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TC Heartland’s Supreme Court question may see patent owners going cold on the Eastern District of Texas

Forum shopping, a persistent problem in the US patent system according to some, may be facing its end with the US Supreme Court turning its attention to the issue.

TC Heartland, in a lawsuit brought by Kraft over the alleged infringement of three patents, asked the Supreme Court whether the patent venue statute, which provides that patent infringement actions “may be brought in the judicial district where the defendant resides”, is the sole and exclusive provision governing venue in patent infringement actions, and is not in fact supplemented by the statute governing “venue generally”.

The venue generally statute contains a sub-section that, where applicable, deems a corporate entity to reside in multiple judicial districts (see box-out).

At the heart of TC Heartland’s question is the US District Court for the Eastern District of Texas, where, according to professors from top US universities, including Harvard, Stanford and Yale, nearly half of 2015’s 5,819 patent infringement actions were filed.

Of the 2,541 cases, 95 percent were filed by non-practicing entities, and the number of lawsuits assigned to the Eastern District of Texas has risen steadily from 11 percent in 2008, to 44 percent in 2015, with a single judge receiving more than two thirds of these cases.This is evidence of ‘forum shopping’, according to commentators, with the Eastern District of Texas appearing to favour, or at least being the preference of, the patent owner.

Evidence of the problem stretches back many years. In 2011, The American Life published a one-hour feature, When Patents Attack, which showed empty, shell offices dominating Marshall in Texas. These ghost offices had no real employees, and merely served to allow companies to file patent lawsuits in the Eastern District of Texas. By Q3 2016, 1,195 cases (35.4 percent) were filed in the court.

Filing in the Heartland

Byron Pickard, director and leader of Sterne, Kessler, Goldstein & Fox’s litigation group, says TC Heartland will likely argue that “the patent venue statute has always provided a very limited number of venues in which a company could be sued for patent infringement”.

A decision in favour of TC Heartland, that defendants in patent infringement cases can only be sued where they are incorporated, “would likely spell the end of the Eastern District of Texas as a major venue for patent infringement suits”, he says.

Tom Duston, partner at Marshall, Gerstein & Borun, says: “A ruling in favour of TC Heartland will substantially restrict the available venues.”

“Only the venue in which the defendant is incorporated, or where the defendant has an established place of business, will be available”.

“TC Heartland argues that the Supreme Court long ago made clear that venue in patent cases is governed exclusively by its own statute and that this statute fixes venue only where the defendant is incorporated or where it has an established place of business and has committed acts of infringement.”

In a 1990 decision, VE Holding Corp v Johnson Gas Appliance, the Court of Appeals for the Federal Circuit concluded that amendments to the general venue statute expanded the places that defendants could be sued for patent infringement.

TC Heartland argues that the decision in VE Holding is no longer good law in light of amendments that removed language from the statute that the Federal Circuit had relied upon to support its conclusions.

And, if TC Heartland was to win its case, Duston says, in most situations, patent infringement lawsuits will move to Delaware, or where the defendant is headquartered.

The Supreme Court rarely accepts review of decisions from the Federal Circuit without the expectation of offering a different opinion, Duston adds.

“The fact that the decision the Supreme Court has agreed to review is the denial of an extraordinary writ where the standard of review is exceedingly deferential to the Federal Circuit would seem to reinforce this expectation.”

But what could this mean for patent owners seeking to file infringement actions in the Eastern District of Texas, and other, more favoured venues?

Pickard says: “Newly formed companies would not incorporate in Texas and existing Texas companies might reincorporate in another state.”

“But companies would likely balance their preferences for patent-suit venue against other legal and economic concerns that might be tied to a company’s choice of a home state, such as taxes, labour laws, and the like.”

“I expect that these other, non-patent legal and economic concerns will be the driving force in most company’s choice of home state.”

Duston says there is another question to consider. He asks: “What would become of current cases that would now be pending in jurisdictions in which venue has now been declared improper?”

“I suspect that courts with pending cases, and particularly the Eastern District of Texas, will look for rationales to continue overseeing those cases, especially those in which substantive actions have already occurred.”

Industry trade groups, including the American Bar Association (ABA), have chimed into the discussion. Most have sided with TC Heartland. In its amicus brief, the ABA asked the Supreme Court to “restore the balance struck by Congress in enacting a special patent venue statute” and reaffirm that Section 1400 is the “sole and exclusive provision-governing venue in patent infringement cases”.

It argued that the increase in forum shopping has “undermined public confidence” in the patent system and “risks diminishing the credibility of the bar”.

The case is set for argument in the Supreme Court on 27 March 2017.
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