IP News

Federal Circuit Throws Out District Court's Test for “Place of Business” for Purposes of Determining Venue in Patent Cases

On Sept. 21, 2017, a Federal Circuit panel of Judges Lourie, Reyna and Stoll issued a unanimous opinion, authored by Judge Lourie, in In re: Cray Inc., Case Nos. 2017-129. The panel granted Cray's petition for a writ of mandamus, holding that the district court abused its discretion by refusing to transfer a patent suit against Cray Inc. to another court.

Raytheon Co. brought suit in the Eastern District of Texas, accusing Cray of infringing patents covering supercomputers used in scientific research. Cray is a Washington incorporation with its principal place of business located there. Although Cray has no sales offices or manufacturing facilities in the Eastern District of Texas, it allowed a sales executive to work remotely from his home in that district. U.S. District Judge Rodney Gilstrap ruled that this was enough to establish that Cray had a place of business in the district.

Under 28 U.S.C. §1400(b), “[a]ny civil action 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.” With the Supreme Court's recent decision in TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S. Ct. 1514 (2017) that “resides” means the place of incorporation, litigants are now turning to the second prong of the patent venue statute, namely, a “regular and established place of business.”

Judge Gilstrap also laid out a four-factor test to determine the scope of “regular and established place of business” for venue purposes, with no one factor being dispositive. First, courts should consider whether a defendant has a physical presence in the district, such as a retail store, warehouse or employees. Second, a court should look at the event to which the company represents, internally or externally, that it has a presence in the district. Third, courts should consider the benefits that a company has received from its presence in the district, including sales revenue. Finally, a court should look at the extent to which a defendant interacts in a targeted way with customers and consumers in the area.

Cray filed a petition for writ of mandamus asking the Federal Circuit to immediately reverse Judge Gilstrap's decision and urging the appeals court to vacate the test. On appeal, Cray argued that the decision runs contrary to the plain language of the statute, that a place of business is a place, not a nonphysical presence, and that doing business in a district is not the same as having a regular and established place of business.

The Federal Circuit agreed with Cray, rejecting the district court's four-factor test as “not sufficiently tethered to this statutory language.” Slip Op. at 10. The appeals court found that the factors failed to inform the each of the necessary requirements of the statute. Id. It identified the factors courts should look at instead. “[O]ur analysis of the case law and the statute reveal three general requirements relevant to the inquiry: (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 court said. “If any statutory requirement is not satisfied, venue is improper.” Id. at 8.

Applying the requirements to the facts, the Federal Circuit held that Cray does not have a regular and established place of business in the Eastern District of Texas. Specifically, the panel rejected Raytheon's argument that the sales executive's home was a regular and established place of business of Cray. Id. at 16. “The fact that Cray allowed its employees to work from the Eastern District of Texas is insufficient.” Id. Concluding that venue was improper in the Eastern District of Texas, the Federal Circuit remanded for a determination of where the case should be transferred. Id. at 19.

[Editor's Note: A more detailed article on this decision will be published in IP Strategist next month.]

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Howard J. Shire is Editor-in-Chief of this newsletter and a Partner in the New York office of Andrews Kurth Kenyon. He can be reached at [email protected].

Federal Circuit Throws Out District Court's Test for “Place of Business” for Purposes of Determining Venue in Patent Cases

On Sept. 21, 2017, a Federal Circuit panel of Judges Lourie, Reyna and Stoll issued a unanimous opinion, authored by Judge Lourie, in In re: Cray Inc., Case Nos. 2017-129. The panel granted Cray's petition for a writ of mandamus, holding that the district court abused its discretion by refusing to transfer a patent suit against Cray Inc. to another court.

Raytheon Co. brought suit in the Eastern District of Texas, accusing Cray of infringing patents covering supercomputers used in scientific research. Cray is a Washington incorporation with its principal place of business located there. Although Cray has no sales offices or manufacturing facilities in the Eastern District of Texas, it allowed a sales executive to work remotely from his home in that district. U.S. District Judge Rodney Gilstrap ruled that this was enough to establish that Cray had a place of business in the district.

Under 28 U.S.C. §1400(b), “[a]ny civil action 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.” With the Supreme Court's recent decision in TC Heartland LLC v. Kraft Foods Grp. Brands LLC , 137 S. Ct. 1514 (2017) that “resides” means the place of incorporation, litigants are now turning to the second prong of the patent venue statute, namely, a “regular and established place of business.”

Judge Gilstrap also laid out a four-factor test to determine the scope of “regular and established place of business” for venue purposes, with no one factor being dispositive. First, courts should consider whether a defendant has a physical presence in the district, such as a retail store, warehouse or employees. Second, a court should look at the event to which the company represents, internally or externally, that it has a presence in the district. Third, courts should consider the benefits that a company has received from its presence in the district, including sales revenue. Finally, a court should look at the extent to which a defendant interacts in a targeted way with customers and consumers in the area.

Cray filed a petition for writ of mandamus asking the Federal Circuit to immediately reverse Judge Gilstrap's decision and urging the appeals court to vacate the test. On appeal, Cray argued that the decision runs contrary to the plain language of the statute, that a place of business is a place, not a nonphysical presence, and that doing business in a district is not the same as having a regular and established place of business.

The Federal Circuit agreed with Cray, rejecting the district court's four-factor test as “not sufficiently tethered to this statutory language.” Slip Op. at 10. The appeals court found that the factors failed to inform the each of the necessary requirements of the statute. Id. It identified the factors courts should look at instead. “[O]ur analysis of the case law and the statute reveal three general requirements relevant to the inquiry: (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 court said. “If any statutory requirement is not satisfied, venue is improper.” Id. at 8.

Applying the requirements to the facts, the Federal Circuit held that Cray does not have a regular and established place of business in the Eastern District of Texas. Specifically, the panel rejected Raytheon's argument that the sales executive's home was a regular and established place of business of Cray. Id. at 16. “The fact that Cray allowed its employees to work from the Eastern District of Texas is insufficient.” Id. Concluding that venue was improper in the Eastern District of Texas, the Federal Circuit remanded for a determination of where the case should be transferred. Id. at 19.

[Editor's Note: A more detailed article on this decision will be published in IP Strategist next month.]

*****
Howard J. Shire is Editor-in-Chief of this newsletter and a Partner in the New York office of Andrews Kurth Kenyon. He can be reached at [email protected].