Supreme Court Returns to Narrower Patent Venue Statute

May 23, 2017

The US Supreme Court has ruled that patent infringement suits are governed by a narrower definition of corporate residence within the patent-specific venue statute, 28 U.S.C. Section 1400(b). In TC Heartland v. Kraft Foods Group Brands (2016-0341), the Court (in a unanimous, 8-0 opinion authored by Justice Clarence Thomas, with Justice Neil Gorsuch not participating) revisited the statute’s first prong, which states that patent lawsuits “may be brought in the judicial district where the defendant resides”, reaffirming its 1957 holding in Fourco Glass v. Transmirra Products that a corporation is deemed to “reside” in its state of incorporation. By so ruling, the Court overturned the Federal Circuit’s 1990 decision in VE Holding v. Johnson Gas Appliance, which applied the more expansive definition of “resides” from the general venue statute, 28 U.S.C. Section 1391, to patent suits. The Court’s holding in TC Heartland may significantly reduce the venue options for plaintiffs in patent cases, though its impact may be tempered by the second prong of Section 1400(b), which states that venue is proper for patent suits “where the defendant has committed acts of infringement and has a regular and established place of business”. Additionally, the Court explicitly limited its opinion to domestic corporations and declined to address its opinion in Brunette Machine Works v. Kockum Industries, which held that foreign corporations may be sued in any district as established under Section 1391(d).

The underlying dispute stemmed from a suit brought by respondent Kraft Foods, which in January 2014 accused TC Heartland, an Indiana LLC, of infringing three of its patents (8,293,299; 8,511,472; 8,603,557) through the sale of certain “liquid water enhancer” products in Delaware (1:14-cv-00028). In June of that year, TC Heartland moved to dismiss for lack of personal jurisdiction or to transfer venue, arguing that it did not “reside” in Delaware for the purposes of venue under Section 1400(b) and also that it lacked sufficient contacts with Delaware for the court to exercise personal jurisdiction. The district court denied the motion on both counts in September 2015, stating that it was bound on the issue of venue by VE Holding. In that decision, the Federal Circuit held that Section 1391—which, as amended in 1988, states that a company resides in any “district in which it is subject to personal jurisdiction”—superseded the Supreme Court’s 1957 opinion in Fourco, thereby importing the more expansive definition of corporate residence into Section 1400(b). Thus, since Delaware had personal jurisdiction over TC Heartland, venue was also proper. (While Sections 1391 and 1400(b) apply solely to corporations, whereas TC Heartland is an LLC, the entity admitted in its answer to Kraft Foods’s complaint that it is a corporation.)

TC Heartland filed a petition for writ of mandamus in October 2015, arguing that a 2011 amendment to Section 1391 established that the statute did not take precedence over Section 1400(b). Under the revised version, the company stated, the newly added sub-paragraph 1391(a) reads in part that the statute “govern[s] the venue of all civil actions brought in district courts”; but, critically, “[e]xcept as otherwise provided by law”. However, the Federal Circuit affirmed the lower court in April 2016, reiterating its position from VE Holding that the 1988 amendments to Section 1391 had overruled Fourco (2016-0105). TC Heartland then filed its certiorari petition in September 2016.

The Supreme Court began its analysis with the legislative history of Section 1400(b), noting that it had interpreted the statute’s 1897 predecessor in Stonite Products v. Melvin Lloyd (1942) as one that “alone should control venue in patent infringement proceedings”. That statute was re-codified in 1948 as Section 1400(b), the same year that Congress enacted the general venue statute, and has not since been amended. While the Second Circuit held in Fourco that Section 1391(c)’s definition of “residence” superseded those in other venue statutes, the Supreme Court in that case “squarely rejected that interpretation, reaffirming 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)’”. The fact that the text of Section 1391 applied to “all actions” was not sufficient to override Congressional intent to establish Section 1400(b) as “complete, independent and alone controlling in its sphere”. In that same decision, the Court also held that “resides” held the same meaning in Section 1400(b) as “inhabits” in its predecessor statute, a term interpreted to mean “state of incorporation”. 

Turning to the Federal Circuit’s decision below, the Supreme Court reversed, accepting TC Heartland’s argument that Congress did not intend to change the meaning of Section 1400(b) by enacting Section 1391. The Court rejected Kraft Foods’ reliance on Section 1391’s definition (because that statute states that it applies “[f]or all venue purposes”), noting that the Court had rejected the same argument in Fourco. Such an argument was “even weaker under the current version of” Section 1391, the Court continued, in light of the “saving clause” added in 2011, which states that the statute does not apply when “otherwise provided by law”. In addition, the Court held that Congress had not ratified the Federal Circuit’s VE Holding decision through another 2011 amendment to Section 1391, stating, “[i]f anything, the 2011 amendments undermine that decision’s rationale”. While VE Holding had relied “almost exclusively” on Congress’s 1988 amendment that replaced “for venue purposes” with “[f]or purposes of venue under this chapter”, the Court noted that Congress reverted to the former version in 2011.