Federal Circuit Rejects Eastern District of Texas’s Post-TC Heartland Venue Test

by Bradley Arant Boult Cummings LLP
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In In re Cray Inc., the Federal Circuit directed the Eastern District of Texas to transfer a patent infringement case brought by Raytheon against Cray out of the district. In doing so, the Federal Circuit rejected the district court’s multi-factor test for determining whether a defendant maintained a “regular and established place of business” within the district and instead held that three general requirements must be satisfied: (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 patent venue statute, 28 U.S.C. § 1400(b), limits venue to districts in which a defendant resides or in which it maintains a regular and established place of business and committed acts of infringement. In TC Heartland, the Supreme Court narrowed the residence provision of the venue statute to a corporate defendant’s place of incorporation. That narrowing placed new importance on determining where a defendant maintains a “regular and established place of business.”

Following TC Heartland, Cray moved to have Raytheon’s patent infringement suit against it transferred out of the Eastern District. The court denied the motion. Analogizing to the Federal Circuit’s decision in In re Cordis Corp., 769 F.2d 733 (Fed. Cir. 1985), the court found that Cray maintained a regular and established place of business in the district because a Cray employee worked remotely from his home there. An internal Cray document identified the employee as an account manager based at his home in the Eastern District, and Cray reimbursed the employee for cell phone usage, internet fees, and mileage or other business costs. The employee also received administrative support from Cray’s Minnesota offices.

In addition to finding that Cray maintained a regular and established place of business in the district, the court also set forth a multi-factor framework to assess the question in future cases: (1) physical presence; (2) the defendant’s representations; (3) benefits received; and (4) targeted interactions with the district. The court noted that none of the factors would be considered dispositive; thus, a fixed physical location was not required. Ultimately, the court concluded that it should consider the “totality of the circumstances” to “determine whether a domestic business enterprise seeks to materially further its commercial goals within a specific district through ways and means that are ongoing and continuous.” Cray then sought a writ of mandamus directing the court to transfer the case.

The Federal Circuit granted the writ, holding that the district court had misinterpreted Cordis in determining what constitutes a “regular and established place of business” under § 1400(b). The Federal Circuit identified three requirements relevant to the question. First, there must be a physical place in the district. Virtual spaces or electronic communications are not sufficient. Second, it must be a regular and established place of business. Temporary presence like a semiannual appearance at a trade show would not be sufficient. Third, it must be the place of the defendant. So, for instance, if the place is a home, the defendant “must establish or ratify the place of business,” which might be demonstrated by the defendant owning, leasing, or otherwise controlling the space. It could also be shown by the defendant conditioning an employee’s employment on residence in the district or storing materials at the residence for distribution or sale from the location. If any one of those requirements is not satisfied, venue is not proper under § 1400(b).

Applying its test to Cray, the Federal Circuit concluded that venue was not proper in the Eastern District. There was no evidence that Cray chose where the employee lived, that it believed the location to be important to its business, that it would maintain some other place of business in the district if the employee did not live there, or that it exercised any ownership or control over the home. Simply allowing the employee to live in the district was not enough to make his home a place of business established by Cray.

The decision provides important clarification as to what constitutes a “regular and established place of business” under the patent venue statute—a question of little import prior to TC Heartland. By requiring a purposeful physical presence in the district, the Federal Circuit’s three requirements should prove more restrictive as to where patent infringement suits may be brought as compared to the multi-factor test adopted by the Eastern District.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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