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Deciding Jurisdiction And Venue For Patent Litigation


US patent law gives a patent owner the right to exclude others from making, utilizing, offering to sell, selling, or importing into the US the patented invention for a limited timeframe. A patent owner may bring a patent infringement claim against an alleged infringer in a US Federal District Court or, if the case includes the importation of allegedly infringing products, before the US International Trade Commission (ITC). In the event that a patent is found to be substantial, enforceable, and infringed in a district court action, the patent owner is entitled to financial damages of not less than a reasonable royalty and in limited circumstances, can even acquire an injunction preventing further infringement.


Popular venues for patent disputes include the District of Delaware, the Eastern District of Texas, and the Northern District of California. Many districts that regularly hear patent cases have their own set of local rules for such cases. Some districts are known for the rapid pace at which they proceed to trial, while others tend to move at a slower pace. Therefore one of the most important decisions plaintiffs take, early on in their enforcement campaign, therefore is to select the appropriate venue for filing the case.


The identification of the appropriate venue for starting a patent infringement or declaratory judgment action was traditionally rather straightforward. 28 U.S.C. § 1391 permitted plaintiffs to select any judicial district where the defendant conducted business, including sale of accused products, for filing a patent infringement case. The plaintiff could also file a patent infringement case in the judicial district where the defendant is resident.


In TC Heartland LLC v. Kraft Foods Group Brands LLC, Case No. 16-341 (May. 22, 2017), however, the U.S. Supreme Court substantially constrained a patent owner’s choice of venue for patent infringement suits by adopting a more narrow interpretation of where a defendant “resides”. A patent owner’s choice of venue is now limited to only those judicial districts in which either (1) the defendant is incorporated or (2) the defendant has a regular and established place of business and has committed acts of infringement. 28 U.S.C. § 1400(b).


The TC Heartland decision affected Non Practicing Entities (NPEs) most particularly, who had overwhelmingly preferred Eastern District Time (EDT) as their venue of choice. Years of intense patent litigation in Texas has encouraged a dense concentration of very skilled patent litigators in Texas, particularly in Dallas and Austin. These skills are difficult to build, discover and procure, hence Texas remains a popular destination for patent attorneys and for patent owners to hire outside counsel.


The TC Heartland decision has also affected enforcement targeting multiple defendants. Previously, plaintiffs could effortlessly file lawsuits against multiple defendants in a single district by meeting the general venue provisions and exhibiting that every one of the defendants committed an infringing activity in the state. However, that has become difficult under the now-limited view on what “substantial business presence” entails. Plaintiffs often are not able to find one common venue for all the alleged infringers. Pursuing concurrent lawsuits in different districts requires additional time and resources, and discourages enforcement campaigns to simultaneously target multiple defendants at the same time.


In re Google (2019-126) , the US Federal Court of Appeals found that a “regular and established place of business” requires the regular, physical presence of an employee or other agent of the defendant conducting the defendant’s business at the alleged “place of business.” In effect, therefore, presence of a third-party contractor or even physical servers and machines owned by a defendant may not be sufficient grounds for establishing venue at a particular district, if the defendant otherwise does not maintain a full-time staff.

Patent Litigation In US Federal Courts & The ITC


U.S. District Courts

US federal district courts have exclusive jurisdiction over patent infringement claims. Popular districts for patent disputes include the District of Delaware, the Eastern District of Texas, and the Northern District of California. Many districts that regularly hear patent cases have special rules for patent cases. Some districts are known for the rapid pace at which they proceed to trial, while others tend to move at a slower pace. Patent cases usually last between two and four years.

  • Top 5 Courts By Filings - 2020

A total of 3,857 district court cases were filed in 2020. As the data shows, 2,484 cases are filed in the top 5 district courts i.e. 64% of cases are filed in these courts, whereas 1,582 cases out of 2,484 cases are filed in WDT and DD making them the most preferred venue for patent litigation.


ITC 337 Patent Investigations

A patent owner may also seek to enforce its rights by initiating a patent investigation with the ITC under Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337).


19 U.S.C. § 1337

The importation into the United States, the sale for importation, or the sale within the United States after importation by the owner, importer, or consignee, of articles that—

(i) infringe a valid and enforceable United States patent or a valid and enforceable United States copyright registered under title 17; or

(ii) are made, produced, processed, or mined under, or by means of, a process covered by the claims of a valid and enforceable United States patent.

ITC proceedings are presided over by Administrative Law Judges (ALJs). Discovery and the claim construction process occur similarly to district court litigation but on a compressed time frame. ITC proceedings tend to move more quickly than district court litigation. A trial-like evidentiary hearing is typically held within eight to ten months after filing, and a final decision typically issued within fifteen to eighteen months. ALJs have the power to issue exclusion orders that direct the US Customs and Border Protection to stop infringing imports at the border. There are two types of exclusion orders: limited exclusion orders (LEOs) are limited to the infringing products of the named respondents in the action, while general exclusion orders (GEOs) are broader and exclude all infringing products.


How To Select The Appropriate Jurisdiction?


Before filing a suit, one of the most important decisions a plaintiff will make is where to file. While certain venues tend to be more plaintiff friendly, such as the Eastern and Western districts of Texas, other venues may favor defendants, such as the Northern District of California.


Federal Courts: The subject-matter jurisdiction of a court refers to the kinds of cases that it may hear. The subject-matter jurisdiction of the Federal courts is limited by Article III of the Constitution. Unlike state courts, which are usually courts of general jurisdiction (they can hear most kinds of cases) federal courts may only hear cases that are listed in Article III as within “the judicial power of the United States.” The framers included only such cases in which it was felt that there was a special need for a federal, as opposed to a state, court.


Perhaps the most important grant of jurisdiction today is over cases “arising under the Constitution and laws of the United States” (often called “federal question” jurisdiction). This gives federal courts the power to interpret and enforce the United States Constitution and all laws passed by Congress. This guarantees that all citizens will enjoy the same constitutional rights as citizens in other states. Many cases brought to enforce constitutional and civil rights have been brought in the federal courts, because the parties believe that a federal judge will be more likely to issue an unpopular opinion than would a state judge who will have to run for reelection.

Another, more controversial grant of jurisdiction to the federal courts is known as “diversity jurisdiction.” This applies to controversies between citizens of different states and controversies between citizens of the United States and citizens of a foreign country. The main purpose of this grant of jurisdiction is to prevent bias against an out-of-state party in favor of an in-state party. The fact that federal judges are appointed by the president and are not subject to reelection is thought to minimize the possibility of local bias. There is some question, however, about the extent of such bias, and therefore the need to have federal judges decide these cases.


Most grants of jurisdiction to the federal courts, including federal questions and diversity, are concurrent, rather than exclusive. This means that the plaintiffs may bring such cases in either a federal or state court. It may happen, therefore, that a case raising a constitutional claim or based on a federal statute may end up in state court. Just as a federal judge may have to apply state law in a variety of cases, a state judge may have to apply federal law. All judges, therefore, must be familiar with both federal and state law.

In concurrent jurisdiction cases, the plaintiff has the original choice of whether to bring the case in federal or state court. If the plaintiff properly brings the case in federal court, then the defendant may not transfer it to state court. If, however, the plaintiff chooses to bring a case over which both the state and federal courts have concurrent jurisdiction in a state court, the defendant may have the case transferred, or “removed” to federal court. If neither party wants it heard in federal court, then it remains in state court.


With few exceptions, once a case starts in either state or federal court, the case remains in that court system throughout, including on appeal. Cases in federal court may be appealed first to the federal Court of Appeals for that particular circuit, and then by writ of certiorari to the United States Supreme Court. Cases heard in a state court must be appealed through the state court system (usually to an intermediate appellate court and then to the state supreme court). Only if a case in state court contains a significant issue of federal law may it be appealed to the United States Supreme Court after being heard by the state supreme court.


Precedent And Stare Decisis


When issuing decisions, all courts should follow binding precedent - that is, their decisions should follow any decisions made by courts above them. On inquiries of the interpretation of the United States Constitution and resolutions passed by Congress, the United States Supreme Court has the last say. Any other courts, both federal and state, should follow any precedent set by the Supreme Court.


All United States District Courts should follow the interpretation given by the Court of Appeal for the circuit in which it sits. In some cases, various circuits arrive at conflicting outcomes on a specific issue. This implies that the Constitution may at times be deciphered contrastingly in various states. Frequently, a particular "split in the circuits" prompts the Supreme Court to grant certiorari on the issue involved, so the law will be uniform all through the country.


State courts will undoubtedly follow the precedent set by the Supreme Court and by the Courts of Appeals on issues of federal law. Each state high court is allowed to decipher the laws of its state as it sees fit, as long as the interpretation doesn't violate the United States Constitution. All lower courts in the state should follow state supreme court precedent on issues of state law, and federal courts in the state should do likewise.


The doctrine of stare decisis is somewhat different from that of precedent. Stare decisis is the desire of most courts to follow their own precedent, even when they are not required to. For example, once the Supreme Court has decided on an issue of federal law, they are free to change their mind in some later cases. But they are normally quite reluctant to do so, even if there has been a change of justices on the Court and the new members do not agree with the old ruling. They are much more likely to distinguish the older case when asked to apply it in a slightly different situation. In this way, the older doctrine may change, but more gradually, over time.


Statutes and Case Laws


28 U.S.C. § 1391


(b) Venue in General - a civil action may be brought in :

(1) a judicial district in which any defendant resides, if all defendants are residents of the State in which the district is located;

(2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated; or

(3) if there is no district in which an action may otherwise be brought as provided in this section, any judicial district in which any defendant is subject to the court’s personal jurisdiction with respect to such action.

(c) Residency - For all venue purposes—

(1) a natural person, including an alien lawfully admitted for permanent residence in the United States, shall be deemed to reside in the judicial district in which that person is domiciled;

(2) an entity with the capacity to sue and be sued in its common name under applicable law, whether incorporated, shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question and, if a plaintiff, only in the judicial district in which it maintains its principal place of business; and

(3) a defendant not resident in the United States may be sued in any judicial district, and the joiner of such a defendant shall be disregarded in determining where the action may be brought with respect to other defendants.

Even though most studies have concluded that statistically, EDT juries are at least as much (if not more) likely to deliver a verdict for the defendants as the national average

(see http://mcsmith.blogs.com/eastern_district_of_texas/), the disparity in filing statistics results from plaintiff-friendly local rules and procedures in the EDT courts that put more pressure on defendants to settle and therefore allows quick recovery of damages for the plaintiffs.

28 U.S. Code § 1400 (b)


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.


TC Heartland LLC v. Kraft Foods Group Brands LLC


The status quo was finally challenged in May 2017, when the United States Supreme Court ruled concerning the venues in patent infringement lawsuits in TC Heartland LLC v. Kraft Foods Group Brands LLC.

TC Heartland LLC, coordinated and headquartered in Indiana, was sued by Kraft Foods for allegedly transporting infringing items into Delaware. Depending on the Federal Circuit's broadened meaning of "resides," Kraft Foods brought suit in the District of Delaware, guaranteeing that TC Heartland's transportation of products into Delaware brought "the least contacts" with the state and gave the court personal jurisdiction of the defendant. TC Heartland moved to transfer the venue to Indiana, however, the district court denied the shipping, finding the venue legitimate under Section 1391(c). After the Federal Circuit denied TC Heartland's appeal for mandamus, the Supreme Court consented to decide the issue.

In hearing the TC Heartland issue, the Court decided if the importance of "resides" in the patent venue rule was broadened by Congress years prior when amendments were made to the overall venue rule. The Court took a firm stance in support of its 1957 decision, where it "completely and unambiguously" held that "resides" is restricted to only to the state wherein an organization has been organized under Section 1400(b). To explain the impact of Congress' Section 1391(c) amendment, the Court expressed that there was no sign that Congress expected changes to Section 1931(c) to have any impact on Section 1400(b). Therefore, the venue is legitimate in patent infringement suits in the states where a business is organized, or where a business has submitted acts of infringement and has a regular and established business environment.

Many are left wondering about the impact of TC Heartland's ruling on the huge number of patent infringement cases that have already been filed in improper venues; others look for an explanation on what is important to show a “regular and established place of business." It is almost certain, however, that while we hang tight for answers to these questions to emerge, we will see fewer and fewer cases filed in patent-accommodating districts where just "the least contacts" exist, and an increase in states, for example, Delaware where numerous organizations have incorporated and where there is little contention about whether venue is proper.


In Re: Google LLC, No. 19-126 (Fed. Cir. 2020)


In re Google, the Federal Circuit further narrowed the definition of a “regular and established place of business.” The plaintiffs, Super Interconnect Technologies (SIT), filed suit against Google in the Eastern District of Texas, guaranteeing that venue was appropriate on the grounds that Google's Global Cache (GGC) workers were situated inside the district. The servers were not claimed by Google, however, were facilitated and kept up in racks by third-party Internet Service Providers (ISP). In analyzing the components set up in both TC Heartland and Cray, the court concurred that the presence of GGC servers inside the Eastern District of Texas fulfilled the principal component and that Google had a physical place within the district. In any case, in regard to the subsequent component, the court decided that residence of business requires the customary, actual presence of a representative or other specialist of the company. Expanding on this statement, the court concluded that the third-party ISP running the servers was not an agent of Google and that the venue was improper under 28 U.S.C. §1400(b).


Impact Of TC Heartland on District Court Litigation

Eastern District of Texas (EDT)

  • In the Eastern District of Texas, the number of new infringement cases filed reduced drastically from 3,144 to 714 after TC Heartland.

District of Delaware (DD)

  • For courts like the District of Delaware, a dramatic rise has been noticed, i.e. from 749 to 1,721 after TC Heartland (mainly due to the fact that most companies are incorporated in Delaware).

  • Delaware District court is also popular for filing patent cases, as most of the companies register themselves in that district.

  • Delaware has comparatively business-friendly tax laws. For example, the people having business do not need to pay state corporate income tax. This is an advantage for the companies due to which investors prefer Delaware corporations.

  • Delaware offers greater privacy for small businesses. For example, Delaware corporations do not need to disclose any officer or director names on their incorporation documents.

Northern District Of California (NDC)

  • The Northern District of California (NDC) has also seen a rise in filing the cases, the number increased from 316 to 474 after TC Heartland.

  • After TC Heartland, plaintiffs have been forced towards districts that house technology companies’ headquarters. The Northern District of California, and Silicon Valley in particular, is home to a lot of technology companies.

Western District Of Texas (WDT)

  • In the Western District of Texas (WDT), the number of cases filed rocketed from 99 to 1,145 after TC Heartland.

References

Copperpod provides patent litigation services such as Source Code Review, Infringement Claim Charts, Document Review, and advises clients to give a clear picture of the state of the art to navigate away from the potential prior art and monetize IP assets.


Please contact us at info@copperpodip.com to know more about our services.

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