles
Where is the line between design elements of useful articles that can be copyrighted and the useful articles themselves that can’t receive such protection? When it comes to clothing designs, the Supreme Court provides some guidance on that question in its decision in Star Athletica v. Varsity Brands.
The Court reviewed a decision by the U.S. Court of Appeals for the Sixth Circuit, which held that particular combinations of chevrons, stripes, colors, and shapes on cheerleading uniforms were “separable” from the uniforms’ utilitarian aspects, and thus copyrightable under the Copyright Act.
The clarity the Court’s decision provides can help companies decide whether to seek copyright protection for designs incorporated into useful articles, such as clothing or furniture, says Kevin C. Parks, a member in Leydig’s Chicago office.
“When a useful product will incorporate design elements, a diligence process should be conducted early on to determine whether those elements can be protected, and registered, as separable, stand-alone works,” Parks says.
Before the Court’s decision, the separability analysis at the center of such determinations was muddled by a wide range of competing tests adopted in different circuits, which resulted in inconsistency among the lower courts.
Under the Copyright Act, designs of useful articles are protectable by copyright only to the extent they have artistic elements that are separable from the utilitarian aspects of the article itself. In its recent decision, the Supreme Court established a two-part test to determine whether an artistic feature is “separable” from the utilitarian aspects of the article.
First, a court needs to determine whether the design feature “can be perceived as a two- or three-dimensional work of art separate from the useful article.” If yes, the next step is to determine whether the pictorial, graphic, or sculptural work is protectable on its own “or in some other medium if imagined separately from the useful article.” The Court determined the elements of the cheerleading uniforms at issue met this test.
The implications of the decision may be felt far beyond the apparel industry, says Sarah Aagaard, an associate in Leydig’s Chicago office.
“The Court’s test could have broad application and allow for protection of designs that may not have been protectable before in certain circuits,” Aagaard says. “It will be interesting to see how this test is applied to a whole range of industrial designs.”
While the Court ruled that the designs at issue in Varsity Brands were eligible for protection under the separability analysis, Park notes that the Court did not determine whether they were sufficiently original.
“This is only the beginning,” Parks says. “On remand, Varsity Brands still has to prove its designs are original and that Star Athletica infringed. Even if the designs are deemed original, the scope of protection for those designs may be thin.”
On-sale bar invalidates patents, regardless of public disclosure, Federal Circuit says
The “on-sale bar” of the America Invents Act (AIA) operates to invalidate patent claims on an invention, regardless of whether the sale resulted in a public disclosure of the invention. That was the conclusion of the U.S. Court of Appeals for the Federal Circuit in Helsinn Healthcare S.A., v. Teva Pharmaceuticals USA, Inc.
In reversing a decision from the U.S. District Court for the District of New Jersey, the Federal Circuit issued its first guidance on the language which distinguished the new version of the on-sale bar contained in the AIA from the pre-AIA version.
Before the enactment of the AIA, 35 U.S.C. § 102 barred the patentability of an invention that was “patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of the application for patent.”
The AIA amended §102 to bar the patentability of an “invention [that] was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention.”
At issue in Helsinn was the effect of the “otherwise available to the public” language in the post-AIA version of §102. Helsinn, as well as the government, argued that this phrase meant that a sale now must make the details of the invention available to the public to trigger the on-sale bar.
The Federal Circuit disagreed, holding that the pre-AIA on-sale bar and post-AIA on-sale bar were to be interpreted identically in this respect. The court noted that “under our cases, an invention is made available to the public when there is a commercial offer or contract to sell a product embodying the invention and that sale is made public. Our cases explicitly rejected a requirement that the details of the invention be disclosed in the terms of sale.”
As such, the court concluded, “after the AIA, if the existence of the sale is public, the details of the invention need not be publicly disclosed in the terms of sale.”
The Federal Circuit’s decision still leaves open questions about the contours of the post-AIA on-sale bar, notes Leonard Z. Hua, a member in Leydig’s office.
“The Federal Circuit did not discuss whether the AIA supersedes pre-AIA case law allowing secret sales to trigger the on-sale bar,” Hua says. “The question of whether something triggers the on-sale bar remains a heavily fact-intensive analysis, and the fact that Helsinn may still seek to overturn the Federal Circuit’s decision means that we are not yet done with the issue of how the new on-sale bar will be applied in future cases.”
Leydig welcomes the following summer associates to its Chicago office:
- Wallace Feng attends the University of Chicago Law School and holds a Bachelor of Science degree in molecular and cellular biology from Johns Hopkins University.
- Kyle Migliorini attends the University of Notre Dame Law School and holds a Bachelor of Arts degree in government and history from Colby College.
The Leydig, Voit & Mayer newsletter is going digital. Email email@example.com to make sure you are on the list for the first online issue.
- The 2017 edition of the Legal 500 has recognized Leydig as a leader in patent prosecution, IPRs and other post-grant proceedings.
- Chambers USA has included Leydig among the top intellectual property law firms.