INSIGHT: Inconsistent Patent Venues - Considerations for In-House Counsel

September 3, 2019

John L. Strand

(as published by Bloomberg Law)

(This piece is co-authored by Alexandra Kim.)

Determining whether a party can be sued in a particular venue is crucial for both patent owners looking to file suit and accused infringers seeking to avoid a given venue.

District courts have grappled with what constitutes a “regular and established place of business” sufficient to establish patent venue ever since the U.S. Supreme Court’s 2017 decision in TC Heartland LLC v. Kraft Foods Grp. Brands LLC, holding that “resides” in 28 U.S.C. § 1400(b) means the defendant’s state of incorporation only, and the Federal Circuit’s 2017 decision in In re Cray Inc. interpreting a “regular and established place of business” as a physical location.

Most district courts have construed a regular and established place of business as a physical location.

For example, patent venue decisions in the Northern District of Illinois and District of Delaware examine whether the party had a physical presence in the district. In Talsk Research Inc. v. Evernote Corp. (N.D. Ill. 2017), having a “virtual store” was insufficient. Likewise, in Boston Sci. Corp. v. Cook Grp. Inc., (D. Del. 2017), the sale and shipping of goods to the venue was not sufficient.

Whether an employee works in the district has also been addressed. In Novartis Pharm. Corp. v. Accord Healthcare Inc. (D. Del. 2019), the Delaware court in June found a defendant employee’s personal social media postings, including “pictures of her activities in Delaware,” did not establish a regular and established place of business.

Courts Differ

Yet there are contradicting applications of regular and established place of business between districts and within the same district, particularly in the Eastern District of Texas. In Seven Networks LLC v. Google LLC, Judge Rodney Gilstrap found in 2018 that Google servers hosted in a third-party facility were sufficient to establish a regular and established place of business in the district.

This finding directly contradicts Judge Ron Clark’s 2017 ruling in Personal Audio LLC v. Google Inc., finding—under the exact same facts—that the servers did not constitute a regular and established place of business.

It’s important to note that in the Eastern District of Texas, the size of the leased space appears irrelevant. In Tinnus Enters. v. Telebrands Corp., the court found a regular and established place of business existed when a company paid for shelf space in a retail store.

In some districts, the location of a company related to the defendant can be applied to the defendant for purposes of venue. In the Eastern District of Texas’ 2018 decision in Blitzsafe Texas LLC v. Bayerische Motoren Werke AG, the court ruled that venue was proper over BMW North America, despite corporate separateness between the defendant and the dealership franchises. The court reasoned BMW “ratified” the franchises as its places of business through its website.

In other districts, however, independent distributors in the district were insufficient in establishing patent venue.

In the Middle District of Florida’s 2018 decision in Univ. of South Florida Res. Found, the court found venue was improper because the subsidiary and parent maintained corporate separateness. Similarly, in the Eastern District of Virginia’s 2017 decision in Symbology Innovations LLC v. Lego Sys. Inc., the court found the location of Lego Brand Retail stores were not “places of” the defendant because corporate formalities were maintained between the stores and the parent.

Tips

As evidenced by all of these cases, navigating patent venue remains a tricky process. It is important, particularly for in-house counsel, to be cautious of how they structure their businesses. If there is a location that the company does not want to be sued in, avoid encouraging employees to work or sell the company’s products in that district—and do not lease any sort of property in those venues.

Additionally, maintain as much separateness as possible from any affiliates’ business operations. Such separateness is not a guarantee that venue won’t be found because of an affiliate’s location, but it’s a start.

Given the inconsistent application of “regular and established place of business,” determining whether venue is proper continues to be a jurisdiction-specific inquiry. Patent owners should carefully consider whether venue is proper in the target jurisdiction before filing a complaint.

Accused infringers should be mindful of their activities within plaintiff-friendly districts and be cognizant of the defenses challenging patent venue that are available to them.