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Will the Eastern District of Texas remain a preferred choice for U.S. patent suits?

USGavelA disproportionate percentage of U.S. patent infringement cases are filed in a single judicial district in Texas – The Eastern District of Texas (“E.D. Texas”). E.D. Texas is home to approximately 30-40% of U.S. patent infringement cases, and, in 2015 and 2016, Judge Rodney Gilstrap, was assigned around one quarter of all pending patent cases in the entire United States. But, there is now some doubt whether E.D. Texas will remain a preferred choice for patent infringement case in the U.S.  During oral argument before the Supreme Court on Monday March 27 in TC Heartland LLC v. Kraft Foods Group Brands LLC, the Federal Circuit decisions that have allowed patent cases to flourish in Texas were under review.

A tale of two statutes

The interplay between two statutes is central to this case. The first statute, 28 U.S.C. § 1400(b), provides that patent infringement actions “may be brought in the judicial district where the defendant resides.”  When the Supreme Court examined this statute in 1957, it decided a defendant resides in “the state of incorporation only.See Fourco Glass v Transmirra Products, 353 U.S. 222, (1957). Under this decision alone, a patent infringement case against a corporation would have to be brought in the state in which the corporation is incorporated.

But, the story gets more complicated. A second statute, 28 U.S.C. § 1391, governs “[v]enue generally,” and  states that, where applicable, a corporate entity “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.See 28 U.S.C. § 1391(c). Under personal jurisdiction law in the U.S., most large businesses are likely to be subject to personal jurisdiction throughout the country.  Thus, section 1391(c) makes venue proper throughout the country.

The Federal Circuit has long followed Section 1391(c) and held that venue is proper where personal jurisdiction over the defendant is proper and it is this rule that the Supreme Court was addressing.

A cold bench appears more skeptical then supportive of the Federal Circuit’s rule

While many of the 30 amicus briefs filed in connection with the TC Heartland case focused on the practical impact of patent cases being concentrated in E.D. Texas, the Justices appeared less concerned about these issues during oral argument.  Instead, the argument focused squarely on the statutes and opinions at issue.  Overall, the Justices had fewer questions than in many arguments, making it harder to predict which way the Court is leaning.  Justice Ginsburg did comment that, if the Federal Circuit was overturned, then patent cases would be the only type of cases with the rule outlined in Section 1400(b) and Fourco.  Justice Kagan noted that the Federal Circuit rule had been in place for around thirty years, and questioned why it should be changed now.  On the other hand, many Justices seemed to question the statutory basis for supporting the Federal Circuit’s rule, and there seemed to be a certain amount of agreement that the rule conflicts with Fourco.  The potential practical implications of the Court’s decision were not overlooked, as the Chief Justice commented on the percentage of cases in E.D. Texas, and Justices Kagan and Ginsburg noted that forum shopping is one of the complaints with the current rule.

An Eastern Texas exodus? A Delaware disaster?

While it is hard to predict which way the Court will rule, it appeared more skeptical of the Federal Circuit’s rule than supportive. If the Court were to reverse the Federal Circuit, it could lead to an exodus of a large number of the cases currently in E.D. Texas.  Indeed, depending upon how the Court decides the details of the case, the large concentration of patent cases in E.D. Texas may soon be a thing of the past.  If the Court accepts the rule suggested by TC Heartland, then many of the cases against corporate defendants could be headed to Delaware, where there are currently only two active district court judges.  Of course, the Court may be hesitant to issue such a disruptive decision when the statutory construction is at least a close call.  A decision from the Court should be issued before the end of the term in June or July.