Article June 7, 2017

Forum shopping – USA legal update

Last month (22nd May 2017), the US Supreme Court delivered a significant ruling in its verdict on TC Heartland LLC v Kraft Food Brands LLC.

In 2015 a civil action was submitted to the District Court for the District of Delaware, concerning a series of ‘squeezy’ concentrated juice pouches on which Kraft Food had and continue to have 3 patents and upon which Kraft alleged TC Heartland was infringing. However, the nature of the dispute shifted somewhat when TC Heartland decided to challenge the jurisdiction of the lawsuit.

Kraft Food Brands LLC originally filed a patent infringement suit against TC Heartland LLC in Delaware. TC Heartland LLC, however, is headquartered in Indiana, and merely shipped the allegedly infringing products into Delaware. Therefore, TC Heartland petitioned to the Supreme Court, arguing they should overrule previous interpretations of venue selection in patent litigation.

For the purposes of venue, the judges of the Supreme Court unanimously decided the provisions of 28 U.S.C. §1400(b) of the United States Code (the US’ statute) were to be strictly applied.
28 U.S.C. §1400(b) of the United States Code states “Any civil action for patent infringement must be brought in the district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.”

A previous precedent applied since 1990 was the Federal Circuit’s judgment VE Holding Corp v Johnson Gas Appliance (1990). This ruling allowed the broader provisions of 28 U.S.C. §1391(c) to apply for patent suits by redefining the crucial word ‘resides’ following an amendment to the wording of 28 U.S.C. §1391(c) made by Congress in 1988. The effect was to make it possible for a company to be sued anywhere it sells its products or services.

On 22nd May, the Supreme Court overruled the VE Holding interpretation referring to previous case law; tightening up the provisions of the United States Code and defining ‘residence’ as place of incorporation.

The impact
The judgement will likely have an immediate impact on the extent to which ‘forum shopping’ takes place. Since 1990, plaintiffs have been able to select the venue of their legal proceedings, possibly taking into account the extent to which they are likely to be successful. Non-Practising Entities (NPEs), or Patent Trolls, have selected the Eastern District of Texas in particular as a venue for their litigation, due to the higher than average rates of success.

It is now likely there will be a concerted shift of patent litigation from the Eastern District of Texas to other venues less favourable to plaintiffs, which may even discourage such litigation altogether. Organisations experiencing regular ‘nuisance’ cases against them may see this as a positive outcome, but it remains to be seen whether NPEs will change their strategies in response to the new requirements.

IP Watchdog published a recent article on the ruling. In it, reaction from the IP industry suggests that two main issues prevail:

  • What constitutes a “regular and established” place of business?
  • What will the procedure be for bringing lawsuits against foreign organisations in the USA?

Until there is further clarity on these points in future test cases, or possibly in the form of legislation from Congress, it is likely to be some time yet before these outstanding points are also resolved.

About the Eastern District of Texas
The Eastern District of Texas has a reputation for being a popular venue for organisations to bring patent litigation lawsuits, particularly among NPEs. As a result of its experience in handling large numbers of patent cases, the district has become an efficient and cost-effective venue for plaintiffs to file these lawsuits. Recent statistics have revealed:

  • 54% chance of success for plaintiff in patent litigation
  • 49% chance of success for plaintiff NPEs

(Source: PwC patent litigation study 2017)

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