George Mason University Antonin Scalia Law School

Changes to Patent Venue Rules Risk Collateral Damage to Innovators

dictionary entry for the word "innovate"Advocates for changing the patent venue rules, which dictate where patent owners can sue alleged infringers, have been arguing that their remedy will cure the supposed disease of abusive “trolls” filing suit after suit in the Eastern District of Texas. This is certainly true, but it’s only true in the sense that cyanide cures the common cold. What these advocates don’t mention is that their proposed changes will weaken patent rights across the board by severely limiting where all patent owners—even honest patentees that no one thinks are “trolls”—can sue for infringement. Instead of acknowledging the broad collateral damage their changes would cause to all patent owners, venue revision advocates invoke the talismanic “troll” narrative and hope that nobody will look closely at the details. The problem with their take on venue revision is that it’s neither fair nor balanced, and it continues the disheartening trend of equating “reform” with taking more sticks out every patent owner’s bundle of rights.

Those pushing for venue revision are working on two fronts, one judicial and the other legislative. On the judicial side, advocates have injected themselves into the TC Heartland case currently before the Federal Circuit. Though it has no direct connection to the Eastern District of Texas, advocates see it as a chance to shut plaintiffs out of that venue. Their argument in that case is so broad that it would drastically restrict where all patentees can sue for infringement—even making it impossible to sue infringing foreign defendants. Yet they don’t mention this collateral damage as they sell the “troll” narrative. On the legislative side, advocates have gotten behind the VENUE Act (S.2733), introduced in the Senate last Thursday. This bill leaves open a few more venues than TC Heartland, though it still significantly limits where all patent owners can sue. Advocates here also repeat the “troll” mantra instead of offering a single reason why it’s fair to change the rules for everyone else.

With both TC Heartland and the VENUE Act, venue revision advocates want to change the meaning of one word: “resides.” The specific patent venue statute, found in Section 1400(b) of Title 28, provides that patent infringement suits may be brought either (1) “in the judicial district where the defendant resides” or (2) “where the defendant has committed acts of infringement and has a regular and established place of business.” On its face, this seems fairly limited, but the key is the definition of the word “resides.” The general venue statute, found in Section 1391(c)(2) of Title 28, defines residency broadly: Any juridical entity, such as 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.” Taken together, these venue statutes mean that patent owners can sue juridical entities for infringement anywhere the court has personal jurisdiction over the defendant.

The plaintiff in TC Heartland is Kraft Foods, a large manufacturer incorporated in Delaware and headquartered in Illinois that runs facilities and sells products in Delaware. The defendant is TC Heartland, a large manufacturer incorporated and headquartered in Indiana. TC Heartland manufactured the allegedly-infringing products in Indiana and then knowingly shipped a large number of them directly into Delaware. Kraft Foods sued TC Heartland in Delaware on the theory that these shipments established personal jurisdiction—and thus venue—in that district. TC Heartland argued that venue was improper in Delaware, but the district court rejected that argument (see here and here). TC Heartland has now petitioned the Federal Circuit for a writ of mandamus, arguing that the broad definition of “reside” in Section 1391(c)(2) does not apply to the word “resides” in Section 1400(b). On this reading, venue would not lie in Delaware simply because TC Heartland did business there.

TC Heartland mentions in passing that its narrow read of Section 1400(b) is favorable as a policy matter because it would prevent venue shopping “abuses,” such as those allegedly occurring in the Eastern District of Texas. Noticeably, TC Heartland doesn’t suggest any policy reasons why Kraft Foods should not be permitted to bring an infringement suit in Delaware, and neither do any of the amici supporting TC Heartland. The amicus brief by the Electronic Frontier Foundation (EFF) et al. argues that Congress could not have intended “to permit venue in just about any court of the patent owner’s choosing.” But why is this hard to believe? The rule generally for all juridical entities is that they can be sued in any district where they chose to do business over matters relating to that business. This rule has long been regarded as perfectly fair and reasonable since these entities get both the benefits and the burdens of the law wherever they do business.

The EFF brief goes on for pages bemoaning the perceived ills of forum shopping in the Eastern District of Texas without once explaining the relevancy to Kraft Foods. It asks the Federal Circuit to “restore balance in patent litigation,” but its vision of “balance” fails to account for the myriad honest patent owners like Kraft Foods that nobody considers to be “trolls.” The same holds true for the amicus brief filed by Google et al. that discusses the “harm forum shopping causes” without elucidating how it has anything to do with Kraft Foods. Worse still, the position being urged by these amici would leave no place for patent owners to sue foreign defendants. If the residency definitions in Section 1391(c) don’t apply to Section 1400(b), as they argue, then a foreign defendant that doesn’t reside or have a regular place of business in the United States can never be sued for patent infringement—an absurd result. But rather than acknowledge this collateral damage, the amici simply sweep it under the rug.

The simple fact is that there’s nothing untoward about Kraft Foods filing suit in Delaware. That’s where TC Heartland purposefully directed its conduct when it knowingly shipped the allegedly-infringing products there. It’s quite telling that venue revision advocates are using TC Heartland as a platform for changing the rules generally when they can’t even explain why the rules should be changed in that very case. And this is the problem: If there’s no good reason for keeping Kraft Foods out of Delaware, then they shouldn’t be advocating for changes that would do just that. Keeping patent owners from suing in the Eastern District of Texas is no reason to keep Kraft Foods out of Delaware, and it’s certainly no reason to make it impossible for all patent owners to sue foreign-based defendants that infringe in the United States. Advocates of venue revision tacitly admit as much when they say nothing about this collateral damage. This isn’t fair and balanced; it’s another huge turn of the anti-patent ratchet disguised as “reform.”

The same is true with the VENUE Act, which copies almost verbatim the venue provisions of the Innovation Act. This bill would also severely restrict where all patent owners can sue by making it so that a defendant doesn’t “reside” wherever a district court has personal jurisdiction arising from its allegedly-infringing conduct. To its credit, the VENUE Act does include new provisions allowing suit where an inventor conducted R&D that led to the application for the patent at issue. It also allows suit wherever either party “has a regular and established physical facility” and has engaged in R&D of the invention at issue, “manufactured a tangible product” that embodies that invention, or “implemented a manufacturing process for a tangible good” in which the claimed process is embodied. Furthermore, the bill makes the same venue rules applicable to patent owners suing for infringement and accused infringers filing for a declaratory judgment, and it solves the problem of foreign-based defendants by stating that the residency definition in Section 1391(c)(3) applies in that situation.

While the proposed changes in the VENUE Act aren’t as severe as those sought by venue revision advocates in TC Heartland, they nevertheless take numerous venues off of the table for patentees and accused infringers alike. But rather than acknowlede these wide-sweeping changes and offer reasons for implementing them, advocates of the VENUE Act simply harp on the narrative of “trolls” in Texas. For example, Julie Samuels at Engine argues that the “current situation in the Eastern District of Texas makes it exceedingly difficult for defendants” to enforce their rights and that we need to “level the playing field.” Likewise, Elliot Harmon at the EFF Blog suggests that the VENUE Act will “finally address the egregious forum shopping that dominates patent litigation” and “bring a modicum of fairness to a broken patent system.” Yet neither Samuels nor Harmon explains why we should change the rules for all patent owners and accused infringers—especially the ones that aren’t forum shopping in Texas.

The VENUE Act would simply take a system that is perceived to favor plaintiffs and replace it with one that definitely favors defendants. For instance, an alleged infringer with continuous and systematic contacts in the Eastern District of Virginia can currently be sued there, but the VENUE Act would take away this option since it’s based on mere general jurisdiction. Likewise, the current venue rules allow suits anywhere the court has specific jurisdiction over the defendant—potentially in every venue for a nationwide enterprise—yet the VENUE Act would make dozens of these venues improper. Furthermore, patentees can now bring suits against multiple defendants in a single forum, saving time and money for all involved, but the VENUE Act would make this possibility much less likely to occur.

The “troll” narrative employed by venue revision advocates may sound appealing on the surface, but it quickly becomes clear that they either haven’t considered or don’t care about how their proposed changes would affect everyone else. If we’re going to talk about abusive litigation practices in need of revision, we should talk about where they’re occurring across the entire patent system. This discussion should include the practices of both patent owners and alleged infringers, and we should directly confront the systemic collateral damage that any proposed changes would cause. As it stands, there’s little hope that the current myopic focus on “trolls” will lead to any true reform that’s fair and balanced for everyone.