The Lancing Blow to Patent Infringement Litigation in the ED Texas
By Howard Leslie Hoffenberg, Esq.
Ipcounselor.com and howardhoffenberg.com
On September 21, 2017, in In Re: Cray Inc, 2017 WL 4201535, the Federal Circuit (U.S. Appeals Court that has nationwide jurisdiction to hear appeals in patent cases) delivered the lancing blow to the Eastern District of Texas (ED Texas) being the go to venue for patent infringement litigation. ED Texas is renowned for being a money machine that puts out humongous jury verdicts in patent cases.
The downfall of ED Texas being the go to venue for patent infringement litigation began earlier this year with the decision by the United States Supreme Court in TC Heartland LLC v. Kraft Foods Group Brands LLC, U.S., 137 S.Ct. 1514, 197 L.Ed.2d 816 (2017). In TC Heartland, the Supreme court held that the general venue statute for Federal Courts, 28 U.S.C. 1391(c), did not apply to patent cases. To simplify a more complicated legal analysis, the end result under this general venue statute was that a corporation could be sued for patent infringement anywhere it was doing business and an infringing article was sold. To further simplify, this meant that the door was virtually wide open to file a patent infringement case in ED Texas.
Under the ruling of TC Heartland LLC, a defendant can only be sued for patent infringement in a venue as prescribed by a special venue statute, 28 U.S.C.1400(b), for patent infringement cases. Section 1400(b) provides that a patent infringement case can be brought in two places. One place is in the judicial district where the defendant resides. The other place is where the defendant has committed acts of infringement and has a regular and established place of business.
Again, to simplify a more complicated legal analysis, a corporation resides in the states where it is incorporated and/or has its corporate headquarters such that the corporation has a feeling of being at home. As is obvious, only a small fraction of patent infringement defendants are incorporated in Texas and/or have their corporate headquarters in Texas.
In TC Heartland LLC, the U.S. Supreme Court left open the question of what constitutes where the defendant has committed acts of infringement and has a regular and established place of business. As introduced in the first sentence of this article, on September 21, 2017, in In Re: Cray Inc, 2017 WL 4201535, the Federal Circuit answered this question.
In answering the question of what constitutes where the defendant has committed acts of infringement and has a regular and established place of business, the Federal Circuit took a literalist approach and held that:
The statutory language we need to interpret is where the defendant ... has a regular and established place of business. 28 U.S.C. 1400(b). The noun in this phrase is place, and regular and established are adjectives modifying the noun place. The following words, of business, indicate the nature and purpose of the place, and the preceding words, the defendant, indicate that it must be that of the defendant. Thus, 1400(b) requires that a defendant has a place of business that is regular and established. All of these requirements must be present.
The court then went on to elaborate on each one of these factors. As for a place of business factor, the Federal Circuit elaborated that:
[W[hen determining venue, the first requirement is that there must be a physical place in the district. ...[paragraph] While the place need not be a fixed physical presence in the sense of a formal office or store, Cordis, 769 F.2d at 737, there must still be a physical, geographical location in the district from which the business of the defendant is carried out. In Cordis, for example, a defendant used its employees homes to store its literature, documents and products and, in some instances, like distribution centers, storing inventory that the employees then directly took to its clients. 769 F.2d at 735. Defendant also engaged a secretarial service physically located in the district to perform certain tasks.
The key point being that a virtual presence via the
Internet is not good enough!
As for a regular and established factor, the Federal Circuit elaborated that:
A business may be regular, for example, if it operates in a steady[,] uniform [,] orderly[, and] methodical manner, Whitney, supra, at 5050. In other words, sporadic activity cannot create venue. [citations omitted] ... Indeed, [t]he doing of a single act pertaining to a particular business will not be considered engaging in or carrying on the business; yet a series of such acts would be so considered. Regular [citation omitted] [paragraph] The established limitation bolsters this conclusion. The word contains the root stable, indicating that the place of business is not transient. It directs that the place in question must be settle[d] certainly, or fix[ed] permanently. [citations omitted.]
As for of the defendant factor, the Federal Circuit elaborated that:
[I]t must be a place of the defendant, not solely a place of the defendants employee. Employees change jobs. Thus, the defendant must establish or ratify the place of business. It is not enough that the employee does so on his or her own. [paragraph] Relevant considerations include whether the defendant owns or leases the place, or exercises other attributes of possession or control over the place. One can also recognize that a small business might operate from a home; if that is a place of business of the defendant, that can be a place of business satisfying the requirement of the statute. [paragraph] Another consideration might be whether the defendant conditioned employment on an employees continued residence in the district or the storing of materials at a place in the district so that they can be distributed or sold from that place ... Marketing or advertisements also may be relevant, but only to the extent they indicate that the defendant itself holds out a place for its business. .... [paragraph] A further consideration for this requirement might be the nature and activity of the alleged place of business of the defendant in the district in comparison with that of other places of business of the defendant in other venues. Such a comparison might reveal that the alleged place of business is not really a place of business at all.
The Federal Circuit concluded by evaluating and weighing the evidence on each of these factors in the particular case at bar. The court opined that a defendant calling a location its place of business was not necessarily dispositive. As a general theme throughout case law, the factors are not applied in a rigid and mechanical sense; but, rather in a common and practical sense. The final holding was that the district court erred in concluding that venue was appropriate in ED Texas based on an erroneous legal standard.
This article was authored by Howard Leslie Hoffenberg of the IP and Business Law Offices of Howard L. Hoffenberg, Esq. A full service law office helping clients with intellectual property, business transactions, disputes and litigation. The office is located in Los Angeles. Howard Hoffenberg is licensed to represent clients in California, Illinois and New York. There is a presence on the web at ipcounselor.com, laxlaw.com, howardhoffenberg.com, howardlhofenberg.com and howardlesliehoffenberg.com. The phone number for the office is 3106705825.
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