Congressman Nadler Statement in Hearing on Supreme Court Decision in TC Heartland v. Kraft Foods Group Brands

Jun 13, 2017 Issues: Civil Liberties, Jobs, Labor and the Economy

WASHINGTON, D.C. -- Congressman Jerrold Nadler (D-NY), Ranking Member of the House Judiciary Subcommittee on Courts, Intellectual Property and the Internet, delivered the following statement in today's Subcommittee hearing on Supreme Court’s recent decision in the TC Heartland LLC v. Kraft Foods Group Brands LLC case.

The full statement follows below:

“Mr. Chairman, today we consider the Supreme Court’s recent decision in TC Heartland LLC v. Kraft Foods Group Brands LLC, a case which significantly narrowed the venue statute governing patent infringement cases.  We are not here to question the Court’s analysis, but rather to examine the impact this case may have on patent litigation, and on broader efforts to curb abusive lawsuits.

“TC Heartland involved the relatively arcane subject of venue in patent infringement cases, but its potential impact on innovation, and on economic growth, should not be underestimated.  If, as many people expect, it limits the flood of abusive patent litigation, it could enable businesses across the country to focus their resources on developing the next great invention, rather than on defending against the next costly frivolous lawsuit.

“The issue in TC Heartland was how to define where a corporation is deemed to ‘reside’ and, therefore, where venue is proper in patent infringement cases.  In 1957, in Fourco Glass Co. v. Transmirra Products Corp, the Supreme Court held that, under this statute, a corporation resides only in its State of incorporation.  That was the law until 1990, when the Court of Appeals for the Federal Circuit, in VE Holding Corp. v. Johnson Gas Appliance Co., ruled that the definition of corporate residence contained in the general venue statute, which governs most civil litigation, applied to patent cases as well.

“Under that definition, a corporate defendant resides any place in which it is subject to a court’s personal jurisdiction for that case.  In practice, as applied to patent cases, this meant that every business with goods that entered the stream of commerce could be sued in nearly any jurisdiction.  The VE Holding decision had a dramatic effect on patent litigation, and led to significant forum shopping by plaintiffs seeking friendly jurisdictions for their claims.

“Most notably, the Eastern District of Texas has developed a cottage industry of patent litigation, with more than a third of all patent cases between 2014 and 2016 filed in just that one district, despite having no natural connection to patent-intensive industries.  Many of these cases are filed by entities that are often referred to as ‘patent trolls,’ who use the courts as a weapon to extract settlements from innocent defendants.  In many of those cases, it does not make financial sense for a defendant to expend the resources necessary to litigate a claim all the way to trial, and it is willing to settle even a spurious claim.

“Many defenders of the Eastern District argue that it is a popular forum, not because of any bias towards plaintiffs, but because its judges have developed expertise in the complex and technical field of patent litigation, and because they administer cases efficiently, and in a less costly manner than elsewhere.  Critics, however, argue that judges in the Eastern District are slow to act on motions to transfer venue, and that summary judgment motions are denied at nearly twice the rate of other courts, all of which puts pressure on litigants to settle, which is, of course, the desired outcome for a patent troll.

“The Supreme Court’s decision in TC Heartland made no mention of the Eastern District of Texas, or of the larger debate regarding abusive patent litigation.  The Court simply reaffirmed the analysis behind the Fourco decision, and held once again that, in patent infringement cases, corporations reside only in their State of incorporation, severely limiting where venue is proper.  But, whether or not the Court had the current policy debate in mind, many people believe that its decision will go a long way toward curbing the abuses we have seen in recent years in so-called patent troll litigation.

“On the other hand, other observers think that the decision will only make a marginal difference, and that instead of concentrating cases in the Eastern District of Texas, we will simply see those cases migrate to Delaware and the Northern District of California.  Although, it should be noted, that neither jurisdiction is known to be particularly welcoming to abusive litigation.

“More concerning is the possibility that patent trolls will simply adapt their tactics in light of the decision, by shifting their focus to the second part of the patent venue statute, which finds proper venue ‘where the defendant has committed acts of infringement and has a regular and established place of business.’  If so, large retailers, and others with a national physical presence may continue to find themselves sued in any plaintiff-friendly jurisdiction where they have a location, such as the Eastern District of Texas. Courts have held that physical presence is not even required to satisfy this test, and this could spur much litigation to find the boundaries of what constitutes a regular and established place of business.  New defendants may also be targeted based solely on their presence in plaintiff-friendly jurisdictions.

“Before we move forward with further efforts to curb abusive patent litigation, it will be important to understand the impact of TC Heartland.  Will it be a panacea that puts patent trolls out of business?  Will it simply force them to adjust their practices as they continue business as usual?  Or does the answer lie somewhere in between?

“TC Heartland was decided just three weeks ago, and the ink is barely dry on the opinion, which may make it difficult to reach any solid conclusions today, but I hope our witnesses will help us think through some of the many questions this decision has raised.  I look forward to their testimony, and I yield back the balance of my time.”