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IP Alert: Delaware District Court Sets New Venue Guidelines in the Aftermath of TC Heartland

September 25, 2017

On September 11, 2017, Leonard Stark, the Chief Judge of the District of Delaware, issued two opinions that provide guidance regarding the applicability of the patent venue statute, 28 U.S.C. § 1400(b), in the aftermath of the Supreme Court’s decision in TC Heartland. The patent venue statute permits patent infringement suits to 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.” In cases brought by Boston Scientific Corp. and Bristol-Myers Squibb Co., Judge Stark wrote that a company has a “regular and established place of business” in Delaware if it does business “through a permanent and continuous presence there.” The court held that while a company need not have a formal office or store in Delaware, some physical presence is required. 

In the first of the two opinions, Boston Scientific Corp. et al. v. Cook Group Inc. et al., defendant Cook, an Indiana corporation, is a competitor of plaintiff Boston Scientific in the endoscopic hemostatic clip market. In response to Boston Scientific’s lawsuit alleging that defendant infringed three of its patents, Cook filed a motion alleging improper venue. In analyzing defendant’s motion, the court addressed two main disputes: (1) Did the defendant waive its venue objection, and (2) did the defendant have “a regular and established place of business” in Delaware. 

In regard to the first dispute, there was no question that Cook failed to previously raise the venue defense, but Cook alleged that this failure was excusable. “The question before the [c]ourt is whether the Supreme Court’s decision in TC Heartland qualifies as an intervening change in the controlling law, so as to create an exception to the rule of waiver.” The court answered this question in the affirmative, noting that the Supreme Court’s decision in TC Heartland (1) decided for the first time that the amendments to § 1391, which were adopted in 1988 and 2011, did not change the meaning of § 1400(b); and (2) overruled the Federal Circuit’s 1990 decision in VE Holding Corp. v. Johnson Gas Appliance Co., which controlled patent venue law for the 27 years leading up to TC Heartland. Based on this, the court held that “TC Heartland changed the venue landscape, and the [c]ourt will not require defendants to have foreseen this change in order to preserve a venue challenge.” While noting that a number of opinions have fallen on both sides of the fence, the court concluded that "TC Heartland did effect an intervening change in the law, creating an exception to the general rule of waiver.”  

Turning to the merits of Cook’s venue challenge, the court first observed that venue could not lie under the first prong of § 1400(b) because Cook did not “reside” in Delaware. The court then evaluated whether Cook has “a regular and established place of business in Delaware.” The court observed that Cook has no facilities, corporate offices, or employees in Delaware. Also, although Cook sells products in Delaware and has sales representatives who visit Delaware customers, these sales representatives do not live in the state. The court therefore determined that venue was not proper over Cook. In reaching its decision, the court relied heavily on an earlier Federal Circuit decision, In re Cordis, saying it "understands Cordis to mean that while no fixed space in the sense of a formal office or store is necessary, some physical presence is nevertheless required.” So if a company is only “registered to do business here, or only maintains a website that is accessible in Delaware, or simply ships goods to unaffiliated individuals or third-party entities here, then this District is an improper venue for the lawsuit.” Because Cook did not appear to have a presence in Delaware, let alone a permanent and continuous one, the court determined the defendants had met their burden to demonstrate that venue was improper and granted Cook’s motion to transfer. 

In the second opinion issued by Judge Stark, Bristol-Myers Squibb Co. et al. v. Mylan Pharm. Inc., Bristol-Myers Squibb alleged that Mylan Pharmaceuticals Inc.’s planned generic version of the blood thinner Eliquis infringes its patents. This lawsuit is a Hatch-Waxman lawsuit, wherein the filing of an Abbreviated New Drug Application (ANDA) constitutes an act of infringement under 35 U.S.C. § 271(e)(2) even when the defendant has not yet physically manufactured or sold any drug products. Mylan moved to dismiss for improper venue. 

The court noted that the issue of whether a defendant in a Hatch-Waxman case “has committed acts of infringement” under the patent venue provision is one of first impression. After conducting a thorough analysis of the statutory language in 28 U.S.C § 1400(b) and 35 U.S.C § 271(e)(2), the court held that it must consider “future” acts of the defendants when evaluating the “acts of infringement” that the ANDA filer will commit. Accordingly, the court held that because Mylan’s “ANDA filings and its distribution channels establish that [Mylan] plans to market its proposed drugs in Delaware . . . this [c]ourt considers [Mylan’s] ANDA submission to be an ‘act of infringement’ that ‘has [been] committed’ in Delaware for purposes of application of § 1400(b).”   

Moving to the second prong of § 1400(b), the court followed the same guidelines as discussed above in Boston Scientific. The court noted that Mylan’s “business model is in large part predicated upon participating in a large amount of litigation” challenging the validity of patents on drugs of which it makes generic versions. The court also noted that much of that litigation takes place in the District of Delaware, stating, “In the court’s view, this business reality is a pertinent consideration in assessing whether [Mylan] has a regular and established place of business in Delaware. The fact is that a great deal of activity that appears to be key to [Mylan’s] business does occur—regularly, in an established manner, continuously and seeming permanently—in this District.”

That being said, the court held that it could not say "that [Mylan] does not have a regular and established place of business in Delaware” and therefore could not make a final decision on venue until Bristol-Myers Squibb was allowed to take discovery on how the generic drug industry operates and the activities of Mylan’s sales representatives. Accordingly, the court denied Mylan’s motion without prejudice.

These cases provide insight and guidance regarding how district courts are likely to analyze the patent venue statute in the aftermath of the Supreme Court’s ruling in TC Heartland. As evidenced by these two cases, district courts, particularly in Delaware, are going to require that the defendants have some physical presence in the district. 

For more information about these decisions, please contact Fitch Even partner Eric L. Broxterman, author of this alert.

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