T.C. Heartland Leaves Open Patent Venue Questions

The words “venue” and “headline news” are typically not found in the same sentence. Yet the United States Supreme Court’s decision in T.C. Heartland LLC v. Kraft Foods Group Brands LLC, 581 U.S. ___ (2017) managed to achieve that challenging feat.

In its decision, handed down on May 22, 2017, the Supreme Court appeared to telegraph to corporations that they can now resist plaintiffs’ attempts to haul them into court in any state other than the state of their incorporation. However, the decision leaves open thorny issues regarding the interplay between the patent venue statute and determining the appropriate venue for corporations with complicated distribution relationships with third parties or subsidiaries. Businesses faced with patent infringement claims should give careful consideration to the opinion and the extent to which it truly affects their ability to corral such cases into the forums in which they have the greatest presence.

The proper venue, or federal judicial district in which suit may be filed, for patent infringement cases is determined by the “patent venue” statute, 28 U.S.C. § 1400. The statute provides two separate methods for determining venue: (1) the district where the defendant “resides”; or (2) the district where the defendant infringes and has a “regular and established place of business.”

Prior to the Supreme Court’s decision in T.C. Heartland, the Court of Appeals for the Federal Circuit had interpreted the term “resides” in Section 1400 to mean that the defendant was subject to suit in any district where personal jurisdiction could be asserted over the defendant. For corporations, venue in a patent case therefore would exist in any district in which they manufacture, directly sell or ship infringing products.

The Supreme Court’s decision reversed this Federal Circuit precedent by holding that a defendant corporation “resides” only in the state of its incorporation. But what the opinion omitted was any interpretation of “regular and established place of business”—a phrase which now will become the focus of venue challenges in patent infringement cases.

Determining a corporation’s “regular and established place of business” can be a difficult exercise in the internet age. For example, a provider of cloud computing services may only maintain server farms or a customer service call center in a district, while maintaining a principal corporate office elsewhere. And, as other commentators have questioned, can the Best Buy counter that sells Apple products be considered a “regular and established place of business” for Apple?[1]

It has been decades since courts have parsed in detail the definition of “regular and established place of business.” Factors previously used to analyze this issue, such as “whether the defendant maintains, controls and pays for a permanent physical location from which sales are made in the district” or whether the defendant pays for the physical office of a sales representative and in whose name the building directory was listed, may have limited relevance in today’s marketplace.[2]

Although the Supreme Court’s decision appears to lend somewhat greater certainty as to where businesses might expect to be sued for patent infringement, the questions left open by the Supreme Court’s opinion may mean that the predicted sea change is little more than a passing wave. Businesses should therefore continue to pay close attention to their relationships with retailers, distributors, and employees in assessing whether challenges to venue in patent infringement cases are any more viable now than they were before T.C. Heartland.

[1] See Jan Wolfe, Patent Plaintiffs See Way Around Supreme Court Ruling, Reuters

[2] See OMI Intern. Corp. v. MacDermid, Inc., 648 F. Supp. 1012 (M.D.N.C. 1986).