Intellectual Property

• Jurisdiction: California,United States
• Author: By Evan Woolley
• Citation: Vol. 2017
• Publication year: 2017

Intellectual Property

By Evan Woolley

A Patent Exodus from Texas, Closing Pandora's Box on Pre-1972 Sound Recordings, and Cannabis Trademarks

2017 witnessed some major developments in intellectual property law of particular interest to California litigators, including a change in patent venue law that should bring more patent cases to California, a march towards a final answer as to whether California common law provides protection to sound recordings that federal copyright law does not, and forays into the next frontier in cannabis trademark legalization.

In TC Heartland LLC v. Kraft Foods Grp. Brands LLC¹ the United States Supreme Court narrowed the rules for patent venue by holding that, for purposes of section 1400(b) of Title 28 of the United States Code, a corporate defendant "resides" only in its state of incorporation. Subsequent developments in the Federal Circuit confirmed that TC Heartland was a change in the law, and that patent plaintiffs could not rely on an expansive reading of the second prong of section 1400(b) (relating to a "regular and established place of business") to keep patent cases in the popular Eastern District of Texas. California litigators should expect to see more patent cases filed in local district courts.

In Flo & Eddie v. Pandora Media,² the California Supreme Court is set to finally weigh in on a long-running dispute over possible state law rights in pre-1972 sound recordings. Federal copyright law does not provide for a public performance right in pre-1972 sound recordings, but founding members of 60's rock stalwarts The Turtles won summary judgment against Sirius XM on the theory that California Civil Code section 980, subdivision (a)(2), provided rights that federal law did not. Flo & Eddie settled the case against Sirius after the favorable ruling, but lost similar cases against Sirius in New York and Florida after the New York Court of Appeals and the Florida Supreme Court held that their respective states provided no such sound recording rights. Now that the California Supreme Court has certified questions from the Ninth Circuit in Flo & Eddie's suit against Pandora, California will have a final answer as to whether California law provides unique protections for pre-1972 sound recordings.

In Matal v. Tam,³ the Supreme Court held that the United States Patent and Trademark Office's prohibition on registration of disparaging trademarks was unconstitutional under the First Amendment. That holding, however, offers no help to those seeking to register cannabis-related trademarks because those are prohibited for not being the subject of lawful interstate commerce. In 2017 the California legislature enacted California Business and Professions Code section 14235.5, which provides for California state trademarks for cannabis-related goods and services. California litigators should expect to see cannabis-related trademark claims in state court going forward.

TC Heartland, Patent Venue, and the Promise of More Patent Cases in California

The Eastern District of Texas has long been the most popular venue for patent infringement actions in the country. One theory is that the district possesses a perceived pro-patentee tilt, enticing patent owners to file in a district where the jury pool is sympathetic to the plight of the small inventor taking on large corporations.⁴ Another theory is that the district possesses an experienced and efficient patent litigation rocket docket, where local patent rules and practiced patent judges shepherd patent cases to jury verdicts in record time.⁵ Perhaps it's the magnetic attraction of East Texas barbecue. In any event, the numbers demonstrate that East Texas has long been the champ when it comes to volume of patent cases. In 2016, for example, over 1,600 patent cases were filed in the Eastern District of Texas-accounting for about 36% of all patent cases in the country.⁶

[Page 85]

But in 2017, the United States Supreme Court in TC Heartland LLC v. Kraft Foods Grp. Brands LLC significantly narrowed the scope of permissible venues in patent infringement cases. In that case, Kraft Foods sued TC Heartland in the District of Delaware for infringing a patent related to flavored drink mixes.⁷ TC Heartland moved to transfer venue to the Southern District of Indiana, where it was headquartered. The district court denied the motion and the Federal Circuit affirmed, reasoning that TC Heartland "resided" in the Delaware for the purposes of venue because it was subject to personal jurisdiction there. The issue on appeal was whether this expansive definition of "resides" was correct for patent venue.

The patent venue statute, section 1400 of Title 28 of the United States Code, provides that "[a]ny 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."⁸ The patent venue statute was codified in its current form in 1948, the same year Congress enacted the general venue statute, section 1391 of Title 28 of the United States Code. In the years following, courts differed as to whether use of the word "resides" in the patent venue statute incorporated the definition of "residence" in the general venue statute, which defined "residence" for corporate defendants. The Supreme Court weighed in with the 1957 decision in Fourco Glass Co. v. Transmirra Prod. Corp.⁹ and held that section 1400 was the exclusive patent venue statute, and did not incorporate the general venue statute's "residence" definition.

In 1988, Congress amended the general venue statute to provide that "[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."¹⁰ Two years later the Federal Circuit held in VE Holding Corp. v. Johnson Gas Appliance Co.¹¹ that the use of the "exact and classic language of incorporation" in section 1391(c)'s amendment meant that the amended definition of "reside" applied to the patent venue statute, which also appeared in Title 28.

Section 1391's expansive definition of residence facilitated the Eastern District of Texas's growth as a patent venue. The test for personal jurisdiction in the district could be met simply by defendant's sale of infringing products in the district. In TC Heartland's case, its admitted shipments of allegedly infringing products to Delaware was sufficient to defeat its transfer motion at the district court and Federal Circuit.¹²

In TC Heartland the Supreme Court reversed the Federal Circuit and overruled VE Holding. The Supreme Court held that Fourco already conclusively held that section 1400 was the exclusive provision for patent venue, and the amendment of section 1391 did not change that.¹³ For purposes of patent venue under section 1400, subdivision (b), a corporation "resides" only it is state of incorporation. For the last 27 years courts had been taking too broad a view of patent venue.

TC Heartland did not result in an immediate mass exodus of patent cases from the Eastern District of Texas-but it wasn't from a lack of trying. Numerous defendants in pending patent cases brought motions to transfer venue in light of TC Heartland, even where such motions were not made prior to filing a responsive pleading. Normally, a motion to transfer venue must be made prior to filing a responsive pleading per Rule 12, subdivision (b)(3), of the Federal Rules of Civil Procedure. Failure to do so waives the venue objection.¹⁴ There is an exception to waiver where an intervening change in the law has occurred, because then the defense was not earlier "available" to the moving party.¹⁵ Some transfer motions in light of TC Heartland were successful on this basis, including motions to transfer venue to the Northern District of California in ON Semiconductor Corp. et al. v. Power Integrations (from the District of Arizona) and F5 Networks, Inc. v. Radware, Inc. (from the Western District of Washington). But many transfer motions, particularly those seeking escape from the Eastern District of Texas, were unsuccessful. In Cobalt Boats, LLC v. Sea Ray Boats Inc.,¹⁶ iLife Technologies, Inc. v. Nintendo of America Inc., ¹⁷ Elbit Systems Land...