Forum-shopping in Patent Litigation

Marshall, Texas is where 9% of all the patent cases throughout the nation are filed in. More recently Lex Machina found that 44.2% of all new patent cases were being filed within Marshall, Texas. More than 90% of these cases were filed by companies that buy patents from others. This is a result of forum-shopping by litigants.
However, this may all end after March 27th when the Supreme Court hears the case TC Heartland v. Kraft Foods Group Brands, which is disputing over the marketing of “liquid water enhancers.” These “enhancers” are flavored, sweetened, or vitamin-enriched mixes that are added to the consumer’s water to in order to add flavor to it. The product is known as MiO for Kraft and Splash for Heartland. In 2014, Kraft sued Heartland and chose to bring the suit to Delaware (even though they are both either based in Illinois or Indiana), which is known as the second most popular district for patent suit filings. Based on the patent-specific law, it is required that suits be brought where the company resides. However, the general statute allows a corporation to be sued wherever they do business. Since Heartland sold liquid water enhancers in Delaware, Kraft was legally able to choose that venue.
Heartland cited law 28 U.S.C. § 1400(b) in order to create the argument that the choice for the forum should be where the company “resides” rather than where it is sold due to the changes made to § 1391(c) in 1988 by congress. § 1400(b) states “civil action for patent infringement may be brought in the judicial district where the defendant resides”. § 1391(c) states “For all venue purposes … [a corporation] 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.” Heartland’s argument quotes Fourco Glass Co. v. Transmirra Products Corp in order to address the relationship between § 1400(b) and § 1391(c). In 1957, the Supreme Court examined this . Section 1440 (b) states that a patent infringement suit “may be brought” to the district in which the company “resides.” Prior to the amended Statute 1391 (c) designated the districts in which a corporation may be sued. Heartland stated within their argument that “The 2011 amendments to § 1391(c)… reaffirm that § 1391(c) defines “resides” in § 1400(b).” The revised statue defined the residence of corporation as any district in which it was amendable to jurisdiction.
When the case was brought to the Federal Circuit court, Heartland’s argument was rejected. The court decision was made due to the fact that “Fourco cannot be read as embedding into § 1400(b) a permanent definition of corporate residence that would be impervious to future changes to § 1391(c)”. That the “The statutory framework is as clear now as it was before 2011. Section 1391(c) continues to define the term “resides” in § 1400(b) with respect to corporate defendants.” It concluded that this case was a poor vehicle to address the “forum shopping” issue due to the fact that the case was not brought to Texas, but to Delware where the Heartland was purposely directing sales of the infringing product. Based on the Fourco case addressed by Heartland, the patent suit should have been brought into the venue where the defendant is incorporated or resides (Carmel, Indiana). Thus, the case was brought upon the Supreme Court.
During the proceedings, Chief Justice Roberts overheard the argument between TC Heartland’s James Dabney and Kraft Food’s William Jay over the question: “Does the subsection of the general venue statute (§ 1391) that allows a corporation to reside in many jurisdictions for the purpose of establishing jurisdiction apply to the patent venue statute (§ 1400)?”
Argument of James Dabney
Mr. Dabney opened up the argument by using the Fourco Glass case and how the court interpreted section 1400 (b) and that it should not be supplemented with section 1391. The court then questioned about how to handle unincorporated associations in relation to Fourco in which was not defined in section 1400. Dabney then states that the grounds on which Fourco was held for section 1400 was “standalone” due to the fact that “its predecessor has applied to any person, corporation, or partnership” (Dabney). Based on diversity, the court mentions that a corporation “is diverse based on not simply its place of incorporation, but its principle place of business” (Ginsburg). Mr. Dabney proceeded to argue over statute 1391 that whether or not a corporation was “domicile” or permanent residence within the country, that the corporation is seen as a resident for venue selection and that this has been in the general venue law since 1948. However, the court argued that the Fourco case was not based on any statute but based on common law. Mr. Dabney then proceeded to disagree with by establishing the fact that the word “resides” in statue 1400 is the same as “whereof he is an inhabitant” of section 48 of the judicial code in which was synonymous to the word “domicile.”
Based on these statements, the Supreme Court asked Mr. Dabney what Congress can do to reverse their decision on Fourco without repealing section 1400. An amendment of statute 1391 was then suggested by Dabney by changing “except as otherwise provided by law” to “notwithstanding any other provision of law, this would govern. “ Dabney also went ahead and stated that the respondent is arguing that section 1400 should have an artificial meaning of “resides” imported from 1391; that you can’t import a “fictitious definition of “resides” without destroying both the text of the statute and completely defeating its purpose” (Dabney). Afterwards, the Supreme Court Justices questioned the relevance of Dabney’s argument and complaint about the forum shopping to this case and begun to defend Delaware as a “friendly” forum where many corporations are incorporated. The court also proceeds to question how they can decide where a venue is “proper” for a corporation. Mr. Dabney continued to defend TC Heartland that the general venue statue 1391 covered all types of defendants including corporations and individual people; that TC Heartland is a chartered entity and is encompassed by this statute. He also goes along to state “1400(b) says you have to have a regular and established place of business and commit an act of infringement.” In which TC Heartland would need to conduct business and be “domicile” within Delaware in order to be litigated for any sort of infringement.
Argument of William Jay
Mr. Jay began his argument by establishing that the court decision made during Fourco Glass Co. v. Transmirra Products Corp was still “good law.” Mr. Jay and the Supreme Court justices agreed that the quote “except as otherwise provided by law” in statute 1391 was not intended to overrule the Fourco case and the decisions made for that case were not related to the current case of Heartland vs Kraft. Mr. Jay proceeded to mention that the Fourco decision was based on “the fact that [statute] 1400 was recodified in the 1948 revision of the Judicial Code” (Jay). By this, “… when Congress makes a change in language, this court’s presumption is the opposite. The Court’s presumption is that Congress means to do something by its change, not in the recodification context. Now we don’t have the recodification context anymore” (Jay). More specifically, statute 1391 no longer provides where a corporation could be sues. According to Mr. Jay, it is now “a purely definitional provision” in order to clear up any issues where you can sue an artificial entity that is not a corporation and where they reside. That “there was no settled construction of the law on where an unincorporated association resides in 1948, and there is none yet. “ Mr. Jay continued the argument by that stating that “for all venue purposes” works for the 1391 statute and continues to be defined within the 1400 statute.
During the argument, Mr. Jay begins to bring up suggestions in order to improve statute 1400 in order to reduce arguments such as this case to reduce “over-crowding” of specific venues. Such as, “add where the plaintiff has done research on the invention that is patented” (Jay).
Heartland is not the first company to approach the Supreme Court, since companies are frustrated over the cases filed by the Eastern District of Texas by patent trolls. The biggest groups that defend the general statute are pharmaceutical and biotech companies when they utilize the lax venue laws against generic manufacturers. Ultimately, the ruling for Heartland by the Supreme Court will cause dramatic changes to the patent field. If Heartland’s argument is sound, 58% of all patent cases would have to be conducted in another location other than Marshall, Texas.

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