The Curious Disconnect Between the Rhyme and Reason of TC Heartland

The Curious Disconnect Between the Rhyme and Reason of TC Heartland

Abby Clark, KLJ Staff Editor

Buzz has surrounded TC Heartland v. Kraft since the Court granted certiorari late last year.[1]  The case began innocuously enough; Kraft alleged that TC Heartland had infringed its water flavoring patents, and filed an infringement action in Delaware district court.[2] TC Heartland filed a motion to dismiss, or have the case transferred to the Southern District of Indiana, where TC Heartland’s headquarters and principal place of business are located, claiming that venue was improper in Delaware under 28 § U.S.C. 1400(b).[3] The district court held that the general venue statute, 28 U.S.C. § 1390 applied, and denied TC Heartland’s motion.[4] Undeterred, TC Heartland sought a writ of mandamus from the Federal Circuit court, which was denied.[5] At this point, legal academics and patent practitioners across the country vocalized their support for the petitioners,[6] and internet chatter on the topic continued to build.[7] When the Supreme Court decided to hear the case, the internet swelled with excited op-eds on the possible implications of the Court’s opinion;[8] and in the wake of their unanimous decision in favor of TC Heartland, the noise has not quieted.[9]

So why has this relatively commonplace infringement action, replete with dry civil procedure issues, received so much attention, and why did the Court bother to hear it? The answers to these two questions appear to be startlingly divergent.  The patent public was, and is, excited about this case because the venue statutes it interpreted are inextricably linked to a vexing phenomenon; forum shopping among patent trolls.[10]Patent trolls frustrate the normal course of business because they occupy patents, but they do not put the protected intellectual property towards any practical use.[11] They then slap would-be inventors, who are attempting to put their ideas to work for society, with cumbersome suits.[12]  In the last 25 years this “industry” has benefited from the Federal Circuit’s decision in VE Holding, which essentially held that patent infringement actions can be brought in any state where the alleged infringer is subject to that state’s personal jurisdiction.[13]

But how exactly did these devious trolls benefit? VE Holding effectively establishes that corporations are exposed to patent litigation in any state where they sell their products, because sale can establish personal jurisdiction.[14] Patent trolls are therefore free to choose their venue indiscriminately.  If the trolls were selfless, justice-oriented types, we would expect infringement actions to be evenly spread across the district courts, or perhaps centered in intellectual property hot spots like the Northern District of California.  Instead, a full quarter of active patent litigation takes place in the Eastern District of Texas.[15] It doesn’t take a cynic to understand why patent trolls flock to Marshall, Texas; they have a better chance of winning or obtaining a favorable settlement there.[16]

The Court held that §1400(b) was not incorporated by the general venue statute and venue was improper in Delaware, since TC Heartland had neither a principal place of business nor a domicile in that jurisdiction.[17] TC Heartland was victorious.[18]

Despite the excited responses of the online community to this “blow against patent trolls,”[19] the Court did not share the patent community’s enthusiasm. The patent troll and forum shopping issues were neither mentioned nor alluded to in Justice Thomas’ brief opinion, writing for a unanimous court.[20]  Justice Breyer thought the amicus briefs referencing the patent troll issue were irrelevant.[21] The Court instead rested its decision on strict statutory interpretation and legislative intent, while reaffirming their decision in Fourco.[22] The justices spent more time discussing the implication of TC Heartland’s status as an LLC than it did on patent law,[23] and even reserved a footnote for entity status.[24] Thus, despite the public’s interest in the case, and despite the broad implications that the decision will probably have on patent practice, the Court did not consider these arguments at all in its decision. The irony of the disparity between the letter of the law and the interest of the public may have gone largely unnoticed.

[1] TC Heartland LLC v. Kraft Food Grp. Brands Grp. LLC, 137 S. Ct. 614 (2016); online media covered the implications and progress of the TC Heartland decision closely; see, e,g, Juliette Fairley, Pacer Monitor (August 28, 2017), http://www.pacermonitor.com/articles/2017/04/12/patent-trolls-east-texas-haven-threatened-supreme-court-case/.
[2] Kraft Foods Grp. Brands LLC v. TC Heartland, LLC, No. CV 14-28-LPS, 2015 WL 4778828 (D. Del. Aug. 13, 2015), report and recommendation adopted, No. CV 14-28-LPS, 2015 WL 5613160 (D. Del. Sept. 24, 2015).
[3]  “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.” 28 U.S.C. § 1400(b) (2016). This provision applies specifically and exclusively to patent cases, and its interaction with the general patent statute, 28 U.S.C. § 1390 (2016), is the crux of the TC Heartland debate.
[4] Kraft, WL 4778828 at *3.
[5] In re TC Heartland LLC, 821 F.3d 1338 (Fed. Cir. 2016), rev’d and remanded, 137 S. Ct. 1514 (2017).
[6] 56 law professors from across the nation attached their names to an amicus brief in support of TC Heartland’s writ for certiorari. Brief for Chien, Colleen V. et al. as Amici Curiae Supporting Petitioners, TC Heartland, LLC v. Kraft Foods Grp. Brands LLC, 137 S. Ct. 1514 (2017) (No. 16-341).
[7] Richard Samp, TC Heartland: The Patent Venue Question Is Informed by Personal Jurisdiction Issues, 25 U. Miami Bus. L. Rev. 45, 48 (2016).
[8] See generally Adam Liptak, Supreme Court Ruling Could Hinder ‘Patent Trolls’, New York Times Online (August 29, 2017), https://www.nytimes.com/2017/05/22/business/supreme-court-patent-lawsuit.html?mcubz=0 (explaining the patent troll situation and referencing the public’s excitement about the case).
[9] See generally Greg Stohr & Susan Decker, U.S. Supreme Court Puts New Curbs on Locations of Patent Suits, Bloomberg Politics (August 28, 2017) https://www.bloomberg.com/news/articles/2017-05-22/u-s-supreme-court-puts-new-curbs-on-locations-of-patent-suits (“The ruling will bar many patent owners from pressing cases in the Eastern District of Texas, a patent-friendly jurisdiction where more than a third of all infringement suits are now filed.”).
[10] Patent trolls are individuals (or suable entities) who gobble up large numbers of broad patents before they are directly profitable, and then prey upon unwary inventors who attempt to create a product that, at least arguably, infringes one of the patents which the trolls have hoarded. See, e.g., David Segal, Has Patent, Will Sue: An Alert to Corporate America, New York Times Online (August 30, 2017), http://www.nytimes.com/2013/07/14/business/has-patent-will-sue-an-alert-to-corporate-america.html.
[11] Id.
[12] Id.
[13] Holding that because §1391(c) stipulates that corporate entities are considered residents of any state where they would be subject to personal jurisdiction, and §1391 applies to all “civil actions brought in district court,”1391(c) governs the residence requirements for corporations in patent cases.  VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1584 (Fed. Cir. 1990).
[14] The current test for establishing personal jurisdiction over corporations is the “minimum contacts” standard from Int’l Shoe Co. v. State of Wash., Office of Unemployment Comp. & Placement, 326 U.S. 310, 313 (1945). In the Court’s most recent interpretations, a corporate defendant can establish minimum contacts by “availing itself of the benefits of the forum state;” which can amount to as little as selling or advertising products within the forum state. See J. McIntyre Mach., Ltd. v. Nicastro, 564 U.S. 873, 880 (2011).
[15] When the Court heard oral argument in TC Heartland, a quarter of all active patent litigation was being decided in Marshall, Texas; a district in which no major manufacturers are located. Kaleigh Rogers, The Small Town Judge Who Sees a Quarter of the Nation’s Patent Cases, Motherboard (August 30, 2017), https://motherboard.vice.com/read/the-small-town-judge-whosees-a-quarter-of-the-nations-patent-cases.
[16] Brian Love, Predictably Expensive: A Critical Look at Patent Litigation in the Eastern District of Texas, Santa Clara Law Digital Commons Faculty Scholarship (August 28, 2017), http://digitalcommons.law.scu.edu/cgi/viewcontent.cgi?article=1942&context=facpubs (finding that the Eastern District of Texas has strict discovery deadlines, high costs, and tends to resist case trends that favor alleged infringers).
[17] TC Heartland LLC v. Kraft Food Grp. Brands Grp. LLC, 137 S. Ct. 614 (2016).
[18] Id.
[19] Andrew Chung, U.S. Top Court Tightens Patent Suit Rules in Blow to ‘Patent Trolls’, Reuters (August 30, 2017) http://www.reuters.com/article/us-usa-court-kraft-heinz-idUSKBN18I1SZ.
[20] TC Heartland, 137 S. Ct. at 618.
[21] “…these amicus briefs-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?” Transcript of Oral Argument at 14, TC Heartland LLC v. Kraft Foods Group LLC, 137 S. Ct. 614 (2017) (No. 16-341).
[22] Fourco held that § 1400(b) governed patent venue and was not subsumed by § 1391(c); “The current version of § 1391 does not contain any indication that Congress intended to alter the meaning of § 1400(b) as interpreted in Fourco.” TC Heartland, 137 S. Ct. at 1518 (citing Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 226).
[23] “Since you are not a corporation, why do we have this case here deciding?” Transcript of Oral Argument at 14, TC Heartland LLC v. Kraft Foods Group LLC, 137 S. Ct. 614 (2017) (No. 16-341) (the case was heard on the assumption that because TC Heartland had been treated as a corporate entity in prior case history the Court could continue to do so).
[24] TC Heartland’s status as a non-corporate entity would need to be considered on remand relative to the residency standards for corporate entities. TC Heartland, 137 S. Ct. at 1521 n.1.