United States: Under Patent Venue Statute, Servers Housed In Texas District Count As Regular And Established Place Of Business

The District Court for the Eastern District of Texas has denied Google's motion to dismiss or transfer the patent infringement case SEVEN Networks v. Google for improper venue, finding that Google's servers housed by third-party internet service providers within the district constituted a "regular and established place of business" under the patent venue statute. This previously sealed opinion rejects the notion that a "virtual" or "electronic" presence does not qualify as a regular and established place of business, and expands on last year's In re Cray ruling, potentially casting a wider net than intended by that precedential decision.

Background

SEVEN Networks filed suit against Google on May 17, 2017, alleging, inter alia, patent infringement. Google contested venue. The court granted the plaintiff's motion for venue discovery, after which, on March 15, 2018, Google once again renewed its motion to dismiss—the motion at issue here. 

Both parties agreed that Google does not reside in the Eastern District of Texas. The dispute thus focused on the second part of the statute and whether Google's servers were regular and established places of business consistent with the September 2017 In re Cray decision, in which the Federal Circuit set forth three requirements for interpreting "regular and established place of business" under the patent venue statute. The requirements state that (1) the location must be a "place," (2) that place must be "regular and established," and (3) the place must be "of the defendant."

At issue in the SEVEN Networks case were Google Global Cache servers—known as GGC servers. As described in the opinion, GGC servers are located throughout the United States, including within the Eastern District of Texas, and function as local data warehouses in which Google caches content, including video advertising and apps, and from which Google quickly delivers that content to users. The GGC servers are housed in space Google leases from ISPs, whereby Google provides hardware and software to be housed in ISP facilities, technical support, service management of the hardware and software, and content distribution services, including content caching and video streaming. All ownership rights, title and intellectual property rights in and to the hardware and software remain with Google and/or its licensors.

District Court Decision

In denying Google's motion to dismiss on July 19, Judge Rodney Gilstrap, who wrote the In re Cray denial of transfer that was subsequently vacated by the Federal Circuit, recited each of the factors in the In re Cray analysis. The court addressed each of the requirements, as well as whether acts of infringement had been properly alleged, finding that both the GGC servers and their location within the district, independently and together, met the statutory requirement of a "physical place." Though the Federal Circuit stated that the patent statute "cannot be read to refer merely to a virtual space or to electronic communications from one person to another," the court determined that the inclusion of "merely" indicated that both a virtual space and electronic communications may be indicative of the requirement having been met where additional facts are present.

Not Just Leasing Digital Space

The court found that unlike merely a virtual space or electronic communications, here, the "place" was specifically localized: a physical server occupying a physical space. The court found it important that Google exercise exclusive control over the digital aspects of the GGC, the physical server, and the physical space within which the server is located and maintained. It concluded that Google did not just lease digital space or computing power, but rather owned servers in a physical space that were under Google's dominion and, once installed, were permanent fixtures that could not be moved without its permission. The court acknowledged that its conclusion was in direct contradiction to a different court in the district that had earlier determined in Personal Audio v. Google that these same GGC servers were not places under the patent venue statute.

Local Data Warehouses

The court also found that the GGC servers and their locations within the district constituted "regular and established places of business" because Google's business is done at and through the GGC servers. The court concluded that the GGC servers carry out a useful role in Google's business by more efficiently connecting ISP customers to Google content. The court affirmed that warehouses are unquestionably considered places of business under the statute and characterized the GGC servers as local data warehouses, storing information in local districts to provide Google's users with quick access to cached data while avoiding the delays of distant data retrieval. The court refused to examine the "effect" a particular place or places of business has on a company's overall business because, it said, the statute does not require "substantial" business or "large" impact from the business being done at a specific location, just that a regular and established place of business be present. 

Ownership and Control

The court likewise found that the GGC servers and the locations within the district where they reside are "of Google" as both are under Google's exclusive control. Google's ownership of the servers and their contents is absolute, as is its control over the servers' location, once installed, thus fulfilling the third requirement.

Additionally, the court determined that the allegations of infringement were enough to satisfy the separate statutory requirement that acts of infringement occur in the district. The court rejected Google's argument that direct infringement of a method claim by Google alone and entirely within one district is required to satisfy the patent venue statute. The court concluded that it is adequate to plead that a step of a method claim is performed in the district; to rule otherwise, according to the court, would prevent many plaintiffs from bringing suit in districts other than where a defendant resides.

The court also rejected the argument that venue is proper only where the defendant has committed acts of infringement at their regular and established place of business. The place of business need not be the location of the alleged patent infringement.

Takeaways

This opinion seemingly expands the understanding of what can constitute a "regular and established place of business" under the patent venue statute to include virtual and electronic presences, casting possibly a wider net than intended by In re Cray. (Read our analysis of that ruling in "Federal Circuit Provides Much Needed Patent Venue Guidance Post TC Heartland.")

As acknowledged by the court, this opinion directly contradicts the sister opinion in Personal Audio v. Google that held that the same GGC servers do not constitute or help demonstrate a "regular and established place of business." Only eight months earlier under the In re Cray framework, Judge Ron Clark, writing for the court, rejected the contention that the GGC servers satisfy the requirement of a "physical place" because they are not a building or physical quarters of any kind and found that, while Google's business may rely on the GGC servers, that did not amount to Google carrying out its business from their location. Further, the court was not persuaded that Google exercised sufficient control over the servers for them to be "of Google," as required by the third prong of In re Cray, because the servers are part of the third party ISP's network environment. Given this court's opposite conclusions as to what can constitute a "place" under In re Cray, it would not be surprising if the Federal Circuit again addressed the patent venue statute.

For now, though, it seems that customers of companies such as Google or Amazon Web Services that do not reside in the district, nor have physical stores therein, will not be found to have a "regular and established place of business" in the Eastern District of Texas. In a footnote, the court indicated that the exclusive control over digital aspects of a system, such as GGC—not including the physical servers—"may well constitute 'merely' a 'virtual space' without more and, thus, not meet the statutory requirement." The court added that "while an Amazon Web Services data center may be located in a particular district, an online business which utilizes Amazon's cloud web hosting solution on the terms offered by Amazon and without any physical equipment of its own present within the data center would, undoubtedly, not be subject to proper venue under § 1400(b) in that district." ​

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