WASHINGTON (CN) – Unraveling 25 years of patent-litigation precedent, the Supreme Court ruled Monday that a company’s site of incorporation determines its residency for the purposes of being sued.
Thomas Duston, a partner at Marshall, Gerstein & Borun, said the death of the venue trend will stun the nation’s intellectual-property attorneys.
“The consequences of the Supreme Court’s action cannot be understated,” Duston said in a statement. “Patentee-friendly jurisdictions — in particular, the Eastern District of Texas — are destined to see a dramatic decline in patent litigation. In contrast, the federal District Court for the District of Delaware will undoubtedly see a significant rise in patent litigation, owing to the large number of corporations incorporated in Delaware.”
Nationwide implication aside, Monday’s ruling stems from a claim by Kraft Foods that TC Heartland infringed its patent for the low-calorie water sweetener MiO. Because of confusion about where the suit belongs, however, the merits of this case have gone untested.
The dispute erupted out of tension between the 1957 case Fourco Glass Co. v. Transmirra Products Corp., in which the Supreme Court said companies must sue infringers where they “reside,” and a 1990 decision by the Federal Circuit that has let litigants bring lawsuits anywhere they spot infringement.
In particular, the latter precedent has made the Eastern District of Texas a hub of patent litigation, hearing more than 40 percent of the country’s cases. Hoping to guide the industry referendum that TC Heartland’s case has triggered, interested parties from the tech industry and intellectual-law experts flooded the Supreme Court with friend-of-court briefs ahead of March oral arguments.
The Supreme Court was unanimous this morning that its 60-year-old interpretation of the patent-venue statute, Section 1400(b) of Title 28, is still the authority.
Much of the consternation surrounding the issue involves the fact that Congress has amended the general venue statute, Section 1391(c) of Title 28, twice since Fourco, while Section 1400(b) remains untouched.
The Federal Circuit had been relying on a 1988 change to the general statute when it found, in the 1990 decision VE Holding v. Johnson Gas Appliance Co., that the amendment affected the meaning of the patent-venue statute.
But Monday’s ruling notes that Congress left Section 1400(b) unaltered again when it adopted the current version of Section 1391 in 2011.
In bringing its water-flavorer lawsuit in Delaware, where it expected friendlier reception of its case, Kraft Foods had relied on VE Holding. The Federal Circuit hewed to its precedent last year in blocking removal of the case to Indiana, the home of TC Heartland.
Justice Clarence Thomas wrote the unanimous reversal Monday for the Supreme Court.
“The current version of §1391 does not contain any indication that Congress intended to alter the meaning of §1400(b) as interpreted in Fourco,” he wrote.
Thomas found little evidence of Congress ratifying the Federal Circuit’s VE Holding precedent.
“If anything, the 2011 amendments [to Section 1391] undermine that decision’s rationale,” the opinion states.
“In short,” Thomas added, “nothing in the text suggests congressional approval of VE Holding.”
Pierre Yanney, an attorney specializing in IP law for the firm Stroock & Stroock & Lavan, emphasized meanwhile that nothing about Monday’s ruling closes the door on suing a company where they have a “regular and established place of business.”
“The decision does away with the opportunity to sue a defendant wherever they sell products —regardless of where they are incorporated or where they have a place of business – but the practical reality is that for larger defendants this will not mean much of a change since these companies typically have a ‘place of business’ in many, if not most or all states,” Yanney said in a statement.
“Where the ruling does have a practical impact is for smaller defendants, such that they can only be sued either where they are incorporated or where they have a place of business, and they cannot be sued in any far flung state where they happened to have sold a product — again, a result, which is consistent with due process considerations,” Yanney added.
Christopher Loh, another attorney who reviewed the decision, emphasized that the court’s dry statutory analysis gives little guidance to the practical concerns litigants will face going forward.
The decision is silent on this issue, Loh noted, but TC Heartland is not actually even incorporated. “I’m interested to see how the District Court on remand applies the Supreme Court’s ruling, which concerns corporate defendants, specifically to this unincorporated defendant,” said Loh, a partner at Fitzpatrick, Cella, Harper & Scinto.
Christopher Larus, a partner at Robins Kaplan, said Monday’s ruling will shake up the filing of future patent suits.
“Over the past decades, patent litigation has been increasingly concentrated in four of the country’s 94 judicial districts – including the Eastern District of Texas,” Larus said in a statement. “This decision is likely to reverse that trend. We expect to see many more cases brought in states in which defendant companies are incorporated or have major business operations.”
Larus noted that just last year in the Eastern District of Texas, U.S. District Judge J. Rodney Gilstrap “was assigned more than a thousand new patent cases – amounting to nearly 25 percent of the nation’s total.”
Larus predicted that Monday’s holding “will also make it more challenging for patent plaintiffs to bring parallel patent suits against multiple defendants in a single district.”
“As a result of today’s decision, suits against multiple patent infringers may have to be brought in courts throughout the country – potentially increasing the plaintiff’s litigation costs and increasing the risk of inconsistent outcomes,” Larus added.
Holwell Shuster & Goldberg partner John DiMatteo labeled the Monday ruling as setting back the clock.
“This is a win for the lawyers in Delaware and Northern California, as well as a few other districts, where many defendants are incorporated or do business, and a loss for those in the Eastern District of Texas and other remote pro-patent venues,” DiMatteo said in a statement. “Over the next year, thousands of cases will be transferred or dismissed to proper venues under this ruling. I expect Congress will also act in the near future to either clarify this decision or overrule it.”
Justice Neil Gorsuch did not participate in the argument or decision of the case.