CAFC Debates a Change in the Venue Standard

AIA trial proceedings, such as IPR’s, provide alternatives to traditional patent litigation, as Scott Kamholz and I discussed in our article “Good, Fast, Cheap Certainty: The Case for Patent Office Litigation,” (recently published in The New York Law Journal).  When considering an IPR and/or traditional litigation, factors such as cost, speed and convenience must be considered.  On March 11, 2016, the Federal Circuit took up the venue standard in patent litigation — one of the considerations affecting those very factors.

Heartland was sued by Kraft in Delaware, where Kraft is incorporated and where Heartland has two percent of its allegedly infringing sales.  In its petition for a writ of mandamus In re TC Heartland LLC, No. 2016-0105 (Fed. Cir., argued March 11, 2016, oral argument recording here), Heartland asked the Federal Circuit to reconsider the current expansive venue standard which provides venue wherever an entity is subject to personal jurisdiction.

Title 28 U.S.C. chapter 87 governs venue in the district courts:  Section 1391 addresses venue generally, and §1400(b) addresses venue for patent infringement, i.e., “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.”  Section1400 (b) has remained unchanged since 1948, whereas §1391(c) has been amended three times.  The first two iterations of the law have each had their respective court decisions interpreting venue.  With a third version of the law, Heartland believes a new interpretation is proper.

The first iteration of §1391(c) broadly provided that residency included not only the state of incorporation but also any state in which the corporation does business.  In Fourco Glass Co. v. Transmirra Products Corp., 353 US 222 (1957), the Supreme Court concluded that the more restrictive §1400(b) provision prevailed over the more general §1391 provision, and thus 1400(b) was the “sole and exclusive provision governing venue in patent infringement actions.”

In its second iteration, §1391(c) was amended to add “for purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction.” The Federal Circuit in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), cert. denied, 111 S. Ct. 1315 (1991) held that the plain meaning of the statute required that §1391(c) should be applied to §1400(b), thereby broadening venue  to any state in which the corporation had sales.  As Heartland pointed out in its briefing, VE Holding has resulted in venue shopping opportunities.  In 2001, Judge Moore herself (then Professor Moore) wrote that forum shopping “conjures negative images of a manipulable legal system.” K. Moore, Forum Shopping in Patent Cases, 79 N.C.L. Rev. 889 (2001).

The third and current iteration of §1391 was enacted in 2011.  It was amended to replace “for purposes of venue” with “except as otherwise provided by law (1) this section shall govern the venue of all civil actions.”  The distinction was noted by Heartland, which opened its oral argument with the statement: “This case turns on the meaning of six words: ‘except as otherwise provided by law.’”  Heartland argued that the Federal Circuit’s holding in VE Holding no longer applies.  In its view, the “law” referred to in §1391(c) should be the decisional law of the Supreme Court, i.e., Fourco.  Respondent Kraft countered that the language “except as otherwise provided by law” did not displace the venue rules.

Of the Federal Circuit panel consisting of Judges Moore, Linn and Wallach, Judge Moore took an active role in the argument, extensively engaging Heartland’s counsel, while directing fewer questions towards Kraft.  Moore suggested that recent Congressional venue bills were evidence that Congress believed the venue standard in VE Holding was correct, and she questioned whether curtailing venue shopping and the creation of specialized patent courts was a policy decision more appropriate for Congress.  Moore’s comments at the close of Heartland’s rebuttal went directly to its argument that the phrase “except as otherwise provided by law” returned the venue standard to the holding of Fourco:

“I think your most difficult problem is that when [§1391] said ‘except as otherwise provided by law’ — even if you are right about decisional law being incorporated — the decisional law didn’t favor you at the time that this was adopted.  That the Supreme Court law [Fourco] was at best on a different statute — something you keep stressing to me about VE Holding — so that clearly can’t be the dispositive decisional law that Congress was meaning to leave in place because it wasn’t even in the words of these statutes as you keep telling me.  And then VE Holding was a Federal Circuit case [in which the Supreme Court denied cert].

“My problem with your argument isn’t the legal points that you are making necessarily, it’s more like the facts, because I don’t know what decisional law existed in 2011 that made it clear Congress meant to leave in place that state of the law that you are asking me for today.”

One can never draw conclusions about the ultimate conclusion of the Court from the oral argument — and here, Judges Wallach and Linn provided few clues about their leanings.  Nevertheless, Moore made clear that the Federal Circuit’s decision may depend upon whether Heartland convinced the panel that the dipositive “law” referred to in §1391(c) requires a return to the Fourco standard.

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