A new Supreme Court decision is not free license to transfer patent cases.
A recent patent ruling from the United States Supreme Court is already making waves in the Eastern District of Virginia.
Federal Circuit precedent has previously allowed a plaintiff alleging patent infringement to file suit wherever the alleged infringer sells the relevant good. However in May 2017, the Supreme Court held that “a domestic corporation ‘resides’ only in its state of incorporation for purposes of the patent venue statute.” See TC Heartland LLC v. Kraft Foods Grp. Brands LLC.
This ruling indicated that with regard to patent suits, personal jurisdiction over a defendant is insufficient, by itself, to satisfy venue requirements – narrowing the possible venues in which accused infringers may be required to defend themselves. Already, the Eastern District of Virginia has applied this ruling and in so doing expounded that procedural rules reign supreme and that this “new” law is not really new at all.
Cobalt Boats, LLC (“Cobalt”) filed suit in the Eastern District of Virginia against Sea Ray Boats, Inc. (“Sea Ray”) and its parent organization Brunswick Corp. (“Brunswick”), alleging infringement of Cobalt’s patented “retractable swim step” that assists boaters getting into and out of the water. After the Supreme Court issued its decision in TC Heartland on May 22, Sea Ray moved to transfer venue on May 30, two weeks before the scheduled trial date.
When Cobalt initially filed the case, venue in the Eastern District was seemingly proper since Sea Ray and Brunswick transacted business there. However, Brunswick is headquartered in the Eastern District of Tennessee and has “no facilities, offices, or employees in this District.” Additionally, while Brunswick has 82 authorized dealers across North America, only two are located in the district, both of which are independently owned and operated. Similarly, Sea Ray does not manufacture, market, or sell any of the relevant products in the Eastern District and has no employees in Virginia.
In their Answer to the Amended Complaint, Brunswick stated it “does not contest [that] venue is proper within this judicial district, but [it] denies that this district is the most convenient forum for Cobalt’s action,” and Sea Ray stated that it “contests that venue is proper within this judicial district.” Sea Ray and Brunswick filed a Motion to Transfer Venue in 2015, which was denied.
The Court addressed the May 30, 2017, motion to transfer venue separately for Brunswick and Sea Ray. In denying Brunswick’s motion to transfer venue, the court held that Brunswick had already waived its rights to challenge venue—it had not previously raised any objections to venue and was not entitled to an intervening law exception to its waiver of venue. As to Sea Ray, the Court found even though it raised a venue defense in its answer, it never sufficiently objected because it never raised the issue again through more than two years of litigation.
While the Court’s rulings as to sufficiently objecting to venue are not surprising, the reasoning as to the inapplicability of the intervening law exception is worth a closer look. In the Fourth Circuit, there is an established exception to waiver “when there has been an intervening change in the law recognizing an issue that was not previously available.” See Holland v. Big River Minerals Corp. Sea Ray and Brunswick contended that the Supreme Court’s ruling in TC Heartland provided previously unavailable law sufficient to support the exception to their prior waiver of venue. The Eastern District felt differently.
The Eastern District reasoned that although the TC Heartland decision clarified Federal Circuit precedent, it was not new law as it simply affirmed a 1957 case, Fourco Glass Co. v. Transmirra Productions Corp. In Fourco, the Supreme Court held that a domestic corporation resides in its state of incorporation, a finding echoed in the TC Heartland opinions. In hopes of distinguishing Fourco, both Sea Ray and Brunswick relied on a 1990 Federal Circuit decision, VE Holding Corp. v. Johnson Gas Appliance Co. That case found that amendments to the general venue statute, 28 U.S.C. § 1391(c), rendered Fourco inapplicable.
However, the Eastern District disagreed with this interpretation, finding that Fourco was never overruled by the Supreme Court and has remained good law since its initial decision in 1957. Additionally, the Eastern District noted Federal Circuit law cannot take precedence over law established by the U.S. Supreme Court and therefore it was bound by the holding in Fourco. Thus, the Eastern District found that TC Heartland was not the type of new, law-changing decision that would support applicability of the intervening law exception so as to allow Sea Ray and Brunswick to get around their prior waiver of challenging venue.
In practice, TC Heartland and Cobalt restrict the appropriate venues for patent infringement suits. While plaintiffs should be aware of these restrictions, those accused of infringement should be even more diligent as to making timely and sufficient objections where venue is improper.
If you have questions about TC Heartland or Cobalt, or how to best protect your patent rights generally, we are here to help.