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Lay of the Land After TC Heartland
November 28, 2017

joesephboosBy Joseph P. Boos and Kelly L. Hoffman

The United States Supreme Court’s decision in TC Heartland jolted the IP law community by displacing long-standing Federal Circuit precedent and leaving a divide amongst district court judges, as well as a bevy of unanswered questions.[1] Since TC Heartland, two more decisions from the U.S. Court of Appeals for the Federal Circuit help clarify the landscape for patent litigators. Additionally, a study from Lex Machina further outlines the shifting horizon of forum shopping.

In 1990, the U.S. Court of Appeals for the Federal Circuit decided in VE Holdings v. Johnson Gas Appliance Co. that plaintiffs asserting patent infringement could file patent lawsuits against corporate defendants in any judicial district where the court would have personal jurisdiction over the corporate defendant, including any jurisdiction where the corporate defendant did business. This practice stood for approximately 27 years until the U.S. Supreme Court decided in TC Heartland LLC v. Kraft Foods Group Brands, LLC that the term “resides” in the federal venue statute refers to the state of incorporation of a U.S. corporate defendant.

Since the TC Heartland decision in May 2017, the focus has been on the “regular and established place of business” portion of the federal venue statute for flexibility in determining where patent infringement cases may be filed.

One case dealing with this portion of the statue is Raytheon Co. v. Cray Inc., 2:15-CV-01554-JRG, (E.D. Tex. June 29, 2017). Judge Rodney Gilstrap denied a motion by Cray seeking to transfer the case out of the Eastern District of Texas ruling that the existence of a single employee who worked from his home in the district constituted a “regular and established place of business.” Judge Gilstrap established a four factor test which included: physical presence, defendant’s representative, benefits received and targeted interactions.

Cray petitioned for a writ of mandamus vacating Judge Gilstrap’s order. In response, the Federal Circuit held that Judge Gilstrap erred by refusing to transfer the patent suit to another court, holding that the venue rules the judge had established are not sufficiently tethered to the statutory language and fail to inform each of the necessary requirements of the statute. The Court identified factors to look at instead, including: (1) there must be a physical place in the district from which the defendant’s business is carried out, not simply a virtual space or electronic communications from one person to another; (2) the place must be regular and established, not sporadic or transient; and (3) the place must be a place of the defendant’s and not solely a place of the defendant’s employee.

Cray did not own or rent an office or property in the district. Cray never paid the employee for the use of his home to operate its business and never publicly advertised or indicated that the employee’s home residence was a Cray place of business. The employee did not maintain Cray products at his home nor maintain product literature at his home because it was available online. So here, the facts merely show that there exists a physical location within the district where an employee of the defendant carries on certain work for his employer which does not constitute a regular and established place of business.

However, the court stressed that not one fact is controlling, so one cannot simply assume that an employee who works from home will not constitute a regular and established place of business and a careful analysis of all the facts should be performed in each case.

Another issue from the May 2017 TC Heartland case was whether that decision was an intervening change in law. On Wednesday, November 15, 2017, the U.S. Court of Appeals for the Federal Circuit ruled that it was an “intervening change in law.” This could affect hundreds of still-pending cases. Traditionally, if a party neglects to raise an “improper venue” defense in an initial motion to dismiss, the defense is considered “waived.” Due to the change, many litigants may now claim “exception to waiver,” which allows a party to avoid waiving a defense due to a longstanding change in precedent. In the grand scheme of things, this decision may allow some companies in the midst of patent litigation to move them to a different forum.

The “intervening change in law” ruling came when Micron Technology Inc. submitted a request for alternative venue in an ongoing patent infringement suit with Harvard University. In June 2016, Harvard brought their suit against Micron claiming that Micron’s memory chips infringe upon patents granted to a Harvard professor. Micron’s initial motion to dismiss did not raise the defense of improper venue, an omission that may give them another day in court.

Just days after the TC Heartland decision, Micron filed a second motion to dismiss, this time claiming the proper venue was either Idaho, the site of their headquarters, or Delaware, their state of incorporation. Harvard argued that Micron waived that defense by not raising it in their first motion to dismiss. In response, Micron reasoned that due to TC Heartland they could claim exception to waiver due to the “intervening change in the law,” which gives litigants a loophole to waiver when a change in long-standing precedent in the law occurs. A federal judge in Boston first denied Micron’s request, but Micron filed a writ of mandamus to the Federal Circuit stating that the improper venue arguments would have been contrary to precedent prior to TC Heartland, and was therefore unavailable as a defense when their first motion to dismiss was filed. On November 16, 2017, the Federal Circuit agreed and vacated the federal judge’s decision.

In his decision, Judge Richard Taranto stated “at the time of the initial motion to dismiss before the court decided TC Heartland, the venue defense now raised by Micron (and others) based on TC Heartland’s interpretation of the venue statute was not available.” Judge Raymond Chen and Judge Raymond Hughes joined him in the decision.[2]

This does not guarantee that Micron’s motion will be granted or that they will be successful in their quest for a new venue. However, it means that some patent infringement suits on their last breath may have a little life in them yet.

Despite the clarifying decision provided in Cray, some believe that the Eastern District of Texas will still maintain a majority when it comes to the comparative patent caseload in the rest of the country.

In October, Lex Machina, a legal data analytics service, released two studies that focus on the litigation trends stirring in intellectual property law. In the 90 days leading up to the TC Heartland decision, 377 patent cases were filed in the Eastern District of Texas, 153 were filed in Delaware, making up 33 percent and 13 percent respectively, of the total patent cases filed in those three months.

In the same amount of time after the decision, 129 patent suits were filed in the Eastern District of Texas and 263 were filed in Delaware, shifting the percentages to 13 percent and 26 percent. The majority of the shift can be attributed to high-volume plaintiffs, defined as those filing 10 or more patent cases per year. In fact, during the third quarter of 2017, Delaware officially overtook the Eastern District of Texas as the top venue for patent filings with 212 cases compared to the Eastern District’s 139.[3]

Whether Delaware will continue its trend of highest volume plaintiffs in the aftermath of TC Heartland remains to be seen, but after Micron many cases once thought lost may resurface to fight one last battle in another forum.

[1] TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S. Ct. 1514, 1521 (2017)

[2] In Re Micron Technology Inc, U.S. Court of Appeals for the Federal Circuit, No. 17-138.

[3] Lex Machina, “Patent Litigation Trends in the Three Months after T.C. Heartland.” (October 18, 2007), https://lexmachina.com/patent-litigation-trends-in-the-three-months-after-t-c-heartland/