By Christopher R. Liro and Aaron T. Olejniczak
In May 2017, the Supreme Court of the United States upended the 27-year-old venue standard for patent infringement lawsuits, narrowing where plaintiffs may file suit.[1] Will the current Supreme Court term drop an even bigger bombshell? The Inter Partes Review (“IPR”) proceeding, introduced in 2012 as part of the landmark America Invents Act (“AIA”), created a new administrative procedure to challenge patents outside of the court system. Last month, however, the Supreme Court heard arguments in a case that may hold IPRs unconstitutional.
TC Heartland Upends Venue Standards
On May 22, 2017, the Supreme Court issued its decision in TC Heartland LLC v. Kraft Foods Group Brands LLC, No. 16-361 (U.S.), reversing the Federal Circuit’s interpretation of the patent venue statute, 28 U.S.C. §1400(b), first announced in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574 (Fed. Cir. 1990).
The Federal Circuit’s 1990 Decision Allowed Nationwide Venue
Section 1400(b) provides: “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.” VE Holding interpreted “where the defendant resides” in light of the general venue statute, 28 U.S.C. §1391(c), providing that a defendant is deemed to reside “in any judicial district in which such defendant is subject to the court’s personal jurisdiction.” Since personal jurisdiction usually exists in any jurisdiction where accused products reached the stream of commerce, companies that offered products for sale nationwide also faced suit nationwide.
One result was the growth of certain federal district court jurisdictions, most notably the Eastern District of Texas, but also including the Western District of Wisconsin and others, which attracted plaintiffs who viewed the venues as relatively speedy (“rocket dockets”) or otherwise plaintiff-friendly. In 2016, for example, over one third of all patent cases filed in the U.S. were filed in the Eastern District of Texas. At the same time, VE Holding’s permissive venue standard allowed for the less controversial practice of patent plaintiffs filing in their home venue.
The Supreme Court’s 2017 Decision Significantly Narrows Venue
In TC Heartland, the Supreme Court held that “resides” as used in Section 1400(b) does not include any venue supporting personal jurisdiction. Rather, it held that earlier Supreme Court precedent limits “resides” to the defendant’s state of incorporation. (The Court pointed out that the decision only applied to domestic entities. Prior decisions suggest that foreign companies “reside” nationwide, though that issue is expected to face future litigation.) Thus, a domestic patent defendant can be sued in its state of incorporation, or “where the defendant has committed acts of infringement and has a regular and established place of business.” The Federal Circuit clarified the scope of the latter provision in In re Cray, No. 2017-129 (Fed. Cir. Sept. 21, 2017), holding that “(1) there must be a physical place in the district; (2) it must be a regular and established place of business; and (3) it must be the place of the defendant.” The Federal Circuit also clarified in November 2017 that TC Heartland constituted a change in the law such that the venue defense under TC Heartland was not previously “available” for purposes of assessing whether the defense had been waived. In re Micron Tech., Inc., No. 2017-138 (Fed. Cir. Nov. 15, 2017).
For most Wisconsin companies, the good news is that they most likely will no longer face the potential of a patent infringement lawsuit in Texas or other locations where they do not operate, with a big exception: Any company may be sued in its state of incorporation, regardless of the presence of business operations. Whether courts in popular states for incorporation such as Delaware are inclined to transfer such cases to other venues remains to be seen, but Delaware already requested judicial reinforcements from Pennsylvania in anticipation of increased patent infringement filings. In addition, certain companies with nationwide operations may still be sued nationwide under the second part of the venue statute, a point made by Steven E. Anderson, Vice President and General Counsel of Wisconsin’s Culver Franchising System, Inc., during his June 13, 2017 testimony to the U.S. House Subcommittee on Courts, Intellectual Property, and the Internet. Whether a plaintiff or defendant, all parties should take care not to waive venue defenses or file lawsuits that face certain dismissal.
Will Oil States Energy Kill the IPR?
On the heels of is TC Heartland decision, the Supreme Court made another big splash on June 12, 2017, when it granted certiorari in Oil States Energy Services v. Greene’s Energy Group, No. 16-712, on the question of “Whether inter partes review—an adversarial process used by the Patent and Trademark Office (PTO) to analyze the validity of existing patents—violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.” The Court heard arguments on November 27, 2017.
IPRs Have Changed the Patent Litigation Landscape
Since the first IPR petition was filed in September 2012, petitioners have filed over 7,000 IPR challenges to previously issued patents. Though similar to the earlier reexamination proceedings, which also allowed an entity to challenge the validity of an issued patent outside of the court system, the ability for more robust discovery and an expedited schedule (final decisions typically are issued within 18 months of when a petition is filed) have resulted in IPR filings exceeding what the PTO first expected.
One result of this is an impact on the number of cases filed in court and the treatment of cases that are filed. Over 80 percent of patents challenged in IPRs and the related Covered Business Method (“CBM”) procedure are also being litigated in the federal courts. When a court defendant files an IPR petition, the PTO usually institutes a proceeding. And in almost all cases the court will stay the litigation before or upon institution. IPR challenges, moreover, are generally successful—in many cases resulting in all challenged claims ruled invalid. While current trends suggest that IPRs may not be the “death squads” initially feared, the number of filings remains strong. In just a few short years, the IPR (and related CBM and Post-Grant Review (“PGR”) AIA proceedings) fundamentally changed how patents are litigated in the U.S.
The Supreme Court To Address Constitutionality
Now, several years in, the Supreme Court will decide the question of whether the IPR procedure is constitutional.
The challenge to the IPR statute is based on the premise that, once granted, a patent is a private right. As such, it can be extinguished, in accordance with Article III and the Seventh Amendment of the Constitution, only through a jury proceeding in the federal courts, and not through an administrative proceeding. The challenge relies, in part, on McCormick Harvesting Mach. Co. v. C. Aultman & Co., 169 U.S. 606, 608-09 (1898), which ruled that once a patent is granted, it “is not subject to be revoked or canceled by the president, or any other officer of the Government” because “[i]t has become the property of the patentee, and as such is entitled to the same legal protection as other property.”
The supporters of the statute, on the other hand, including the PTO, take the position that a patent is a public right, whose bounds are dictated by Congress. Under this view, Congress has the power to authorize an administrative agency such as the PTO to review granted patents and revoke such rights if improperly granted. The supporters see the McCormick decision not as stating an overarching constitutional limit, but merely explaining the statute in effect at the time.
To many observers, the certiorari grant comes as a surprise. The IPR proceeding itself is relatively new, but carries on the paradigm of a challenger requesting that the PTO invalidate claims of an issued patent introduced in reexaminations, first authorized by Congress in 1980. The Federal Circuit upheld the constitutionality of reexaminations, and the Supreme Court declined to review the question. The Federal Circuit first upheld the constitutionality of IPR proceedings in MCM Portfolio LLC v. Hewlett-Packard Co., 812 F.3d 1284 (Fed. Cir. 2015). The Supreme Court denied review in that case in 2016, as well as in two other cases also presenting constitutional challenges.
What Now?
Despite the fact that the Court previously declined to address constitutional challenges to both reexaminations and IPRs, many suspect that the Court would not have accepted this case unless at least some justices viewed the IPR proceeding as unconstitutional. And during the argument Justice Gorsuch and others voiced skepticism of the statutory scheme.
If the Supreme Court upholds the constitutionality of IPRs, there will be little to no change to the status quo. If, however, the Court rules IPRs unconstitutional, the impacts will be far reaching. First, IPRs themselves will come to a grinding halt. But if IPRs are unconstitutional, it should follow that PGRs, CBMs, and reexaminations are as well. What about interference proceedings (now replaced with derivation proceedings under the AIA), that can examine whether another inventor invented the subject matter of an issued patent? Will the ruling apply retroactively, such that patent claims previously ruled invalid in reexamination or IPRs are resurrected? Will such past rulings constitute takings that entitle patent owners to compensation from the government? Substantial uncertainty will exist until the Court decides the case, and potentially even after.
In November, Bill Adolfsen attended the annual HHS SBIR/STTR Conference in Milwaukee, WI. The conference is designed to educate attendees about the commercialization opportunities available through the U.S. Department of Health & Human Services’ Small Business Innovative Research (SBIR) and Small Business Technology Transfer (STTR) Programs.
Andrus was a sponsor of the Healthcare Innovation Pitch (HIP) at the Conference, which is designed as a “toned down” and more structured version of the ABC show “Shark Tank”, where healthcare entrepreneurs get the rare opportunity to pitch to a panel of venture capitalists and serial entrepreneurs from across the country. Winners included GenoPalate, PROMISS Diagnostics, and MedSync-Rx.
Ryann Beck recently served as a delegate representing the U.S. at the 2017 AIPPI World Congress held in Sydney, Australia. AIPPI (International Association for the Protection of Intellectual Property) is the world's leading international organization dedicated to the development and improvement of legal regimes for the protection of intellectual property. These annual meetings are meant to engage members in discussions to achieve consensus positions regarding IP issues in various jurisdictions.
Ryann Beck and her fellow delegates drafted a Resolution on Patentability of Computer Implemented Inventions, which discusses improving national laws on patentability of software claims, and a Resolution on IP Protection of GUIs, which discusses the types of IP protection that should be available for graphical user interfaces.
We are pleased to announce that Aaron Olejniczak, Pete Holsen and George Solveson have been selected to the 2017 Wisconsin Super Lawyers list and Ryann Beck was named a Rising Star in the State of Wisconsin. This is an exclusive list, recognizing no more than five percent of attorneys in the state.
Andrus attorneys Mike Taken, Ed Williams, Joe Kuborn, Aaron Olejniczak and George Solveson were selected by their peers for inclusion in The Best Lawyers in America 2018 and Andrus Intellectual Property Law was ranked as a "Tier 1" patent litigation law firm in the Milwaukee metropolitan area.
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