END OF AN ERA FOR TEXAS? SUPREME COURT RULES ON PATENT VENUE

Today, in the long-awaited case of TC Heartland v. Kraft Foods Group Brands, the US Supreme Court unanimously determined where a   domestic corporation “resides” for purposes of establishing proper venue in patent cases.  In short, a domestic corporation “resides” only in its State of incorporation. 

Why is this relevant? And will this have any effect on patent infringement cases going forward?

For years, if it could be shown that a company was subject to personal jurisdiction in that district, then it “resided” in that district and venue was proper.  As such, many plaintiffs brought cases in pro-plaintiff jurisdictions, like Marshall, TX, even though defendants’ principal places of business were elsewhere. 

Going forward, in patent infringement lawsuits, there will be two choices to bring cases: (1) where the US defendant is incorporated or (2) where “the [US] defendant has committed acts of infringement and has a regular and established place of business.” 28 U.S.C.§ 1400(b)(emphasis added).  The focus may now shift to where companies have their “regular and established place of business.”  States, like Delaware (where many companies are incorporated) or California and New York (where companies have established businesses), could become the new forums of choice.

AAA Trap: What Rules Apply?

It’s not uncommon for companies to use an arbitration provision in their contracts to resolve disputes as an attempt to control costs. Many cite to the pending rules of the American Arbitration Association or AAA. Depending on whether your case is a “Large, Complex” case (i.e., your claims are at least $500,000), you might not have as much structure as you may desire to govern the handling of your dispute, thereby causing uncertainty and potentially driving up the cost. In the case of Large, Complex matters, the arbiter is granted more deference in establishing the discovery to be exchanged and depositions to be conducted.  In smaller matters, however, there is an argument that the arbiter does not have as much discretion.  More importantly, nowhere does it mention what procedural rules and limitations apply. For example, how many interrogatories or depositions will be permitted? What is reasonable notice for a deposition to occur? Normally, applicable state or federal rules of civil procedure  would provide a framework to answer these questions.  However, they don’t necessarily apply in arbitration unless specifically called out in the arbitration provision. This uncertainty can cause disputes between the parties, thereby driving up the cost.  Depending on which side of the dispute your company is on, you may or may not want to have extensive discovery to assist you with your case.  So, if you want more certainty, make sure to spell out what rules of civil procedure should apply in the event of arbitration.