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TC Heartland: What?ÇÖs the Big Deal?

Aaron Taggart
Haynes and Boone, LLP

If you haven?ÇÖt yet heard about the Supreme Court?ÇÖs decision in TC Heartland v. Kraft Food Groups Brands LLC, you?ÇÖre probably not a patent litigator.?á The case has been dominating legal industry headlines for months, and now that a decision has been issued, it is being hailed as the single most important case for patent litigators this side of Markman v. Westview Instruments, Inc. But is TC Heartland really a sea change for patent litigation??á A review of Federal Circuit cases applying the portion of the patent venue statute not addressed by?áTC Heartland ?Çô what constitutes ?Ç£a regular and established place of business?Ç¥ ?Çô indicates that the change may not be as sweeping as some have suggested.

Briefly, the TC Heartland decision addressed the test for proper venue in patent infringement suits for corporations.?á Until 1990, courts held 35 U.S.C. ?º 1400(b) to be the sole statute governing venue for patent cases.?á That statute requires patent suits to be filed where the defendant ?Ç£resides,?Ç¥ or where the defendant ?Ç£has committed acts of infringement and has a regular and established place of business.?Ç¥?á Interpreting 35 U.S.C. ?º 1400(b), courts found venue proper under the first prong only in states where the defendant was incorporated.

In VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), the Federal Circuit held that the general venue statute, 28 U.S.C. ?º 1391(c), informed the meaning of ?Ç£resides?Ç¥ as used in 1400(b), thus broadening its meaning to include all venues where personal jurisdiction is satisfied.?á Because the first prong of 1400(b) was then interpreted broadly, the second prong of that statute (?Ç£has committed acts of infringement and has a regular and established place of business?Ç¥) was rarely invoked.

The Supreme Court decision in?áTC Heartland overruled VE Holding and held that ?Ç£?ÇÖreside[nce]?ÇÖ in ?º1400(b) refers only to the State of incorporation.?Ç¥ TC Heartland, slip op. at 10.?á Because the second prong of 1400(b) was not before the Court, what constitutes a ?Ç£regular and established place of business?Ç¥ is left unresolved.

While decisions addressing the ?Ç£regular and established place of business?Ç¥ prong under 1400(b) are few and far between, two pre-VE Holding cases are illustrative of how unpredictable the analysis of that prong may be going forward.?á In In re Cordis, 769 F.2d 733 (Fed. Cir. 1985), the Federal Circuit denied a petition for a writ of mandamus requiring the United States District Court for the district of Minnesota to dismiss the action for improper venue. ?áAs explained below, the facts of the case show that plaintiffs may face a low bar in establishing a defendant?ÇÖs regular and established place of business in a given venue.

The defendant Cordis was a Florida corporation, and was not registered to do business in Minnesota, and employed only two sales representatives there. Id. at 735. ?áThese employees worked from their homes, and Cordis did not lease or own any property in Minnesota. Id. Although it did not maintain a physical office in Minnesota, Cordis employed a secretarial service there for handling correspondence, including answering telephone calls and mailing sales literature. Id. Customers in Minnesota could obtain the product at issue either from Cordis?ÇÖ Florida offices, or from the Minnesota sales representatives, who maintained a stock of product in Minnesota for that purpose. Id. Perhaps significantly, the sales representatives also acted as technical consultants by advising customers on the use of the product at issue. Id.

The Federal Circuit denied Cordis?ÇÖ petition, and in doing so held that ?Ç£the appropriate inquiry is whether the corporate defendant does its business in that district through a permanent and continuous presence there and not as Cordis argues, whether it has a fixed physical presence in the sense of a formal office or store.?Ç¥ Id. at 737.?á Notably, the Court emphasized that ?Ç£the remedy of mandamus is ?Çÿstrong medicine?ÇÖ to be reserved for the most serious and critical ills, and if a rational and substantial legal argument can be made in support of the rule in question, the case is not appropriate for mandamus, even though on normal appeal, a court might find reversible error.?Ç¥ Id.?á Accordingly, while the Cordis outcome could arguably be attributed more to the steep standard for mandamus than the underlying facts, it does appear that district courts will be afforded some leeway in deciding whether to maintain or dismiss the cases before them under the venue analysis.

The District Court decision in Johnston v. IVAC Corporation, 681 F.Supp. 959 (D. Mass. 1987) offers a contrasting analysis, reaching a different outcome on strikingly similar facts.?á Defendant IVAC was incorporated in Delaware, but was registered as a foreign corporation in Massachusetts. Id. at 960.?á It employed nine sales representatives who served Massachusetts, six of whom (including two1 who sold the products alleged to infringe) resided in Massachusetts.?áId. Similar to Cordis, the sales representatives worked from their homes, and IVAC did not own or lease any real estate in Massachusetts.?áId. Likewise, IVAC sales representatives used a secretarial service in Massachusetts for answering calls and the like. Id. All sales orders were directed to IVAC?ÇÖs San Diego, CA office, and all sales were filled from product stocked in San Diego or other locations outside of Massachusetts.?áId. Unlike Cordis, the sales representatives in Massachusetts only maintained a small number of products alleged to infringe for demonstration purposes. Id.

The IVAC Court found venue was improper in Massachusetts, specifically citing those few facts that distinguished IVAC from Cordis. Id. at 965.?á The Court noted that, unlike Cordis, ?Ç£IVAC does not permit direct sales or keep any inventory in Massachusetts.?Ç¥?áId. Furthermore, the Court emphasized that the sales representatives in IVAC ?Ç£do not provide extensive technical support,?Ç¥ which it found to be ?Ç£vastly different from the operating room assistance presented by the salesmen in Cordis.?Ç¥ Id.

The courts in Cordis and?áIVAC came to opposite conclusions on facts that appear to be very close, demonstrating just how unpredictable the interpretation of ?Ç£a regular and established place of business?Ç¥ under 1400(b) is likely to be after TC Heartland.?á As courts begin scrutinizing that portion of the venue statute, it seems likely that results will vary from district to district and from judge to judge.?á Indeed, the Court in IVAC noted the ?Ç£wide variety of opinions as to the type and extent of contacts which will satisfy the venue requirement.?Ç¥ IVAC, 681 F.Supp. at 962.?á The IVAC Court, performing its analysis before VE Holdings, further noted that there was a split among the circuits as to whether a defendant must ?Ç£maintain[], control[], and pay[] for a permanent physical location from which sales are made within the district.?Ç¥ Id.

While the two cases noted here are not exhaustive, it appears that many open questions remain.?á For example, it is not clear now how non-sales activities in a given jurisdiction, such as training, manufacturing, and engineering, are evaluated in comparison to the sales activities the aforementioned cases scrutinized.?á The Cordis and IVAC cases suggest that perhaps other non-sales activities (e.g., the technical support provided by the representatives in Cordis) may weigh more heavily in favor of finding venue to be proper.?á As another example, it is unclear to what extent a virtual presence (e.g., websites and apps) may be taken into account for the venue analysis.?á Additionally, it is not apparent whether the location of a particular sale, for example under an analysis similar to those conducted in cases addressing extraterritoriality issues, may affect the venue analysis.

Just as courts have proven to vary in their application of forum non conveniens, we are likely to see a wide range of interpretations of 1400(b) post TC Heartland, with some courts more inclined to keep cases filed in their district than dismiss them.?á And while TC Heartland requires a new interpretation of the first prong of 1400(b), the second prong of that statute remains largely untested, making venue decisions unpredictable in the short term and perhaps leaving plaintiffs some flexibility in their choice of venue.

1 One of the two sales representatives resigned after the suit was instituted. Id.

Aaron Taggart focuses his practice on patent and technology disputes, patent monetization, technology transactions, and intellectual property counseling. He provides a deep technical understanding as the basis for his legal advice, and provides information that enables clients to make well-informed business decisions.

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June 2017