For decades, it was well-established that defendants in patent cases could be sued almost anywhere they were subject to the court’s personal jurisdiction. With wide-ranging venue options, patent owners often opted to bring suit in jurisdictions perceived to be plaintiff-friendly, most notably the Eastern District of Texas. The Supreme Court, however, reinterpreted the patent venue statute in its 2017 TC Heartland LLC v. Kraft Foods Group Brands LLC decision, dramatically reducing a plaintiff’s venue options in many cases.

Rejecting the longstanding focus on mere personal jurisdiction, the Supreme Court limited venue in patent cases asserted against a domestic corporation to the defendant’s state of incorporation or districts in which it has committed acts of infringement and has a regular and established place of business. While this change in the law has naturally caused more patent cases to be filed in Delaware (a popular state of incorporation), it has also raised questions as to what may be properly considered a “regular and established place of business” for purposes of patent venue. Prior to TC Heartland, the Federal Circuit last considered that particular venue provision in 1985. Needless to say, countless new business models have emerged since 1985 with the advent of the Internet and other e-commerce technologies. The nature of these technologies defies traditional notions of an established place of business, and, thus, courts have had to reevaluate what constitutes a “regular and established place of business” in the modern age. Though the Federal Circuit has now provided some additional guidance on this question, the law is still developing. This article will discuss the current state of the law as to patent venue as well as open questions that remain.

The Federal Circuit’s Guidance in In re Cray

After TC Heartland, a wave of venue challenges quickly followed, and district courts had to consider the meaning of a “regular and established place of business.” Not surprisingly, different courts offered different interpretations, prompting the Federal Circuit to step in and offer guidance in its In re Cray Inc. decision.

In re Cray dealt with a denial of a motion to transfer where the defendant, Cray, had an employee working remotely out of his home in the district. Using a broad-reaching test, the district court found that venue was proper because the employee’s home was a “regular and established place of business” as it was his primary worksite. Dissatisfied with this result, Cray filed a writ of mandamus, which the Federal Circuit granted.

In its decision, the Federal Circuit discussed what amounts to a “regular and established place of business” and identified three general requirements. A “regular and established place of business” is: (1) a physical place in the district; (2) that is a regular and established; and (3) is the place of the defendant. Though this is a fact-intensive inquiry with “no precise rule,” the Federal Circuit offered several observations for each factor.

First, the Federal Circuit defined “place” as a physical, geographical location in the district from which the defendant carries out business. Though a fixed physical presence (such as an office or store) is not required, the presence cannot only be “virtual space” or based on electronic communications from one person to another. The Federal Circuit further explained that an employee’s home might constitute a physical place of business of a defendant if the home is used to store the defendant’s products, product literature and documents or if the home is used as a distribution center or for other services.

Second, a “regular” place of business is one that operates in a steady, uniform, and orderly manner, and “established” means that it must show some degree of permanence and stability. The Federal Circuit suggested that the amount of time the business has been at the location matters, concluding that sporadic activity or a transient presence cannot establish proper venue. For example, a continuous, five-year presence is sufficiently “established” for venue purposes, but a business that semi-annually displays its products at a trade show in the district has only temporary presence. The Federal Circuit further stated that an employee’s ability to freely move his home out of the district without company approval would cut against the employee’s home as an “established” place of business of the defendant.

Third, the place of business must be truly “of the defendant” as opposed to simply a residence or home office of the defendant’s employee. Since it is common for employees to change jobs, the defendant must ratify the residence as being its place of business by, for example, publicly advertising it as such.

The Federal Circuit also noted the following relevant considerations: (1) whether the defendant owns, leases or exercises some control over a place; (2) the size of the business (small businesses may operate from a home as long as it is a place “of the defendant”); (3) whether the defendant conditions employment on an employee’s continued residence in the district or the storing of materials to distribute or sell from that place; (4) the defendant’s representations that it has a place of business in the district (e.g., listing the business on a website, directories or signs); and (5) the nature and activity of the alleged place of business in comparison with other places of business of the defendant in other venues.

While “no one fact is controlling,” if any of the three requirements are not satisfied, venue is improper under § 1400(b). Considering these requirements in the context of Cray’s facts, the Federal Circuit held that venue was improper because the employee’s home was not a business place of the defendant. Specifically, there was no evidence that Cray owned, leased or controlled any portion of the employee’s home. Cray also never conditioned employment on the employee’s continued residence in the district, paid him to store inventory or use his home to operate its business, or publicly advertised his home as a place of business for Cray. Because Cray found improper venue on the basis of the Federal Circuit’s newly-articulated test for a “regular and established place of business,” many patent litigants consider Cray to be favorable to patent defendants, and, indeed, the majority of post-Cray decisions have found plaintiff’s choice venue improper under the Cray test.

The Application of TC Heartland and In Re Cray by District Courts

While Cray provides meaningful guidance on the open issues following TC Heartland, the case law regarding what constitutes a “regular and established place of business” continues to develop, and it is important for litigants to be aware of the facts courts have found relevant in the venue analysis.

In particular, courts have routinely held that owning, leasing or operating a physical facility in the district—no matter the number of facilities[1]—is generally sufficient to establish venue over a defendant.[2] In one example, maintaining a call center in the district, even one operated by a third party, was enough to qualify as a regular and established place of business of the defendant.[3] But, in another case, a defendant’s mere ownership of property in the district, where that property is leased to and used by a third party unrelated to the defendant, was not sufficient to establish venue.[4]

Likewise, the physical presence of a related entitled (e.g., subsidiary or corporate affiliate) in a district may not be sufficient to establish venue, especially when corporate separation is maintained.[5] Further, courts have also found venue improper when a defendant used a third-party seller and distributor with a storage and fulfillment center in the district at which the defendant’s products might—at the sole discretion of the third party—be stored prior to selling to the end customer.[6]

Finally, courts have been unwilling to find proper venue solely on the basis of “virtual” presence or “e-commerce” in the district. For instance, one court held that a software company did not have a “physical, geographical location” in the district sufficient to establish venue, despite having a network of independent contractors who promoted the allegedly infringing products in the district.[7]

Practical Considerations and Takeaways

Given the dramatic changes in patent venue law over the last year, patent litigants have had to take a fresh look at where venue may be proper in their existing and future patent cases, and, in some cases, they have had to reevaluate conventional litigation strategies, especially in cases where a home or “friendly” jurisdiction may no longer be available.

With respect to venue analysis post-TC Heartland, the Federal Circuit and district courts have been reluctant to find a “regular and established place of business” where a defendant has only “virtual” presence in a district, such as Internet-based sales or leased server space. Rather, courts have concentrated on traditional notions of a physical presence of the defendant with a degree of permanence and stability and have declined to find proper venue when a defendant lacks such a presence in the district, even when the defendant conducts substantial business or has remotely operating employees there. That said, the case law defining what constitutes a “regular and established place of business” in the modern age is far from settled, and there is no doubt that patent litigants will continue to aggressively litigate these venue issues for some time to come.

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[1] Prowire LLC v. Apple, Inc., Civil Action No. 17-223, 2017 WL 3444689, at *7-8 (D. Del. Aug. 9, 2017) (rejecting the argument that one retail store is not enough to establish a permanent and continuous presence in the district).

[2] Plexxikon Inc. v. Novartis Pharma. Corp., No. 17-cv-04405-HSG, 2017 WL 6389674, at *1-2 (N.D. Cal. Dec. 7, 2017) (finding venue proper where a defendant leased and operated a manufacturing facility and a research facility in the district).

[3] Am. GNC Corp. v. ZTE Corp., CASE NO. 4:17CV620, 2017 WL 5157700, at *1 (E.D. Tex. Nov. 7, 2017).

[4] Pers. Audio, LLC v. Google, Inc., 280 F.Supp.3d 922, 932-33 (E.D. Tex. 2017).

[5] Post Consumer Brands, LLC v. General Mills, Inc., No. 4:17-CV-2471 SNLJ, 2017 WL 4865936 (E.D. Mo. Oct. 27, 2017).

[6] Reflection, LLC v. Spire Collective LLC, No. 17cv1603-GPC(BGS), 2018 WL 310184, at *2-4 (S.D. Cal. Jan. 5, 2018).

[7] Talsk Res. Inc. v. Evernote Co., 16-CV-2167, 2017 WL 4269004, at *4-5 (N.D. Ill. Sept. 26, 2017).

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