05.19.18

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A Year After TC Heartland the Patent Microcosm is Trying to ‘Dilute’ This Supreme Court’s Decision or Work Around It

Posted in America, Courtroom, Law, Patents at 6:38 am by Dr. Roy Schestowitz

Microsoft and IBM would certainly want a patent litigation resurgence and so would their lawyers

Downtown Dallas
Downtown Dallas, Texas

Summary: IAM, Patent Docs, Managing IP and Patently-O want more litigation (especially somewhere like the Eastern District of Texas), so in an effort to twist TC Heartland they latch onto ZTE and BigCommerce cases

THE TC Heartland decision — an historic and important Supreme Court decision — has had a profound effect on enforcement of patents granted by the USPTO; it became a lot harder to reach plaintiff-friendly courts. This meant that, overall, it became even harder to enforce questionable patents, such as software patents.

“Bearing in mind the limitation in terms of diversity of sources/views (IAM, Patent Docs, Managing IP and Patently-O are all cornerstones of patent maximalism), we still decided to cover it here.”The past week has been relatively quiet on the patent front and it can be seen as a positive thing because the patent microcosm is coming to grips with the demise of patent maximalism. Patents that are on abstract ideas, for example, lost their teeth. Notably software patents, which we shall remark on later this weekend.

Of relevance to TC Heartland, more so on its one-year anniversary, were a couple of new cases. These received coverage from sites of patent maximalists (unfortunately the mainstream media does not cover patent news unless it can name-drop “Apple” or something like that… which helps ‘sell’ the story). Bearing in mind the limitation in terms of diversity of sources/views (IAM, Patent Docs, Managing IP and Patently-O are all cornerstones of patent maximalism), we still decided to cover it here. We wish to highlight what they are doing; they’re slanting it in their favour.

The one-year anniversary was noted by IAM just before the weekend. Its main proponent of software patents and patent trolls decided to spin it as “East Texas adjusts” (whatever that means, the numbers speak for themselves). To quote the summary outside the stubborn paywall: “As if prompted by the looming first birthday of the TC Heartland decision, in the last ten days the Court of Appeals for the Federal Circuit has issued a flurry of opinions filling in many of the gaps left unanswered by the Supreme Court’s landmark ruling on patent venue. Those recent decisions have largely placed further bounds on patent owners in determining where they can bring a suit. At the start of this week the court issued its decision in In re: ZTE ruling that the burden of proof with regards to venue lies with the patent owner, not the defendant.”

This is what we shall cover here, unfortunately based on sites like IAM (the patent microcosm dominates coverage on this subject).

As last noted a couple of days ago in Patently-O, patent law actively discriminates against foreign firms. As they aren’t primarily based in the US there’s this assumption that they can be dragged into just about any court, even the more/most notorious ones. This isn’t really fair. They paid the same application/maintenance fees as US (domestic) firms.

After TC Heartland, moreover, there’s still this discussion about where a company can sue another company using patents (they prefer dragging the accused to notorious, plaintiff-friendly courts, notably the Eastern District of Texas). Several days ago Andrew Williams (Patent Docs) wrote about In re ZTE:

The Federal Circuit next analyzed the question of which party bears the burden. Interestingly, the Court could not find a case in which the issue had been addressed in its 37-year history. However, prior to the formation of the Federal Circuit, the regional circuits handled challenges to venue in patent cases by placing the burden on Plaintiffs. Even though this precedent might not have been binding on the Court, it was persuasive. Moreover, the Court noted that the restrictive nature of the patent-specific venue statute (as opposed to the more general venue statute of § 1391) supports placing the burden on the Plaintiff. Correspondingly, the Court held that “as a matter of Federal Circuit law, that upon motion by the Defendant challenging venue in a patent case, the Plaintiff bears the burden of establishing proper venue.”

This was highlighted not only by Williams but also Kevin E. Noonan, who 70 minutes later wrote about In re BigCommerce, Inc. “This is a considerable restriction on the already limited venue options open to plaintiffs, which limited proper venue to states where the defendant resides (its state of incorporation),” Noonan opined. From his post:

This is a considerable restriction on the already limited venue options open to plaintiffs, which limited proper venue to states where the defendant resides (its state of incorporation) or “where the defendant has committed acts of infringement and has a regular and established place of business.”

The case arose in the Eastern District of Texas, Marshall Division, where respondents Diem LLC and Express Mobile Inc. individually filed patent infringement suits against BigCommerce. BigCommerce filed a motion to dismiss for improper venue in the Diem case, and a motion to transfer in the Express Mobile case; each of these motions was denied by the District Court. As noted in the Federal Circuit’s Order, “[i]t is undisputed that BigCommerce has no place of business in the Eastern District of Texas” (rather, its registered office and headquarters is in Austin, which is in the Western District of Texas). Nevertheless, the Diem court ruled that “a domestic corporation resides in the state of its incorporation and if that state contains more than one judicial district, the corporate defendant resides in each such judicial district for venue purposes” and the Express Mobile court found nothing in plaintiff’s argument that distinguished this reasoning.

[...]

The Court’s Order also reviewed and rejected three arguments from respondents. The first was that the use of “resides” in earlier Supreme Court cases (including Stonite) is in tension with later Supreme Court cases (including Fourco). The Federal Circuit rejected this argument almost out of hand, saying that the Court did not address the issue in Fourco at the judicial district level of granularity, “and set a necessary but not necessarily sufficient condition for corporate residence for venue under § 1400(b)” (emphasis in order). The second argument, that modern business circumstances counseled a “more flexib[le]” approach was “a non-starter,” the panel stating that “‘[t]he requirement of venue is specific and unambiguous; it is not one of those vague principles which, in the interest of some overriding policy, is to be given a ‘liberal’ construction,” quoting Olberding v. Ill. Cent. R.R. Co., 346 U.S. 338, 340 (1953), as cited in Schnell v. Peter Eckrich & Sons, Inc., 365 U.S. 260, 264 (1961), and saying that “[s]uch policy-based arguments are best directed to Congress.” Finally, the order addresses the question generally regarding how venue should be properly decided in multi-judicial district states. First, the proper district for venue would be the district in which the defendant has a principal place of business (if there is such a place in the state), citing Galveston, H. & S.A. Ry. Co. v. Gonzales, 151 U.S. 496, 504 (1894). And the Court noted that a “principal place of business” is not the same as “a regular and established place of business” as required by other aspects of the statute, the order citing Hertz Corp. v. Friend, 559 U.S. 77, 93 (2010). In the absence of a “principal place of business” in a state in which a defendant is incorporated, the “default’ should be the judicial district in which the corporation has its registered office or agent, calling this a “universally recognized foundational requirement of corporate formation.”

Managing IP‘s Michael Loney wrote about BigCommerce as follows, in conjunction with that other (aforementioned) case:

The plaintiff bears the burden of proving venue in patent cases and venue is only proper for a corporation registered in a multiple district-state in the district where it has its principal place of business, the Federal Circuit ruled in ZTE and BigCommerce

The Federal Circuit has granted two petitions for writ of mandamus that shed light on patent venue post-TC Heartland.

At Patently-O, BigCommerce was mentioned by Dennis Crouch, who said:

The same panel that recently decided In re ZTE (Fed. Cir. May 14, 2018) (Judges Reyna, Linn, and Hughes) have now also decided another improper venue mandamus action: In re BigCommerce, Inc. (Fed. Cir. May 15, 2018).

BigCommerce focuses on the issue of proper venue in multi-district states. The potential confusion comes from the Supreme Court’s central holding in TC Heartland that “a domestic corporation ‘resides’ only in its State of incorporation for purposes of the patent venue statute.” BigCommerce is a Texas Company, but its HQ is in Austin (E.D.Texas) and argues that the Supreme Court’s statement was incomplete. Now, on mandamus, the Federal Circuit has sided with BigCommerce — holding that the rule is more nuanced for multi-venue states.

[...]

The Federal Circuit’s decision here has to be correct, and the only difficulty is the loose Supreme Court wording in TC Heartland.

This is the job of lawyers; they try to twist the law or to cherry-pick decisions, (mis)interpreting them to mean whatever the client (i.e. money) wants. In this case, the Supreme Court’s wordings are being ‘artistically’ (to put it politely) interpreted to make life harder for defendants.

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