Patent Venue: Cyberspace does not Expand Place of Business

Important mandamus order narrowing patent venue. In re Cray (Fed. Cir. 2017) [Read the Case]

Following the Supreme Court’s decision in TC Heartland, the debate has moved to interpretation of the requirement that an infringement defendant have either residence or “a regular and established place of business” in the chosen venue.

Any 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. 28 U.S.C. § 1400(b).

In Raytheon v. Cray, the defendant is a Washington corporation with facilities in Austin and Houston – both of which are outside of the Eastern District of Texas. Still, E.D. Texas Judge Gilstrap found the company to fit within the regular and established place of business venue requirement based upon evidence that. Two Cray sales executives worked from home within the district – developing new sales and accounts worth ~ $350 million over the past 7 years.  The execs received reimbursement for certain utilities and charges within the district and publicly advertised their “office” phone numbers within E.D. Texas.

In the process of deciding its case, Judge Gilstrap also set forth an open four-factor test finding a regular and established place of business: physical presence, defendant’s representations, benefits received, and targeted interactions with the district.

As a general matter, Judge Gilstrap’s interpretation appears fairly broad, and on writ of mandamus, the Federal Circuit has rejected Gisltrap’s analysis and directed that he transfer the case to a more appropriate venue.

As a patent-focused statute, the Federal Circuit applies its own law to interpret the scope of 1400(b).  Here, the Federal Circuit interprets the requirement of a “regular and established place of business” to require three key elements: (1) a physical place within the district (2) that is a regular and established place of business (3) of the defendant.  The key focus here – regular and established place of business – i.e., a place of business that is both regular and established. According to the appellate panel these elements are requirements of the statute and all of them “must be present” for venue to be proper under the provision.   Thus:

The district court’s four-factor test is not sufficiently tethered to this statutory language and thus it fails to inform each of the necessary requirements of the statute.

According to the appellate panel, a court’s venue inquiry walk step-by-step through each of the requirements of the statute to ensure that each is present. “We stress that the analysis must be closely tied to the language of the statute.”

In looking at the application in this particular case, the Federal Circuit found that the home office and local sales were not sufficient to fill the statutory requirements.

= = = = =

The decision here further solidifies the impact of the TC Heartland case — spreading jurisdiction out and away from E.D. Texas.

Of note, in its analysis, the Federal Circuit paid special attention to historical application of the statute that was originally adopted in 1897.  At that time, one congressman indicated its purpose was to “give original jurisdiction to the court where a permanent agency transacting the business is located.” 29 Cong. Rec. 1900 (1897) (statement of Rep. Lacey).  The court favorably cited pre-Federal-Circuit cases from the various circuits. Phillips v. Baker, 121 F.2d 752, 756 (9th Cir. 1941) (“A ‘regular place of business’ is, obviously, a place where such business is carried on ‘regularly’ and not merely temporarily, or for some special work or particular transaction.”); Knapp-Monarch Co. v. Casco Prods. Corp., 342 F.2d 622, 625 (7th Cir. 1965); Remington Rand Bus. Serv. v. Acme Card Sys. Co., 71 F.2d 628, 629 (4th Cir. 1934);  Am. Cyanamid Co. v. Nopco Chem. Co., 388 F.2d 818, 820 (4th Cir. 1968); Grantham v. Challenge-Cook Bros., Inc., 420 F.2d 1182, 1185–86 (7th Cir. 1969); Univ. of Ill. Found. v. Channel Master Corp., 382 F.2d 514, 516 (7th Cir. 1967); Shelton v. Schwartz, 131 F.2d 805, 808 (7th Cir. 1942).  In addition, the court revisited its important Cordis decision on point: In re Cordis Corp., 769 F.2d 733 (Fed. Cir. 1985).

= = = = =

The opinion here is by Judge Lourie and joined by Judges Stoll and Reyna, and the basic holding is that the statute means the same as it did in 1897 and the same as it did in the 1940s and the same as it did in the 1980s (the last time it was interpreted directly).  Even if taken en banc, I would not expect any significant departure from this result.