As I previously noted, the Supreme Court’s recent TC Heartland decision dramatically curtailed where patent holders can sue defendants for infringement. Prior to TC Heartland, under the Federal Circuit’s decisions (dating back to 1990 in VE Holding), patent owners could essentially sue defendants in every venue in which defendants sold the accused products. TC Heartland upended decades of Federal Circuit jurisprudence, and found that US based patent-infringement defendants could only be sued (i) in their state of incorporation, or (ii) where they have committed acts of infringement and have a regular and established place of business.
A recent article by Thompson & Knight attorneys Justin Cohen and Natalie Cooley, Was TC Heartland An ‘Intervening Change In Law’ (available for download here), raises the question of what happens to the hundreds or thousands of pending lawsuits that were filed pre-TC Heartland in venues that would, post-TC Heartland, be improper. Can defendants now raise improper venue as a defense if they failed to raise it pre-TC Heartland? Or are they stuck in the current venue?
Perhaps not surprisingly, as in much of law, the courts are divided. Some have found that the defendant has not waived its improper-venue defense, while others find that improper venue is a defense that was waived by the failure of the defendant to assert it.
Take Chief Judge Lynn’s recent decision (available here) in iLife Technologies v. Nintendo. ILife filed suit against Nintendo in late 2013. Nintendo answered in early 2014 and admitted that venue was proper in the Northern District of Texas. Nintendo sought discretionary transfer under Section 1404, which the Court denied.
On May 22, 2017, the Supreme Court decided TC Heartland. Nintendo then moved to dismiss the case contending that, in light of TC Heartland, venue was improper in the Northern District of Texas. Jury selection was set for August 2017.
Chief Judge Lynn noted that, in 1957, the Supreme Court (in Fourco) interpreted § 1400 (the patent venue statute) to take precedence over § 1391 (the general venue statute), and that, under § 1400, a corporation only resided in its state of incorporation. The Supreme Court stated in Fourco, “We hold 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(c).”
In 1988, Congress amended § 1391(c) to read, “For purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced.” In 1990, the Federal Circuit (in VE Holding) found that the 1988 amendment “redefined” the meaning of the term “resides” in § 1400(b) and, accordingly, Fourco was no longer controlling on the meaning of “resides.” Accordingly, since 1990, the test for venue was “whether the defendant was subject to personal jurisdiction in the district of suit at the time the action was commenced.” (The Federal Circuit reaffirmed the validity of VE Holding in 2016). In practice, this meant that a patent-infringement defendant, for nearly the last thirty years, could be sued anywhere it sold the accused products.
The Supreme Court, in TC Heartland, reversed the Federal Circuit’s nearly three decades’ worth of jurisprudence, finding that Congress did not intend to alter the meaning of § 1400 when it amended § 1391. As such, post-TC Heartland, venue in patent cases is only proper where (i) the defendant corporation is incorporated, or (ii) the defendant has committed acts of infringement and has a regular and established place of business.
In ILife, Nintendo did not operate an office in Texas or employ anyone in Texas, so it moved to dismiss the case for improper venue under TC Heartland. ILife, on the other hand, argued that Nintendo waived its venue defense because it had not previously filed a Rule 12 motion and admitted venue was proper in its answer. Nintendo responded by arguing that, prior to TC Heartland, the defense of improper venue was not available due to the Federal Circuit’s VE Holding decision. Nintendo cited cases recognizing that a change in controlling law—or an “intervening change in law”—allows parties to assert previously unraised grounds.
Chief Judge Lynn rejected Nintendo’s argument, finding that TC Heartland did not qualify as an intervening change in law. According to Chief Judge Lynn, only the Supreme Court may overrule one of its precedents and, until that occurred, Fourco was the law (notwithstanding the Federal Circuit’s VE Holding decision). “The intervening twenty-seven years may have created reliance on VE Holding by litigants, including Nintendo, but that does not change the harsh reality that a party could have ultimately succeeded in convincing the Supreme Court to reaffirm Fourco, just as the petitioner in TC Heartland did.” (citations and quotations omitted). Because TC Heartland did not constitute an intervening change in law, Nintendo could not now assert its improper-venue defense.
As Thompson & Knight attorneys Cohen and Cooley note in their article, Chief Judge Lynn’s waiver finding in ILife appears to fall within the majority view of district courts considering the issue (and, arguably, the Federal Circuit, which recently rejected a mandamus petition seeking to allow an improper-venue defense post-TC Heartland), although at least one court (in the Western District of Washington) found that defendants did not waive the defense of improper venue by omitting it from their initial pleading and motions because they “could not reasonably have anticipated this sea change” in the law. According to Cohen and Cooley, “Arguably,  defendants should be able to revive their venue challenges (or make them in the first instance), under the rationale that TC Heartland constituted an intervening change in law.” The authors note that, if litigants have waived their venue defense by not raising the defense in light of controlling adverse circuit precedent, “litigants will be required to file motions challenging controlling proposition[s] of [relevant] Circuit law to avoid risking waiver in the event of a later reversal by a higher court.” (quotations omitted). “This requirement will place lawyers in the precarious position of risking Rule 11 violations or waiving litigants’ rights in the event of unprophesied changes to controlling law.”