February 23, 2018

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NOT READY TO STICK A 'FOURCO' IN IT YET: EXISTING PATENT VENUE LAW WILL REMAIN UNCHANGED UNTIL CONGRESS INTERVENES

March 29, 2017

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NOT READY TO STICK A 'FOURCO' IN IT YET: EXISTING PATENT VENUE LAW WILL REMAIN UNCHANGED UNTIL CONGRESS INTERVENES

 

These past seven days have been a banner week in the Supreme Court for those of us practitioners who work in the area of patent law.  Last Tuesday, the Supreme Court issued an entirely expected ruling in SCA v. First Quality,(2) tossing the defense of laches in patent cases where there is a stated statute of limitations and a legal remedy sought.  That day, the Supreme Court heard argument in Impressions v. Lexmark,(3) a difficult case that will fundamentally affect more people and companies than any other case this term (and perhaps for quite some time) that involves patent exhaustion, and whether a conditioned sale (in the U.S. or abroad) ‘exhausts’ a patent holder’s ability to enforce its rights, if any, post-sale.  Not to be outdone, yesterday, the Court heard argument in Heartland v. Kraft,(4) which has the potential to disrupt modern patent litigation, since the justices will either restore more exacting restrictions on venue in patent litigation or more likely, maintain the potential ubiquity for where a patent owner may file a complaint.  Based on oral argument and the following analysis, the justices seemed vexed with overturning almost thirty years of patent venue practice.  Indeed, we had a real treat this week.

 

Like SCA decided last week, Heartland hinges on statutory interpretation, this time, concerning federal venue statutes.  Like SCA, the issues in Heartland should be decided by Congress.  Regardless, any ruling therein will follow basic canons of statutory interpretation:  if the language of a statute is plain, the sole function of the courts is enforcement according to said statute’s terms.  If there is an ambiguity, any resulting judicial statutory construction must be narrowly tailored that is in harmony with the statutes at issue.

 

Looking at the number of amici that have filed on behalf of either party in Heartland, a few big-picture points are clear:  1) there is a lot at stake, especially at the perceived concentration of patent litigation, particularly in the Eastern District of Texas, and how said concentration affects litigation outcomes; 2) there are interesting bedfellows supporting Heartland, the petitioner, and Kraft, the respondent;(5)

 

 

and 3) reading the same, seemingly-clear statutes, reasonable and competent minds simply disagree on what those statutes plainly mean.  Of course, considering their judicial districts might be affected by any ruling in Heartland, it was surprising—though not serious—that neither the chambers of commerce for the State of Delaware nor Marshal, Texas filed briefs in support of Heartland and Kraft, respectively!  A background is warranted. 

 

Venue is the location where a case may be heard.  Venue statutes exist to protect defendants from having to defend an action in a court that is distant from the defendant's residence or from the place where the acts underlying the controversy occurred.  For patent litigation, a statute governs venue specifically: 28 U.S.C. § 1400(b).  It provides that that venue is appropriate either:

 

(1) in the judicial district where the defendant resides, or

(2) where the defendant has committed acts of infringement and has a regular and established place of business.

Id.

 

In 1957, the Supreme Court ruled in Fourco(6) that § 1400(b) cannot be supplemented by the general venue statute (for all civil litigation) as found in the same chapter, i.e., § 1391(c).  Fourco also held that as applied to corporate entities, the phrase “where the defendant resides” in § 1400(b) means only the state of incorporation.  Thus, one might expect the issue to be quite straightforward.  Not so fast for the Federal Circuit.

 

In 1988, Congress amended § 1391(c) in multiple ways.  Of relevance, the beginning of the provision now had a new clause, a prefatory clause: 

 

For purposes of venue under this chapter

 

28 U.S.C. § 1391 (am. 1988).(7)  The remainder of the statute from said prefatory clause read: 

 

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

 

Id. at c (emphasis added).(8)  Additionally, as stated earlier, Chapter 87 of Title 28 of the U.S. Code contains Sections 1391 and 1400 and it (the latter) refers to where the defendant “resides.” 

 

Then, in 1990, the Federal Circuit in VE Holding(9) had an opportunity to interpret the amendment to § 1391(c).  The Federal Circuit reasoned that since Sections 1391 and 1400 resided in the same chapter, that the 1988 amendment of § 1391 now modified § 1400(b).  Despite the fact that the statute is plain, thus obviating any judicial construction, the panel in VE Holding for thoroughness looked to and found silence in the legislative history.  Additionally, the Federal Circuit also considered the basic canon of statutory construction, as stated in Fourco, that specificity in one chapter will control the analysis over a general statute, even if the general statute “otherwise might be controlling.”  However, the Federal Circuit concluded that Congress gave a clear and plain directive in changing venue, ruling that Congress wanted to read the general venue statute into the special patent venue statute.  This holding armed patent plaintiffs with the means to sue an alleged corporate infringer in any district court in which the corporation is “subject to personal jurisdiction.”(10)

 

So that a reader clearly understands, the Supreme Court can certainly hold that a general statute, as written, may not modify a special statute.  However, that command is not eternally etched since Congress has the power to modify any statute, including the case where a general statute modifies a specific statute.  Once modified, a Supreme Court holding may get, inter alia, legislatively overruled.  And that is what, based on a plain reading, Congress did.  Congress rendered Fourco obsolete (even, perhaps, regardless of intent).

 

Whether Congress’ intent was known about what it wanted to do by the insertion of that clause—and it is not known—intent is not required for basic statutory construction if the statute is clear.  Additionally, others have argued that the large majority of congressional overrides are merely perfunctory or routine overrides that reflect an updated policy.  Thus, the ruling in VE Holding was, in this author’s opinion, correct, and that is why the Eastern District of Texas can thank the Federal Circuit (and Texas Instruments)(11) for the boon to that court’s docket and to the town where it resides, Marshal, Texas.  However, some justices may disagree with this author’s conclusion from VE Holding.

 

During oral argument in Heartland, some justices questioned whether the Federal Circuit’s decision was correct.  Justice Ginsburg wondered aloud, “maybe the Federal Circuit was wrong in not following Fourco.”  Justice Kagan went further: “for thirty years the Federal Circuit has been ignoring our decision and the law has effectively been otherwise.”(12)  Yet, they made this point to show another:  their reluctance to overturn existing patent venue law that has conformed, rightly or wrongly, to the decision in VE Holding.

 

Looking back to 2011, Congress again amended § 1391(c) where it also instituted the greatest patent reform in our lifetimes, the American Invents Act (AIA).  In § 1391(c), Congress deleted the 1988 prefatory clause amendment (“For purposes of venue under this chapter”) and replaced it with:

 

For all venue purposes

 

§ 1391(c) (2011).  A plain reading is self-evident: instead of applying to venue only under Chapter 87, § 1391(c) would apply to all venue statutes, a point where at least some justices concurred.(13)  Though a plain reading would preclude judicial construction by reviewing legislative intent and history, such a gratuitous review would lead to the same result, especially since Congress made the following representation : 

 

proposed § 1391(c) would apply to all venue statutes, including venue provisions that appear elsewhere in the United States Code

 

H.R. Rep. 112-10, 20 (2011). 

 

Additionally, Congress amended § 1391 by adding to the beginning of that statute the phrase “[e]xcept as otherwise provided by law,” as seen in its entirety:   

 

(a)  Applicability of Section.—Except as otherwise provided by law—

(1) this section shall govern the venue of all civil actions brought in district courts of the United States;

 

§ 1391(a) (2011).  The question now becomes:  which law?  For this author, this is the dispositive question should Heartland get decided on the merits.  Additionally, this part of the analysis gives this author the greatest pause (and which Judge Michel, in his brief, thought was dispositive as well).

 

The law, as referenced in § 1391(a), could be case law such as Fourco.  However, if the previous analysis that Congress rendered Fourco obsolete is correct, then its holding was not the law in 2011.  If true, then Congress did not intend to restore Fourco’s holding since it was not the law.  Moreover, Chief Justice Roberts would suggest that said clause was not intended to overrule Fourco.  Of course, that begs the question, what was the intent of this clause and which law did Congress refer?  Again, the answer may lie in the legislative history. 

 

The American Law Institute compiled a list of applicable statutes that would get subsumed under said clause.  H.R. Rep. 112-10.  Notably, said list did not include § 1400(b).  Moreover, as Kraft argued, in a compelling way to this author, the referenced clause was in the original 1948 re-codification and was in the general venue statute as well as the diversity statute, and Congress merely move said clause.  Additionally, as Justice Kagan hypothesized during oral argument, if Congress was legislating (in 2011) with a backdrop, it concerned VE Holding and not Fourco.  Furthermore, Justice Roberts may have also tipped his hand when he stated as matter of fact that:  “there is a difference between ‘for venue purposes’ and ‘for all venue purposes’ and ‘for venue under this chapter,’” a conclusion previously questioned by Justice Kagan. 

 

Not having the late Justice Scalia on the bench for this patent venue case matters in two ways:  1) subscribing to textualism, he would have offered his usual wit in deciding this case which, as shown, turns on statutory construction; and 2) Scalia once referred to the Eastern District as a “renegade jurisdiction.”  Regardless, like SCA, Heartland will be (or should be) decided by basic statutory construction devoid of policy considerations.(14)  Accordingly, this could be an easy case that might produce a near-unanimous result. 

 

The elephant in this case is that Heartland is not a corporation; it is a limited liability company, which for legal purposes, is an unincorporated association.  Thus, a case that interpreted a statute that controls venue for corporations cannot be applicable.  Justice Breyer wondered, paraphrased, why the Supreme Court was even deciding the case.  And when he did not get an answer from Heartland’s counsel the first time he asked, he asked again.  Chief Justice Roberts probably had similar concerns, otherwise as he stated to counsel for Kraft, it seemingly would have already raised the issue in the lower court.  Later in the argument, Justice Breyer summed it up:  Fourco does not apply to unincorporated associati