We recently reported that Chief Judge Stark of the District of Delaware interpreted the second prong of the patent venue statute, 28 U.S.C. § 1400(b), in Bristol-Myers Squibb Company v. Mylan because the first prong was no longer applicable in view of the Supreme Court's TC Heartland LLC v. Kraft Foods Group Brands LLC case. Specifically, Judge Stark anticipated how the Federal Circuit would now address venue in the ANDA context. With impeccable timing, the Federal Circuit provided an answer to at least one of the questions considered by the Delaware Court: what is a regular and established place of business? In this post, we look to see if the conclusions and guidance found in the Bristol-Myers Squibb case were correct (or at least on the right track).
For reference, the patent venue statute reads in its entirety:
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). Because Mylan is not incorporated in Delaware, it appropriately alleged that BMS could not establish venue pursuant to the first prong after the Supreme Court's TC Heartland decision. However, Judge Stark concluded that Mylan was unable to meet its burden in establishing that it "does not have a regular and established place of business in Delaware." He also determined that the "acts of infringement" in the Hatch-Waxman context would be all of the acts that would constitute ordinary patent infringement related to a filed ANDA if, upon FDA approval, the generic drug product is launched into the market. Correspondingly, he denied the motion to dismiss for improper venue without prejudice and allowed BMS to take jurisdictional discovery in advance of a renewed motion by Mylan.
Last week, in In re Cray Inc., the Federal Circuit granted a petition for a writ of mandamus and directed transfer of a case from the Eastern District of Texas to the Western District of Wisconsin. As we explained in our previous post, the Federal Circuit concluded that the Texas District Court had abused its discretion by applying an incorrect legal standard. But did the Delaware Court correctly interpret what a "regular and established place of business" means?
In analyzing the statute, both the Federal Circuit and the Delaware Court looked to In re Cordis, 769 F.2d 733 (Fed. Cir. 1985). The Cordis decision held that "in determining whether a corporate defendant has a regular and established place of business in a district, the appropriate inquiry is whether the corporate defendant does its business in that district through a permanent and continuous presence there and not . . . whether it has a fixed physical presence in the sense of a formal office or store." Judge Stark had noted that Cordis was a mandamus case, and therefore the standard used by the Federal Circuit was more deferential to the lower court. The Federal Circuit similarly cautioned overreliance on Cordis because "the court did not, in its opinion, evaluate venue in light of the statutory language of § 1400(b). The court simply determined that, under the facts presented, a writ was not justified." Of course, because the Court granted Cray's writ of mandamus even in view of the heightened requirement for deference, the conclusions reached in that case are likely to apply in most other situations.
First, the Federal Circuit concluded that § 1400(b) is unique to patent law, and therefore it was required to apply its own law and not that of the regional circuit from which the case arose. This is consistent with the conclusion in the BMS case. Even though Judge Stark looked to Third Circuit law to see which party bears the burden of proof in a motion to dismiss for improper venue, he acknowledged that substantive questions relating to § 1400(b) are controlled by the Federal Circuit.
Next, Judge Stark had concluded that there are three elements that must be met: there be a (i) place of business that is (ii) regular and (iii) established. The Federal Circuit similarly parsed the second prong of the patent venue statute into three elements, but they were not identical: "(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." In essence, the Federal Circuit combined the second two elements articulated by the Delaware Court, and separated the "place of business" element into one that is "physical" and one that is "of the defendant." Of course, the question in Cray was whether two employees working in Texas was sufficient to establish venue for their employer in that district. Nevertheless, even though there was a difference in the parsing of the statute, the Delaware Court still likely addressed all the required elements as identified by the Federal Circuit.
The Federal Circuit then explained that "the first requirement is that there 'must be a physical place in the district.'" Importantly, the Court noted that the statute "cannot be read to refer merely to a virtual space or to electronic communications from one person to another." This is consistent with Cordis. Indeed, Judge Stark had similarly concluded that there needs to be "some sort of meaningful physical manifestation in the district," an inquiry which is a factually driven.
Next, the Federal Circuit pointed out that the "place" must be "regular." As such, "sporadic activity cannot create venue." This conclusion, according to the Court, is bolstered by the "established" limitation. Based on the definition of this term, the place must be of sufficient permanence. Therefore, "while a business can certainly move its location, it must for a meaningful time period be stable, established."
The Delaware Court came to a similar conclusion. It first noted what has not sufficed in other cases to establish venue: (1) simply doing business or being registered to do business in a district, (2) having sufficient "minimum contacts" with the district for the purposes of personal jurisdiction, (3) maintaining a website accessible within the district, and (4) shipping goods into a district, whether to an individual or for distribution by third parties. Accordingly, it concluded that it "must determine whether a defendant has a regular and established place of business by conducting a fact-intensive inquiry focused on whether the defendant does its business in this District through a permanent and continuous presence here." This legal framework is not too dissimilar from that articulated in Cray.
Finally, the Federal Circuit pointed out that the place of business must be "the place of the defendant." Correspondingly, "the defendant must establish or ratify the place of business," while an employee "on his or her own" will not suffice. The Delaware Court did not delve into such an analysis, perhaps because the actions of individual employees were not at issue in that case. It did consider as relevant the fact that "the Mylan family includes at least 55 U.S. subsidiaries, more than 40 of which are incorporated in Delaware." Nevertheless, the Delaware Court was likely more concerned about the relationship of the entities, and not whether the entities themselves could establish venue for the parent. For example, the Court indicated that discovery could "include understanding the relationship among the 40 Delaware Mylan entities and" the Mylan entities involved in the present suit.
As a result, it does not appear that the Delaware Court's BMS case is inconsistent with the Federal Circuit's Cray case. If anything, the two Court's appeared to similarly analyze the patent-specific venue statute, even if they did not arrive at exactly the same conclusions. However, because the Plaintiff in the Cray case could only "show that there exists within the district a physical location where an employee of the defendant carries on certain work for his employer," the issues addressed to establish venue in the two cases were or will be different. Nevertheless, it would behoove both parties in the BMS case (and any other party to patent litigation going forward) to pay close attention to the Federal Circuit's analysis in Cray when participating in venue-related discovery or in conjunction with any renewed motion to dismiss for improper venue.
