By: Andrew T. O'Connor and Rebecca Harris
For years, patent assertion entities have filed patent lawsuits against retailers in federal court in Texas. The Supreme Court’s recent decision in TC Heartland LLC v. Kraft Foods Group Brands LLC may give retailers the ability to insist they defend such lawsuits on their home turf.
Deep In the Heart of Texas
For years, patent assertion entities have targeted online retailers for patent infringement claims relating to the operation of online retail tools. As we previously discussed, the Supreme Court offered much needed relief to retailers in 2014 in its Alice Corporation v. CLS Bank decision by providing retailers with additional arguments for challenging patents that were the subject of complaints filed by patent assertion entities. This did not, however, stop patent assertion entities from filing patent infringement lawsuits in the U.S. District Court for the Eastern District of Texas, which is widely considered to be patent owner-friendly. In 2015, more than 45% of all patent cases in the United States were filed in the Eastern District of Texas.
Proper Patent Venue
A federal lawsuit must be brought in the appropriate judicial district. This is known as “proper venue.” The patent venue statute, 28 U.S.C. § 1400(b), states that patent litigation may only be brought in (1) “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.” In 1990, the U.S. Court of Appeals for the Federal Circuit interpreted this statute broadly, holding that patent infringement venue is proper in any federal court that has personal jurisdiction over the defendant.
In TC Heartland, the Supreme Court construed “resides” with regard to domestic corporations narrowly, holding that “resides” under the patent venue statute “refers only to the State of incorporation.” Thus, proper venue in patent litigation is limited to (1) the state of incorporation of the defendant, or (2) where the defendant has committed acts of infringement and has a regular and established place of business.
After TC Heartland, Judge Gilstrap of the Eastern District of Texas, who handles more patent cases than any other judge in the country, denied a motion to transfer venue on the basis that the defendant allowed two employees to work remotely from their homes located in the Eastern District of Texas. The U.S. Court of Appeals for the Federal Circuit disagreed, ordering the case be transferred out of the Eastern District of Texas. Specifically, the Court of Appeals held that a “regular and established place of business” requires “a physical, geographical location in the district from which the business of the defendant is carried out” in a stable, non-sporadic manner. An employee working remotely from home, without more, is not considered a regular and established place of business of the defendant.
Impact of TC Heartland on Retailers
As a result of TC Heartland, patent assertion entities will be less able to haul retailers into Texas to defend against claims of patent infringement. Due to the large number of companies incorporated under the laws of Delaware, however, the aftermath of the TC Heartland decision has resulted in a significant increase in the number of patent complaints filed in the U.S. District Court for the District of Delaware.
If not incorporated under the laws of the State of Texas, there are many things retailers should consider to determine whether it has a “regular and established place of business” in the Eastern District of Texas. For example, retailers should confirm whether there are any stores, employees, sales representatives, agents or contractors within the geographic reach of the Eastern District of Texas. Understanding and controlling the business presence in the Eastern District of Texas will go a long way toward avoiding having to defend a patent lawsuit there.