Patent Trolling in the Forums
The U.S. federal court system consists of 94 district courts, 13 circuit courts of appeal and 1 Supreme Court. Unlike state courts, which can hear a broad range of case types including traffic misdemeanors, personal injury, divorce and custody, estate planning and murder;1 federal courts only hear cases that arise under the Constitution or federal statutes (“Federal Question Jurisdiction”) or that are between parties of diverse citizenship (state or country; “Diversity Jurisdiction”). Because patents are granted to their respective inventors under Article I of the Constitution, federal courts will always have Federal Question Jurisdiction over patent infringement suits. Yet, despite the fact that there are 94 district courts, plaintiffs file a vast majority of their infringement suits in just a few districts. The Eastern District of Texas, for example, has become so synonymous with patent litigation and sizable jury awards that Samsung, a global, Korean technology company and frequent visitor to (and defendant in) the Eastern District, regularly donates to its local charities and sponsors an annual outdoor ice rink.
Districts, like the Eastern District, are often chosen for their favorable plaintiff procedures. Many defendants, when faced with the prospect of prolonged litigation find it more economical to simply settle the case — even if the infringement claim has little merit. This has become so common that many “companies” are created solely to seek settlement payouts, or “go away money.” Not only does this erode the public’s faith in the judiciary and, to some extent, the patent system as a whole, but it distracts companies from carrying out genuine research and innovation. While all government branches have acknowledged this issue, the fact remains that the majority of all patent suits continue to be filed and settled in only a handful of districts. That may all change, however, when the U.S. Supreme Court weighs in on patent venue in TC Heartland v. Kraft Foods Group Brand later this spring.
This article will discuss the legal history and policies behind plaintiff district preferences or, forum shopping, in patent infringement suits.
- Part I will examine the nature of forum shopping, the types of parties involved and what makes certain districts, like the Eastern District, so appealing.
- Part II will present the statutory history and case law surrounding the TC Heartland case.
- Part III will present the arguments set forth by the parties.
Part I - Forum Shopping
It should come as no surprise that litigants will shop for forums, or seek out districts, which increase their likelihood of success. While there is nothing wrong with forum shopping based on convenience, i.e., travel expenses, health of relevant witnesses, etc., courts may refuse to take a case if doing so would “offend the sense of justice.” Venue, according to the courts, connotes locality and is intended to protect “a defendant from the inconvenience of having to defend an action in a trial court that is either remote from the defendant’s residence or from the place where the acts underlying the controversy occurred.”1 Nonetheless, there are some districts whose practices render many defendants’ claims of improper venue economically infeasible to pursue. For patent trolls, such districts provide repeated rewards and little risk. This Part I will discuss three types of patent trolls. It will also analyze the type of requirements and decisions coming out of districts, like the Eastern District of Texas, that have made them ideal forums for trolls.
Types of Trolls
Today’s patent trolls, or entities whose sole purpose is to collect and assert patents against allegedly infringing companies for financial gain, generally fall into three categories. Mark Lemley, a Stanford Law School professor, and A. Douglas Melamed, Senior VP and General Counsel of Intel Corp, refer to them as lottery ticket trolls, bottom feeder trolls and patent aggregating trolls.2 While all 3 types are non-practicing entities (“NPEs”), or entities that do not practice, or innovate upon, the patents they own, their methods and expectations differ.
Lottery-ticket trolls are NPEs that have acquired 1 or 2 patents that they believe touch upon a wide range of technologies. The broader their patent claim is, the greater their expectations are of higher payouts. Unlike other troll types, lottery-ticket trolls are actually invested in the validity, or quality, of their patents. In order to be financially successful, a court must find their patent valid and broadly enforceable against multiple companies with large jury awards. However, if a single court finds their patent invalid, the lottery ticket troll can no longer assert it against other companies.3
Bottom feeder trolls, on the other hand, are not nearly as invested in the quality of their patent portfolio. In fact, their financial success relies on never reaching a determination of patent validity or infringement. Instead, these trolls are exploiting the high costs of patent litigation (discovery costs, attorneys’ fees, etc.) to extract financial settlements out of companies unwilling to pursue more costly litigation. Moreover, since no judgment is ever reached on patent validity, the troll is free to assert it against other defendants.4 According to one study, 5 these vast majority of patent trolls fall into this category.
Like bottom feeder trolls, patent aggregating trolls are also less concerned with the quality of their patents. They, too, rely to some extent on a claim never making it to the judgment stage. However, unlike bottom feeders, patent aggregating trolls are more intent on wrestling forced licenses and royalties from companies. They do so by building an extensive patent portfolio in a specific industry or technology. Even if a company were to expend the significant costs involved to obtain a final decision on an asserted patent’s validity, the troll will always have another waiting in reserve. Rather than defending against hundreds — and in some cases, thousands — of patents, many companies will opt instead to negotiate a license and royalty fee with the troll.6
Plaintiff Friendly Forums
Despite the fact that there are 94 district courts in the U.S., more than 40% of all 2015 patent infringement suits started in the Eastern District of Texas (“ED”).7 Aside from delicious Texas BBQ, what makes the ED so appealing to trolls? A fantastic study by Brian J. Love and James Yoon, recently published in the Stanford Law Review, looked at some of the procedural requirements and decisions out of the ED that have made it the forum of choice. Without going into too much detail, they found that defendants sued in the ED are less likely to succeed in transferring infringement suits to more favorable locations.8 This has several significant consequences. For one, this means that defendants must adhere to the ED’s document production and discovery deadlines, which are often much earlier than other districts.9 Earlier deadlines mean that defendants can either choose to litigate with inferior evidence or expect to expend significant and immediate legal fees. Moreover, even when the ED grants a defendant’s motion of transfer, the discovery process has usually already concluded as: (a) ED judges tend to disfavor staying document production requirements while a motion for transfer is pending; and (b) motions are disproportionately granted much later in the process.10 Either way, defendants have already incurred the high costs of discovery. Similarly, certain ED judges tend to schedule Markman hearings 2-3 months earlier than their colleagues in other districts.11 Given the importance of defining key technical terms in an infringement suit, defendants are further squeezed for time and money.
Another consequence of choosing to defend in the ED is the likelihood of funding one’s defense through trial and probably to appeal. ED judges, when compared to the rest of the country, are less likely to dismiss a suit for patentable subject matter or grant a motion for summary judgment.12 Longer litigation means higher attorneys’ fees and greater travel expenses. While ED trials may move about 5 months faster than nationwide averages,13 ED judges tend to side erroneously with patent plaintiffs with jury awards often exceeding national averages.14 Defendants unwilling to settle an infringement suit can take solace in knowing that the ED has a high rate of reversal on appeal,15 but they should expect to incur those additional litigation costs.
For a plaintiff, the decision to file in the ED is an easy one. ED judges rarely require plaintiffs to litigate individual cases against individual defendants, thereby allowing plaintiffs to sue a number of defendants at one time.16 ED decisions skew in a plaintiff’s favor, and, where the ED has ruled against a plaintiff, ED judges rarely award attorneys’ fees.17 Even when a troll’s suit has little merit, the troll can rely on the procedural requirements and judicial precedent to extract some value from the defendant. The Love and Yoon study found that “simply by filing a complaint in the Eastern District, [a troll] can predictably and consistently impose large costs on their opponents and leverage those costs to extract settlements that primarily reflect a percentage of a defendant’s expected litigation costs from virtually any infringer, no matter where they are located in the U.S.”18 This practice runs contrary to the patent system and exploits the judiciary. Many hope that TC Heartland will put an end to such predatory tactics. However, before discussing the TC Heartland case, this article must first briefly discuss the statutory history and case law surrounding it.
Part II - Statutory History and Case Law
This section will provide a brief timeline of the statutes, their relevant text, and the judicial decisions affecting federal jurisdiction in patent infringement suits.
- 1789 - Article III, Section 2 of the U.S. Constitution
The judicial power shall extend to all cases, in law and equity, arising under this Constitution, the laws of the United States . . . to controversies . . . between citizens of different states . . . and between a state, or the citizens thereof, and foreign states, citizens or subjects.
- 1789 - Judiciary Act of 1789: An act to establish the judicial courts of the U.S.
. . . no civil suit shall be brought before either of said courts against an inhabitant of the United States, by any original process in any other district than that whereof he is an inhabitant, or in which he shall be found at the time of serving the writ.
- 1873 - Revised Statutes of the United States, 1st Session of the 43rd Congress
- § 629, cl. 9 - The circuit courts shall have original jurisdiction . . . Of all suits at law or in equity arising under the patent or copyright laws of the US.
- § 711, cl. 5 - The jurisdiction vested in the courts of the United States in the cases and proceedings hereinafter mentioned, shall be exclusive of the courts of the several states: . . .Of all cases arising under the patent-right or copyright laws of the United States.
- 1875 - Jurisdiction and Removal Act of 1875: An act to determine the jurisdiction of circuit courts of the United States, and to regulate the removal of causes from State courts, and for other purposes
. . . no civil suit shall be brought before either of said courts against any person by any original process or proceeding in any other district than that whereof he is an inhabitant, or in which he shall be found at the time of serving such process or commencing such proceeding.
NOTE: The change of “against any inhabitant” to “against any person” was considered immaterial. See later discussion in In re Hohorst.
- 1887 & 1888 - Act of March 3, 1887 as corrected by the Act of August 13, 1888
. . . no civil suit shall be brought before either of said courts against any person by any original process or proceeding in any other district than that whereof he is an inhabitant; but, where the jurisdiction is founded only on the fact that the action is between citizens of different states, suit shall be brought only in the district of the residence of either the plaintiff of the defendant.
NOTE: The Act removed the “or in which [defendant] shall be found at the time of serving such process or commencing such proceeding” clause. Therefore plaintiffs could now only bring a patent infringement suits in the district in which the defendant was an inhabitant. This presented a problem in In re Hohorst.
- 1893 - In re Hohorst - U.S. Supreme Court
In In re Hohorst, a foreign corporation was sued for patent infringement. Under the 1887/1888 Act, suit could only be brought in the district in which the defendant corporation was an inhabitant. However, the Court had previously held that “a corporation cannot be considered a citizen, an inhabitant, or a resident of a state in which it has not been incorporated; and that under the act of 1888 a corporation incorporated in one of the United States, and in that state only, cannot be compelled to answer in another state in which it has a usual place of business, and of which the plaintiff is not a citizen.” at 662 (citing Shaw v. Mining Co., 145 U.S. 444 (1892) and Southern Pac. Co. v. Denton, 146 U.S. 202 (1893)).
In finding that the foreign corporation could be sued for patent infringement in “any district in which valid service can be made upon the defendant,” the Court noted that while the 1887/1888 Act “prohibit[ed] suit[s] to be brought against any person in any other district than that whereof he is an inhabitant,” it did not apply to foreign corporations “especially in a suit for the infringement of a patent right.” Id. at 662.
- 1895 - In re Keasbey & Mattison Co. - U.S. Supreme Court20
In discussing the 1887/1888 Act’s inapplicability in In re Hohorst, the Court observed that because it was a patent infringement suit “exclusive jurisdiction of which had been granted to the circuit courts of the United States,” the suit was “not affected by general provisions regulating the jurisdiction of the courts of the United States, concurrent with that of the several states.”
NOTE: In re Hohorst and In re Keasbey & Mattison caused much confusion amongst the lower courts regarding the applicability of the 1887/1888 Act to patent infringement cases. As a practical matter, a patent plaintiff could bring and maintain a patent infringement suit in any district that had jurisdiction over a defendant. In 1897, Congress “intend[ing] to remove this uncertainty and to define the exact jurisdiction of the circuit courts” in patent infringement matters passed the Act of March 3, 1897. See H. Rpt. No. 2905, 54th Cong., 2d Sess.
- 1897 - Act of March 3, 1897: Defining the jurisdiction for US Circuit Courts for cases brought for the infringement of letters patent
. . . in suits brought for the infringement of letters patent the circuit courts of the US shall have jurisdiction, in law or in equity, in (1) the district of which the defendant is an inhabitant, or (2) in any district in which the defendant, whether a person, partnership, or corporation, shall (a) have committed acts of infringement and (b) have a regular and established place of business. If such suit is brought in a district of which the defendant is not an inhabitant, but in which such defendant has a regular and established place of business, service of process, summons, or subpoena upon the defendant may be made by service upon the agent or agents engaged in conducting such business in the district in which suit is brought. (emphasis and numerals added)
- 1911 - Section 48 of the Judicial Code
. . . in suits brought for the infringement of letters patent the district courts of the US shall have jurisdiction, in law or in equity, in (1) the district of which the defendant is an inhabitant, or (2) in any district in which the defendant, whether a person, partnership, or corporation, shall (a) have committed acts of infringement and (b) have a regular and established place of business. If such suit is brought in a district of which the defendant is not an inhabitant, but in which such defendant has a regular and established place of business, service of process, summons, or subpoena upon the defendant may be made by service upon the agent or agents engaged in conducting such business in the district in which suit is brought. (numerals added)
NOTE: This portion of the 1911 Judicial Code is identical to the 1897 Act portion above with the exception that “circuit courts” was replaced with the current nomenclature “district courts”. Section 48 is later codified in two separate pieces as § 1400(b) and § 1694.
- 1911 - Section 52 of the Judicial Code
When a State contains more than one district, every suit not of a local nature, in the district court thereof, against a single defendant, inhabitant of such State, must be brought in the district where he resides; but if there are two or more defendants, residing in different districts of the State, it may be brought in either district.
- 1942 - Stonite Products Co. v. Melvin Lloyd Co. - U.S. Supreme Court21
In Stonite, the US Supreme Court had to decide whether Section 48 was the sole provision governing patent infringement venue or whether Section 48 should be supplemented by Section 52. The Stonite plaintiff, citing Section 52, brought a patent infringement suit in the Western District of Pennsylvania against Stonite, an inhabitant of the Eastern District of Pennsylvania, and Lowe Supply Co, an inhabitant of the Western District of Pennsylvania. The Supreme Court, however, held that Section 48 is the exclusive provision controlling patent venue and that it could not be supplemented by Section 52. The fact that Section 52: (a) came before Section 48 (via the Act of May 4, 1858); (b) does not account for suits of a local nature; and (c) could be read consistently with Section 48 since Section 52 speaks of venue geographically (location within a state) and not categorically (patent litigation), does not matter. Section 48, vis a vis the 1897 Act, was enacted as a restrictive measure to define the exact jurisdiction in patent cases. It was not intended to “dovetail with the general provisions relating to the venue of civil suits.”
- 1948 - Section 1400(b) - Patents and Copyrights (as enacted on June 25, 1948)
Any 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.
- 1948 - Section 1694 - Patents and Copyrights (as enacted on June 25, 1948)
In a patent infringement action commenced in a district where the defendant is not a resident but has a regular and established place of business, service of process, summons or subpoena upon such defendant may be made upon his agent or agents conducting such business.
NOTE: While Section 1400(b) replaced Section 48’s words “of which the defendant is an inhabitant” with “where the defendant resides” and Section 1694 replaced “inhabitant” with “resident,” the revisers to the statute noted that, in regards to venue, “inhabitant” and “resident” are synonymous.22 Neither Section 1400(b) nor Section 1694 have be amended since their enactment.
- 1948 - Section 1391(c) - Venue Generally (as enacted on June 25, 1948)
A corporation may be sued in any judicial district in which it is incorporated or licensed to do business or is doing business, and such judicial district shall be regarded as the residence of such corporation for venue purposes.
- 1957 - Fourco Glass Co. v. Transmirra Prods. Corp. - U.S. Supreme Court23
In Fourco, the Supreme Court once again had to determine whether a certain provision, in this case § 1400(b), was the sole provision governing patent infringement venue, or whether said provision should be supplemented by another, in this case § 1391(c). In this case, Fourco was a West Virginia corporation, which was sued in the Southern District of New York. Although Fourco was doing business in the Southern District, there was no evidence that it had committed acts of infringement there. Citing the legislative history of the judicial code and noting that all consultants and revisers on the provision believed that no substantive changes to venue had been made or intended, the Supreme Court held (and reconfirmed) that § 1400(b) is the sole and exclusive provision controlling venue in patent infringement actions and that it is not to be supplemented by the provisions of § 1391(c). According to the Court, it is “[c]lear that § 1391(c) is a general corporation venue statute, whereas § 1400(b) is a special venue statute applicable, specifically, to all defendants in a particular type of action . . . the law is settled that however inclusive may be the general language of a statute, it “will not be held to apply to a matter specifically dealt with in another part of the same enactment. Specific terms prevail over the general in the same or another statute which otherwise might be controlling.”
- 1972 - Brunette Machine Works, Ltd. v. Kockum Indus., Inc. - U.S. Supreme Court24
In Brunette, the US Supreme Court was asked to revisit venue in patent infringement suits against an alien corporation. Given the changes since In re Hohort, the issue was whether § 1400(b) was the exclusive provision for all patent infringement suits, including those against alien corporations, or whether § 1391(d), which provides that an alien may be sued in any district, applied. The Court reaffirmed that patent venue is a special type of venue which sits outside the scope of general venue. The Court then went on to state that “suits against aliens are wholly outside the operation of all the federal venue laws, general and special.” Accordingly, the Supreme Court held that § 1391(d) applied in a patent infringement suit against an alien.
- 1988 - Section 1391(c) - Venue Generally (as amended on November 19, 1988)
For purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced. In a State which has more than one judicial district and in which a defendant that is a corporation is subject to personal jurisdiction at the time an action is commenced, such corporation shall be deemed to reside in any district in that State within which its contacts would be sufficient to subject it to personal jurisdiction if that district were a separate State, and, if there is no such district, the corporation shall be deemed to reside in the district within which it has the most significant contacts.
RE: Personal Jurisdiction. A district court has personal jurisdiction over a corporation if the corporation has established minimum contacts with the forum state such that “exercise of jurisdiction does not offend traditional notions of fair play and substantial justice.”25 A corporation might be said to have established minimum contacts if: (a) voluntarily reaching out to the forum state was in pursuit of some benefit to the corporation; or (b) the corporation knew or should have known that it could get sued in the forum state. Determining whether exercising jurisdiction over a corporation may or may not offend “traditional notions of fair play and substantial justice” requires balancing three factors: (i) the closeness of the relationship between the claim and the contact; (ii) whether it is convenient to call the corporation into the forum state; and (iii) the state’s interest in protecting its citizenry.26
NOTE: The chapter referenced in the statute is Chapter 87 of Title 28, which includes § 1400(b). Aside from this happenstance, the legislative notes were silent on the effect of this revision on § 1400(b). It should also be noted that section of the 1988 Act that amended § 1391 (c) was located in “Miscellaneous Amendments” and characterized as one in a series of “miscellaneous provisions dealing with relatively minor discrete proposals.” H.R. Rep No. 100-889 at 66 (1988), reprinted in 1988 U.S.C.C.A.N. 5982, 6027 (emphasis added). Accordingly, despite this revision, many district courts continued to treat § 1391(c) apart from § 1400(b), finding that Congress has no intention to change the settled law on the exclusivity of § 1400(b)’s application in patent cases.
- 1990 - VE Holding Corp. v. Johnson Gas Appliance - Court of Appeals for the Federal Circuit27
In VE Holding, the Federal Circuit had to decide, in light of the textual changes to § 1391(c), whether Congress meant to apply the definition of “resides” as it is used in § 1391(c) to § 1400(b), and thus change the longstanding interpretation of the patent venue statute. Johnson Gas, an Iowa Corporation, was sued in the Northern District of California. After determining that Johnson Gas did not have a “regular and established place of business” in the Northern District of California, the District Court dismissed the case for improper venue. The Federal Circuit reversed. According to the Federal Circuit, it has a duty to “employ the plain meaning of the language that Congress adopted” and, in this case, the phrase “[f]or the purposes of venue under this chapter” expressly reads itself into the terms of § 1400(b). The Federal Circuit acknowledged the legislative silence as to the amendment’s effect on § 1400(b), however, such silence did not necessarily mean there was no effect on § 1400(b). Indeed, the Supreme Court has stated that “deference to the supremacy of the legislature, as well as recognition that Congressmen typically vote on the language of a bill, generally requires courts to assume that the legislative purpose is expressed by the ordinary meaning of the words used.” It would be nonsensical, the Federal Circuit opined, for Congress to have added “[f]or purposes of this chapter, and we mean everything in this chapter” in the amendment. Similarly, if Congress had wanted to exclude § 1400(b) from the amendment, they could have added “with the exception of § 1400(b).”
- 2011 - Section 1391(c) - Venue Generally (as amended on December 7, 2011)
(a) APPLICABILITY OF SECTION. Except as otherwise provided by law (1) this section shall govern the venue of all civil actions brought in the district courts of the US . . . (c) RESIDENCY. For all venue purposes . . . (2) an entity with the capacity to sue and be sued in its common name under applicable law, whether or not incorporated, 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 and, if a plaintiff, only in the judicial district in which it maintains its principal place of business; and (3) a defendant not resident in the US may be sued in any judicial district, and the joinder of such a defendant shall be disregarded in determining where the action may be brought with respect to other defendants.
Given its prior decisions and the revisions to the general venue statute, the Supreme Court will have to decide whether VE Holding was decided correctly and if so, does the 2011 amendment change things; or will the Supreme Court re-affirm that § 1400(b) is the sole provision that governs patent cases and any changes thereto must be explicit? TC Heartland will provide the answer.
Part III - TC Heartland v. Kraft Food Brands
TC Heartland (“TCH”) is a limited liability company organized and headquartered in the state of Indiana. Kraft Food Brands (“Kraft”) is incorporated in the state of Delaware but has its principal place of business in Illinois. Kraft brought a patent infringement suit against TCH in the District Court of Delaware for TCH’s allegedly infringing liquid water-enhancing products. TCH admits that it sold and shipped said products to Delaware but stipulates that such sales made up only 2% of TCH’s total sales. But for these sales, TCH is otherwise unconnected to Delaware. TCH has not registered to do business in Delaware, has no local presence in Delaware, has not entered into any supply contracts in Delaware nor has it called on any sales accounts in Delaware. Accordingly, TCH moved to dismiss the case for improper venue.
Upon review, however, the District Court and the Federal Circuit (on appeal) rejected TCH’s argument. Based on VE Holding, which held that portions of the general venue statute, § 1391(c) (as amended) supplement the patent specific venue statute, § 1400(b), venue is proper so long as the District Court of Delaware had personal jurisdiction over TCH. Finding that TCH had “purposefully shipped accused products into the forum through an established distribution channel and the cause of action for patent infringement was alleged to arise out of those activities” and that such actions were sufficient to assert personal jurisdiction over TCH, the Federal Circuit held that venue was proper.
Since VE Holding was decided, Section 1391(c) has undergone additional revisions. Given the legal uncertainty surrounding the revision and the question of whether VE Holding is still good law, the U.S. Supreme Court granted cert. The Court will have to once more decide whether the general venue statute, which allows a corporation to “reside” in many jurisdictions for the purposes of establishing jurisdiction, can supplement the special patent venue statute.
According to the Stonite Court, the patent venue statute (as it was originally conceived in the Act of March 3, 1897) was specifically enacted to define the exact jurisdiction of federal courts in patent suits and to eliminate the “abuse engendered” by earlier venue statutes. Prior to the 1897 Act, a corporation could be sued in any district that it could be served. Though the Act has undergone some minor changes through various codifications, there have been no substantial changes to the special patent venue statute. Both TCH and Kraft seem to agree that the relevant portions of the Act of March 3, 1897 and § 1400(b) are substantially similar. They disagree, however, on the Federal Circuit’s treatment of the amendments to § 1391 in 1988 and 2011 and said amendments’ effect on § 1400(b). TCH believes that the Federal Circuit committed several errors in its VE Holding decision and, in its reliance on VE Holding, continues to err with respect to the current case. Kraft believes that the VE Holding decision was proper and that it properly reflected that changes made to the law. This section will provide some of the arguments submitted by both parties.
TCH: Federal Circuit is Wrong. Section 1391(c) Does Not Supplement Section 1400(b)
TCH argues that the Federal Circuit inappropriately placed too much significance in the 1988 amendments. The Federal Circuit’s VE Holding decision, which held that § 1400(b)’s understanding of “resides” is supplemented by § 1391(c)’s definition of “resides”, ignored Supreme Court precedent and rules of statutory construction/interpretation. Accordingly, notwithstanding the 2011 amendments to § 1391(c), the Federal Circuit’s continued reliance on VE Holding is inappropriate. For the reasons provided below, TCH argues that the Supreme Court’s decision in Fourco has been and should remain the proper interpretation of venue in patent infringement cases.
1. The Federal Circuit Committed 3 Errors in Failing to Apply Fourco
In failing to apply Supreme Court precedent, the Federal Circuit committed 3 errors. First, the Federal Circuit believed that the 1988 textual amendments created a “matter of first impression” since Fourco dealt with 1948’s version of § 1391(c). The new “exact and classic language of incorporation ‘[f]or purposes of venue under this chapter’” was so “clear”, according to the Federal Circuit, that § 1391(c) had to include § 1400(b). However, the Federal Circuit’s reliance on textual differences was misplaced. According to Fourco, “the question is not whether [the text of] § 1391(c) is clear and general” but whether § 1400(b) is “complete, independent and alone controlling in its sphere as was held in Stonite or whether it is, in some measure, dependent” on § 1391(c). If, then, the matter in question in VE Holding was the same as the matter in Fourco , which was the same as in Stonite, then the Federal Circuit erred in framing the matter as one of first impression.
The second error was made when the Federal Circuit construed the “residence” clause in 1948’s § 1391(c) to be surplusage or “at best confusing” because, they argued, (a) if § 1391(c) was not meant to supplement the patent venue statute, general venue was already established for corporations by the first clause and the word “residence” did not appear therein; and (b) the clause did not state if it was applicable to defendants or plaintiffs. Accordingly, the Federal Circuit painted the addition of “for purposes of this chapter” as significant. However, the Supreme Court’s decision in Pure Oil28 illustrates that a general statute can supplement special statutes so long as the special statute does not have “contrary restrictive indications.” The Court held that § 1391(c) could supplement the Jones Act, a special venue statute for employee v. employer suits, because there were no contrary restrictive indications.29 Section 1400(b), on the other hand, does have such contrary restrictive indications. In either case, the Federal Circuit’s earlier framing of the 1948 statute as surplusage was incorrect.
The third error the Federal Circuit made was ignoring the statutory headings of the respective statutes and failing to follow standard canons of statutory construction. The heading for § 1391 is “Venue Generally” whereas § 1400 is “Patents and Copyrights.” According to the Fourco court, specific terms (i.e., establishing venue in the patents and copyrights section) should prevail over the general (i.e., establishing venue generally) in the “same or another statute which otherwise be controll.”30 The Federal Circuit erred by allowing the general § 1391(c) terms to prevail over the specific § 1400(b) terms.
2. The Federal Circuit’s Interpretation of Patent Venue Violates Canons of Statutory Construction
In construing a statute, the courts often refer to rules or canons of statutory construction. These canons are intended to create consistent judicial interpretations, to provide legislators with drafting guidance and to protect public expectations. According to TCH, the VE Holding court failed to adhere to these canons in interpreting patent venue. For one, the Federal Circuit seemed to place greater significance on § 1391 because it was based on a latter, broader Act. Canons of construction provide, however, that where there is no clear intention showing otherwise, a specific statute will not be controlled or nullified by a general one, regardless of the priority of enactment.31 Yet, the Federal Circuit allowed the latter occurring, general § 1391(c) statute to nullify the specific patent venue statute.
Another canon provides that if Congress intends for legislation to change the interpretation of a judicially created concept, it makes that intent specific.32 Yet, even while acknowledging the lack of such Congressional intent, the VE Holding court treated the 1988 amendments as overruling Fourco. Contrary to canon, the Federal Circuit found an elephant in a mousehole.33 In this case, the “mousehole” was not even in the actual patent venue statute but in an amendment that was was expressly labeled as “Misc.” in the legislative text and described as “relatively minor discrete proposals”. The “elephant” effected a major change in patent venue by overruling multiple Supreme Court decisions and stripping domestic corporate defendants of patent venue protections that they had relied on for more than 90 years.
3. The Federal Circuit’s Interpretation of Patent Venue Creates Anomalies
By extending § 1391(c)’s definition of “resident” to § 1400(b) and patent infringement suits, the Federal Circuit has created several anomalies which would otherwise be avoided if Fourco and Stonite were properly applied. For one, § 1694 no longer makes sense in light of this reading. § 1694 provides that “in a patent infringement action commenced in a district where the defendant is not a resident but has a regular and established place of business, service of process, summons or subpoena upon such defendant may be made upon his agent or agents conducting such business.” Pursuant to the Federal Circuit’s interpretation, a district could claim a corporation as a resident for § 1400(b) purposes but could not for § 1694 purposes. While § 1400(b) does not define “resident”, the statutory canon of in pari materia or “statutes relating to the same thing are to be taken together as if they were one” suggests that § 1694 is informative of § 1400(b)’s interpretation. Not only do they both relate to patent infringement suits, but they were in fact, at one time, combined as a single law (Section 48 of the Judicial Code). Maintaining the definition of “resident” as it was understood in Fourco and Stonite would not create such an anomaly with § 1694.
Additionally, if § 1391(c)’s definition of “resident” is inserted into § 1400(b), the second means of establishing venue for patent infringement purposes is rendered superfluous. Both the 1988 and 2011 amendments to § 1391(c) extended venue to any judicial district in which the corporation is subject to personal jurisdiction. 34 For illustrative purposes, § 1400(b) might read as follows:
Any civil action for patent infringement may be brought in the judicial district: (1) where the defendant resides (i.e., where the defendant has established minimum contacts), or (2) where the defendant has committed acts of infringement and has a regular and established place of business.
Numeral (2) is a two-pronged test requiring acts of infringement and a regular and established place of business in the targeted district. One would presume that having a “regular and established place of business” necessarily presupposes that one “established minimum contacts” with the host forum. As a practical matter, there would never be a need to establish that a defendant has committed acts of infringement in the targeted district because proving one prong of numeral (2) completely satisfies numeral (1). In other words, reading § 1391(c) into § 1400(b) renders numeral (2) as superfluous verbiage. Such a reading would render the clause superfluous and violate another canon of interpretation.35
4. The Federal Circuit Misapplied 2011 Amendments to Section 1391
Notwithstanding the arguments above, even if VE Holding were correct, the language “For purposes under this chapter” was repealed and replaced in 2011. With the amendment to § 1391(a), which now provides that the section shall apply “except as provided by law”, TCH argues that it is clear that Congress intended that § 1391(c) should not supplement § 1400(b). Because § 1400(b) is a law that provides for venue in patent infringement cases, § 1391(c) does not apply. While the legislative reports may refer to VE Holding as the prevailing law, the Federal Circuit has no authority to depart from Supreme Court precedents, i.e. Fourco. Until the construction of a statute is determined by the highest court, the matter cannot be considered judicially settled. Fourco is the prevailing “law” in that it judicially settled the construction of the statute or law which is applicable in § 1391(a). TCH also notes that the Supreme Court continues to apply Fourco in current cases.
Additionally, the Federal Circuit’s argument that Congress broadened the scope of § 1391(c) from “for purposes of venue under this chapter” (1988) to “for all venue purposes” (2011) is misplaced. The 2011 language is no different than the 1948 language, which defined residence of a corporation “for venue purposes.” The word “all” does not add any material difference.
5. Forum Shopping Causes Injuries to Research, the Patent System and Patent Jurisprudence
A decision in TCH’s favor would also reduce the abusive forum shopping and resulting harm that have resulted from VE Holding. While some might consider patent trolls to be problematic only for large, global companies, there are other costs borne by the public that are less readily apparent. Such costs include losses in research and federal resources as well as harm to patent jurisprudence and the patent system as a whole. For example, when a troll forces a company to engage in lengthy litigation, scientists (many of whom are engaged in academic research) must frequently travel across the country to testify — sometimes for days. These trips distract scientists from their own research, which, in turn, stalls any innovations the public might reap from the scientist’s research. Additionally, when companies opt to settle or to take a license from a troll, no final judicial decisions are rendered. Any precedents that might be set by the court are lost and the troll is free to continue asserting their patent claims. Moreover, even when a decision has been rendered and, in some cases, appealed, there is a significant lack of diversity amongst district court opinions. The advantages of having a diversified range of court opinions and judicial insights are lost when so few district courts are handling the majority of patent cases. When it is more economically feasible to settle a case or when the opinions of only a handful of judges are ever reviewed, patent jurisprudence is unfortunately unable to evolve.
One of the most troubling consequences of a virtual venue free-for-all, suggested by the amici, is that district courts and judges may begin (if they are not already) to compete actively with one another for patent cases. These districts might see how towns like Marshall, Texas (a division of the ED) have benefitted from the concentration of patent litigation and the repeated presence of some of the world’s largest corporations. Such districts might choose to amend their procedural rules or decisions, in order to attract more patent plaintiffs and, in turn, more corporate attention.
For the reasons above, TCH and the amici believe that the Supreme Court should affirm Fourco / reaffirm Stonite and hold that § 1391(c), a general venue statute, does not supplement § 1400(b), a special patent venue statute.
Kraft: Federal Circuit is Correct. Section 1391(c) Does Supplement Section 1400(b)
Kraft argues that the Federal Circuit was correct in holding that the 1988 amendments to § 1391(c) encapsulated § 1400(b). For the reasons provided below, Kraft argues that the Supreme Court should affirm the Federal Circuit’s decision in VE Holding, affirm the ruling in the current action and hold that the term “resides” in § 1400(b) is defined by § 1391(c) of the same chapter.
1. Fourco is Non-Controlling
Echoing several of the arguments put forth by the Federal Circuit in VE Holding, Kraft argues that Fourco should not control in this case. First, nearly 40 years separate Fourco and VE Holding. In that interim, Congress amended § 1391 to specifically define “resident” for the “purposes of venue under this chapter” which includes both §§ 1391(c) and 1400(b). This clause was not present at the time of the Fourco decision, and therefore, the addition — and resulting weight — of this clause is one of first impression. Second, while Fourco does provide that no matter how “inclusive may be the general language of a statute, it will not be held to apply to a matter specifically dealt with in another part of the same enactment.” 36 the Federal Circuit and Kraft argue that “resident” was not “specifically dealt” with in § 1400(b). Section 1400(b) only “specifically dealt” with where patent cases could be brought, i.e. “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.” Omitted from § 1400(b), however, is what “resides” entails. According to the Federal Circuit, because § 1391(c) does not purport to (re)establish venue in patent suits but merely operates to define a term that appears in the special patent venue statute, there is no conflict betweenFourco and VE Holding. Finally, even though the 2011 amendments to § 1391 add the exclusionary phrase “[e]xcept as otherwise provided by law”,Fourco was not the “law” contemplated by Congress. The accompanying Congressional reports expressly observe VE Holding to be the prevailing law. Such reports should be given just as much weight as the revisers’ notes referred to in Fourco. Given that the amendments to § 1391 presented new matters not previously decided by Fourco and that VE Holding does not conflict with Fourco or Stonite, Kraft argues that the Supreme Court should find Fourco non-controlling here.
2. The Federal Circuit Correctly Interpreted the 1988 and 2011 Revisions to § 1391(c)
Citing a canon of statutory interpretation, the VE Holding court stated that when a statute’s language is “plain, the sole function of the courts is to enforce it according to its terms. Courts must presume that legislature says in a statute what it means and means in a statute what it says.” 37 In 1988, Congress amended § 1391(c) to read “[f]or purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced.” The chapter referred to, Chapter 87 of Title 28, includes both § 1391(c) and § 1400(b). According to Kraft and the Federal Circuit, there is no need to look for some Congressional express intent regarding venue in the legislative history. The phrase “for purposes of venue under this chapter” is the kind of “exact and classic language of incorporation” permitted to Congress that allows Congress to create a statute with broad and overriding applications.38 Had Congress intended to omit § 1400(b) from “the chapter” referred to in § 1391(c), Congress could have done so. It would be “non-sensible,” according to Kraft and the Federal Circuit, for Congress to have to write “for purposes of this chapter, and we mean everything in this chapter” in order to modify a term in § 1400(b). Requiring Congress to explicitly amend § 1400(b) to effect such a change is also not a sustainable solution as this would “impose a serious disablement” upon Congress’s ability to enact or amend legislation.
In 2011, Congress revisited the scope of § 1391(c)’s “resides” definition by expanding its application from just chapter 87 venue-related provisions to all venue related provisions. Even if the 1988 Congress had not intended “under this chapter” to include § 1400(b), the 2011 Congress likely did. Not only did they broaden § 1391(c)’s scope to account for “all venue purposes”, Congressional committee reports view the VE Holding decision favorably.
Overall, Kraft argues, the changes made to § 1391 were not trivial or stylistic. The language employed by Congress is plain and clear in its intent that § 1400(b) fell “under  chapter ” and is to be accounted for in “all venue purposes.” Neither TCH nor the amici have put forth any textual arguments that a venue-related statute located within the same chapter as § 1391(c) would be unaccounted for “under this chapter” or “all venue purposes” language. Accordingly, Kraft argues that the Supreme Court should affirm the Federal Circuit’s plain language interpretations in VE Holding and the case at bar.
3. Changes to Patent Policy Are the Responsibility of Congress
Kraft does not argue that the Federal Circuit’s decision in VE Holding has led to some unfortunate consequences. However, Kraft argues that these consequences have colored TCH’s assertions of “finding an elephant in a mousehole” when, given different circumstances, aligning patent venue closer to other venue statutes would seem reasonable and consistent with setting litigants’ expectations. Regardless, Kraft does not dispute the existence of forum-shopping nor the need to address the problems it has caused. Rather, Kraft argues that such reform is the constitutional responsibility of Congress, not the courts. In fact, Congress has already taken steps to address the problem as evidenced by recent bills in the House and Senate. None of which, Kraft notes, would return patent venue to its pre-1988 days.
Part IV - Conclusion
The Federal Circuit’s decision in VE Holding has allowed many non practicing patent entities or patent trolls to “forum shop” or file in districts that disproportionately favor patent plaintiffs. By abusing these fora’s procedural requirements and judicial decisions, patent trolls are able to extract large financial settlements from companies that find extended trials and appeals economically unsustainable. In the last few years, the majority of all patent cases have begun in just a few districts. This has had jarring effects on research, in patent jurisprudence and on the patent system as a whole. A decision in TCH’s favor may alleviate some strain on forum shopping and remove some of these negative consequences, but it is evident that Congress believes a more nuanced solution is needed.
Oral arguments before the Supreme Court are scheduled for March 27, 2017.
- VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1576 (Fed. Cir. 1990) (citing 1A(2) J. Moore, W. Taggart, A. Vestal, J. Wicker & B. Ringle, Moore’s Federal Practice p. 0.340 (2d ed. 1990)).
- Mark Lemley and A. Douglas Melamed, Missing the Forest for the Trolls, 113 Colum. L. Rev. 2117, 2126 (2013).
- Id. (citing Patent Assertion Entities: Hearing Before the DOJ/FTC, Dec. 10, 2012 (presentation of Colleen Chien, Professor, Santa Clara University School of Law).
- Brian J. Love and James Yoon, Patent Litigation in the Eastern District of Texas, 20 Stan. L. Rev. 1, 4 (2017).
- Id. at 16.
- Id. at 25-26.
- Id. at 21-23.
- Id. at 31.
- Id. at 14.
- Id. at 18.
- Id. at 19-20.
- Id. at 26-28.
- Id. at 26.
- Id. at 34.
- In re Hohorst, 150 U.S. 653 (1893).
- In re Keasbey & Mattison Co., 160 U.S. 221 (1895).
- Stonite Prods. Co. v. Melvin Lloyd Co.., 315 U.S. 561 (1942).
- See The Reviser’s Note to 28 U.S.C. §§ 1400(b) and 1694 (Supp. II 1949)
- Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222 (1957).
- Brunette Machine Works v. Kockum Indus., 406 U.S. 706 (1972).
- International Shoe v. Washington, 326 US 310, 316 (1945)
- See generally Id. and World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980).
- VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990).
- Pure Oil Co. v. Suarez, 384 U.S. 202 (1966).
- Id. at 205.
- Fourco Glass Co., 353 U.S. at 228-29.
- Radzanower v. Touche Ross & Co., 426 U.S. 148 (1976).
- Midlantic Nat’l Bank v. N.J. Dep’t of Envtl. Prot., 474 U.S. 494 (1986).
- Whitman v. Am. Trucking Ass’ns, 531 U.S. 457 (2001).
- See the notes on Personal Jurisdiction in Part II.
- See Pennsylvania Dept. of Public Welfare v. Davenport, 495 U.S. 552, 562 (1990) (expressing "deep reluctance" to interpret statutory provisions "so as to render superfluous other provisions in the same enactment").
- VE Holding Corp., 917 F2.d at 1579 (citing Ginsberg & Sons v. Popkin, 285 U.S. 204, 208 (1932) (emphasis in the original).
- VE Holding Corp., 917 F2.d at 1579-80.