Opinion analysis: Justices rein in Federal Circuit’s lax rules on patent venue

Where have I read this before: U.S. Court of Appeals for the Federal Circuit – patent-holding plaintiffs win; Supreme Court – corporate defendants win. The Supreme Court struck yet another blow against the expertise of the Federal Circuit, the specialized appellate court for patent cases, with Monday morning’s opinion in TC Heartland LLC v. Kraft Foods Group Brands, rejecting the rules on patent venue that the Federal Circuit has been administering for more than 25 years. The odd part of it is that this time it was the Federal Circuit saying that patent litigation should look more like conventional litigation and the Supreme Court saying that patent litigation needs to have special rules different from the rules of ordinary civil cases. The Federal Circuit can’t win even when it decides that patent litigation should follow the well-developed rules of mainstream civil procedure!

To understand the issue dividing the Federal Circuit from the Supreme Court, a little background about federal civil procedure is useful. Generally speaking, modern venue statutes treat corporations as present in any state in which they conduct a substantial amount of business. Because venue rules generally permit a plaintiff to sue a defendant in any state in which it is present, that means that in general civil litigation, a plaintiff suing a large company that does business nationwide usually can pick just about any state that seems to provide a forum favorable to the plaintiff. That practice replaced an earlier 19th-century regime, in which corporations were treated as residing in (or “inhabiting”) only the single state in which they were incorporated.

For most of the 20th century, litigation involving patents proceeded on a different track, retaining the old limited-venue rule that permitted suits against corporate defendants only in the jurisdiction in which they were incorporated. The Supreme Court confirmed that regime in its 1957 decision in Fourco Glass v. Transmirra Products. In that case, the Supreme Court held that the rules for corporate “residence” in a separate statute for patent venue (Section 1400(b)) should continue to apply narrowly notwithstanding Congress’ adoption of a broad conception of corporate venue in the general venue statute (Section 1391). In 1990, however, the Federal Circuit held that venue in patent cases should follow general venue rules, reasoning that congressional amendments to the general venue statute had superseded Fourco.

That all might sound overly technical, but it had a very tangible result: Since 1990 patent litigation under the Federal Circuit doctrine has become centralized in a single federal court in the Piney Woods in East Texas – where, the conventional wisdom has it, juries are likely to be favorable to patent-holders. Indeed, we know from the briefs that one-quarter of all patent cases nationwide in the last three years have been assigned to a single federal judge in that court sitting in the bustling community of Marshall, Texas. Plaintiffs have flocked to that forum and defendants have objected to the travesty of a procedural system under which “all roads lead to Marshall.”

As you would expect from an opinion authored by Justice Clarence Thomas, there is not even an allusion to the concerns that made this such a high-profile issue at the Federal Circuit. Instead, what we get is an opinion that is brief even by Thomas’ standards – not even ten pages. The opinion, joined by all of the justices except for Justice Neil Gorsuch (who joined the court shortly after the argument), turns on a single interpretive move, the adoption of a clear statement rule that calls for a “relatively clear indication … in the text” before the Supreme Court will read a statute as rejecting one of the court’s earlier statutory interpretation decisions. Thomas backed up his “relatively clear indication” standard with a lengthy quote from a treatise on “Reading Law,” co-written by Thomas’ late colleague Antonin Scalia, which explains that a “clear, authoritative judicial holding on the meaning of a particular provision should not be cast in doubt” simply because Congress has adopted some “related though not utterly inconsistent provision.”

Because the opinion already has explained in its summary of the facts that Fourco “definitively and unambiguously held that” the reference to a “reside[nce]” in Section 1400(b) “refers only to the State of incorporation,” the clear-statement rule is all that is required to resolve the case. Having recited that rule, the court needs only to note that Congress has never amended Section 1400(b) since the decision in Fourco and that “[t]he current version of § 1391 does not contain any indication that Congress intended to alter the meaning of § 1400(b) as interpreted in Fourco.” At that point, the outcome is clear.

Recognizing that the summary above is entirely pedestrian, I should adhere to standards of craft by mentioning at least one item of more particular interest from the opinion. For that purpose, I point the reader to footnote 1. Perhaps it says more about my day job teaching courses in commercial law than it does about the justices, but to me that footnote shows a court straining to decide a question that is not before it. As decided, the case involves the indisputably weighty question of where a corporation resides for venue purposes in patent cases. But the justices have decided that question in a case that clearly does not involve a corporate defendant. The defendant is “TC Heartland LLC.” As any second-year law student can tell you, a name that ends in “LLC” cannot be the name of a corporation but must instead be the name of a limited liability company, a wholly distinct type of business enterprise. Thomas notes in footnote 1 that the parties “suggest that petitioner is, in fact, an unincorporated entity.” We can only assume that this bland statement reflects an intentional effort at the ambiguity necessary to permit the court to reach the corporate question presented as opposed to a fundamental failure to understand the identity of the parties in this case. In any event, the footnote certainly will pave the way for further litigation about the venue status of the many non-corporate businesses involved in patent litigation, for whom a single-jurisdiction venue rule would be even more remarkable than it is for corporations.

Posted in: Analysis, Featured, Merits Cases

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