Retail and Consumer Products Law Roundup

Data Breach Lawsuits Continue to Fill the Courts

By Jesse M. Brody, Partner, Advertising, Marketing and Media

Data breach litigation continues to fill the courts in all stages, with a new class action filed against Tempur Sealy International and the dismissal of a suit against Barnes & Noble.

In the new action, New York resident Michelle Provost claims that Tempur Sealy (and Aptos Inc., the company’s website host) failed to appropriately safeguard customers’ personal information. The defendants’ poor data security practices and decision not to abide by best practices and industry standards resulted in a February 2016 breach that compromised sensitive consumer data, including names, addresses, email addresses, telephone numbers, and payment card account numbers and expiration dates, the plaintiff alleged.

“Defendants allowed widespread and systematic theft of their customers’ personal information,” according to the complaint. “Defendants’ actions did not come close to meeting the standards of commercially reasonable steps that should be taken to protect customers’ personal information.”

The defendants also waited too long to disclose the extent of the breach and notify affected consumers in a timely manner, Provost claimed. She used her debit card to make two purchases from the Tempur Sealy website in 2016, but when she reviewed her bank statements after being notified of the breach, she found at least one fraudulent charge that was incurred after the hack occurred.

Aptos became aware of the breach in November 2016 but held off informing Tempur Sealy until February 2017 (upon the instructions of law enforcement). Tempur Sealy didn’t give its customers a heads-up until April 2017, and neither defendant has yet to disclose the full extent of the breach, Provost added.

Asserting claims against the defendants for violations of state consumer protection statutes, state data breach statutes, negligence, breach of implied contract and unjust enrichment, the action seeks to recover actual and statutory damages as well as injunctive relief to prevent another breach, including an order requiring the defendants to implement and maintain adequate security measures.

In a separate action, Barnes & Noble was able to dodge consolidated litigation based on similar claims after hackers stole customer credit and debit information from PIN pad terminals in 63 stores in nine states in September 2012. The court dismissed the first two complaints for lack of standing and failure to plead a viable claim, respectively.

The plaintiffs’ third effort was not the charm, despite the fact that they dropped some claims and added factual allegations about their injuries, namely that one had her bank account put on hold, had to spend time with police and bank employees sorting out her financial affairs, lost the value of her personally identifiable information (PII), and suffered emotional distress because she had to renew her credit monitoring service to protect against future fraud.

But U.S. District Court Judge Andrea R. Wood was not persuaded that the updated complaint alleged economic or out-of-pocket damages caused by the data breach, as required by the breach of contract, Illinois Consumer Fraud and Deceptive Business Practices Act, and California Unfair Competition Act claims.

“Plaintiffs’ alleged injuries as to the value of their PII, their time spent with bank and police employees, and any emotional distress they might have suffered are not injuries sufficient to state a claim,” the court said. “In a similar vein, Plaintiffs’ temporary inability to use their bank accounts is also insufficient to state a claim—the temporary inability to use a bank account is not a monetary injury in itself, and Plaintiffs have not set forth any allegations about how they suffered monetary injury due to the inconvenience of not being able to access their accounts.”

Cellphone minutes lost speaking to bank employees were a de minimis cost and too attenuated from Barnes & Noble’s conduct to qualify as a redressable injury, the court added. As for the plaintiff’s renewal of her credit monitoring service, she failed to plausibly allege that the purchase was attributable to the breach, the court said. The plaintiff alleged that the data breach only played a part in her decision to renew the service, “and thus this alleged injury is still insufficient to state a claim.”

Granting the defendant’s motion to dismiss, Judge Wood said further opportunities for amendments to the complaint “would be futile,” dismissing the suit with prejudice.

To read the complaint in Provost v. Aptos, Inc., click here.

To read the order in In re Barnes & Noble Pin Pad Litigation, click here.

Why it matters: The cases demonstrate the challenges facing data breach cases—the difficulties of establishing standing as well as stating a viable claim, as found in the Barnes & Noble litigation. Despite these uphill battles, plaintiffs (like those in the suit against Tempur Sealy) continue to file class actions.

back to top

California Businesses Will Have to Stop Landfilling Organic Waste

By Charles A. White, Senior Advisor, Environment

Pending regulations now being developed by CalRecycle will have a significant impact on persons generating, transporting, recycling and disposing of organic waste in California. These regulations should become final by mid-2018, but due to statutory limitations, will not actually become effective until 2022. However, the time to begin preparing for these new regulations is now. Landfilling of organic waste will no longer be a significant option by 2025. Alternative means of reducing or handling organic waste will have to be developed. The cost of developing organic waste reduction or recycling programs has been informally estimated to exceed $1 billion in the Los Angeles region alone—probably $3 billion statewide. The majority of these costs will likely have to be borne by persons and businesses who generate organic wastes.

In September 2016, Governor Brown signed SB 1383 (Lara, Chapter 395, Statutes of 2016), establishing methane emissions reduction targets in a statewide effort to reduce emissions of short-lived climate pollutants (SLCP) in various sectors of California’s economy.

As it pertains to CalRecycle and the management of organic waste, SB 1383 establishes targets to achieve a 50 percent reduction, based on 2014 levels, in the statewide disposal of organic waste by 2020—and a 75 percent reduction by 2025. Methane emissions resulting from the decomposition of organic waste in landfills are believed to be a significant source of greenhouse gas emissions contributing to global climate change. Organic materials—including waste that can be readily prevented, recycled or composted—account for a significant portion of California’s overall waste stream. The law gives CalRecycle the regulatory authority to achieve the organic waste disposal reduction targets and establishes an additional target that not less than 20 percent of currently disposed edible food be recovered for human consumption by 2025.

What waste materials will be targeted by CalRecycle? Here is the agency’s currently proposed definition of organic waste: “Organic Waste” means solid waste containing material originated from living organisms and their metabolic waste products, including, but not limited to, food, green waste, landscape and pruning waste, applicable textiles and carpets, wood, lumber, fiber, manure, biosolids, digestate and sludges.

Not only will services that collect, process and manage organic solid waste be affected, so will generators of organic waste, including, but not limited to, hotels, restaurants, institutions, hospitals, landscaping firms and food processors—to name just a few. However, it is still unclear exactly what standards individual generators, service providers and local jurisdictions will have to meet to remain in compliance with this new mandatory program—and the overall 2025 statewide goal of a 75 percent reduction in organic waste disposal.

CalRecycle is currently planning to establish direct regulatory oversight of local government jurisdictions and organic waste generators that are outside of local jurisdictions—such as schools and state/federal agencies. However, the agency is also planning to exercise “secondary” regulatory oversight of organic waste generators, haulers, waste-facility operators and food-recovery organizations. Local jurisdictions will have primary regulatory oversight over these activities as well.

What does regulatory oversight mean? The draft program outline of this organic waste diversion program calls for reporting, monitoring, surveillance and enforcement to ensure compliance with the overall statewide goal of 75 percent organic waste diversion by 2025. Jurisdictional and individual generator standards have yet to be set.

Organic solid waste generators will be subject to random and complaint-based monitoring by local jurisdictions to ensure compliance with organic waste diversion goals. Large organic waste generators and those that span multiple jurisdictions could be subject to inspection and monitoring by CalRecycle itself. Direct enforcement action by CalRecycle is certainly a possibility. CalRecycle and local jurisdiction enforcement procedures will likely include notices of violation, compliance schedules, cease-and-desist orders and the imposition of monetary fines and penalties.

For more information, go to: Comments are due to CalRecycle on the current round of informal regulatory concepts by Friday, September 22, 2017.

Manatt is prepared to represent our clients’ interests in this rulemaking process to implement mandatory organic waste reduction and diversion programs in California. Our goal is to ensure that these new standards and procedures under development are fair and reasonable, and do not impose an undue burden. Please let us know if you have questions or concerns about this impending new mandatory program.

back to top

California Mandatory Packaging Waste Management Initiative

By Charles A. White, Senior Advisor, Environment

CalRecycle, the California state agency responsible for solid waste and recycling regulatory programs, estimates that packaging represents about one-quarter of California's total disposal stream. Packaging includes cardboard, paper, plastic, metals and other materials used to enclose or protect products for distribution, storage, sale and use. Further, CalRecycle has adopted a statewide policy goal that by 2020, at least 75 percent of solid waste generated will be source reduced, recycled, or composted. The agency has focused efforts since 2012 on engaging stakeholders to identify and explore opportunities relative to packaging as one part of a comprehensive set of strategies to reach the statewide goal of 75 percent.

It is expected that CalRecycle will formulate a California statewide packaging policy model by early 2018. It is likely that this policy will be considered a possible framework for new legislation in 2018 and beyond. CalRecycle and various stakeholders have identified several potential mandatory measures that could be used by manufacturers and packaging suppliers to reduce packaging waste. These include:

  • Mandatory source reduction plans and programs
  • Extended producer responsibility for the recovery of packaging waste
  • Minimum recycled content packaging requirements
  • Landfill bans on recyclable packaging
  • Advanced recycling fees on packaging materials

CalRecycle is currently soliciting comments from stakeholders on the criteria that should be used to determine the appropriate types of mandatory programs that should be established to address packaging waste in California. This initiative could have a profound impact on participants in the packaging and packaging waste supply chain in California, including public and private solid waste services providers, manufacturers, distributors, retailers and consumers—virtually anyone who touches packaging and packaging waste in California. The next CalRecycle workshop on the criteria that should be used to select mandatory packaging programs is scheduled for Sept. 19 in Sacramento.

Manatt is prepared to represent our clients’ interests in this matter. We are participating with the Environmental Quality Committee of the California Manufacturers and Technology Association (CMTA) and are tracking this initiative on our own.

Attached are two recent letters by the CMTA and Manatt that express concerns about CalRecycle’s direction in this matter.

Comments regarding CalRecycle’s “Draft Screening Criteria for Determining Priority Packaging Types”

Coalition Letter

Please contact Charles A. White at Manatt in Sacramento or your primary Manatt contact if you wish Manatt to represent your interests further in this matter.

back to top

NAD Considers Grocery Store Claims, Including Jurisdiction Question

By Jeffrey S. Edelstein, Partner, Advertising, Marketing and Media

A grocery store chain should discontinue comparative pricing claims, the National Advertising Division recommended in a new decision, finding the accompanying disclosures to be too vague and nonspecific.

HEB Grocery Company challenged claims made in print and YouTube advertising by Aldi Inc. touting its low prices, such as “Receipts don’t lie. Save up to 51% shopping at Aldi.” and “Move over HEB, Kroger, and Walmart. We’re the low price leader in this town. Save up to 50% shopping at Aldi.”

Aldi told the self-regulatory body the comparative price claims were limited to the Houston area and not national in scope, placing them outside the NAD’s jurisdiction. Further, the claims were truthful and accurate, the advertiser said, with a disclosure that clearly identified the basis for comparison in its advertising of Aldi-brand products versus national brands sold at competing grocers that were comparable in size, quality and ingredients.

While the NAD recognized the importance of grocery stores informing consumers that they can save money by purchasing high-quality products at lower prices, the decision disagreed with both of the advertiser’s arguments.

First, the NAD determined it had jurisdiction over the dispute, noting in its reply letter that HEB identified Aldi pricing claims that appeared on YouTube in addition to the print advertising found in Texas. That meant the challenged advertising “has the purpose of inducing a sale or other commercial transaction and has been disseminated to a sufficiently substantial portion of the United States,” according to the decision.

Turning to the merits of the claims, the NAD found that one message reasonably conveyed by the advertisements was that consumers who shop at Aldi will always save up to 50 percent (or a significant dollar savings) by purchasing Aldi-brand products versus brand-name products at HEB and competing grocers.

The disclosures, “when actually present, are vague,” the NAD wrote, and do not specify “(1) what the referenced comparable products (brand name or otherwise) are; (2) whether the products compared are based on reliable consumer habits and purchasing studies to indicate that the products selected are representative; or (3) what percentage of the inventory of the particular store the chosen products represent.”

For example, the NAD noted that Aldi’s YouTube video made comparative references to fresh produce—despite the fact that produce does not form the basis of the advertiser’s price comparison. “Consequently, NAD determined that the evidence in the record failed to demonstrate that the products chosen by the advertiser as the basis of comparison are sufficiently representative to support Aldi’s broad store-wide savings claims,” according to the decision.

The NAD recommended the advertiser discontinue the challenged YouTube ads, avoid featuring unqualified savings claims in future advertisements and stop running all the challenged qualified savings claims.

In addition, Aldi should “ensure that future price comparisons clearly define the basis of comparison, are limited based on the scope of the comparison, and where the comparison made is to competing grocers who also have private-label products, avoid the implication that the comparison being made is to a competitor’s private-label product or that the competitor does not make a private-label product.”

Aldi disagreed that its comparative advertising was vague and/or unsubstantiated, but agreed to comply with the NAD’s recommendations for future ads. However, the advertiser indicated its intention to appeal the jurisdictional part of the decision to the National Advertising Review Board.

“Aldi’s challenged advertising campaign was directed at and distributed to consumers through print and email to a small geographic area around Houston, Texas comprising approximately 1% of the U.S. population,” the company said in its advertiser’s statement. “The [YouTube] videos were not mentioned in HEB’s complaint or the NAD’s letter transmitting the complaint and were mentioned for the first time in HEB’s reply.”

To read the NAD’s press release about the decision, click here.

Why it matters: The NAD’s decision provides a helpful reminder to advertisers about making comparative pricing claims, from ensuring they clearly define the basis of comparison to limiting the claim based on the scope of the comparison to endeavoring to make clear, conspicuous disclosures that appear in proximity to the claim being qualified.

back to top

Sixth Circuit: Manager Not a Supervisor Under Title VII

Why it matters

Holding that a store manager was not a supervisor for purposes of Title VII and that the employer could therefore not be vicariously liable for his sexual harassment, the U.S. Court of Appeals, Sixth Circuit affirmed summary judgment in favor of the employer.

Detailed discussion

Three women were hired at different times for various positions at the Cordova, TN, AutoZone store and all reported to Gustavus Townsel when he was transferred as store manager in May 2012. Townsel was authorized to hire new hourly employees and write up employees at the store for misbehaving, but did not have the power to fire, demote, promote or transfer employees. That authority rested with the district manager, who visited the store on a weekly basis.

Within months, Townsel began making lewd and obscene sexual comments to the women. However, none of them reported the conduct until October 2012, when they complained about Townsel’s harassing conduct as well as other operational issues. Human resources followed up on the harassment complaints the next day and AutoZone transferred Townsel out of the store in November, terminating him in December 2012. The women filed a charge with the EEOC and the agency filed suit against AutoZone, alleging the employer was vicariously liable under Title VII for Townsel’s conduct. But a district court judge granted the employer’s motion for summary judgment, ruling that Townsel was not a supervisor under the statute. The EEOC appealed.

Beginning with the comment that “Townsel’s behavior was repulsive,” the U.S. Court of Appeals, Sixth Circuit nevertheless affirmed summary judgment in favor of AutoZone because “he did not take any tangible employment action against his co-workers and indeed had no authority to do so,” letting the employer off the hook. Pursuant to Title VII, if the harassing employee is the victim’s coworker, the employer is liable only if it was negligent in controlling working conditions. Alternatively, if the harasser is the victim’s supervisor, the employer may become vicariously liable if the agency relationship aids the victim’s supervisor in his harassment, the court explained.

A supervisor has been interpreted by the courts to be a worker “empowered by the employer to take tangible employment actions against the victim,” the Sixth Circuit said, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities or a decision causing a significant change in benefits. Under this rubric, “AutoZone is not vicariously liable for Townsel’s harassment because Townsel did not supervise any of the employees he harassed,” the panel wrote. The store manager could initiate disciplinary process and recommend demotion or promotion, but the district manager had vigorous oversight of the location, the court said, visiting the store once a week, actively participating in its management, scheduling shifts and interacting with the workers.

Even if the court determined Townsel was a supervisor, the Sixth Circuit found that the employer had established an affirmative defense to liability. Employers can avoid liability where they exercise “reasonable care to prevent and correct promptly any sexually harassing behavior” and the harassed employees “unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or to avoid harm otherwise.”

AutoZone met both requirements, the panel determined. “First, it exercised reasonable care to prevent harassment and promptly fired Townsel when it learned of his behavior,” the court wrote.

The company had an appropriate anti-harassment policy in place, and the record confirmed that each of the women signed forms acknowledging that she had read and understood the AutoZone employment handbook. The company also promptly corrected the harassment with its investigation and termination of Townsel, the court said. “This is not a case where several supervisors observed and participated in harassment while ignoring the victims’ complaints over months or years,” the panel said.

“Second, the harassed employees failed to report Townsel’s behavior for several months,” the court added, waiting until October to report the harassment that had begun in August. Two of the women didn’t even take advantage of corrective opportunities, the court noted, only reporting the harassment when interviewed by human resources after the third complained.

“Each of the victims had a responsibility to report Townsel’s behavior up the ladder, to human resources, or to the AutoZone hotline,” the panel wrote. “We cannot impute the victims’ knowledge to AutoZone when none of them took any actions that would alert someone with the power to stop Townsel until [one woman] belatedly talked to [the district manager] in October.”

To read the decision in EEOC v. AutoZone, Inc., click here.

back to top

Text Completing Transaction Doesn’t Violate TCPA, Court Rules

By Christine M. Reilly, Chair, TCPA Compliance and Class Action Defense | Diana L. Eisner, Associate, Litigation

A text message doesn’t constitute telemarketing pursuant to the Telephone Consumer Protection Act (TCPA) where it was sent to complete a transaction, according to a decision from a federal court judge in Washington.

Why it matters: Communications about incomplete applications and orders have been a gray area for some time. Many businesses have abstained from such communications out of fear of TCPA liability. By concluding that these communications are not marketing, this decision could provide some comfort to businesses seeking to send such communications. Moreover, according to the court, where a prospective purchaser has entered his contact information in an online form and submitted it (even if the order is not completed), the individual has provided prior express consent for non-marketing communications.

The dispute began when Noah Wick saw an online ad for a free nutritional supplement. Clicking on the link, he entered his name, mailing address, phone number and email address; clicked “rush my order”; and was then directed to a second page with pricing information. He then abandoned the purchase. Not long after, he received a text message stating: “Noah, Your order at Crevalor is incomplete and about to expire. Complete your order by visiting [a link].”

Rather than complete his order, Wick sued Twilio, allegedly the sender of the message, for violating the TCPA by sending the text message. The company moved to dismiss the lawsuit.

While the court found Wick had standing to sue and had plausibly alleged that the defendant used an automated telephone dialing system, U.S. District Court Judge Robert S. Lasnik granted the motion to dismiss because Wick consented to receive the text.

“The [Federal Communications Commission] defines telemarketing as ‘the initiation of a telephone call or message for the purpose of encouraging the purchase or rental of, or investment in, property, goods or services, which is transmitted to any person,’” the court said.

“A review of the allegations and attached exhibits shows that plaintiff entered his identifying information (name, address, phone number and email), agreed to the offer’s terms and conditions, and clicked on the ‘Rush My Order’ button before closing the webpage,” Judge Lasnik wrote. “Whatever his subjective intent regarding making a purchase, the text message he received was aimed at completing a commercial transaction that he had initiated and for which he had provided his phone number.”

Therefore, the text message Wick received did not constitute telemarketing, the court said. “Because plaintiff consented to the communications at issue when he submitted his telephone number as part of Crevalor’s ordering process, plaintiff failed to plead a TCPA violation.”

Wick’s state law claims fell for similar reasons, the court held, granting Twilio’s motion to dismiss the lawsuit.

To read the order in Wick v. Twilio, click here.

back to top

SCOTUS: For Patent Venue, Domestic Corporations ‘Reside’ Where Incorporated

By Charles A. Kertell, Counsel, Intellectual Property

Why it matters: On May 22, 2017, the Supreme Court issued its decision in TC Heartland LLC v. Kraft Foods Group Brands LLC—rejecting long-standing Federal Circuit precedent and re-establishing stricter venue requirements for patent infringement litigation involving a domestic corporate defendant. As a result, patent plaintiffs may now be precluded from filing suit against many domestic corporations in what are perceived to be “favorable” jurisdictions, most notably the Eastern District of Texas (where upward of 40% of patent cases have recently been filed).

Detailed discussion: On May 22, 2017, the Supreme Court held that a domestic corporation “resides” only in its state of incorporation for purposes of the patent venue statute, 28 U.S.C. §1400(b). As a result, many domestic corporations will no longer be subject to suit for patent infringement in remote jurisdictions (where they are not incorporated and do not have a “regular and established place of business”). Many patent plaintiffs, especially those that still want to file suit in the Eastern District of Texas and/or that want to avoid certain jurisdictions due to cost or other considerations, may also significantly alter their litigation strategy—including their choice of which defendant(s) to sue.

Statutory scheme and prior case law: The patent venue statute, 28 U.S.C. §1400(b), provides that a civil action for patent infringement may be brought: (1) in a judicial district where the defendant resides, or (2) where the defendant has committed acts of infringement and has a regular and established place of business.

In Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957), the Supreme Court held that 28 U.S.C. §1400(b) was: (1) the sole and exclusive provision controlling venue in patent infringement actions, and (2) not supplemented or modified by any general venue provision. It therefore concluded that a domestic corporation “resides” only in its state of incorporation for purposes of the patent venue statute. In doing so, the Fourco court rejected the argument that 28 U.S.C. §1400(b) incorporated the broader definition of corporate “residence” contained in the general venue statute, 28 U.S.C. §1391(c).

Congress thereafter amended the general venue statute in 1988 to provide that “[f]or purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced.” The Federal Circuit, in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), found this amendment to contain “exact and classic language of incorporation.” It therefore determined that 28 U.S.C. §1391(c), as amended, redefined the meaning of the term “resides” in 28 U.S.C. §1400(b) (i.e., venue would be proper against a corporate defendant in any judicial district in which the defendant was subject to personal jurisdiction), as both provisions fell within the same chapter.

Following VE Holding, no new developments occurred until Congress adopted the current version of 28 U.S.C. §1391 in 2011. Section 1391(a) now provides that “[e]xcept as otherwise provided by law…this section shall govern the venue of all civil actions brought in district courts of the United States…” And 28 U.S.C. §1391(c)(2), in turn, provides that “[f]or all venue purposes,” certain entities, “whether or not incorporated, shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question…”

Procedural History: TC Heartland LLC, an entity organized under Indiana law, was sued by Kraft Foods Group Brands LLC for patent infringement in the U.S. District Court for the District of Delaware. While TC Heartland shipped allegedly infringing products into Delaware (and was therefore subject to personal jurisdiction in Delaware), it was not registered to conduct business in Delaware. Nor did it have any meaningful local presence.

TC Heartland moved to dismiss the case or transfer venue to the Southern District of Indiana, arguing that venue was improper in Delaware. Citing Fourco’s holding that a corporation resides only in its state of incorporation for patent infringement suits, TC Heartland argued that it did not “reside” in Delaware under the first clause of the patent venue statute. It further argued that it had no “regular and established place of business” in Delaware under the second clause of 28 U.S.C. §1400(b).

The district court disagreed, finding that the 2011 amendments to 28 U.S.C. §1391 did not undo the Federal Circuit’s decision in VE Holding (i.e., venue was proper in Delaware, as TC Holding was subject to personal jurisdiction in Delaware). The Federal Circuit also subsequently denied TC Heartland’s petition for a writ of mandamus, concluding that the version of the patent venue statute construed in Fourco had effectively been amended…so that 28 U.S.C. §1391(c) now supplies the definition of “resides” in 28 U.S.C. §1400(b).

The Supreme Court decision: The Supreme Court reversed, holding that a domestic corporation “resides” only in its state of incorporation for purposes of the patent venue statute. The Court largely based its decision on two findings: (1) that Fourco was still controlling law (i.e., the patent venue statute had not been amended since that decision, and neither party had requested the Court to reconsider its earlier holding in that case), and (2) that Congress had not changed the meaning of 28 U.S.C. §1400(b) when it amended 28 U.S.C. §1391.

With respect to the latter, the Court specifically relied on the general proposition that Congress ordinarily provides a relatively clear indication of its intent to change the meaning of a statute in the text of the amended provision, as well as its observation that no such indication existed in 28 U.S.C. §1391. It also mentioned that there is now even less reason to read the provisions of the general venue statute into the patent venue statute than existed at the time of Fourco, as the current version of 28 U.S.C. §1391(a) expressly states that it does not apply when “otherwise provided by law.” Finally, the Court noted the lack of any indication that Congress, in 2011, had ratified the Federal Circuit’s decision in VE Holding (as Congress had, in fact, deleted the “under this chapter” language in 28 U.S.C. §1391(c) cited by the VE Holding court).

Limitations: Importantly, the Supreme Court expressly declined to address the effect, if any, of its decision on venue for: (1) foreign corporations, and (2) unincorporated entities. It also avoided any discussion concerning the scope of the second clause of the patent venue statute (i.e., a “regular and established place of business”)—a topic that has not been explored in detail since the Federal Circuit’s decision in VE Holding (and which many believe will become a source of intense litigation over the coming months and years).

Anticipated effects: As a result of TC Heartland, it is widely expected that the number of patent cases filed in certain judicial districts perceived to be “plaintiff-friendly” (most notably, the Eastern District of Texas) will likely decline, perhaps significantly, and that the number of patent cases filed in Delaware (a jurisdiction where many domestic entities are incorporated) will increase. A similar increase is also expected in jurisdictions where many domestic corporations have a “regular and established place of business” (e.g., California, New York, Illinois). Moreover, several commentators have suggested, given certain patent plaintiffs’ continued desire to sue in jurisdictions such as the Eastern District of Texas, that the number of cases filed against foreign corporations (which are not subject to TC Heartland) and domestic retailers (which have regular and established places of business throughout the country) will almost certainly increase—especially when the foreign corporation’s domestic subsidiary and/or the retailer’s supplier are not subject to suit in the plaintiff’s preferred jurisdiction.

Observations: While it is still early, lower courts appear to be applying TC Heartland retroactively, with several district courts requesting briefing on dismissal/transfer sua sponte. However, others have refused to dismiss/transfer pending cases (especially those filed months/years earlier), based on a finding that the defendant waived any objection to venue through its inaction. Also, as noted above, several district courts have already been asked to explore the outer boundaries of the second clause of the patent venue statute (i.e., a “regular and established place of business”).

back to top



pursuant to New York DR 2-101(f)

© 2024 Manatt, Phelps & Phillips, LLP.

All rights reserved