The Law May Have Changed, But In Texas You'll Remain

The Supreme Court's TC Heartland decision in May set off a tidal wave that completely reshaped the contours of patent venue law.[1] Riding its wake, defendants around the country presented venue objections under 28 U.S.C. § 1400(b), but most courts found TC Heartland was not an intervening change in law and, therefore, the previously unraised venue objections were waived. The Court of Appeals for the Federal Circuit disagreed, renewing hopes for defendants to escape. Indeed, at least one California defendant's renewed motion succeeded, but similarly situated defendants in Texas face an uphill battle thanks to Fifth Circuit precedent and a litany of reasons for denial.

When waiver applies

A defendant who wishes to object to improper venue may file a motion to dismiss under Rule 12(b)(3). If the defendant fails to make a motion under that rule, fails to include a motion in a responsive pleading or in an amendment allowed as a matter of course, or omits such an objection "from a motion in the circumstances described in Rule 12(g)(2)," the objection is deemed waived. Fed. R. Civ. P. 12(h)(1). Rule 12(g)(2) generally provides that a party who files a Rule 12 motion cannot make a subsequent Rule 12 motion raising a defense or objection that was previously available but omitted. For example, if a party moves to dismiss without simultaneously raising an available venue objection, the venue objection is waived.

Outside of Rules 12(g)(2) and (h)(1), courts have found timely venue objections to be waived where a defendant litigates a case without contesting venue. See, e.g., Neirbo Co. v. Bethlehem Shipbuilding Corp., 308 U.S. 165, 167–68 (1939) (holding the right to object to venue "may be lost by failure to assert it seasonably, by formal submission in a cause, or by submission through conduct").

In either case, there is an open question as to the law applicable to questions of waiver. The Federal Circuit generally applies regional circuit law to the procedural questions of waiver. See, e.g., Ultra-Precision Mfg., Ltd. v. Ford Motor Co., 411 F.3d 1369, 1376 (Fed. Cir. 2005); Riverwood Int’l Corp. v. R.A. Jones & Co., 324 F.3d 1346, 1352 (Fed. Cir. 2003). On the other hand, Federal Circuit law applies when the argument allegedly waived is unique to patent law. See, e.g., Rates Tech. Inc. v. Nortel Networks Corp., 399 F.3d 1302, 1307 (Fed. Cir. 2005) (applying Federal Circuit law to the waiver of objections to personal jurisdiction); Harris Corp. v. Ericsson Inc., 417 F.3d 1241 (Fed. Cir. 2005) (applying Federal Circuit law to waiver of a claim construction argument).

The majority of regional circuits, including the Federal Circuit, recognize an exception to waiver when an intervening change in law occurs. Forshey v. Principi, 284 F.3d 1335, 1356 (Fed. Cir. 2002). If a defense or argument was unavailable at the time of waiver but becomes available due to a subsequent change in law, these circuits hold that no waiver occurred.

TC Heartland was an intervening change in law

The Court of Appeals for the Federal Circuit ruled in November that TC Heartland was an intervening change in law. In re Micron Tech., Inc., 875 F.3d 1091 (Fed. Cir. 2017). In doing so, the Federal Circuit held that currently valid venue defenses were unavailable before TC Heartland because the controlling precedent forbade courts from dismissing or transferring venue at that time. Id. at 1096–€“97. Accordingly, the waiver rule at issue under Rules 12(g)(2) and (h)(1)(A) was inapplicable. Id. at 1099‖100. The court vacated the district court's order that the venue defenses were waived and remanded for reconsideration. Id. at 1102.

In making its decision, the Federal Circuit articulated that the waiver rule at issue was not the only basis through which a venue defense may be rejected. Id. at 1094. It also declined to reach the question of whether Federal Circuit or regional circuit law governs that waiver issue or the other reasons a district court might find forfeiture of a venue objection. Id. at 1097 n.3, 1101. These aspects of the decision provide district courts with broad discretion in deciding on a case-by-case basis whether a defendant waived its venue objections.

Texas Defendants Remain Subject to the Trial Court's Broad Discretion

Many defendants renewed their venue objections in the aftermath of the Federal Circuit's Micron decision, and some even successfully obtained transfer. But defendants in Texas face unique challenges. Post-Micron, Texas courts have pointed to their broad discretion to retain fleeing defendants and may also further rely upon Fifth Circuit precedent in the future.

In early January, Judge Orrick of the Northern District of California granted a defendant's renewed motion to transfer its cases to Colorado in light of Micron decision. Fox Factory, Inc. v. SRAM, LLC, No. 3:16-cv-00506-WHO, 2018 U.S. Dist. LEXIS 3281 (N.D. Cal. 2018). The court previously rejected the request when it was raised post-TC Heartland, finding that no intervening change in law had occurred. Id. at *4–€“5. When the Federal Circuit held the opposite, however, the court allowed the transfer, specifically noting the absence of extenuating circumstances that would support denial. Id. at *5.

When similarly faced with a venue motion, a judge in the Eastern District of Texas was less willing to say goodbye.[2] In a post-Micron decision in late November, Judge Gilstrap cited to the court's "inherent power to find a venue objection forfeited based on conduct or other circumstances" and denied the motion. Intellectual Ventures II LLC v. FedEx Corp., No. 2:16-CV-00980-JRG, 2017 U.S. Dist. LEXIS 193581 at *8 (E.D. Tex. 2017). The court pointed to the defendant's conduct after TC Heartland, noting that it continued to actively litigate the case for months and only moved to transfer after its IPR petitions were denied. Id. at *9–€“10. As such, the defendant's venue objection was deemed waived.  Id. at *12–13.

Even in the absence of such extenuating circumstances, Texas courts can cite to Fifth Circuit precedent to counter any arguments regarding the intervening change in law. The Fifth Circuit does not recognize a general exception to wavier for an intervening change in law. See Anderson v. Jackson State Univ., 675 F. App'x 461, 463–64 (5th Cir. 2017) (citing to cases where the court found no exception for an intervening change in law). Accordingly, a district court could apply the procedural rule of the Circuit and deny as waived any newly raised venue objections, even though the Federal Circuit ruled that TC Heartland changed the law. In fact, a plaintiff in the Northern District of Texas made that very argument in opposing a defendant's motion to transfer, but the court's decision ultimately relied on other grounds. See iLife Techs., Inc. v. Nintendo of Am., Inc., No. 3:13-cv-04987, 2017 U.S. Dist. LEXIS 98698 (N.D. Tex. 2017).

One Texas case did find no waiver and allowed dismissal for improper venue after Micron, but only under a limited set of issues presented. In Autumn Cloud LLC v. TripAdvisor, Inc, the Eastern District of Texas granted a motion to dismiss for improper venue that was filed post-TC Heartland. No. 2:16-cv-00853-JRG-RSP, 2017 U.S. Dist. LEXIS 214204 (E.D. Tex. 2017). The plaintiff's sole basis for denial was that the defendants waived their venue objection under Rule 12(g)(2) and 12(h)(1) by failing to include the objection in an earlier Rule 12 motion, and because the objection was previously available, this waiver was not excused. Id. at *3. Once Micron held the exact opposite, the court had no choice but to grant the defendants' motion. Because the plaintiff had not argued waiver through the defendants' conduct, the court did not conduct any discretionary analysis. Therefore, this holding may not support similar relief for future defendants.

In sum, Texas courts have multiple options to deny newly raised venue objections. Despite the fact that TC Heartland changed the law, these courts can rightfully hold onto their existing patent dockets. Any efforts wasted in fighting such a battle would be better spent embracing The Lone Star State.

[1] See David B. Conrad & Theresa Dawson, Unanswered Questions After TC Heartland, https://www.fr.com/fish-litigation/questions-after-tc-heartland/.

[2] See also Ricardo Bonilla, EDTX & NDTX Monthly Wrap-Up —€“ November 2017, https://www.fr.com/fish-litigation/edtx-ndtx-monthly-wrap-up-november-2017/.