The Federal Circuit finally provided guidance on patent venue rules and struck down Judge Gilstrap’s patent venue rules

Sung-Hoon Kim | October 23, 2017

In Re: Cray Inc.

September 21, 2017

Before Lourie, Reyna, and Stoll.  Opinion by Lourie.

Summary:

Cray petitioned for a writ of mandamus directing reversal of the order of the U.S. District Court for the Eastern District of Texas denying its motion to transfer venue and directing the district court to transfer the case to the Western District of Wisconsin.  The Federal Circuit found that the EX of TX misinterpreted the scope and effect of the precedent in determining that Cray maintained “a regular and established place of business” in the ED of TX within the meaning of §1400(b).  Therefore, the Federal Circuit held that the ED of TX’s decision to refuse transfer of the case was an abuse of discretion and granted Cray’s petition.

Details:

Raytheon sued Cray for a patent infringement.  Cray sells advanced supercomputers that Raytheon accuses of infringement.  Cray’s principal place of business is in WA, and Cray maintains facilities in MN, WI, CA, and TX.  While Cray does not have an office or any property in the ED of TX, Cray allowed two employees to work remotely from their homes in the ED of TX.

The first employee worked for Cray as a senior territory manager while residing in the ED of TX.  The second employee worked for Cray as a sales executive.  Cray provided the second employee with administrative support from its MN office.  However, Cray never paid him for the use of his home to operate its business, or publicly advertised that his residence was a Cray place of business.

Cray moved to transfer the case and argued that it does not “reside” in the ED of TX in light of TC Heartland case.  The district court agreed that Cray does not reside in the district.  In addition, Cray argued that venue was improper in the ED of TX because Cray neither committed acts of infringement, nor maintained a regular and established place of business within the ED of TX.  However, the district court rejected that argument.

Most notably, the district court provided a four-factor test 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.

  • 1400(b)

(b) 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.

Federal Circuit

The only issue remaining before the Federal Circuit is whether Cray has a “regular and established place of business.”  Cray is incorporated in the State of WA, and Cray does not challenge the district court’s finding as to the acts of infringement within the district for purposes of venue.

The Federal Circuit held that the following three general requirements are relevant to the inquiry (focused on the language of the statute):

  • There must be a physical place in the district;  Not merely a virtual space or electronic communications from one person to another.  Must be a physical, geographical location in the district from which the business of the defendant is carried out.
  • It must be a regular and established place of business; and A business is regular if it operates in a steady, uniform, orderly, and methodical manner; not a sporadic activity.  A series of doing a single act related to a particular business would be considered as a regular business.  Established: the place in question must be “settled certainly, or fixed permanently.”
  • It must be the place of the defendant.  It must be a place of the defendant, not solely a place of the defendant’s employee.  The defendant (company) must establish or ratify the place of business, and it is not sufficient that the employee does so by himself or herself.

The Federal Circuit noted that the defendant must actually engage in business from that location, and that it is not sufficient that the defendant has advertised that it has a place of business or set up an office.

The Federal Circuit held that there is no evidence that one employee’s home was a regular and established place of business of Cray, and that the fact that Cray allowed its employees to work from the ED of TX is not sufficient.  Also, the Federal Circuit noted that there is no evidence that Cray owns, leases, or rents any portion of one employee’s home in the ED of TX.  Furthermore, the Federal Circuit noted that all expense reimbursements and administrative support were provided from outside of the ED of TX, and that such support was not conditioned on any particular employee location.

Accordingly, the Federal Circuit found that Cray did not maintain a regular and established place of business in the ED of TX.

Finally, the Federal Circuit held that Judge Gilstrap’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.”

Takeaway:

This decision provides a clear guidance on what constitutes a regular and established place of business after TC Heartland.

It is expected that the number of suits filed in the ED of TX would be further reduced, and more patent cases would be forced out of the ED of TX.

Full Opinion

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