Patent Venue Restricted and Settlement Balance Shifted in Patent Disputes

Two key recent cases have shifted the balance of negotiation leverage in patent disputes between patent owners and accused infringers. The cases restrict the venues where patent cases against corporations can be brought. This change will tilt the balance away from patent owners and more in favor of accused infringers.

The decisions limit venue forum shopping as to a corporate defendant to

  • The defendant’s state of incorporation; or
  • A district where the defendant has a physical location, a regular and established place of business which is operated by the defendant, and where an alleged act of infringement must have occurred.

Companies facing threats of patent litigation from trolls and others should be aware that such litigation just got harder for those asserting infringement. The choice of possible venues has now been considerably narrowed, and for many companies, those districts which meet the new criteria are often both more friendly and more convenient.

A major issue in many patent litigations is venue: where the case will be heard. For many patent trolls, a favorite has been the Eastern District of Texas, considered a favorable forum for patent plaintiffs. Defendants naturally prefer districts closer to home, especially those considered more defendant friendly. The mere threat of litigating in a distant and unfriendly forum is often used as leverage in settlement negotiations. But two recent key decisions have significantly limited such forum shopping.

In May, the Supreme Court decided TC Heartland LLC v. Kraft Foods Group Brands LLC, overturning 20 years of Federal Circuit precedent. The patent venue statute allows infringement claims to be brought “where the defendant resides.” The Court limited that to a corporation’s state of incorporation.

Patent owners then turned to the second part of the patent venue statute, that allows infringement claims to be brought “where the defendant has committed acts of infringement and has a regular and established place of business.” In September, the Federal Circuit construed that provision in In re Cray. According to Cray, the statute requires:

  • A physical location in the district – a physical, geographic location where the defendant conducts business in the district.
  • The presence must be regular and established – meaning there is some steady, permanent business presence in the district.
  • The place must be that of the defendant – not merely employee homes, or independent contractors (or as one later case held, wholly owned subsidiaries).
  • Patent infringement must have allegedly taken place there.

This test was not met where a company had two salesmen in the district who were allowed to work remotely from their home offices. Later cases further hold that it is not met by a website accessible in the district, nor by shipping infringing goods into the district, nor by the presence of a retailer subsidiary corporation.

Some issues remain open. The Supreme Court noted that its decision does not apply to foreign corporations. And, it is not clear what happens when the “state of incorporation” contains multiple districts, as some large states (California, Texas, New York) do. Can a California corporation based in San Jose, for example, be sued for patent infringement anywhere in California? These issues have yet to be worked out by the federal courts.