Patent Law Alert - Supreme Court Severely Limits “Forum Shopping” in Patent Lawsuits
On Monday, May 22, 2017, the Supreme Court significantly limited the locations where patent owners can file infringement lawsuits to (1) the alleged infringer’s place of incorporation or (2) a place where the alleged infringer has committed acts of infringement and has a regular and established place of business. See TC Heartland LLC v. Kraft Food Brands Group LLC, Case No. 16-341. The decision will make it more difficult for so-called “patent trolls” to forum shop by filing weak cases in jurisdictions such as the Eastern District of Texas, where cases move quickly and judges and juries often favor patent owners.
Pursuant to the patent venue statute, 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.” 28 U.S.C. §1400(b). In Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957), the Supreme Court held that, for purposes of the first prong of §1400(b), a domestic corporation “resides” only in its place of incorporation.
The general federal venue statute was amended in 1988 to provide that, for purposes of venue, a corporation “shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question.” 28 U.S.C. §1391(c). In 1990, the Federal Circuit held that the general venue statute overruled the Supreme Court’s holding in Fourco. See VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990). Thus, for nearly 27 years, courts have permitted patent holders to file suit anywhere the infringer was subject to personal jurisdiction, which effectively meant any location where the infringer made shipments or sales of its infringing product or service.
The Supreme Court has now ruled that the Federal Circuit’s holding in VE Holding was erroneous. In an opinion written by Justice Thomas, the Court found 8-0 (Justice Gorsuch did not participate) that Congress did not intend to expand the scope of venue in patent cases beyond the holding of Fourco. As a result, “residence” under the first prong of §1400(b) of the patent venue statute refers only to the alleged infringer’s place of incorporation.
The Supreme Court’s decision likely will significantly decrease the number of cases pending and filed in the Eastern District of Texas, a rural jurisdiction where approximately 40% of all patent suits are filed, but where few defendants have any real presence. In contrast, patent case filings may increase in the already heavy docket in the District of Delaware, where many corporations are registered due to the state’s favorable corporate and tax laws. Patent owners who seek to sue outside a company’s home forum will need to shift the battle to focus more on what “a regular and established place of business” means with respect to the second prong of §1400(b). Having less choice in venue may discourage some patent trolls from filing suits, especially those who used the leverage of venue to extract quick settlements in weak cases. The Supreme Court’s holding also may diminish the urgency of patent reform legislation, which is intended to restrain the perceived abusive practices of patent trolls.