In the wake of the U.S. Supreme Court’s decision in TC Heartland LLC v. Kraft Foods Group Brands LLC1, district courts have been faced with numerous motions to transfer venue. In response to those motions, district courts have developed varying tests for analyzing whether venue is proper. One such test was crafted by Judge Gilstrap of the Eastern District of Texas in a June 29, 2017, opinion in Raytheon Co. v. Cray, Inc.2, denying defendant Cray’s motion to transfer venue. Believing that the district court erroneously determined that venue was proper in the Eastern District of Texas, Cray petitioned the federal circuit for a writ of mandamus.
To address the lack of uniformity in resolving motions to transfer venue after TC Heartland, the federal circuit granted Cray’s petition for a writ of mandamus and issued its September 21, 2017, decision in In re Cray Inc.3 setting forth guidelines for determining whether venue is proper.
I. Venue Generally
In patent cases, venue is controlled by 28 U.S.C. § 1400(b), which provides that “[a]ny 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.” In view of the Supreme Court’s holding in TC Heartland that “[a]s applied to domestic corporations, ‘reside[nce]’ in § 1400(b) refers only to the State of incorporation,[4]” recent venue disputes have focused on the second basis for venue in § 1400(b), i.e., whether a defendant has a regular and established place of business in the plaintiff’s chosen venue. The Federal Circuit in In re Cray explained that there are three general requirements for answering that question, i.e., the defendant must: (1) have a physical place in the district; (2) the physical place must be a regular and established place of business; and (3) the physical place must belong to the defendant.
A. The Three General Requirements
1. The Defendant Must Have a Physical Place in the District
Recognizing that § 1400(b) requires a “‘place’ of business” and, citing entries in a 1911 dictionary and the 1891 first edition of Black’s Law Dictionary, the Federal Circuit reasoned that a “place” is “[a] building or a part of a building set apart for any purpose” or “quarters of any kind” from which business is conducted. Therefore, according to the court, § 1400(b) cannot “be read to refer merely to a virtual space or to electronic communications from one person to another.” The court added that the “‘place’ need not be a ‘fixed physical presence in the sense of a formal office or store,’” but “there must still be a physical, geographical location in the district from which the business of the defendant is carried out.”
2. The Physical Place Must be a Regular and Established Place of Business
Again focusing on the language of § 1400(b), the Federal Circuit explained that if the defendant meets the first requirement (i.e., has a physical place in the district), then the second requirement of § 1400(b) is that the physical place must be a regular and established place of business. To satisfy this requirement, a business must not be sporadic or temporary. Rather, it must be stable and established at a location for “a meaningful time.”5
3. The Physical Place Must Belong to the Defendant
The third requirement is that the place of business must be a place of the defendant – it cannot be a place of the defendant’s employee. The federal circuit identified certain considerations that are helpful in determining whether this requirement is met. Those considerations include whether the defendant owns, leases, or exercises attributes of possession or control over the place; whether the defendant conditioned employment on an employee’s continued residence in the district, or the storing of materials at a place in the district so those materials can be distributed or sold from that location; whether the defendant markets or advertises that it has a place of business in the district;6 and the nature and activity of the defendant’s alleged place of business as compared with the nature and activity of the defendant’s other places of business in other venues.
B. History of the Venue Statute
The federal circuit stressed the importance of § 1400(b)’s history to the venue analysis. The predecessor7 statute to § 1400(b) was enacted to address disparate court decisions concerning the proper venue for patent infringement cases involving corporate defendants. In one line of cases, courts had held that a corporate defendant could only be sued for patent infringement where it was incorporated; other courts had held that a patent infringement suit was proper wherever service on the corporate defendant was permitted. Citing the legislative history behind the statute, the federal circuit noted that the purpose of the predecessor to § 1400(b) was to ensure that jurisdiction “would not be conferred by ‘[i]solated cases of infringement’ but ‘only where a permanent agency is established.’”
II. Applying the Federal Circuit’s Three General Requirements in In re Cray
Cray is a Washington corporation that allowed two individuals, Messrs. Douglas Harless and Troy Testa, to work remotely from their homes in the Eastern District of Texas. Mr. Testa worked as a senior territory manager for Clay from 2010 to 2011 (i.e., before suit was filed by Raytheon). Mr. Harless worked as a sales executive for Clay for seven years. His responsibilities included new sales and new account development in the central United States. Cray reimbursed Mr. Harless for his cell phone usage, internet fees, and mileage for business travel. Cray also provided Mr. Harless with administrative reports from its Minnesota office. Mr. Harless sent customers price quotations identifying himself as the account executive that prepared the quotations and listing his home telephone number in the Eastern District of Texas as his office telephone number. Mr. Harless did not maintain Cray products or literature in his home, and Cray never paid Mr. Harless for the use of his home, nor did Cray publicly advertise or otherwise indicate that Mr. Harless’s home was a Cray place of business.
In finding that the Eastern District of Texas erred in denying Cray’s motion to transfer, the federal circuit found the venue statute’s third requirement dispositive. According to the court, Cray did not have a regular and established place of business in the Eastern District of Texas, at least because: Cray did not own, lease or rent Mr. Harless’s or Mr. Testa’s home (or any portion of their homes); neither Mr. Harless nor Mr. Testa demonstrated Cray products from his home; there was no evidence that Cray had a role in selecting the location of their homes, stored products or literature in their homes, or conditioned their employment on the maintenance/retention of their homes; and there was no evidence showing that Cray considered a location in the Eastern District of Texas to be important to its business and/or that Cray intended to maintain a place of business in the district in the event Messrs. Harless and Testa left the Eastern District of Texas.
III. Conclusion
While the Federal Circuit in In re Cray Inc. emphasized that no one factor is dispositive in the venue analysis and that the entirety of the relevant evidence must be considered, the federal circuit’s September 21, 2017, decision is the most recent – and most significant – step in providing district courts and litigants guidance on where venue in patent infringement cases lies after TC Heartland.