IP Law Daily, PATENT—D. N.J.: Patent infringement action moved to Texas following TC Heartland, (Nov 5, 2018)

By Peter Reap, J.D., LL.M.

Following the Supreme Court’s 2017 decision in TC Heartland clarifying the propriety of venue for patent infringement claims, a suit brought by Mitsubishi Tanabe Pharma Corporation and Metuchen Pharmaceuticals against Texas companies Empower Clinic Services, Empower Pharmaceuticals, and their Texas owner was transferred to the federal district court for the Southern District of Texas, by the federal district court in Newark, New Jersey. The New Jersey federal district court was not a proper venue for the suit because none of the defendants maintained a regular and established place of business in New Jersey and the interests of justice favored transfer (Metuchen Pharmaceuticals LLC v. Empower Pharmaceuticals LLC, November 1, 2018, Linares, J.).

Mitsubishi Tanabe is a Japanese pharmaceutical company and the assignee of record of United States Letters Patent No. 6656935 (the ’935 Patent). Metuchen is a Delaware limited liability company located in Freehold, New Jersey, and the exclusive licensee of the ’935 Patent. The ’935 Patent covers the prescription pharmaceutical, avanafil. The plaintiffs developed and now sell a patented avanafil product called STENDRA®. The plaintiffs allege that the defendants, with knowledge of plaintiffs’ patent, "purchase[] bulk avanafil active pharmaceutical ingredient from abroad[,] covertly import[] it into [t]he United States," and market and sell "knock-off’ avanafil products using copy from the plaintiffs’ copyrighted and trademarked STENDRA® packaging. The plaintiffs’ lawsuit states claims for claim for patent infringement, copyright infringement, trademark infringement, false designation of origin and false advertising under the Lanham Act, unfair competition and false advertising under the New Jersey Fair Trade Act, and violations of New Jersey pharmacy regulations. The defendants moved to dismiss for improper venue, failure to state a claim for patent infringement, and lack of personal jurisdiction over defendant Arta Noorian.

Claims for patent infringement "may 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." TC heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S. Ct. 1514, 1516 (2017). "[A] domestic corporation ‘resides’ only in its State of incorporation for purposes of the patent venue statute." TC Heartland, 137 S. Ct. at 1517. The plaintiffs did not argue that any defendant "resides" in New Jersey, thus, they were required to show both that the defendants committed acts of infringement in New Jersey, and that the defendants have a regular and established place of business in New Jersey, the court noted.

Acts of infringement. The plaintiffs alleged that the defendants commit acts of infringement in New Jersey because they "market [avanafil] to patients in New Jersey," and "sell infringing products into" New Jersey. The defendants did not contest the plaintiffs’ allegations that they commit acts of infringement in New Jersey. Therefore, the plaintiffs sufficiently alleged that the defendants have committed acts of infringement in New Jersey for purposes of § 1400(b), the court held.

Place of business. The Federal Circuit has explained that a showing of a regular and established place of business requires a three-part analysis: "(1) there must be a physical place in the district; (2) it must be a regular and established place of business; and (3) it must be the place of the defendant." In re Cray, 871 F.3d at 1360. The plaintiffs did not dispute the facts that all defendants were based in Houston or endeavor to show that the defendants maintain an office in New Jersey or conduct business operations from any employee’s home in this District. Instead, the plaintiffs sought to connect the defendants to this district in several ways all relating to defendant Empower Clinic Services’ out-of-state pharmacy license.

First, the plaintiffs alleged that "Defendants are a New Jersey pharmacy," citing the registration of Defendant Empower Clinic Services with the New Jersey Board of Pharmacy (the Board). However, the license documentation cited by the plaintiffs contradicted that assertion, showing that Empower Clinic Services registered with the Board as an "Out of State Pharmacy," with an address in Houston, Texas. Such a registration did not suggest that the defendants are "a New Jersey pharmacy" in the sense that they maintain a place of business in New Jersey, according to the court.

Next, the plaintiffs argued that, by virtue of Empower Clinic Services’ license to practice pharmacy in New Jersey, Defendants have authorized the Board, located in Newark, New Jersey, to act as their regular and established place of business in the state. Therefore, the plaintiffs offer the Board’s Newark address as the defendants’ "physical place in this District." The court declined to endorse such a broad and novel understanding of what constitutes a "regular and established place of business" under § 1400(b). The defendants’ status as one of the many regulated entities of a New Jersey licensing agency was far from analogous to the kind of local business presence that has been found to constitute a regular and established place of business, the court observed.

The plaintiffs also argued that the defendants have consented to venue in New Jersey pursuant to state regulations requiring Empower Clinic Services, as a licensed out-of-state pharmacy, to attend certain regulatory proceedings in New Jersey. The court was not persuaded. A licensee’s consent, as a condition of its license, to a potential appearance in disciplinary proceedings before a state administrative board, does not equate to its consent to venue under § 1400(b) for purposes of a federal patent claim in federal district court.

Finally, the court rejected the contention that this District is a proper venue for the patent claim because "Defendants receive prescriptions in New Jersey, sell pharmaceuticals in New Jersey and collect payments from New Jersey insurance plans and from the State of New Jersey." Such contacts with New Jersey did not satisfy the regular and established place of business standard, which "requires more than the minimum contacts necessary for establishing personal jurisdiction or for satisfying the doing business standard of the general venue provision, 28 U.S.C. § 1391(c)." In re Cray, 871 F.3d at 1361.

Venue for non-patent claims. The plaintiffs argued that the court should not dismiss their Amended Complaint because the district is an appropriate venue for their non-patent claims. Assuming that the district is a proper venue for the non-patent claims, which the defendants did not dispute, the court may nevertheless transfer those claims "to any other district or division where [they] might have been brought" if such a transfer would further "the convenience of parties and witnesses" and would be "in the interest of justice." 28 U.S.C. § 1404(a). This entire action could have been brought in the Southern District of Texas consistent with § 1400(b) and TC Heartland, as well as with 28 U.S.C. § 1400(a) (the copyright venue statute) and with 28 U.S.C. § 1391(b) (the general venue statute)—which all provide that venue is proper where a defendant "resides"—since all of the defendants are residents of Texas and are based in Houston, the court noted.

Considering the applicable private and public factors, dismissing or transferring the patent claim (which may not properly proceed here) and allowing the non-patent claims to proceed in this District would result in two nearly identical trials in different courts, which would greatly inconvenience the parties and the witnesses, as well as unnecessarily burden the courts with duplicative litigation, the court reasoned. Thus, transferring the entire matter to the Southern District of Texas was in the interest of justice.

This case is No. 2:18-cv-11406-JLL-SCM.

Attorneys: J. Mark Pohl (Pharmaceutical Patent Attorneys, LLC) for Metuchen Pharmaceuticals LLC. Gregory Albert Krauss (Davidson Berquist Jackson & Gowdey LLP) for Empower Pharmaceuticals LLC and Empower Clinic Services LLC.

Companies: Metuchen Pharmaceuticals LLC; Empower Pharmaceuticals LLC; Empower Clinic Services LLC; Mitsubishi Tanabe Pharma Corp.

Cases: Patent NewJerseyNews