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My Company Can be Sued Where?: Supreme Court Resolves Some Questions of Where Businesses May Be Sued for Patent Infringement but Leaves Others Unsettled

By Robert Joseph Morris and Irina Oberman Khagi
08.28.2017

After a long period in which the U.S. Supreme Court considered intellectual property issues only occasionally, the Court has frequently focused on intellectual property matters in recent years, reflecting the increasing significance of data, technology, and innovation in the 21st century American economy.  This trend continued in the Supreme Court term that concluded earlier this summer, as the Court handed down a number of intellectual property decisions that affect agricultural and agtech businesses everywhere.  In one of those decisions involving two food technology companies, T.C. Heartland LLC v. Kraft Foods Group Brands LLC, the Court gave much-needed clarification about where companies may be sued for patent infringement.  The decision provides businesses with increased protection against being forced to defend infringement suits in inconvenient and sometimes unfavorable courts located far from their headquarters, but it leaves an important aspect of the issue unresolved.  

For patent infringement cases, the federal district court in which suit may be filed is governed by the patent venue statute, 28 U.S.C. § 1400.  That statute is two-pronged, and it provides that a patent infringement case may be filed in any district (1) where the defendant “resides” or (2) where the defendant infringes and has “a regular and established place of business.”  For an American agriculture or agtech company, one might assume this would mean that it could face an infringement suit only near its headquarters – for example, somewhere in the Midwest, or North Carolina’s Research Triangle Park, or perhaps Silicon Valley – but that has not always been the case.

Prior to T.C. Heartland, federal courts interpreted the term “resides” to mean, generally, that a company could be sued for patent infringement in any judicial district where the business manufactured, sold, or shipped allegedly infringing products.  Essentially, if a company ever sold a bag of allegedly infringing seed or crop protection product in a particular state, it could be sued for patent infringement there.  Companies thus often found themselves being forced to defend against infringement claims in an unfamiliar court that a patent holder had selected because of its inconvenience to the company or because of the court’s reputation as a favorable forum for plaintiffs.  This state of affairs was especially advantageous to so-called “patent trolls” – entities in the business of acquiring patents for the purpose of leveraging them to extract licensing revenue – who utilized the broad interpretation of “resides” to file patent infringement suits in a handful of courts considered to be particularly favorable for patent holders. 

In T.C. Heartland, the Supreme Court reined in this practice by holding that a business “resides” only in its state of incorporation.  Because it is not uncommon for a company to be incorporated in a state other than where it maintains its offices, this ruling does not guarantee that a company can be required to defend an infringement action only where it has its headquarters.  But the decision does substantially narrow the places where a business “resides” for purposes of patent infringement suits, so it gives businesses increased protection against being dragged into a distant court for patent infringement litigation simply because it sells its allegedly infringing product there. 

The business community has greeted T.C. Heartland enthusiastically.  However, astute observers have noted that the decision did not settle the matter fully, because it was silent regarding the other prong of the patent venue statute, which permits suit where a defendant infringes and has a “regular and established place of business” – a phrase that now will become the focus of venue disputes in patent infringement cases. 

Determining an agricultural or agtech business’s “regular and established place of business” can be a difficult exercise, especially with the rapid development of new business models in the industry.  For example, a provider of cloud-based analytical services for growers may have to defend a patent infringement suit in a district where it maintains a server farm or a customer service call center, even though it makes no sales in the district and maintains its headquarters elsewhere.  Other ag businesses face uncertainties, too.  When a precision agriculture company appoints an authorized distributor, dealer, or repair provider for its drone products, will each of their locations be considered a “regular and established place of business” for the drone manufacturer?  Will a grower who accesses the market through a virtual supply chain create a “regular and established place of business” with each link in the chain, however temporary?  Will a trait provider establish a “regular and established place of business” by entering into a research collaboration with a seed company who sells its elite varieties throughout the United States?

It has been some time since courts have examined what constitutes a “regular and established place of business.”  One factor previously used to analyze this question is whether the business maintains a permanent physical location from which sales are made in the district.  Another factor that has been consulted is whether the business pays for the office of a sales representative and is listed by name in the building directory.  Of course, in today’s rapidly-evolving agricultural and agtech industries, these factors may have limited relevance. 

Overall, T.C. Heartland provides agricultural and agtech businesses with increased certainty as to where they might expect to face a suit for patent infringement.  However, the decision leaves open key questions about how the “regular and established place of business” portion of the patent venue statute will be applied.  Agricultural and agtech businesses should be on the lookout for an increase in litigation concerning this prong of the venue statute in the wake of T.C. Heartland, and they should monitor their relationships with their partners, distribution chain, and contractors accordingly. 

Media Information

Jamie Greene
jgreene@smithlaw.com
T: 919.838.2045

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