The Party’s Over: The Death of Patent Cases In the Eastern District of Texas

Today, the Supreme Court released its much-anticipated decision in TC Heartland v. Kraft Foods (decision available here). The Supreme Court reversed decades of Federal Circuit case law that essentially allowed a patent-infringement defendant to be sued wherever it sold the accused products. Federal Circuit case law, in practice, meant that an exceptionally large number of defendants were sued in the Eastern District of Texas—a venue thought to be favorable for patent owners (including non-practicing entities).

No longer. The Supreme Court today held that “resides” in 28 U. S. C. §1400(b)—the patent venue statute—means only a corporation’s state of incorporation. This means that, on a go-forward basis, a patent defendant may only be sued (i) in its state of incorporation, or (ii) where the defendant both (a) has a regular and established place of business and (b) has committed acts of infringement.

The practical effect of TC Heartland is that Delaware will see a dramatic increase in patent-infringement cases (as it is the top state where corporations incorporate, and it, like the Eastern District of Texas, is thought to be plaintiff friendly). And the Eastern District of Texas will see a dramatic drop in patent-infringement filings (simply because most corporations are not incorporated in Texas, nor do they have, in East Texas, regular and established places of business where they commit alleged patent infringement). I also expect to see a rise in patent-infringement lawsuits in venues such as the Northern District of Texas, the Southern District of New York and the Northern District of California—i.e., places where large numbers of major corporations are headquartered. I further predict that we’ll see an increase in Delaware cases being transferred out of Delaware, including mandamus decisions from the Federal Circuit directing the District of Delaware courts to transfer cases.

At issue in TC Heartland was 28 U. S. C. §1400(b), which states: “Any 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.” The Supreme Court held that “resides” means only a corporation’s state of incorporation. It rejected the argument that “resides” incorporates the broader definition of corporate “residence” contained in the general venue state, 28 U. S. C. § 1391(c). Section 1391 provides that a corporation “shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question[.]” The Federal Circuit had held, in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574 (Fed. Cir. 1990), that § 1391(c) allowed a patent-infringement defendant to be sued anywhere it was subject to personal jurisdiction. This, in practice, meant that a patent-infringement defendant could be sued anywhere it sold the accused product. And because most companies sell their products nationwide—including in East Texas—they could be sued anywhere in the United States. This led to the rise of the Eastern District of Texas as the patent infringement “hot spot.” Now, however, it will be exceptionally difficult to file a patent-infringement case in East Texas.    

One final item to note: TC Heartland confined itself only to domestic corporations. It did not address venue for foreign corporations or non-corporate entities.