Unanswered Questions After TC Heartland

The Supreme Court recently upended what many practitioners considered to be the status quo on the issue of where venue lies in patent infringement actions. These cases have a special governing provision in 28 U.S.C. § 1400(b) requiring that they be brought "in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business."

In TC Heartland LLC v. Kraft Foods Company, 137 S. Ct. 1514 (2017), the Supreme Court held: "As applied to domestic corporations, reside[nce]' in § 1400(b) refers only to the State of incorporation." This narrow interpretation of the term "residence" was a rejection of the longstanding holding in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574 (Fed. Cir. 1990) that 2011 amendments to the general venue statute in § 1391 redefined "residence" broadly for § 1400(b). TC Heartland reaffirmed that § 1400(b) is the exclusive venue provision for patent infringement actions.

Several questions remain unanswered by the Court in the wake of TC Heartland and are likely to be litigated as a result. This article takes a look at some of those questions:

1. Where does a corporation "reside" in a multi-district state?
2. What about unincorporated associations like partnerships and limited liability companies (LLCs)?
3. What about foreign defendants?
4. What about declaratory judgments for non-infringement?

History of the patent venue statute

To set the stage, it is helpful to run through the jurisprudence of §1400(b).

Patent infringement venue has, for a very long time, been an exception to the general venue law in federal courts. In 1897, Congress enacted a venue law specific to patent cases. Act of March 3, 1897, ch. 395, 29 Stat. 695. This new statute permitted suit for infringement in either of two scenarios: (1) the district of which the defendant was an "inhabitant" or (2) where it maintained a "regular and established place of business" and committed an act of infringement.

The term "inhabitant" used in this new provision had already been interpreted with respect to other venue provisions. In Shaw v. Quincy Mining Co., 145 U.S. 444, 447 (1892), the Supreme Court held that "the phrase district of the residence of' … is equivalent to district whereof he is an inhabitant." Id. at 449 (emphasis added). Moreover, the use of the word "inhabitant" in the venue provisions is to distinguish from what it meant to be a "citizen." Id. A citizen "included a whole state, but also two districts in one state." Id. By contrast, the use of the word "resides" instead "applied only to a State containing two or more districts" and referred to the one district that is the residence of a company. See id. at 447-448.

The primary holding of Shaw was that venue could not lie outside of the state of incorporation. Importantly, that decision "went no further than to hold that … a corporation cannot be considered a citizen, an inhabitant, or a resident of a State in which it has not been incorporated." In re Hohorst, 150 U.S. 653, 662 (1893). But Shaw's reasoning expressed that—within the state of incorporation—the entity does not "inhabit," or "reside," in every district in a multi-district state.

The question about what to do in multi-district states of incorporation was settled by Galveston, H. & S.A. Ry. Co., v. Gonzales, 151 U.S. 496 (1894). In that case, the Court considered whether "a railway company, incorporated under the laws of a certain State, and having its principal offices within one district of such State, can be said to be an inhabitant of another district of the same State, through which it operates its line of road and in which it maintains freight and ticket offices and depots." Id. at 499.

The Court acknowledged that "a distinction is made between citizens of states and inhabitants of districts." Id. at 500 (emphasis added). It surveyed the jurisprudence, and repeated that the "cases must be regarded as establishing the doctrine that a domestic corporation is both a citizen and an inhabitant of the state in which it is incorporated." Id. at 504 (emphasis added). A corporation cannot be considered an inhabitant of any state in which it is not incorporated simply by reason of the fact that it does business there. Id. at 506. It then noted:

[I]n none of [the cases] is there any intimation that, where a state is divided into two districts, a corporation shall be treated as an inhabitant of every district of such state, or of every district in which it does business, or, indeed, of any district other than that in which it has its headquarters, or such offices as answer in the case of a corporation to the dwelling of an individual.

Id. at 503-504.

The Court concluded that a corporation "created by the laws of a state in which there are two judicial districts … should be considered an inhabitant of that district in which its general offices are situated, and in which its general business … is done." Id. at 504. "[T]he question of inhabitancy must be determined … by the principal offices of the corporation, where its books are kept and its corporate business is transacted, even though it may transact its most important business in another place." Id. (emphasis added).

The following year, in In re Kearney & Mattison Co., 160 U.S. 221 (1895), the Court looked again at the issue, although it was addressing a diversity jurisdiction action. It first noted that the prior statute enacted in 1875 allowed suit in any district where a corporation was incorporated or where it carried on business and had a general agent. Id. at 227-228. It then acknowledged that the then-amended statute limited this to where the corporation was an "inhabitant." Id. at 228. This meant that "a corporation, by doing business or appointing a general agent in a district other than that in which it is created" must be sued in the latter district. Id. at 229.

The multi-district issue arose again in Stonite Products Co. v. Melvin Lloyd Co., 315 U.S. 561, 563 (1942) but this time in a patent infringement action. There, the Court considered whether a venue provision for diversity cases permitted suits against patent infringement defendants "residing in different judicial districts within the same state" to be brought in either district. Id. at 561-562. The Court held that it did not. The patent venue provision (then codified at § 48 of the Judicial Code (28 U.S.C. § 109)) was the exclusive provision controlling venue in patent infringement proceedings. Id. at 563. Thus, Stonite, which was "an inhabitant of the Eastern District of Pennsylvania without a regular and established place of business in the Western District" could not be sued in the Western District. Id. at 562-563.

In Suttle v. Reich Bros. Constr. Co., 333 U.S. 163 (1948), the Court reaffirmed that "[f]or sixty years in an unbroken line of decisions [the] Court has applied the same construction" of "residence." Id. at 166-167. Earlier interpretations of corporate venue applied equally to later statutes.

Then, in 1948, Congress revised and recodified the Judicial Code. Act of June 25, 1948, 62 Stat. 936. The patent venue statute became enacted as 28 U.S.C. § 1400(b). The law states:

Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.

28 U.S.C. §1400(b). The statute is similar to the prior venue provision of § 48, but used the word "resides" instead of "inhabit[s]" and removed some surplus language.

In Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222 (1957), the Supreme Court knocked down the argument that the recodification dispensed with the exclusive nature of the patent venue statute. There was no substantive change to the provision "as it stood and was dealt with in the Stonite case. Id. at 227-228. The Court confirmed that "'where the defendant resides' [was simply] substituted for 'of which the defendant is an inhabitant' because the word 'inhabitant' and 'resident,' as respects venue, are synonymous." id. "[T]hose synonymous words mean domicile, and, in respect of corporations, mean the state of incorporation only." Id.

The Fourco court held that 28 U. S. C. § 1400(b) "is the sole and exclusive provision controlling venue in patent infringement actions, and that it is not to be supplemented by the provisions of 28 U. S. C. § 1391," which relate to where a corporation may be sued generally. Id. at 229. Thus, Fourco, a West Virginia corporation, could not be sued for patent infringement in the Southern District of New York, even though it maintained a place of business there, because no infringement had occurred there and that was not where it "resides." "Resides" in § 1400(b) means "the state of incorporation only." Id. at 226.

1. Where does a corporation reside in a multi-district state under Section 1400(b)?

The story that arises from the Supreme Court jurisprudence is a constant: "resides" in § 1400(b) has never changed in meaning. The construction given on the eve of the Judicial Act of 1948 is the same as today. Following the holding of Galveston, then, a corporation may only be sued in the district in which it resides in its state of incorporation. And when incorporated in a multi-district state, residence is determined by where in this state the principal office is. That is, where it does its general business and keeps its books, even if it does business in other districts. There is only one "residence."

This makes sense given the purpose of the venue statutes. "[T]he venue provisions are designed … to allocate suits to the most appropriate or convenient federal forum." Brunette Machine Works, Ltd. v. Kockum Indus., Inc., 406 U.S. 706, 710 (1972). "Venue … serves the purpose of protecting a defendant from the inconvenience of having to defend an action in a trial court that is either remote from the defendant's residence or from the place where the acts underlying the controversy occurred." VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574, 1576 (Fed. Cir. 1990).

It does not appear that TC Heartland altered the definition of "resides." The Court simply held that "[t]he amendments to § 1391 did not modify the meaning of § 1400(b) as interpreted by Fourco." TC Heartland, 137 S. Ct. at 1517. Faced with the question of whether Kraft, an Indiana company, could be sued for patent infringement in Delaware, it "therefore [held] that a domestic corporation 'resides' only in its State of incorporation for purposes of the patent venue statute." Id. The underlying reasoning that there still after all these years has been no change to the patent venue statute supports following the holdings of the pre-1948 cases, including Galveston.^[1]

This was the conclusion of one district court Action Communications Systems, Inc. v. Datapoint Corp., 426 F.Supp. 973 (N.D. Tex. 1977). Faced with "a question that has not been squarely decided in any other reported case," it held:

I am led to the inescapable conclusion that a corporation may be sued under the § 1400(b) residence provision only in the state of incorporation and, within that state, only in the judicial district where its principal place of business is located. The patent venue statute reflects Congressional realization of the technical and intricate nature of patent litigation. In most such cases there is a mass of technical data produced at trial. Congress sought to restrict venue in these actions to those places where that mass of technical data is located…. [T]his mass of data and witnesses are not available in every place where the Defendant does business. Theoretically under the Plaintiff’s analysis, we could hear this case in Amarillo, Texas — over five hundred miles from Defendant’s principal place of business — if the Defendant had some business activity there. This result does not comport with my reading of Congressional intent in enacting § 1400(b).

Id. at 974-975.

What remains unclear is how to define the principal place of business. In Davis v Hill Engineering, Inc., 549 F.2d 314 (5th Cir. 1977), the Fifth Circuit noted that trial courts treated this as a factual question and determined the district of residence by examining the certificate of incorporation for the designated official residence of the corporation, or by determining its general principal office. Id. at 321. See Gorman v A.B. Leach & Co., 11 F.2d 454 (E.D.N.Y 1926) (statement in certificate of incorporation was conclusive as to principal office). State corporate law today may make this a difficult question. In Texas, for example, a corporation does not need to designate an official residence in the articles of incorporation—a registered agent can substitute for a principal office. The registered agent, however, is often just a drop box for service of process—not a place of substantive business to the corporation. In keeping with the venue statute's purpose of convenience, a drop box does not necessarily demonstrate a convenient location for a suit. Alternatively, one could argue by analogy to the jurisdictional question in Hertz Corp. v. Friend that the principal place of business is the "nerve center" of the corporation. 131 S.Ct. 1181 (2010).

As of the time of writing, there is only one district court case that has this question of multi-district states after TC Heartland, and it reached a different conclusion. In an order adopting a magistrate judge's recommendation to dismiss a motion for improper venue, Judge Gilstrap of the Eastern District of Texas explained that he was "not persuaded that 'resides' in this context refers to anything more than a defendant’s state of incorporation." Diem LLC v. BigCommerce, Inc., No. 6:17-cv-186, 2017 WL 3187473 (E.D. Tex. July 26, 2017). The Court acknowledged that the Fourco court held that the word 'resident,' as used in § 1400(b), was synonymous' with the word 'inhabitant' in the pre-1948 statute. But it pointed out that Fourco's express language was that these terms "mean the state of incorporation only." It concluded that the definition of "resident" established in Fourco and reaffirmed in TC Heartland is in tension with the definition of "inhabitant" that the Supreme Court applied in pre-Fourco cases. The court held that in patent infringement a Texas corporation "resides" in all the judicial districts of that state. The defendant did not appeal that decision.

Thus, until the Federal Circuit or weighs in, this question will continue to be litigated at the district courts.

2. What about unincorporated associations like partnerships and limited liability companies (LLCs)?

TC Heartland addressed corporations, but left open the question of where an unincorporated entity "resides" for purposes of § 1400(b). The question is just as complex as that of a corporation.

Before the Supreme Court decided United Mine Workers v. Coronado Coal Co., 259 U.S. 344 (1922), an unincorporated association could be sued only in the names of its members, and liability had to be enforced against each member. The Coronado Court rejected that principle and held that such associations could be sued in federal courts, and judgment would go against their collective funds. Although Coronado resolved the issue of capacity to be sued, it remained an open question as to the proper venue for an unincorporated defendant.

Seventy-four years ago, in Sperry Products v. Association of American Railroads, 132 F.2d 408 (2d Cir. 1943), Judge Learned Hand dealt with the issue of what district an unincorporated association may be said to "inhabit" under the prior patent venue provision § 48. Judge Hand concluded that an incorporated entity should be treated like a corporation, but "that will not serve as a test if there be several judicial districts in that state." Id. at 411. He reasoned that venue for a corporation in a multi-district state is appropriate only where "its principal activities take place; its principal place of business" and that the rule applies with equal force to unincorporated associations. Id. Judge Hand thus held that "if a patentee chooses to sue an unincorporated association under the doctrine of [Coronado], he must do so either at its principal place of business, or at any of the regular and established places of its business where it may have infringed." Id. at 411-12.

Nearly 25 years later, Judge Hand's reasoning in Sperry that unincorporated entities should be analogized to corporations was the basis of the Supreme Court's holding in Denver & R. G. W. R. Co. v. Brotherhood of R. R. Trainmen, 387 U.S. 556, 560 (1967). That case dealt with the issue of whether an unincorporated association should be treated like a corporation for purposes of 28 U.S.C. § 1391, the new general venue provision of the Judicial Act of 1948. The Court noted that Congress has maintained its silence in that legislation with respect to the residence of the unincorporated association. Id. at 558-559. Prior to 1948, that issue had been left to the courts. So when faced with the question of how to interpret the new venue statute, the Supreme Court followed Judge Hand's reasoning and concluded that it should. Although the issue in Brotherhood of R. R. Trainmen dealt with the general venue provision, the Supreme Court nevertheless found no reason to disturb Judge Hand's rationale.

Although little authority exists as to the treatment of unincorporated associations in patent infringement actions, some courts applied the rationale of in Brotherhood of R. R. Trainmen and Sperry to "conclude that the first test for venue under § 1400(b) with respect to an [unincorporated] defendant is whether it was subject to personal jurisdiction in the district of suit at the time the action was commenced." Injection Research Specialists v. Polaris Indus., L.P., 759 F. Supp. 1511, 1516 (D. Colo. 1991). Because the Federal Circuit's 1998 VE Holding decision instructed this analysis to be consistent with the broad, general-purpose venue test for corporations, there was thus no reason to determine in which one judicial district an unincorporated defendant "resides."

Since TC Heartland reversed VE Holding, courts may return to the rationale laid down by Judge Hand in Sperry: where an unincorporated association is sued in a state that has more than one judicial district, venue is only proper in the one judicial district where its principle place of business is located, in the absence of "any of the regular and established places of its business where it may have infringed." See Sperry, 132 F.2d at 411-12; see also 15 Charles A. Wright et al., Federal Practice and Procedure § 3823, at 142 & n.41 (1st ed. 1976) (citing Sperry as controlling law for determining proper venue in a patent case)

One district court recently addressed this issue in Maxchief Invest. Ltd. v. Plastic Dev. Group, LLC, No. 3:16-cv-63, 2017 WL 3479504, (E.D. Tenn. 2017), holding that unincorporated associations now have "residence" under patent statute like corporations: at the principal place of business.

3. Foreign corporations

Foreign corporations that do not reside in the United States likely remain subject to suit under § 1391(c)(3) in any judicial district, as they always have been.

In TC Heartland the Court did not address this question, pointing instead to its decision in Brunette Machine Works v. Kockum Indus., 406 U.S. 706 (1972). The Brunette Court held that the enactment of § 1391(d) of the Judicial Code (the predecessor to today's § 1391(c)(3)), which provides that "[a]n alien may be sued in any district," was a "declaration of the long-established ruled that suits against aliens are wholly outside the operation of all the federal venue laws, general and special." Id. at 714.

The current provision of § 1391(c)(3) reflects the same substance of the alien venue provision that Brunette addressed. Thus, as in TC Heartland, later restyling amendments left the long-standing jurisprudence untouched.

4. Declaratory judgments for non-infringement

In VE Holding, the Federal Circuit pointed out that "[i]t has long been held that a declaratory judgment action alleging that a patent is invalid and not infringed — the mirror image of a suit for patent infringement — is governed by the general venue statutes, not by § 1400(b)." 917 F. 2d at 1583. Thus, it is likely that declaratory judgment actions are still governed by § 1391, even when patents are at issue.

Several circuit decisions have followed this holding. See e.g., United States Aluminum Corp. v. Kawneer Co., Inc., 694 F.2d 193, 195 (9th Cir.1982); Emerson Electric Co. v. Black and Decker Manuf. Co., 606 F.2d 234, 237 (8th Cir. 1979); General Tire & Rubber Co. v. Watkins, 326 F.2d 926 (4th Cir.), cert. denied, 377 U.S. 909 (1964). The Supreme Court does not appear to have addressed the issue directly.

 

---

[1] See also Moore’s Judicial Code 193-194 (1949) (quoted by Davis v. Hill Engineering, Inc., 549 F. 2d 314 (5th Cir. 1977):

Prior to the [new] Code a corporation was a resident of the state in which it was incorporated; and, more specifically, where the state of incorporation was divided into two or more districts, then in the district where its official residence was designated by the charter or state law and, in the absence of such a designation, then in the district where the corporation maintained its home office.