United States: Let’s Get Physical: The Federal Circuit Weighs In On Patent Venue After TC Heartland
Last Updated: October 2 2017

In its first opinion substantively addressing the ramifications of the Supreme Court's TC Heartland decision, the Federal Circuit roundly rejected Eastern District of Texas Judge Gilstrap's four-factor test for venue determination for patent infringement cases. Instead, the Federal Circuit adopted a three-prong approach focusing on the clear language of 28 U.S.C. § 1400(b), which requires that a "defendant has" a "place of business" that is "regular and established."

Cray Inc. petitioned the Federal Circuit for a writ of mandamus vacating Judge Gilstrap's order denying Cray's motion to transfer the underlying infringement case from the Eastern District of Texas to the Western District of Wisconsin. In re: Cray Inc., __ F.3d __, No. 2017-129 (Fed Cir. Sept. 21, 2017). In his order denying transfer, Judge Gilstrap concluded that Cray's single sales executive residing in and working out of his home in the Eastern District of Texas established that Cray had a "regular and established place of business" in the district, sufficient for venue under Section 1400(b). Raytheon Co. v. Cray, Inc., No. 2:15-cv-01554-JRG, 2017 U.S. Dist. LEXIS 100887 (E.D. Tex. June 29, 2017). He found that such facts closely paralleled those of Cordis, a thirty-year old case in which the Federal Circuit denied a petition for writ of mandamus despite Cordis not owning or leasing an office in Minnesota because Cordis employed two full-time sales representatives in Minnesota that, inter alia, stored Cordis documents and products in their home offices. Id. at *23 (citing In re Cordis Corp., 769 F.2d 733, 737 (Fed. Cir. 1985)). Judge Gilstrap also volunteered four factors to provide guidance pertaining to a regular and established place of business "in the modern area": 1) physical presence (while noting that "a fixed physical location in the district is not a prerequisite to proper venue"); 2) internal or external representations that it has a presence in the district; 3) benefits (e.g., sales revenue) received from its presence in the district; and 4) targeted interactions with the district. Id. at *32-37.

The Federal Circuit rejected Judge Gilstrap's four-factor test because it was not "sufficiently tethered" to the statutory language of § 1400(b). Cray, slip op. at *10. Instead, recognizing that the "world has changed since 1985" when Cordis was decided, but without overturning Cordis, the Federal Circuit set forth three requirements under Section 1400(b), all of which must be met to establish venue under Section 1400(b). Id. at *8. Namely: 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. Id.

As to the first factor, the Federal Circuit held that there must be a "physical, geographical location" in the district where the defendant conducts business. Id. at *11. A "virtual space" is insufficient. Id. Addressing the second factor, and specifically in the context of employees working from home, the Federal Circuit held that if an employee enjoys autonomy to move his or her home out of the district without approval of the defendant, that fact cuts against the employee's home being defendant's "established" place of business. Id. at *12-13. And regarding the third factor, the analysis should include factors such as whether the defendant owns, leases, or otherwise exercises possession or control over the place (such as storing materials in the place so that they can be distributed from that location), or whether employment is conditioned on the employee's continued residence in the district. Id. at *13.

In applying this three-factor analysis to Cray's case, the Court held that the executive's home was not Cray's regular and established place of business. Id. at *15. Contrasting the facts with those of Cordis, the Court found no evidence that the executive's location in the Eastern District of Texas was material to Cray. Id. at *16. The Court held facts "merely show[ing] that there exists within the district a physical location where an employee of the defendant carries on certain work for his employer" are insufficient to establish a regular and establish placed of business for venue under § 1400(b). Id. at *19. It is also important to note that a "regular and established place of business"—in and of itself—is insufficient to establish venue. Under Section 1400(b), plaintiff must also prove that the defendant conducted "acts of infringement" in the district, a factor not at issue in Cray.

In the wake of TC Heartland and Cray, companies should actively evaluate the potential implications of their physical footprints to avoid being hauled into an unfavorable forum. Companies that allow employees to work remotely should evaluate such arrangements, being mindful that factors such as mandating where the employee resides, contributing to office costs, advertising such location as employer's own, or storing employers' documents or products there may enable plaintiffs to force the company to litigate in an unexpected forum. Patent plaintiffs should expect to conduct more pre-suit investigation, particularly in actions where defendant does not have a brick and mortar physical location. And all parties should anticipate a spotlight on patent infringement venue as not seen in years past.

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