United States: Google Gets Out Of Texas In Its First Post-TC Heartland Transfer

Last Updated: January 4 2018
Article by RPX Corporation

A patent infringement suit brought against Google by Personal Audio, LLC has been transferred from the Eastern District of Texas (1:15-cv-00350) to the District of Delaware (1:17-cv-01751) due to improper venue. This appears to be the first time that a court has transferred a case against Google for that reason since the US Supreme Court issued its May 22 opinion in TC Heartland, which held that the narrower patent venue statute (28 USC Section 1400(b)), not the general venue statute (28 USC Section 1391), governs in infringement suits. In addition to the issue of venue propriety itself, the court also ruled on two other, threshold issues related to venue that had not been previously addressed by TC Heartland or subsequent cases: that the burden of proof for venue challenges falls on the plaintiff, under prior precedent for the patent venue statute; and that venue in patent suits should be analyzed based on facts and circumstances existing at the time a suit is filed, in light of the text of the statute.

The court began its analysis, issued in a December 1 order, by quoting the Federal Circuit's holding from In re Cray, which established three general requirements for assessing whether a defendant has a "regular and established place of business" in a district: "(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". Judge Clark then noted that neither Cray nor TC Heartland had provided guidance on two threshold issues for determining proper venue under Section 1400(b): which party has the burden of proof, and "the date or time at which the defendant must have had a regular and established place of business".

The court addressed the first of those issues by reviewing prior case law, noting that while there had not been a Federal Circuit opinion on the burden of proof for improper venue challenges brought by corporate defendants under 1400(b), circuit court opinions from before the Federal Circuit was formed "are considered persuasive". Judge Clark then highlighted the Seventh Circuit's 1969 holding in Grantham v. Challenge-Cook Brothers, in which the court "put the burden on Plaintiff to establish proper venue" and "emphasized that the patent venue statute 'should not be liberally construed in favor of venue'". The court had "located no compelling authority suggesting that it should ignore the reasoning of Grantham" and deemed it "persuasive", noting that the case had been cited with approval in Cray. Judge Clark then observed that while the Federal Circuit has never explicitly addressed the issue of burden of proof under 1400(b), it appeared to place the burden on the plaintiff in its ruling from In re Cordis, the only case before Crayin which the court had addressed the propriety of venue under the "regular and established place of business" prong. Given the lack of Federal Circuit cases placing that burden on the movant/defendant, Judge Clark concluded that under TC Heartland, "and guided by the earlier decisions on burden of proof in such cases", the burden of proof here fell on Personal Audio.

Next, in its analysis of the time when the propriety of venue should be assessed, the court looked to the text of the patent venue statute itself. Here, Judge Clark noted that the statute uses the present tense in language stating that venue is proper where the defendant "resides" and where it "has a regular and established place of business" (emphasis in original). Judge Clark further observed that "Congress did not tie venue to any jurisdiction in which a cause of action had accrued". Applying what it deemed strict statutory construction, the court then held that "venue under § 1400(b) should be analyzed based on the facts and circumstance [sic] that exist on the date suit is filed". By so ruling, the court rejected Personal Audio's argument that the "accrual standard" applied, holding that the two cases cited by the NPE were inapposite. The first of these, the district court case Raytheon v. Cray, had been overturned by the Federal Circuit's ruling in Cray. Meanwhile, Judge Clark characterized the holding in the second case, Welch Scientific v. Human Engineering Institute—in which the Federal Circuit held that venue is proper when the defendant has a "regular and established cause of action at the time . . . the alleged infringement occurred", and when "the suit was filed a reasonable time thereafter"—as essentially grounded in equity rather than statutory interpretation, declining to revisit the case as to the latter issue.

Having thus resolved those threshold issues, the court turned to the issue of whether venue was proper against Google. The court dispensed with the first prong of Section 1400(b) in one sentence, holding that Google does not reside in the Eastern District of Texas because it is a Delaware corporation. As to the second prong, Judge Clark held that under a plain reading of Section 1400(b), Personal Audio had to show that Google had a "regular and established place of business" as of September 15, 2015, the lawsuit's filing date. To that end, Judge Clark recounted the timeline of Google's use of an office in Frisco, located within the Eastern District. He then held that by the preponderance of the evidence presented, Google had sufficiently shown that the office was its "regular and established place of business" under the patent venue statute "between November 2011 and December 2013". As a result, the court held, Personal Audio had not met its burden to show that Google had a "regular and established place of business" there as of the lawsuit's filing date. The NPE had also failed to show that venue was proper under Welch Scientific due to Google's use of the space between December 2013 and August 2015, during which time the defendant removed its business from that office space and subleased it to an unrelated company, Quest Resource Management, with the court finding that the space was "more likely a regular and established place of business for Quest rather than Google".

The court also rejected Personal Audio's argument that the presence of certain servers in the Eastern District of Texas (Google Edge Nodes or Google Global Cache; collectively, "GGCs") means that Google has a "regular and established place of business" there. For this portion of its analysis, the court cited a passage from Cray establishing that the statute requires "a place, i.e., a building or part of a building set apart for any purpose or quarters of any kind from which business is conducted. The statute thus cannot be read to refer merely to a virtual space or to electronic communications from one person to another" (emphasis added). While positing that servers could loosely be defined as a "place" under the statute, "or perhaps as the 'location' of 'the cloud'", Judge Clark held that [t]hey are not a building or physical quarters of any kind". He further noted that the server rooms themselves, "if any", are not Google property, having previously recounted that Google had shown that local Internet service providers determine the location of GGCs without its input. As a result, Judge Clark concluded that "GGC servers are not 'places' under the meaning of the statute and therefore cannot establish a regular and established place of business" in the Eastern District.

Judge Clark then rejected Personal Audio's assertion that the activities of certain Google employees that had worked in the Eastern District established that Google had a "regular and established place of business" there, holding that these arguments do "not pass muster under the requirements set out by the Federal Circuit in Cray". (That last sentence nominally rejects "Google's argument about individual Google employees", but it is apparent from the court's subsequent analysis that it was Personal Audio's argument that Judge Clark was rejecting, not Google's.) Here, Judge Clark broke down the evidence according to the factors from Cray, noting that "[n]one of the employees took a tax deduction for using part of a home as an office"; that "[t]here is no evidence that these employees' employment was conditioned on their holding product inventory, marketing materials, or any other kind of product literature"; and that "[t]here is similarly no evidence that Google holds out the employees' homes as its place of business, through marketing materials or on the website for example", with the locations of those homes "not even publicly known". As a result, Judge Clark held, Personal Audio had not shown venue to be proper through those employees' work for Google.

Finally, Judge Clark opted to transfer the case rather than dismiss it due to improper venue as Google had requested. While noting that Personal Audio had not actually requested transfer in the alternative, Judge Clark cited the advanced nature of the case and found that the plaintiff will likely "be unfairly prejudiced by having to re-file and relinquish three years of potential damages pursuant to Section 286 of the Patent Act, which limits damages to those incurred during the six years before the date on which suit is filed". Given the absence of briefing as to a proper transferee venue, Judge Clark held that venue would be proper in the District of Delaware, Google's state of incorporation, and transferred the case there in "the interests of justice".

In another order also issued on December 1, Judge Clark denied Personal Audio's motion for sanctions against Google related to its conduct during the venue discovery process. The NPE argued in that motion that sanctions were warranted because Google had allegedly failed to produce certain documents and produced unprepared corporate representatives for Rule 30(b)(6) depositions. As to document production, Judge Clark held that Google had either made sufficient disclosures, that the documents not produced were irrelevant, or that their production would not have influenced the court's ruling on venue. Judge Clark rejected Personal Audio's argument as to the Rule 30(b)(6) depositions, holding that Google had complied with the court's discovery guidelines by preparing its witnesses for the permitted topics subject to discovery.

At issue in the transferred lawsuit are devices that include the Google Play Music application, with the two asserted patents (6,199,076; 7,509,178) generally related to audio player devices. For more information on the litigation between Personal Audio and Google, including Google's September 2017 declaratory judgment action against the NPE, the Patent Trial and Appeal Board's decision to cancel claims from both patents in inter partes reviews filed by Google, and the history of the asserted patents—including a dispute over ownership related to one of the inventors' contentious divorce—see "Google Files DJ Action Against Personal Audio in California as It Seeks Dismissal in Texas" (September 2017).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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