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Attorneys

Federal Circuit Clarifies Venue Requirements for Patent Cases

October 5 2017

By Jo Dale Carothers

Until the U.S. Supreme Court’s May 22, 2017 ruling in TC Heartland v. Kraft Foods, the Court of Appeals for the Federal Circuit and the United States district courts had interpreted the patent venue statute, 28 U.S.C. §1400(b), to allow plaintiffs to bring a patent infringement case against a domestic corporation in any district court where there is personal jurisdiction over that corporate defendant.  The Supreme Court’s TC Heartland ruling, however, clarified that personal jurisdiction alone does not convey venue for patent cases under the patent venue statute.  But that clarification led to confusion as to how to interpret the venue statute itself.  The Federal Circuit just addressed that confusion in In re Cray Inc.

Specifically, the patent venue statute provides that “[a]ny civil action for patent infringement may be brought in either 1) “the 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.”  Prior to TC Heartland, courts had found that a domestic corporation resides in any judicial district where the corporation is subject to personal jurisdiction, and thus venue was proper in those districts.  In TC Heartland, the Supreme Court limited venue under the first prong explaining that a corporation only resides in its state of incorporation.  For plaintiffs wishing to sue corporations in judicial districts outside the defendant’s state of incorporation, the TC Heartland ruling shifted the focus to the second prong of the patent venue statute.  The second prong states that a domestic corporation can be sued for patent infringement “where the defendant has committed acts of infringement and has a regular and established place of business.”

Following TC Heartland, defendants filed a flurry of motions to dismiss for lack of venue or, in the alternative, to transfer cases.  Corporations argued they had been improperly sued in venues where they had no “regular and established place of business.”  But what is a “regular and established place of business”?  Prior to the TC Heartland ruling, venue was typically shown under the first prong based on where a corporation resides, so the courts had not really dealt with the requirements for a “regular and established place of business” under the second prong of the venue statute.  Now courts were forced to address this issue and different courts were coming to different conclusions, which led the Federal Circuit to address this issue in response to Cray’s petition for a writ of mandamus.

Cray’s petition arose from Judge Gilstrap’s venue ruling in Raytheon Co. v. Cray, Inc. (“Transfer Order”).  More specifically, Raytheon filed a patent infringement action against Cray in the Eastern District of Texas.  Cray is a Washington corporation.  Cray did not rent or own property in the Eastern District of Texas but allowed two employees to work remotely from their homes in that district.  One of those employees was a “sales executive” with sales in excess of $345 million over approximately seven years.  That employee received reimbursement for cell phone charges, internet fees, and mileage related to his work for Cray.  The employee, however, did not store products or product literature in his home.  Further, he was never paid for use of his home as a business office.  Cray moved to transfer the case for lack of venue arguing that it did not reside in the district and did not maintain a regular and established place of business in the district.

In his Transfer Order, Judge Gilstrap not only found venue proper in the Eastern District of Texas but also went on “‘[f]or the benefit of’ other litigants and counsel to set out four factors for inquiries into what constitutes a regular and established place[] of business ‘in the modern era,’ including physical presence, defendant’s representations, benefits received, and targeted interactions with the district.”

The Federal Circuit reversed stating that “[a]lthough the law was unclear and the error understandable, the district court abused its discretion by applying an incorrect legal standard, which we now clarify in this opinion.”  The Federal Circuit explained that its “analysis of the case law and statute reveal three general requirements” for whether a corporation has a “regular and established place of business” in a judicial district.  These requirements include:  “(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.

The Federal Circuit further explained that while the “‘place’ need not be a ‘fixed physical presence in the sense of a formal office or store,” “there must still be a physical, geographical location in the district from which the business of the defendant is carried out.”  A test that encompasses virtual spaces or electronic communications would improperly expand the venue statute.  Further, “the mere fact that a defendant has advertised that it has a place of business or has even set up an office is not sufficient; the defendant must actually engage in business from that location.”  In addition, for a business to be “regular and established,” the activity cannot be sporadic or transient in nature.  Further, “[t]he defendant must establish or ratify the place of business.  It is not enough that the employee does so on his or her own.”  Therefore, an employee that merely works from home does not necessarily create venue in the district.

It is now clear that personal jurisdiction and venue or two separate requirements for patent infringement cases.  Further, in many instances, plaintiffs will have significantly fewer options for the districts where they can bring patent infringement cases against domestic corporations under the patent venue statute.