Anyone concerned about abuse in patent litigation may want to take a closer look at the U.S. Supreme Court’s unanimous decision last month inTC Heartland LLC v. Kraft Foods Group Brands LLC: It upended nearly 30 years of practice in which plaintiffs’ attorneys have filed patent suits pretty much anywhere they wanted.
In the case, the high court clarified that, in Section 1400 (b) of the patent venue Statute, which limits where patent lawsuits can be filed, “resides” means where the defendant, assuming it is an entity, is incorporated.
The ruling could have a dramatic effect on the number of filings in the Eastern District of Texas, which for years has been plaintiffs’ venue of choice because it is perceived to have favorable rules.
Ironically, the high court’s decision may not be good news to some defendants with active cases: That’s because if a defense attorney didn’t raise an objection to venue before the high court issued its ruling last month, she isn’t likely to have success doing so now, according to James Dabney, of Hughes Hubbard & Reed, who successfully argued the Supreme Court case,TC Heartland.
The reasons are complex. Although the justices overturned a Federal Circuit ruling from 1990, they reaffirmed their own earlier ruling from a 1957 case,Fourco Glass v. Transmirra. That means defendants can’t claimTC Heartlandis a new precedent that wasn’t available to them previously, Dabney said.
“For defense attorneys, the first question is going to be: Have you preserved the defense? Because you can’t get to the Supreme Court or to an appellate court on an issue if you haven’t given the district court the opportunity to do right,” Dabney said.
The now-defunct Federal Circuit ruling from 1990, which came in a case calledVE Holding Corp. v. Johnson Gas Appliance, opened up a new era of forum shopping in patent suits. That’s how, for instance, the Eastern District of Texas — where local rules are perceived to favor plaintiffs — became known as a “rocket docket.”
According to attorneys for Texas, which, along with 16 other states, filed an amicus brief in support ofTC Heartland, at least a quarter of patent cases in recent years have been filed in that district, where a single judge had 1,686 new patent cases assigned to him in 2015 and a hotel in the town of Marshall offers PACER access to attorney guests.
In an interview, Dabney, who handled the case for TC Heartland at every stage, said it’s too early to say whether the flow of patent infringement lawsuits into the Eastern District of Texas will suddenly be rerouted to Delaware, where so many companies are incorporated. He also spoke about what it was like representing a company from the trial court level straight through the appellate stages. The following interview has been edited lightly for length and clarity.
Big Law Business: Why was this the case for that question of venue to come up?
Dabney: In order for an issue like this to reach the Supreme Court of the United States, a number of things have to happen at the same time. You not only have to have a case in which the issue matters, but you have to have a case in which the stakes are such and the defending party’s attitude is such that the case can be taken all the way. What often happens is that cases settle, and they don’t justify the kind of effort that TC Heartland put into it. This is a major commercial case between the number one and number two manufacturers of this type of product, and, therefore, the venue really did make an important difference to TC Heartland. Everyone who would be a witness in the case really does live and work in the Indianapolis area.
Big Law Business: But for decades, haven’t these suits been filed in any district, despite the statute limiting patent jurisdiction, which the Supreme Court held still applied in your case?
Dabney: Of course plaintiffs are free to sue wherever they choose; it’s up to the defendant to raise as a defense that venue is improper.
Big Law Business: It’s a little bit unusual for the trial attorney to handle the matter all the way up. Why did the firm or team decide to do it that way?
Dabney: The original motion to dismiss or transfer of course was filed by me wearing my trial lawyer’s hat, and, when the motion was denied, we prepared a petition for writ of mandamus to the Federal Circuit, and that was just me wearing my appellate lawyer’s hat. I never got the memo that trial lawyers weren’t supposed to do appellate work. When the Federal Circuit denied the petition for writ of mandamus, the next stop was clearly the Supreme Court of the United States. I have a very outstanding collaborator in Professor John Duffy, who is a former Supreme Court clerk himself [and a professor at the University of Virginia]. We have quite an extraordinary success rate with petitions, especially in cases where we’ve had the case from the beginning — our record is four out of five.
Big Law Business: What does the TC Heartland decision mean for the patent bar?
Dabney: Well, for plaintiffs’ lawyers it means that they have to file suit in a district that is described by section 1400(b) of the Patent Act. For defense attorneys, the first question is going to be like the question that was raised in the Cobalt case: Have you preserved the defense? Because you can’t get to the Supreme Court or to an appellate court on an issue if you haven’t given the district court the opportunity to do right.
Big Law Business: What will the practical effect of this decision be? Will the Eastern District of Texas no longer be a hotbed of patent litigation? Will Delaware become one?
Dabney: It depends in part on how corporate America responds to the decision. I’m old enough to have lived through a time when many corporate entities reincorporated in Delaware in the 1980s because Delaware laws governing corporate affairs were perceived to be more management friendly. Now with TC Heartland, people may still consider that favorable tax laws and corporate governance laws outweigh whatever disadvantages may flow from patent exposure in Delaware, but we may very well see a reversal of the reincorporation activity that seemed like a good idea in the 80s and may not be such a great idea in 2017. It would be premature to speculate about where the dust will settle in terms of the distribution of patent cases going forward.
Big Law Business: You said at oral argument that there’s a reason why patent litigation is more susceptible to forum shopping — why? Will that stop now?
Dabney: Because of the nature of the statutory damages—which also exists in copyright cases incidentally, but they don’t have the kind of venue protections that patent cases do—the injury could be geographically separated from where any activity of the defendant occurred or even where the plaintiff itself was headquartered or based, and, therefore, there was nothing preventing a claim from patent infringement from being assigned to a newly created entity in a place like Marshall, Texas, and being asserted there. The number of venues where a defendant can now be required to defend a claim for infringement has been very substantially diminished from where it had been thought to be prior to May 22, 2017. There were originally three places—domicile, regularly established place of business, and consent—and then there had been thought to be 91 other potential venues available. Now we’re back to the original three.