I have made it a practice not to immediately blog about big Supreme Court cases. While there is a rush to be the first to publish, I have found that there is a significant difference in the value between immediate analysis and analysis after people take a breath and think about the implications of the case. So, having thought about the TC Heartland LLC v. Kraft Foods Group Brands LLC decision and its implications, my colleagues and I wanted to provide our thoughts on the impact of TC Heartland.
Broadly, of course, TC Heartland does not change a patentholder’s ability to sue or the scope of any patents; so, its impact is different from the recent Supreme Court’s Alice or Lexmark decisions. TC Heartland only limits where some defendants can be sued. It is an important result for regional companies or national companies with a limited or regional physical footprint. It is also significant for the Eastern District of Texas, the District of Delaware, and the other top five patent courts — including the Northern District of Illinois.
The TC Heartland Decision
The patent venue statute, 28 U.S.C. 1400(b) (the statute), states 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.” In its ruling in TC Heartland, the U.S. Supreme Court clarified that, in relation to the statute, “residence” refers only to the state of incorporation. This is in contrast to how district courts and the U.S. Court of Appeals for the Federal Circuit had interpreted the statute for the past 20-plus years, where venue was proper anywhere the district court could exercise personal jurisdiction over a defendant.
Who is Impacted by the Venue Changes?
1. E.D. Texas, N.D. Illinois & the Other Top Five Patent Districts
While the TC Heartland case did not originate in East Texas, the decision will have serious implications there because it is patent holders’ favorite venue. For instance, in 2016, plaintiffs filed 1,679 patent complaints in the U.S. District Court for the Eastern District of Texas (E.D. Texas). The District of Delaware was second with 458 filings. The difference was even more stark in 2015: 2,549 patent cases filed in E.D. Texas and 544 patent cases filed in Delaware, which was again the second-busiest district.1 Although many defendants are incorporated in Delaware, many of the East Texas defendants had few ties to the district.
The number of filings in E.D. Texas will fall significantly. Unified Patents predicts that they will fall by almost 70%. In the first weeks since the decision came down, we are already seeing a sizable shift in filings away from E.D. Texas. Many of the cases are going to Delaware, but there are also a significant number spreading across the country, especially in the other top five or six patent districts — Central and North California, the Northern District of Illinois and New Jersey. In the Northern District of Illinois alone, the first three weeks after TC Heartland saw twenty-one new cases, as opposed to seven new filings in the three weeks before the decision.
2. Regional Companies
Domestic companies now have to be sued where they are incorporated or where they committed allegedly infringing acts and have a permanent and continuous presence. Companies with regional physical footprints will see a change in their patent litigation profile. Some NPEs may not bother suing them because of the hassle of filing against multiple companies in district courts across the country. And to the extent they are sued, the suits will have to be filed where they are incorporated or where they have a permanent and continuous presence. That is a significant benefit in terms of cost, convenience and the potential home court advantage.
While patent holders who prefer to file in E.D. Texas appear to be the big losers in TC Heartland, it is likely that the winners are 1) the District of Delaware, where many companies are incorporated; 2) the Northern District of California, the home of many technology giants and startups; and 3) corporations without nationwide facilities or presence that will no longer be forced into patent litigation in far-flung states. Regardless, patent holders will need to address venue much differently in complaints going forward, with a focus on either the defendant’s state of incorporation or the defendant’s established place of business.
3. National Companies
Companies with national footprints will see far less change, particularly if they have physical locations in East Texas. And it is important to remember that Plano, just east of Dallas, is on the western border of East Texas domain. These companies can likely be sued anywhere, just like they could have been before TC Heartland. There are, however, open questions. For example, if a company is sued for a website technology that has no direct connection to East Texas, is venue proper in East Texas? The early 1990s case law has not answered internet questions because the issues did not exist.
4. Foreign Entities
Foreign entities can likely still be sued anywhere in the country where a court has personal jurisdiction. So, little may have changed for foreign entities.
5. Multi-District Litigation
With patent holders being required to sue defendants in districts across the country, we expect to see a significant uptick in MDL panel requests. Importantly, this could be how patent holders force litigation back to East Texas. If the patent holder files suits against a number of targets, including several in East Texas and then seeks MDL designation asking for the cases to be consolidated in East Texas for discovery, that could drive some of the cases back to Texas. Of course, if many of the cases end up in MDLs, it will significantly reduce the impact of TC Heartland.
6. International Trade Commission (ITC)
Another way to consolidate multiple cases, and get a swift result is to file an ITC action. ITC claimants can sue multiple, unrelated parties in a single ITC action, they are fast and the cases all sit in Washington, DC. The downside to the ITC is that it awards only injunctions — no damages — and it will only exclude product from entering the US. But patent holders are still free to settle on broader terms, including payment terms. And the patent holder can also file and stay district court litigations as a placeholder to seek money damages after the patent holder wins its ITC action. As with potential MDL’s, ITC actions could significantly limit the impact of TC Heartland.
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So is TC Heartland the sea change that it has been made out to be? Despite what you may have read immediately after the decision, there is no absolute answer to that. As with the outcome of so many Supreme Court decisions, it really depends and it will take time to tell. First, it depends upon your particular company. For local or regional entities, there should be at least a temporary and maybe a long-term change. Those entities will have to be sued at home. By way of example, for Chicago-based companies without a national footprint, that likely means being sued in Chicago or wherever the company is incorporated. For companies with a nationwide footprint, or a presence in East Texas, little may change. And if patent holders are successful in getting cases joined in multi-district litigations and sent to East Texas or Delaware or tried in the ITC on a regular basis, not much have changed for anyone.
The likely outcome is somewhere in between. Large campaigns will likely often be joined in multi-district litigation, but we expect them to be placed in districts across the country, not just East Texas and Delaware.