Patent Venue and Jurisdiction: Why E.D. Texas?

28 USC 1400(b) is the primary patent venue statute. Under the statute, a patent infringement lawsuit may be filed in a jurisdiction (a) where the defendant resides; or (b) where the infringement occurred -- so long as the defendant has a "regular and established place of business" in that jurisdiction.

Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business. 28 USC 1400

1400(b) has been around for a long time and has (historically) been given narrow interpretation. Corporate residence was often limited to the location of the principal place of business or corporate headquarters and an established place of business did not include stores owned by others or sales-persons covering the locale. Numerous patent cases were dismissed or transferred because the defendant did not meet the requirements of the law. For instance, in the 1964 case of Sheldon v. Norbute, a Pennsylvania district court transferred the patentee's case to New York even though the infringement occurred in Pennsylvania. According to the court, the defendant did not fit under the statute because it did not "maintain, control, or pay for an establishment in the district."

In 1990, Congress took to the pen and broadened the definition of a defendant's "residence" to include any jurisdiction where the court has personal jurisdiction.

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. 28 USC 1391

In VE Holdings (1990), the Federal Circuit interpreted the amended statute -- determining that the statute's "language is clear and its meaning is unambiguous."  The appellate panel held that the new statute eviscerats the limitations of Section 1400(b) and allows for patent infringement suits in any jurisdiction where the defendant has sufficient contacts under the constitution.

This leads us to last week -- where Orion IP filed suit against 63 defendants in the sparsely populated Eastern District of Texas.  It appears that only a handful of these large corporate defendants have any connection to the jurisdiction beyond a mere 'stream of commerce' analysis.  Is it time to return some teeth to Section 1400?

The Senate's Patent Reform Bill of 2006 (S.3818) would have amended §1400 to, for the most part, eliminate the 1990 expansion.  Under that proposal, the revised venue statute would read as follows:

(b) Any civil action arising under any Act of Congress relating to patents, other than an action for declaratory judgment ... may be brought only — (1) in the judicial district where either party resides; or (2) in the judicial district where the defendant has committed acts of infringement and has a regular and established place of business.

(c) Notwithstanding section 1391(c) of this title, for purposes of venue under subsection (b), a corporation shall be deemed to reside in the judicial district in which the corporation has its principal place of business or in the State in which the corporation is incorporated.

The proposal still goes beyond the original scope of §1400 by allowing suits in jurisdictions based on the residence of either the plaintiff or defendant. 

• Full Disclosure: Several of MBHB's are defendants in the Orion case. These comments are my own and not those of MBHB or its clients.

Comments

[anon]

If anyone wants a definition of "Patent Troll", Orion IP might just be the answer.

[Thomason]

Forum-shopping always will be inherent to patent litigation. Still, there is little reason to venue all patent cases in any one backwater district, whether it's Alexandria or Marshall. This would be a worthwhile "reform" to the patent law.

[Bob Harmon]

I wonder, are any of the law firms representing the 60-odd defendants aware of Rule 20(a), FRCP? There is more than one way to skin a cat, or at least slow things down and make a plaintiff work for its money. See e.g., New Jersey Mach. Inc. v. Alford Indus. Inc., 21 USPQ2d 2033 (D.N.J. 1991).

In a scorched-earth scenario, each of the defendants would move to dismiss under Rule 20(a) for improper joinder.

[me]

Why not? These cases need to be tried somewhere and we should all hope to find a District Court that knows more than a little about patents.

[PatLaw]

It is common for IP holding companies (a.k.a. "trolls") to establish their place of business in the jurisdiction where they plan to sue. Indeed their "office" is often a room in the same building as plaintiff's counsel. Thus if venue is established where "either party resides," the proposed reform would seem to have little hope of changing the status quo.

[Hayek]

As PatLaw noted, Orion/Constellation/Nagivator has its principal place of business in Marshall, so the proposed amendment to the venue statute would not appear to matter in this case.

[Mark Perdue]

I agree that this would be a quite reasonable patent reform. Dennis gives a good history of patent venue. The ball has been squarely in Congress' court if it didn't mean what it said in the amendment to 1391, which undid the narrow patent venue statute, at least as applied to corporations.

That said, the application of "stopwatch justice" in the Eastern District of Texas, it's not just Marshall, is an interesting dispute resolution tool, for sure.

[Jim Uschold]

Why have different standards for venue and jurisdiction at all? The jurisdictional factors include a "fair play" component. Changes of venue can and should be granted to cure and deter forum shopping along with a rebuttable presumption that venue should be in one of the parties' residences.

And let's quit the fiction that the location of one's attorneys and saving ligitation costs is not a major and legitimate factor in venue selection. Electronic filing may allow virtually any attorney to handle a case in virtually any forum, but there are still travel costs to attend hearings.

[Mark A. Lemley]

Venue reform can only go so far. No venue statute is going to withdraw venue from the plaintiff's principal place of business, so the primary effect of ED Tex-related venue reform would be to prevent real companies from suing there. Trolls would just have to set up shop in Texas and they'd be fine.

[Mark Perdue]

"No venue statute is going to withdraw venue from the plaintiff's principal place of business"

Professor Lemley, unless I'm missing something, 28 USC 1400 (unmodified by the "new" 1391), eliminates Plaintiff's place of business as a proper venue if the Defendant has no regular and established place of business there, which would go an awful long way to eliminating the E.D. Tex. as a proper venue.

[Joe Smith]

If the courts were applying the law fairly and consistently across the country then there would be no venue shopping. Venue shopping is a direct indictment of the intellectual integrity of the judicial process. Trying to surpress venue shopping merely seeks to surpress symptoms and does not deal with the underlying problem which is a quality problem.

[Dennis Crouch]

Joe, there may be some kernal of truth in your statement. However, your conclusion of a failure of "intellectual integrity of the judicial process" does not follow from an observance that there is substantial variance between the various courts. Rather, in the US we have long cherished the "marketplace of ideas" available because each court works autonomously.

[Joe Smith]

Dennis

The courts are supposed to be impartially applying a national law to national entities. The fact that a certain class of plaintiffs is flocking to a certain otherwise obscure jurisdiction is very strong evidence of a serious problem. Defendants have a right to expect equal treatment before the law.

[Defense Lawyer]

What makes you believe that Defendants do not receive equal treatment in EDTex? A plaintiff's win rate that is somewhat higher than the national average is hardly proof of unequal treatment. I would suggest that you examine the appellate reversal rate of patent cases in the EDTex. It is well below the national average. If the judges weren't applying the law correctly and/or the juries were returning verdicts that weren't supported by the evidence, the reversal rate would be much higher. If you are a defendant and you settle because you are afraid to go to trial, despite your great case, that is your choice. Do not blame the jury you never gave the chance to decide your case and do not blame the judge that denied your motion for summary judgment or didn't decide it prior to settlement. If there was no evidence of infringement or the patent was clearly invalid and you chose to settle, that is as much or more of an indication that you don't trust the Federal Circuit as it is an indication that you don't trust the EDTex. Despite what you've been told by the plaintiff's bar, Defendants can win patent cases in the EDTex and many have. The jury verdict record is what it is (P's approx. 22, D's 3), but summary judgments are more common than what is widely reported. Additionally, it is impossible to know how many more cases may have been won by defendants had they not bought the hype and chosen to settle.

As for forum shopping, what is inherently wrong with it? Except in rare cases, the plaintiff always has a choice to make among various proper forums. Regardless of motivation, a choice must be made. Why should a patentee be forced to sue a large company in the district where it employs a significant percentage of the jury pool and otherwise enjoys a home court advantage? If you think about it, most of the reasons why plaintiffs choose the EDTex. are good, desireable attributes in a district court: patent specific rules, relatively speedy resolution, lower cost, firm trial dates, strict enforcement of discovery rules, judges with technical backgrounds and loads of trial experience, and a low reversal rate. These things don't sound like a problem to me. Indeed, these are things many other districts around the country are now trying to emulate by enacting their own patent rules, etc.

Finally, before I get off my stump, I really wonder whether anyone has bothered to think about the effect of a venue provision that would put the vast majority of patent cases in either California or Delaware. In my view, such a move would overburden the judges in those courts and drastically slow down their already slow dockets, thereby adding to the already high cost of patent litigation. As the saying goes, justice delayed is justice denied.

[anon]

Oh, Orion IP.. how busy David Pridham has been. Orion IP LLC, Polaris IP LLC, Constellation IP LLC, Intellectual Property Navigation Group...

Some guys get all the good patents.