Federal Circuit Has an Opportunity to Curtail Patent Litigation Tourism in TC Heartland Case

Fairfield Inn, Tyler, Texas
Fairfield Inn, Tyler, Texas

This afternoon, the U.S. Court of Appeals for the Federal Circuit will hear oral arguments in In re: TC Heartland, LLC. The case implicates the fundamental issue of where plaintiffs alleging patent infringement can file suit. Washington Legal Foundation was one of only two institutions to file an amicus brief in support of TC Heartland’s mandamus petition. WLF agrees that the patent venue statute does not permit TC Heartland to be sued in the District of Delaware. But our brief asks the Federal Circuit to also overrule its 1994 Beverly Hills Fan Co. v. Royal Sovereign Corp. decision. That decision, which allows nationwide corporations to be sued in any federal district where it does business, has precipitated the current epidemic of forum shopping by patent trolls. The availability of forum shopping inspires frivolous litigation that diverts businesses’ resources from innovation.

Kraft Foods filed suit in the District of Delaware, alleging that all of Heartland’s nationwide sales of a liquid water-enhancing product (LWE) infringed Kraft’s patent. Heartland, which maintains its principal place of business in Indiana, where it is also incorporated, does no business directly with Delaware and only 2% of its products were shipped to that state. Acknowledging this, the district court still determined that it could exercise jurisdiction over those claims pertaining to the 98% of allegedly infringing sales that took place outside Delaware.

The district court adopted the report and recommendation of a federal magistrate judge, holding that separate infringing sales constitute a single cause of action, making venue proper for the entire infringement action in any federal district in which an infringing sale was made.

Although the district court thus purported to exercise specific jurisdiction over the action, in actuality, it conflated specific and general jurisdiction. Specific jurisdiction is personal jurisdiction founded on activities by the defendant that not only give rise to the liabilities sued on, but also bear a direct relationship to the forum. Here, however, Kraft Foods alleges thousands of separate infringing acts, the majority of which bear no relationship to Delaware. The Delaware federal court may have had jurisdiction over 2% of Heartland’s LWE products, but the concept is not nearly so broad as to encompass the alleged acts of infringement that took place outside Delaware.

The plaintiffs and the court invoke the interests of judicial economy, seemingly assuming that the plaintiffs will turn around and file suit in every state if it cannot litigate in Delaware. But that is unrealistic. As with all patent litigation against U.S. corporations, venues exist that could assert general jurisdiction competently: a defendant’s state of incorporation and the state in which its business is principally located.

Venue is a statutory limit on the cases that a court may hear. These statutes, however, necessarily limit venue to those cases where the court has constitutional jurisdiction over the litigants to avoid violating a defendant’s right to due process. Recognizing the constitutional constraint on the exercise of personal jurisdiction over corporate defendants not “at home” in the forum, Congress explicitly limited venue—in all types of cases—to “any district in which [the] defendant is subject to the court’s personal jurisdiction with respect to the civil action in question.” 28 U.S.C. § 1391(c)(2). The TC Heartland decision below disregarded this limitation.

Two years ago, the Supreme Court expressly rejected a formulation of jurisdiction that would permit “the exercise of general jurisdiction in every State in which a corporation engages in a substantial, continuous, and systematic course of business” in Daimler AG v. Bauman. Beverly Hills Fan is a relic of the pre-Daimler era, in which large corporations could be sued in any state in which they maintained a substantial presence. Beverly Hills Fan prioritized a patent owner’s and the court’s convenience over a defendant’s constitutional rights.

In 2015, the top 10 patent-troll entities filed 82% of their suits in the notorious Eastern District of Texas (EDTX). The Fairfield Inn in Tyler, Texas—one of the towns where the EDTX sits—reportedly purchased a subscription to the PACER federal court docketing system and has used it to market rooms to lawyers. We bear no ill will toward the businesses in the EDTX towns that have profited from the rampant patent litigation tourism inspired by Beverly Hills Fan. But the due process rights of defendants should not be sacrificed for the convenience of plaintiffs or courts. The Federal Circuit has an opportunity to make things right in TC Heartland.

One thought on “Federal Circuit Has an Opportunity to Curtail Patent Litigation Tourism in TC Heartland Case

  1. Pingback: Patent litigation: "Could the Eastern District of Texas’s Reign Come to an End?" - Overlawyered

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