Tuesday, May 23, 2017

Supreme Court Limits Forum Shopping in Patent Cases

By Sim Israeloff

In a closely watched case, the Supreme Court has greatly narrowed the available venue for patent cases.*1  The ruling will limit forum shopping and will likely reduce the number of cases filed in the Eastern District of Texas, which is currently perceived as the most favorable district for plaintiffs bringing patent claims.  

In recent years as many as 30-40% of all patent infringement suits in the country were filed in the rural Eastern District of Texas.  Plaintiffs ranged from giant tech companies to non-practicing entities, known pejoratively as patent trolls, meaning individuals or companies that do not manufacture any products but attempt to enforce patents far beyond their actual value through frivolous and expensive litigation.   

How did this happen?  Federal law contains a separate venue provision for patent cases, 28 U.S.C. §1400(b).  The statute provides that suits for patent infringement may be brought only “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.”  In 1957, the Supreme Court held that for purposes of §1400(b) a domestic corporation “resides” only in its state of incorporation.  Fourco Glass Co. v. Transmirra Products Corp., 353 U. S. 222, 226 (1957).  This meant most patent cases had to be filed in the defendant’s home state or where they had a regular and established place of business.

In 1988, Congress adopted a new definition of “reside” as it applies in the general federal venue statute, 28 U.S.C. §1391(c).  The new statute provided that except as otherwise provided by law and for all venue purposes,  a corporation can be sued “in any judicial district in which such defendant is subject to the court’s personal jurisdiction.”   The Federal Circuit subsequently held that the new general venue statute controlled over the older and more restrictive patent venue statute. VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574, 1578 (Fed. Cir. 1990).  Thus, for over 25 years patent plaintiffs have been able to file suits against major American manufacturers almost anywhere they wanted.  Venues that were perceived to be favorable to patent plaintiffs – like the Eastern District of Texas – were inundated with patent suits.  Entire support systems of local lawyers as well as hotels, restaurants and temporary office locations grew to support the flood of patent cases.  

Those days are now likely at an end.  In an 8-0 opinion the Supreme Court held that the original patent venue statute and the Supreme Court’s 1957 interpretation of that statute continues to be the rule for patent cases.  Corporate defendants can no longer be sued anywhere the plaintiffs want.  The plaintiffs’ favored districts will no longer be available for nearly every suit.  In Texas, the Eastern District federal courts and all of the support systems will face a major contraction as the new rules go into effect.  The ruling is being hailed by large corporations as a major rebalancing of litigation fairness in this very lucrative and expensive area.  
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*1.  TC Heartland LLC v. Kraft Foods Group, No. 16–341 (Slip op. May 22, 2017).

 

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