The Real Impact of TC Heartland on the EDTX Venue

For the last few decades, venue for patent infringement suits has generally been considered to be nationwide. With the rise of PAEs, one of the significant challenges faced by most defendants targeted by patent infringement litigation initiated by PAEs, is being forced to litigate in the Eastern District of Texas. The inconvenience of litigating in a venue far from its principal place of business imposes additional hard and soft costs on defendants. Most defendants targeted by patent suits filed in the EDTX by PAE’s perceive that venue to be friendly to plaintiffs – both procedurally and substantively.

Ironically, SCOTUS finally considered the scope of proper venue under 28 USC § 1400(b), the patent-specific venue statute, in the context of a case involving competitors that the plaintiff did not file in the EDTX. In TC Heartland LLC v. Kraft Foods Group Brands LLC, SCOTUS considered where proper venue lies for a patent infringement lawsuit brought against a domestic corporation. Section 1400(b) provides:

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.

On May 17, 2017, the Court ruled that a domestic corporation only resides in the State of its incorporation for purposes of determining venue under the patent venue statute. The Court remanded the case for a factual determination as to whether the plaintiff could satisfy the second prong of the venue statue. The parties settled after remand so we will never know the answer to that question.

1) What impact if any does TC Heartland have on the PAE issue?

In the short term, as a result of the TC Heartland decision, PAEs appear to have been deciding voluntarily that they did not have the venue facts to support filing in the EDTX and are choosing to file more cases elsewhere. Docket reports showed an increase in patent infringement filings in Delaware and to a lesser extent in California. The rate of filings in the EDTX since the TC Heartland decision appear to be about half of historical rates.

2)  Are trolls still likely to sue in Eastern District of TX (EDTX)?

PAEs are continuing to file suits in EDTX. The TC Heartland case only address one of two bases for venue – corporate residency. The second basis – having a “regular and established place of business” –  remains intact. Many potential defendants remain viable targets for PAE suits filed in the EDTX under the second prong.

Over the last 30 years, litigants and courts have paid virtually no attention to the second basis for venue. Whether a defendant has a regular and established place of business sufficient to satisfy 28 USC §1400(b), requires a fact intensive analysis. Judge Gilstrap’s recent opinion in Raytheon Co. v Cray, addressing the parameters of that factual inquiry, may result in a shift of filings back to the EDTX.

3) How has the Court in EDTX responded?

Generally, the EDTX has responded to defendants’ venue challenges by granting generous discovery periods to allow plaintiffs an opportunity to discover facts to support retaining jurisdiction but not giving the challenging defendants any relief from other case deadlines.

On June 29, 2017, Judge Gilstrap issued an opinion on the venue issue in Raytheon Co. v Cray, which he characterized as the roadmap for how he will evaluate what is a “regular and established place of business.” His opinion undercuts the significance of TC Heartland. In the opinion he announced that he would apply a four factor test to venue challenges. The four factors included in Judge Gilstrap’s analysis are: (1) physical presence; (2) defendant’s representations about its presence in the district; (3) benefits received from the district; and (4) an targeted interactions with district. Most significantly, Judge Gilstrap made it clear that in his view the statute does not require a fixed physical presence. Instead, Judge Gilstrap is looking for an “established and continuous presence in the district.”

Cray filed a petition for mandamus on July 14, 2017, challenging Judge Gilstrap’s ruling. Judge Gilstrap stayed further proceedings in the case, which had been set for trial on August 17, 2017. PAEs and target defendants alike will be closely watching what the Federal Circuit has to say about Judge Gilstrap’s reasoning.

4) Does the case offer any relief for international companies?

TC Heartland has no impact on foreign companies. Foreign companies remain subject to suit in the same venues as they were prior to the TC Heartland decision.

 

About the Author

Diane Lettelleir is a Senior Managing Counsel for J. C. Penney Corporation, Inc., responsible for all patent litigation. Previously she was in private practice focused on intellectual property litigation and portfolio management. Combined she has more than 30 years of intellectual property experience.