Giving Defendants a Second Chance: Failure to Assert Improper Venue Prior to TC Heartland is Not a Waiver Under the Federal Rules
In its May 2017 decision in TC Heartland LLC v. Kraft Foods Group Brands, LLC, 137 S.Ct. 1514 (2017), the Supreme Court shocked the patent world by restricting the range of permissible venues in patent infringement cases for domestic corporations. (See our prior posts, here and here). The Federal Circuit has now found – in its seemingly obvious and “common sense” conclusion in In re Micron Technology, Inc., Case 2017-138 (Fed. Cir. November 15, 2017) – that TC Heartland “changed the controlling law.” The Federal Circuit’s decision resolves a pronounced split among district courts and, importantly, means that a defendant who failed to assert improper venue when filing a motion to dismiss before May 2017 did not necessarily waive the defense under the federal rules and therefore may seek transfer to an alternative jurisdiction where venue is proper under TC Heartland.
Before the Federal Circuit’s decision, district courts were split as to whether TC Heartland actually represented an intervening change in the law on venue because the Supreme Court suggested in TC Heartland that it was merely reaffirming its 60-year old holding in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957). In both Fourco Glass and TC Heartland, the Supreme Court held that, for purposes of patent venue, a US company resides only in its state of incorporation. But in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), the Federal Circuit broadened this interpretation in view of certain statutory amendments, finding that a US company resides in any judicial district having personal jurisdiction over the company. Hence the question: Did TC Heartland change the law or not?
Courts holding that TC Heartland did not change the law on venue include those in Delaware, California (Northern and Central District), Illinois (Northern District), Massachusetts, Mississippi (Southern District), Oregon, Texas (Eastern, Northern and Southern District), and Virginia (Eastern District). Courts holding that TC Heartland did change the law on venue include those in Arizona, Georgia (Northern District), Minnesota, Nevada, North Carolina (Western District), Tennessee (Eastern District), Virginia (Western District), and Washington (Western District).
In Micron, the Federal Circuit finds that TC Heartland “clearly (if not quite expressly)” overruled VE Holding, and reminds the district courts that:
[c]ircuit-court precedent is binding on district courts notwithstanding the mere possibility that the Supreme Court might come to disapprove that precedent.
The Court then provides an analysis of the rules regarding waiver of a venue defense as set forth in the Federal Rules of Civil Procedure 12(h)(1)(A) and 12(g)(2). Under these rules, the issue is whether the venue defense provided by TC Heartland was “available” to the defendant when it made an initial motion to dismiss. The Federal Circuit concludes as a matter of law that the venue defense was not available before the TC Heartland decision, because VE Holding was controlling precedent under which such arguments would have been improper. The mere failure of a defendant to raise the defense prior to TC Heartland therefore does not constitute a waiver under the federal rules.
In the case at hand, Micron moved to dismiss or transfer on the grounds that venue was improper under TC Heartland. The District Court of Massachusetts denied Micron’s motion, finding that it had waived the defense when – prior to the TC Heartland decision – Micron filed an initial motion to dismiss on other grounds. The district court, however, did not address the venue arguments on their merits. The Federal Circuit therefore vacated the order and remanded so that the district court could consider the merits as well as any other potential bases to deny transfer – for example, because of delay in bringing the motion or acquiescence to venue.
The Federal Circuit’s decision should facilitate the transfer of pending cases – previously stuck in limbo after TC Heartland – that are improperly located under the new venue rules. However, that number is decreasing as those cases are resolved. In addition, the Federal Circuit emphasizes that district courts may exercise discretion in deciding motions to dismiss for improper venue, pointing to the stated purpose of the Federal Rules of Civil Procedure “to secure the just, speedy, and inexpensive determination of every action and proceeding” and to the inherent powers of the courts to manage their own affairs.
Accordingly, this decision may stand primarily as a reminder that Federal Circuit authority is binding – unless and until the Supreme Court overturns it.