On Monday, March 27th, the U.S. Supreme Court heard oral arguments in TC Heartland LLC v. Kraft Food Group Brands LLC. The case, arising from allegations of patent infringement over liquid water enhancement products, will ask the court to decide whether 28 U.S.C. Section 1400(b), the patent venue statute which provides that judicial actions for patent suits take place in the district within which the defendant resides, is supplemented by 28 U.S.C. Section 1391(c), which provides that an entity may reside in multiple districts.
Arguing on behalf of the petitioner TC Heartland was James W. Dabney who began by saying that SCOTUS should hold to its standard set down from 1957’s Fourco Glass Co. v. Transmirra Products Corp. This case held that §1400(b) is the exclusive standard in determining the venue in which patent infringement actions may be brought. Justice Sonia Sotomayor questioned how this could be the only standard in light of the Court’s 1972 holding in Brunette Machine Wks v. Kochum Industries that §1391(c), and not §1400(b), governed patent infringement actions against alien entities. Further, Sotomayor noted that §1400(b) doesn’t define the proper venue for unincorporated associations. Dabney responded, arguing that domicile was the “linchpin” of §1400(b) and its predecessor and that the respondent’s brief didn’t provide a single example of any issues in interpreting §1400(b) since the Court’s 1959 decision in Sperry Products, Inc., et. al. v. Aluminum Company of America and Electrocircuits, Inc.
Justice Ruth Bader Ginsburg followed by asking whether there was any other provision which mandated that the venue for a corporation is only the place of incorporation and although Dabney indicated that one could exist, he wasn’t aware of it. Ginsburg followed in questioning on whether corporations were diverse as the place of incorporation and the principal place of business could be in different venues. Dabney’s response circled back to the Fourco Glass case:
“Well, since 1948, that has been the general rule that 1391(c) has provided. 1391(c) has said for 60-odd years that a corporation, regardless of its domicile, will be deemed to be resident in this district, that district, that district. And that has been a feature of general venue law since 1948. The whole point here is that — that rule was urged upon this Court. In the Fourco Glass case, the Court considered statutory language that was not materially different in this respect from current 1391 and held that 1400(b) when it says the judicial district where the defendant resides, that means domicile.”
Justice Elena Kagan asked Dabney what he thought Congress would have to do to reverse the Court’s Fourco Glass decision without repealing §1400(b). Dabney posited that a change to §1391’s applicability to change the current wording of “except as otherwise provided by law. “The ‘except’ provision makes this case an easier case than Fourco Glass was because at the time of Fourco Glass, all you had was the general venue statute and the very specific tailored, historic venue statute that had been dating back to 1897,” Dabney said. He argued that Congress specifically provided that §1391 didn’t override §1400 but rather that §1391 was subordinate to other statutes and common law. This subordination was a result of Congressional changes to the statute in December 2011, Dabney argued.
Dabney continued by noting that the respondent’s brief seems to contradict itself on Kraft’s position regarding the “except” clause:
“It isn’t until you get to page 31 that Respondent can even bring itself to address the exception clause, which is so clearly fatal to their position. They talk about all means all means all means all for the first 30 pages. And then finally we get to page 30 and 31, and what do they say? Well, they say, well, the ‘except’ language. The ‘except’ language has nothing to do — this is on page 32 — the ‘except’ language in Section 1391(a) has nothing to do with the definition in 1391(c); quote, ‘Those definitions do not govern venue,’ unquote. Well, that directly contradicts what they say on page 8 of their brief, which states, quote, ‘The new — Section 1391(c) now governs for all venue purposes.’”
Dabney noted that the respondent’s attempt to import meaning from §1391 into §1400 was also attempted by the respondents in the Fourco Glass case. In that case, SCOTUS found that allegations that Fourco Glass, a West Virginia company, was a resident of the Southern District of New York were fictitious. Dabney argued that §1400 was a statute required to prevent adverse litigation experiences set out in amici briefs. This included an amicus brief from 56 law and economics professors which noted that a single judge has a docket holding one-quarter of all U.S. patent cases.
Kagan noted that an “oddity” of the case before SCOTUS that despite the Court’s previous decisions, 30 years of rulings from the U.S. Court of Appeals for the Federal Circuit (Fed. Cir.) have ignored that standard and “the law has effectively been otherwise.” Fed. Cir.’s 1990 decision in VE Holding Corporation v. Johnson Gas Appliance Company, where the appellant court found that the meaning of “reside” in §1400 had changed, “is the decision that the practice has conformed to.” Dabney countered, reasoning that the 2011 changes to the statute indicate that Congress felt that the decision in Fourco Glass was null being disregarded by lower courts. “I would argue that the legislation that Congress passed, far from ratifying that holding, very intentionally abrogated it,” Dabney said. He also cited Section 18(c) of the America Invents Act (AIA), which provided a new restriction on §1400(b) by deeming that an ATM doesn’t constitute a regular and established place of business.
A lot of discussion about the TC Heartland case surrounds effects that the case would have on the U.S. District Court for the Eastern District of Texas (E.D. Tex.), the court where the aforementioned judge deciding one-quarter of U.S. patent cases sits. Justice Stephen Breyer seemed to take exception to the fact that so many amici briefs were focused on this:
“These amici briefs, and — they’re filled with this thing about a Texas district which they think has too many cases. What’s this got to do with this? As far as I can see, if we’re supposed to decide what’s good or bad, maybe you’d lose. But I — I don’t know whether that’s good, bad, or indifferent. Okay? But is there some relevance to it?”
Breyer also sought clarity on why the case should decide a matter of law related to corporations when the petitioner wasn’t a corporation. Dabney clarified that the petitioner’s position was that §1400(b) wasn’t restricted to corporations and that the Fourco Glass case covers all defendants, not just corporations. Further, the opinion of former Justice Billings Learned Hand in the 1959 Sperry case set a standard for determining the principal place of business for unincorporated associations. As a chartered entity, TC Heartland lists its principal place of business as Indianapolis, IN.
Justice Anthony Kennedy asked what law the Court has used in the past to determine the principal place of business for an LLC, and Dabney answered that state law has been used in past precedential decisions. Even where state law takes the principal place of business into consideration as well, “States always require that the domicile to be in the state,” Dabney added. He argued that this case is very straightforward considering that TC Heartland is based in Indiana and has neither any offices nor any regular established place of business in Delaware. Further, the federal service of process statute found in 28 U.S.C. Section 1694, regarding the service of process to defendants residing in districts other than the district where a patent case is brought, demonstrates that federal law provides for nationwide service of process to nonresident defendants:
“So the key point I’d just like to leave you with is, for more than 100 years, a patent venue has been a function of the domicile of a defendant, and it provides for an easy-to-administer, clear rule that prescribes where venue is — is permissive in a patent case.”
Kagan pushed back on this, positing that the day’s proceedings had an “accidental theme” surrounding the 30 years of legal practice which has gone against Court precedent. Dabney responded that SCOTUS has stood up time and again for its authority to declare what the law is. Ginsburg opined that even if Fed. Cir. erred by not following the Fourco Glass standard, no other venue provision limits any other claim to the place of incorporation only. Dabney disagreed, arguing that while §1391(c) provides an expansive regime, §1400(b) requires a regular and established place of business along with an act of infringement. Whereas other cases seeking damages might be related to a tangible loss from an event limited to a single place, such as a train wreck, the injury claimed in patent litigation is “a synthetic nonreceipt of a reasonable royalty that allegedly is due, and — and that can be marketed and sold and transmitted into a forum,” Dabney said.
After Dabney reserved the remainder of his time, William M. Jay argued on behalf of respondent Kraft Foods. Jay led off his argument by stating that Congress had written a definition for “residence” that applies for all venue purposes. Chief Justice John Roberts questioned whether Congress intended to make a significant change when it appeared they had only changed a particular nuance of the wording. Jay noted that there have been four changes to the text of §1400(b) since the Fourco Glass decision and while the that the statutes were interpreted in Fourco Glass was correct, but the definition of “residence” used to reach that decision was not the same definition of “residence” in today’s statute.
Jay also spoke to the “except” provision noted by Dabney, arguing that the function of that provision was “to explain why nothing, in fact, ‘otherwise provides by law’ in 1400(b).” The “except” provision, Jay noted, has existed as part of the statute since a recodification in 1948. Written records surrounding the drafting of the provision indicate that the purpose of the “except” provision was intended to mean “follow current law” and not to override decisions such as VE Holding. Roberts noted that the statute probably wasn’t drafted to overrule Fourco Glass either, but Jay contended that the Fourco Glass decision is based on two things which are no longer part of the §1400(b) statute. First, Fourco Glass was decided in the context of the 1948 recodification which doesn’t exist in this case. Second, §1391(c) is now a purely definitional provision and not a general corporation venue statute, which is what the Court held in Fourco Glass. §1391(c) instead exists to clear up “nagging problems” like where to sue an artificial entity which isn’t a corporation. Further, Jay argued that the Supreme Court’s 1967 decision in Denver & Rio Grande Western R. Co. v. United States held that there is no settled construction of the law on where an unincorporated association resides, and that continues today.
Roberts asked why the fact that the status of an entity as an unincorporated association was takes up several pages in the respondent’s brief on the merits but the issue wasn’t even raised in the respondent’s brief on opposition. Jay countered that the point was relevant to an interpretation of the statute which “would clear up this issue and save the Court from having to confront in another case where does an LLC reside.” Justice Breyer noted that if Kraft Foods loses this case, it forfeits the opportunity to make that same point if the case is remanded to a lower court. Jay argued that it was important to answer the question surrounding the residency of an LLC given written records on previous drafts of §1400(b) which sought to clarify ambiguities regarding “resident” or “resides” for all venue purposes.
In Jay’s view, the changes to §1400(b) didn’t rob the statute of all function:
“It is the venue statute. So you have to show either that the defendant reside — all defendants reside there, or all defendants are subject to suit there under the other — under the second half. That’s different from what the general venue statute provides, which, for example, can base venue on the residence of only one defendant. There is significance; there is work left to be done for 1400(b).”
Jay proffered the view that a decision on the proper venue should first be made using §1400(b), the statute specific to patent cases, and not §1391(c), the general venue statute. §1391(c), however, was the statute that defined “resides” for the purposes of §1400(b). Sotomayor questioned whether that means that the second part of §1400(b) essentially becomes subsumed by §1391(c). Jay said that the statute’s second part still worked in cases involving individual defendants but he couldn’t cite any cases where a defendant was an individual and not an agent of the company.
Divining the proper understanding for determining the location of a limited liability company (LLC) was very important for this Court, Jay argued, noting that four of the six patent cases in front of SCOTUS during the current term have LLC defendants. Further, LLCs are a recent innovation in business entity structures, coming into existence in the late 1970s and only becoming popular within the past two decades. “Applying the 1897 definition of ‘inhabitant’ carried forward into 1400(b) without this definition doesn’t give you that answer” regarding an LLC’s location, Jay argued. Roberts interjected, saying he thought that Jay argued earlier that the determination of an LLC’s location could be determined on remand. Jay offered that the difficulty in determining the location of an LLC is why Kraft Food’s interpretation of the statute was the better interpretation.
Kagan asked which changes to §1391(c) since the decision in Fourco Glass which leads to the different interpretation of the statute. Jay argued that amendments made in 1988 changed the wording in ways that only affected corporate defendants. Amendments from 2011 changed four aspects of the statute in ways that support a different conclusion than was found in Fourco Glass, Jay continued. The “for all venue purposes wording” supports a broader reading than “for purposes of venue,” addressing more than 200 venue statutes than the previous reading. Jay also argued that the 2011 amendments provided a domicile for individual defendants, expanded the definition of §1391(c)(2) to cover other business entities besides corporations and provided what the rule should be for defendants outside of the U.S.
Next, Jay moved on to the definition of “venue” as codified by 28 U.S.C. Section 1390(a), arguing that some statutes considered to be venue statutes are excluded by the definition, specifically ones that regulate the subject matter jurisdiction of a court. §1400(b) is one such special venue statute, Jay reasoned, but the current interpretation doesn’t create harmony between patent actions brought against alleged infringers, where venue is decided under §1400(b), and motions for summary judgment filed by accused infringers against patent owners, which are subject to the general venue provision.
Jay agreed with TC Heartland’s counsel that Congress adopted an artificial definition of residence, “but it did so because it wanted to eliminate nice distinctions about where in — particular kinds of business entities reside using the term as it was used in 1897, and it wanted to simplify the inquiry.” In Jay’s reasoning, the 1988 amendments made personal jurisdiction the touchstone to venue for corporate defendants and then that was expanded by the 2011 amendments to encompass unincorporated associations.
Sotomayor directed Jay to the question raised by many amici briefs as to why E.D. Tex. is such a preferred venue for patent suits. Although §1391(c) makes that choice permissible, Jay argued, but that alone doesn’t answer why so many cases are brought to that venue:
“And I think if there are complaints about the way things are handled in East Texas, and my client, Kraft, has been a defendant in East Texas in patent infringement cases as well. If there are complaints they tend to be complaints that aren’t venue style complaints. In other words, it’s an inconvenient forum compared to where I am located. They tend to be complaints about how the cases are managed, how discovery takes place, how motions practice is handled, and so on. And those complaints, if they are valid, would be valid even when venue is indisputably proper over a Texas defendant. They are problems that should be dealt with on their own terms rather than by letting anybody not from Texas out of that district and leaving everyone else still in the district with — where the practice is unchanged.”
Complaints on forum shopping could have been made based on previous versions of the statute drafted by Congress going back decades, Jay argued. As well, he pointed out that there was contention among the amici as to whether generous jury verdicts are actually a factor in E.D. Tex. case filings. Although Congress could adopt statutes which address situations raised by the amici, Jay argued that the Court doesn’t have the ability to modulate venue in a way which wasn’t binary. Congress, Jay reasoned, could create a definition which doesn’t rely so heavily on “resides” and rather add districts in which the plaintiff performed research, but none of the legislative proposals in Congress about patent venue in the past 10 years looks like the model proposed by TC Heartland, Jay added:
“Nobody likes the one place of residence rule. They all at least offer principal place of business and some plaintiff-centered venue, and that is why the empirics say that if you adopt the rule that my friends on the other side are proposing, you will shift more than half of all cases from the district where they now are into other districts. Whereas, if Congress adopted its current — the current version of its reform, nonpracticing entity cases would largely move, but operating company cases largely would not. Whereas, if you adopted Heartland’s rule, operating company cases would wind up shifting, and this gets back to my point, Mr. Chief Justice, they would have to shift to places like Delaware where lots of defendants are incorporated, and if everybody were incorporated in Delaware maybe that would be okay, but because lots are incorporated in Delaware and some are not, you have kind of a dual problem.”
The main issue in play to Jay’s thinking wasn’t the definition of “resides” but rather the creation of a special statute for patent venue. The second part of §1400(b) requires all defendants to commit infringing acts and have a place of business within the district under one interpretation but that raises issues when cases involve parent companies, multiple patents and patents infringed at different times, either in the process of making something or after the product is made. Further, infringement suits brought by pharmaceutical firms against multiple makers of generics are still able to proceed within the same district under the terms of the AIA. It would be significantly more difficult to try those cases, Jay argued, if each case had to be brought in a different district because defendants rely on different districts.
After Jay concluded his arguments, Dabney was given five minutes to conclude his remarks. Dabney argued that the domicile of unincorporated associations had been settled law for years and it had not been an issue in this case right up to the respondent’s brief in opposition. In this case in particular, the place of business had been identified by notices served to TC Heartland in the legal action. “The idea that you don’t know where the domicile is of a chartered entity is something for which there is absolutely no evidence in the record… It is a complete non-problem,” Dabney said.
Dabney also argued against Jay’s point on cases involving pharmaceutical plaintiffs. Generic drugmakers waive their objection to venue in cases where they’ve registered to do business in states where the plaintiff drugmakers want to sue. Dabney pushed back against the notion that a change in §1391’s wording from “for venue purposes” to “for all venue purposes” changes the scope of the law. SCOTUS’s 1966 decision in Pure Oil Company v. Suarez held that §1391(c) applies to all general venue statutes except where restrictions applied and that opinion specifically cited Fourco Glass on that account. Further, the summary judgment scenario posed by Jay falls under 35 U.S.C. Section 281 and not §1400. “So if there is a — a problem with the way Congress wrote the law, that’s just too bad. That’s not for a court to come in and — and overrule precedent in order to achieve a goal like that,” Dabney said.
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