1. Background

2. Case background

3. Supreme Court

4. Impact

5. References

6. External links

While a 1957 Supreme Court ruling had determined that patent infringement cases were to be tried in the state within which the defendant was incorporated, subsequent changes to Judiciary and Judicial Procedure implemented by Congress had led courts to rule that infringement cases could be brought anywhere the defendant conducted business considered infringing. This enabled plaintiffs to forum shop for courts favorable to them. The United States District Court for the Eastern District of Texas had become the most popular court for such cases, encouraging many non-practicing entities—so-called "patent trolls"—to use this court to seek litigation and settlements from larger companies.{{Citation needed|date=February 2019}}

The Court ruled unanimously in favor of the petitioner, upholding its 1957 decision that patent infringement cases must be heard in the district within which the defendant is incorporated.{{citation needed|date=February 2019}}

Background

United States law under Title 28 of the United States Code (U.S.C.) covering judiciary procedure defines that patent infringement lawsuits are to be held in the district court where the defendant (the party charged with patent infringement) "resides", under 28 U.S.C. § 1400(b).^[2] Congress added clarifying language in 1988 to the general statute related to civil cases, 28 U.S.C. § 1391(c)(2), that for a corporation, its place of residence is "in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question".^[3] The Federal Court system has ruled in cases that effectively allowed the plaintiff in patent infringement cases to select any district court where the defendant did business, such as where it sold its products. This determination had been most recently affirmed in a 1990 case VE Holding Corporation v. Johnson Gas Appliance Company in the United States Court of Appeals for the Federal Circuit.^[4] Congress amended 28 U.S.C. § 1391 again in 2011, but otherwise did not change how courts interpreted the venue system.^[5]

This effectively allowed plaintiffs to file suit in nearly any district court of their choosing, arguing that defendants that sold products anywhere in the United States were doing business, creating a type of forum shopping. This led to a large number of patent infringement cases to be filed in the United States District Court for the Eastern District of Texas since 2003. The Eastern Texas District Court was considered to be favorable to plaintiffs, with both a fast trial and with about 75% of the cases found for the plaintiffs. This was in part due to procedures set up by Judge T. John Ward, appointed to the District Court in 1999, that kept patent infringement cases to a strict time table.^[6] In 2017, the Eastern Texas District Court saw the most patent infringement cases of any district court, with one judge overseeing 25% of all such cases in the nation.^[4][7] The United States District Court for the District of Delaware also sees a large number of such cases, partly because of the many businesses incorporated in Delaware.^[8]

The Eastern Texas District Court had attracted a large number of non-practicing entities or derogatorily known as "patent trolls", in addition to other patent infringement complaints. These are individuals or companies that do not have any actual business but have been granted or gained ownership of patents which most others would see as low-quality patents that either are overly broad or lack inventiveness. These entities take litigation action against other companies for patent infringement, typically as means to coerce settlement prior to trial or anticipating a victory in the District Court of their choosing.^[9] A study found that since 2014, more than 90% of the patent infringement cases heard at the Eastern District Court were from such non-practice entities.^[5][10]

Case background

Supreme Court

TC Heartland filed a writ of certiorari to the Supreme Court in September 2016, specifically addressing whether the interpretation of "resides" in 28 U.S.C. § 1400 can be affected by the amendments made to 28 U.S.C. § 1391;^[3] the Court granted certiorari in December 2016. Supporting TC Heartland via amicus briefs included a number of computer, technology, banking, and retail companies such as Apple, eBay, IBM, Microsoft, Intel, and Walmart that sought to eliminate the means that their patents are challenged by non-practicing entities, as well as seventeen states.^[5] Amicus briefs in opposition to TC Heartland included a number of pharmaceutical companies, including Allergan, Merck, and Genentech, who stated the ability to decide the venue helped to fend themselves against generic drug manufacturers, and older companies like Ericsson and Whirlpool which have thousands of patents in their portfolio and having the choice of venue making it easy for them to deal with large number of patent infractions in a single location.^[5]

Oral arguments were heard before the eight-member court on March 27, 2017. Justice Neil Gorsuch had yet to be appointed at this time and did not participate in the decision.^[4] Observers noted that the justices focused on their previous decision from Fourco and argued the Federal Circuit had been "ignoring our decision", as stated by Justice Elena Kagan.^[4] The question of the impact of a decision in favor of TC Heartland was raised, noting that a decision favoring TC Heartland would cause other District Courts, particularly Delaware's, to be loaded with patent infringement cases.^[4]

The Court issued its decision on June 26, 2017, ruling unanimously that the definition of "reside" in 28 U.S.C. § 1400^[2] remains as determined by the Court in Fourco to be the state of incorporation for a company. Justice Clarence Thomas, writing the opinion, found that the 2011 updates to 28 U.S.C. § 1391^[3] did not contradict the Fourco decision, nor incorporated elements of the ruling from VE Holdings, and thus, their decision of Fourco still holds. The Court reversed the decision of the Appeals Court and remanded the case back to them.^[1][8]

Impact

A separate patent infringement case, Raytheon Co. v. Cray, Inc., brought to the Eastern Texas District Court during the Supreme Court case. Cray argued for a change of venue claiming it did not have a place of business in the district. Chief Judge James Gilstrap for the District Court initially ruled in April 2017 prior to the Supreme Court decision that Raytheon could seek action against Cray in the district. Following the Supreme Court's decision in TC Heartland in May 2017, Cray requested Gilstrap to re-evaluate the case under this ruling. Gilstrap did issue a new ruling, though still denying the change of venue. Gilstrap created a four-point test to evaluate whether a defendant had "regular and established place of business" in the district, and as Cray had a single sales representative living within the district, he denied the motion to change venue.^[11] Cray appealed to the Federal Appeals Court, which was heard after the TC Heartland decision. The Federal Appeals Court applied the Supreme Court's reasoning to reverse Gilstrap's ruling and allowed Cray's motion to transfer the case to proceed. Coupled with the TC Heartland ruling, this decision was seen to prevent further attempts by plaintiffs to forum shop for a desired court.^[12]

The filing of such cases in the United States District Court for the Eastern District of Texas, formerly the leader in such suits, dropped after this decision. Meanwhile, the filing of such cases in the United States District Court for the District of Delaware increased.^[13]

References

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