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28 March 2017Patents

TC Heartland v Kraft Foods: no clear winner yet

There is no clear winner yet in the patent venue dispute of TC Heartland v Kraft Foods, according to lawyers who attended the oral arguments heard by the US Supreme Court yesterday.

The Supreme Court will answer the question of whether 28 USC, section 1400(b) is the sole and exclusive provision governing venue in patent infringement actions and is not to be supplemented by 28 USC, section 1391(c).

Yasser El-Gamal, IP partner at Manatt, Phelps & Phillips, said it was a very active bench with Justices Ginsburg, Breyer, Sotomayor, Roberts, Kagen and Kennedy asking numerous questions of both parties.

“It was clear that at least some of the justices wanted to understand whether this case was an appropriate mechanism to address the perceived US District Court for the Eastern District of Texas venue-shopping issue raised by the amicus briefs,” explained El-Gamal.

Critics, including the Electronic Frontier Foundation, have waded into the clash, asking the court to change the rules in a bid to limit the number of lawsuits being filed at the Eastern District, a popular destination for patent claims.

In February, WIPR reported that Ken Paxton, the attorney general of Texas, along with 16 other state attorneys, had urged the Supreme Court to end the Eastern District’s hold on patent litigation.

Christopher McWhinney, partner at Sullivan & Worcester, said that based on the comments from the court, a change to the venue rules for patent cases seems unlikely.

Kagan pointed out that the “accidental theme” of the day was “when 30 years of practice goes against you, what happens?”

Neil Sirota, IP partner at Baker Botts, said the key issue that the justices focused on was whether the general venue statute of 28 USC, section 1400(b) had “changed enough” since 1956 to conclude that “Congress had overruled the Supreme Court’s Fourco decision”.

Fourco, which was decided in 1957, held that section 1400(b) is the sole and exclusive provision governing venue in patent infringement actions, and its not to be supplemented bysection 1391(c).

The patent venue statute, section 1400(b), provides that patent infringement actions “may be brought in the judicial district where the defendant resides”.

The statute governing “venue generally”, section 1391, contains a subsection (c) that, where applicable, deems a corporate entity to reside in multiple judicial districts.

According to Sirota, in 1990, the US Court of Appeals for the Federal Circuit ruled that Fourco was no longer good law and that residence could be interpreted broadly for patent cases.

McWhinney added: “Justice Ginsburg seemed to suggest that the change in practice proposed by TC Heartland would simply shift cases from Texas to Delaware, another supposedly patent holder-friendly forum.”

El-Gamal explained that the justices were also concerned about the impact a change in the venue law would have not only on Texas but other patent venue issues, like generic pharmaceutical litigation.

Implications

If the Supreme Court were to rule in TC Heartland’s favour, venue would be more difficult to establish for patent plaintiffs, according to Sirota.

“For corporations it would be limited to the state of incorporation, for example, which would diminish the ability of plaintiffs to forum shop,” he added.

The justices also indicated that there would be questions about how to determine “residence” for unincorporated defendants.

McWhinney explained that if the venue rules were limited, he would expect defendants to seek dismissals for improper venue.

“Patent holders would need to file suit where each defendant was incorporated or where the defendant has infringed and does regular business,” he said, adding that this could shift patent litigation away from Texas.

If the Supreme Court rules in Kraft’s favour, the law would remain the same, with a broad interpretation of “residence” in accordance with 1391(c).

“Neither outcome is ideal, and the likely final resolution will be up to Congress,” concluded Sirota.

For more background on the dispute, please click here.

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