Mcle Self-study Article

• Jurisdiction: United States,Federal
• Author: Thomas A. Ward
• Publication year: 2017
• Citation: Vol. 42 No. 4

MCLE Self-Study Article

Thomas A. Ward

ARRIS

Karin Peterka Loyola

ETHICS IN VENUE SELECTION AFTER TC HEARTLAND

(See end of this article for information on receiving 1.0 hour Ethics MCLE self-study credit.)

For plaintiff patent owners deciding where to file new patent infringement lawsuits, or defendants seeking to transfer pending patent infringement lawsuits, following the Supreme Court's May 22, 2017 decision in TC Heartland LLC v. Kraft Foods Group Brands LLC, 137 S. Ct. 1514 (2017), this article addresses the following issues to consider in such a decision:

1. What patent venue decisions and changes to patent infringement lawsuit filings have developed post- TC Heartland?
2. What ethical considerations need to be taken into account when deciding what venue to file in, or if a case can be removed from a venue, given the post-TC Heartland patent venue cases and filing changes?

TC Heartland Holding

TC Heartland dealt with the U.S. patent venue statute, 28 U.S.C. § 1400(b), that determines the venue where a patent owner may file a patent infringement lawsuit.¹ Under 28 U.S.C. § 1400(b), "[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."² In TC Heartland, the Supreme Court held that the phrase "where the defendant resides" in 28 U.S.C. § 1400(b), as applied to domestic corporations, refers only to the state of incorporation.³ This differs from how the U.S. Court of Appeals for the Federal Circuit ("Federal Circuit") and district courts for decades had previously interpreted 28 U.S.C. § 1400(b), as supplemented by the provisions of the general venue statute, 28 U.S.C. § 1391(c), in that venue was found to be proper anywhere a patent infringement defendant was subject to a district court's personal jurisdiction, for example, personal jurisdiction based on sales of infringing goods or services.⁴ Thus, TC Heartland limited the venue rules governing where a patent owner can bring a patent infringement lawsuit.⁵

It is noted that TC Heartland did not address the portion of 28 U.S.C. § 1400(b), "where the defendant has committed acts of infringement and has a regular and established place of business."⁶ In addition, the Supreme Court focused its decision in TC Heartland on domestic corporations and did not address foreign corporations.⁷ Thus, foreign corporations may still be sued in any judicial district.⁸

Post-TC Heartland Impact on Patent Filings and Cases Eastern District of Texas

Prior to TC Heartland, the leading venue for filing patent infringement lawsuits was the U.S. District Court for the Eastern District of Texas ("Eastern District of Texas"), which is considered a popular forum for patent owners to file in, for example, 36.7% of all patent infringement cases filed in U.S. district courts during 2016 were filed in the Eastern District of Texas.⁹ In addition, in 2016, a single district court judge in Marshall, Texas, Judge Rodney Gilstrap, had 1,119 patent infringement cases assigned to him—more patent cases than any other U.S. district court judge that year.¹⁰

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Although TC Heartland involved the District of Delaware, the decision has affected the number of patent infringement lawsuit filings in the Eastern District of Texas. For example, the number of new patent infringement cases filed in the Eastern District of Texas decreased from 33% of all cases filed during the 90 days before TC Heartland to 13% of all cases filed during the 90 days after TC Heartland.¹¹

In addition, the TC Heartland decision resulted in an increase in motions to transfer out of the Eastern District of Texas based on improper venue, as well as an increase in the grant rate of such motions to transfer, for example, the grant rate of transfer motions by the Eastern District of Texas increased from 40% for transfer motions granted during the 90 days before TC Heartland to 84% for transfer motions granted during the 90 days after TC Heartland.¹²

For defendants that did not make a timely improper venue objection, such as defendants in the Eastern District of Texas, they may have to stay in their current venue.¹³ Under Federal Rules of Civil Procedure 12(b), (h), should a defendant fail to timely object to improper venue in a responsive pleading or in an allowed amendment or by motion under this Rule, the objection and the defense of improper venue is deemed to have been waived.¹⁴ However, there is a general exception to waiver "when there has been an intervening change in the law recognizing an issue that was not previously available."¹⁵ Since TC Heartland, several district courts have held that TC Heartland does not qualify as an intervening change in the law that would trigger an exception to waiver.¹⁶ At least one district court has held that a defendant did not waive the defense of improper venue because the defendant "could not reasonably have anticipated this sea change" in the law.¹⁷ Further, on November 15, 2017, in In re: Micron Technology, Inc., the Federal Circuit ruled that the TC Heartland decision was an intervening change in the law that excuses waiver.¹⁸

Where venue is improper and has not been waived, judges in the Eastern District of Texas and other districts may dismiss the case, allowing the plaintiff to refile in a proper district, if still timely to do so.¹⁹ Alternatively, judges may transfer the case to a forum where venue is proper.²⁰

Following TC Heartland, venue battles are increasingly focusing on the issue of what constitutes a "regular and established place of business" in the selected venue, and in the recent case of In re Cray Inc., the Federal Circuit provided guidance on the "regular and established place of business" prong of the patent venue statute, 28 U.S.C. § 1400(b).²¹ Plaintiff Raytheon had sued Cray in the Eastern District of Texas for patent infringement relating to advanced supercomputers, and Cray had moved to transfer venue based on the fact that Cray's state of incorporation was Washington, Cray did not have offices in the Eastern District of Texas, and Cray's only presence in the district was limited to two employees, a senior territory manager and a sales executive, who worked remotely from their homes.²² The Eastern District of Texas court found that Cray had a "regular and established place of business" and that venue was proper even where Cray lacked a physical building, and Judge Gilstrap proposed a four-factor test to consider whether a defendant has a "regular and established place of business" when deciding transfer motions for improper venue, where the four factors included, (1) defendant's physical presence in the district; (2) defendant's representation in the district; (3) the extent to which a defendant derives benefits from presence in the district; and (4) targeted interactions within the district.²³

In rejecting Judge Gilstrap's four-factor test, the Federal Circuit articulated three requirements that must be satisfied for venue to be proper: (1) there must be a physical place in the district; (2) it must be a regular and established place of business; and (3) it must be the place of the defendant.²⁴ The Federal Circuit found that the facts did not show that Cray maintained a regular and established place of business in the Eastern District of Texas and merely showed that there existed within the district a physical location where an employee of Cray carried on certain work for his employer, and thus, the Federal Circuit reversed the district court's denial of Cray's motion to transfer and granted defendant's petition for a writ of mandamus, directing the Eastern District of Texas to transfer the case to the Western District of Wisconsin.²⁵

In another recent case in the Eastern District of Texas, the district court found that a call center in Plano, Texas that was operated by a third party was considered a "regular and established place of business" of the defendant for purposes of venue, and the magistrate judge recommended denial of the defendant's motion to dismiss based on improper venue.²⁶

District of Delaware

As of 2012, according to the Delaware Division of Corporations, more than half of U.S. publicly-traded companies and 64% of the Fortune 500 companies were incorporated in Delaware.²⁷ While the number of new patent infringement lawsuit filings in the Eastern District of Texas has decreased after TC Heartland, the number of new patent infringement lawsuit filings in the U.S. District Court for the District of Delaware ("District of Delaware") has increased. For example, the number of new patent infringement cases filed in the District of Delaware increased from 13% of all cases filed during the 90 days before TC Heartland to 26% of all cases filed during the 90 days after TC Heartland.²⁸ The number of patent infringement cases filed in or transferred to the District of Delaware will likely continue to grow as more cases get dismissed or transferred out of the Eastern District of Texas.

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With regard to motions to transfer for improper venue, Chief Judge Leonard Stark in the District of Delaware recently provided guidance on venue rules in two patent infringement cases. In Bristol-Myers Squibb Co. and Pfizer Inc. v. Mylan Pharmaceuticals, Inc.,²⁹ plaintiffs Bristol-Myers Squibb and Pfizer Inc. filed a patent infringement lawsuit in Delaware against defendant Mylan, a West Virginia corporation, and the district court denied defendant's motion to dismiss for improper venue, and granted...