Federal Circuit Further Clarifies Patent Venue Statute

Federal Circuit Recently Established New Test For Establishing Patent Venue

The Court of Appeals for the Federal Circuit recently established a new test for determining whether a corporation has a “regular and established place of business” for the purposes of establishing patent venue.

Prior Supreme Court Holding in TC Heartland 

The patent venue statute, 28 U.S.C. § 1400(b), provides that patent infringement actions “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.” If the venue is not proper, a defendant may move to dismiss the case or transfer it to a district in which the case could have been originally brought. 

In TC Heartland v. Kraft Foods Group Brands, 581 U. S. (2017), the U.S. Supreme Court addressed the first prong, holding that “a domestic corporation ‘resides’ only in its state of incorporation for purposes of the patent venue statute.” The Court’s decision reversed a long-standing Federal Circuit holding that a corporation is deemed to be a resident of any judicial district in which such defendant is subject to the court’s personal jurisdiction.

Federal Circuit

In June of 2017, In Raytheon Corp. v. Cray, Inc., Judge Rodney Gilstrap of the Eastern District of Texas denied a motion to transfer venue. In reaching his decision, Judge Gilstrap established a multi-factor test for determining what constitutes a “regular and established place of business” under 28 U.S.C. § 1400(b). The factors included: (1) physical presence in the district; (2) defendant’s representations regarding a presence in the district; (3) benefits received from its presence in the district; and (4) targeted interactions with persons or entities in the district. 

Cray, Inc. appealed the ruling via a writ of mandamus to the Federal Circuit. The federal appeals court granted the writ of mandamus and concluded, in a recent opinion, that venue was improper in the Eastern District of Texas. In rejecting the district court’s test for determining what qualifies as a “regular and established place of business,” the court wrote:

The statutory language we need to interpret is “where the defendant . . . has a regular and established place of business.” 28 U.S.C. § 1400(b).  The noun in this phrase is “place,” and “regular” and “established” are adjectives modifying the noun “place.”  The following words, “of business,” indicate the nature and purpose of the “place,” and the preceding words, “the defendant,” indicate that it must be that of the defendant. Thus, § 1400(b) requires that “a defendant has” a “place of business” that is “regular” and “established.”  All of these requirements must be present.  The district court’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.

In place of the district court’s test, the Federal Circuit crafted its own legal standard. Its three-pronged test includes the following requirements: (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. If any statutory requirement is not satisfied, the venue is improper under § 1400(b).

In this case, the Federal Circuit held that the district court erred in denying the motion to transfer since Cray did not have a regular and established place of business in the Eastern District of Texas. Cray is a Washington corporation which allowed two individuals to work remotely from their homes in Texas. The court found that Cray did not own, rent or lease the homes of these individuals, had not selected the locations of the homes, did not store products or literature in these homes, nor was there a showing that Cray intended to maintain a place of business there, should the two individuals move out of the district.

This latest patent venue decision is expected to further reduce forum shopping and make it easier and less costly to defend such suits. Rather than being forced to defend a lawsuit in the State of Texas, patent owners can only be sued in their state of incorporation or in a state where they have a regular and established place of business.

Do you have any questions? Would you like to discuss the matter further? If so, please contact me, David Einhorn, at 201-806-3364.