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Attorneys

Patent Litigation Venues: Is a Computer Server Room Really a Place of Business?

August 15 2018

By Jo Dale Carothers

The U.S. Supreme Court’s in TC Heartland v. Kraft Food, and subsequently the Court of Appeals for the Federal Circuit in In re Cray Inc., addressed where patent litigation can be filed under the patent venue statute, 28 U.S.C. §1400(b). 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.”

In TC Heartland, the Supreme Court limited venue under the first prong explaining 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 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, corporations have routinely argued they have been improperly sued in venues where they have no “regular and established place of business.” For example, in Seven Networks v. Google, Google recently argued it does not have a “regular and established place of business” in the eastern district of Texas. Judge Gilstrap, however, disagreed in a 43-page opinion. Judge Gilstrap found Google’s server and the computer rack where it is housed by a third-party internet service provider (“ISP”) to be Google’s “regular and established place of business” in that judicial district.

But one could easily ask, how is that a “place of business”? In In re Cray Inc., 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.” The Federal Circuit further explained a “place” is defined as “a building or a part of a building set apart from any purpose or quarters of any kind from which business is conducted.” The mere fact that a defendant has advertised it has a place of business in the judicial district is not sufficient. “[T]he defendant must actually engage in business from that location.” Further, the statute “cannot be read to refer merely to a virtual space or to electronic communications from one person to another.” A test that encompasses virtual spaces or electronic communications would improperly expand the venue statute.

In Seven Networks, Judge Gilstrap found Google has a physical server occupying a physical space in the judicial district and that Google exercises exclusive control over not only the digital aspects of the server but also “the physical server and the physical space within which the server is located and maintained.” As a result, Judge Gilstrap found the “server itself and the place of the [] server, both independently, and together, meet the statutory requirement of a ‘physical place.’”

Google argued the servers were not places of business much less a regular and established places of business of Google. The Court disagreed. The Court reiterated its prior conclusion stating “The only relevant difference between a warehouse that stores a company’s tangible products and Google’s [] servers is the nature of the products being stored—physical merchandise versus digital content. Regardless of what the products may be, if the physical structure that stores them is ‘a physical, geographical location in the district from which the business of the defendant is carried out,’ that structure is a place of business under §1400(b).” “Here, the []servers are best characterized as local data warehouses, storing information in local districts to provide Google’s users with quick access to the cached data, avoiding the delays associated with distant data retrieval from Google Data Centers.”

Some courts, however, have found §1400(b) “requires some employee or agent of the defendant to be conducting business at the location in question” for the location to be a place of business. See, for example, Peerless Network, Inc. v. Blitz Telecom Consulting, LLC. Judge Gilstrap disagreed with that reasoning because he found no basis in the language of the statute for such a requirement. Therefore, he found venue proper in the eastern district of Texas in Seven Networks irrespective of whether Google had an employee or agent conducting business at the server’s location.

Given the difference of opinion on the minimum requirements for a place of business under the patent venue statute, we can expect this issue to be raised again at the Federal Circuit.