Texas Hold 'Em: Playing Your Cards Right For Defendants Working With Third Parties

For defendants working through third-party resellers, agents, contractors, or remote workers, a clear venue strategy is not just helpful—it's critical.

Texas is known for Tex-Mex, country music, and if you're a patent litigator—high-stakes intellectual property battles. The Eastern and Western Districts of Texas have been hotspots for patent litigation, attracting patent owners with its reputation for plaintiff-friendly juries. But for defendants, a venue challenge isn't always a losing hand.

Over the past five years, Texas courts have granted only 27% of motions to dismiss for improper venue. However, defendants whose presence in the district is limited to independent third-party relationships—rather than directly controlled offices or employees—may have stronger grounds to challenge venue. For example, a company that sells its products through third party Texas retailers without controlling how those products are marked or serviced may stand a better chance of defeating venue than one with tightly managed, in-state operations.

In these close-call cases, the difference often boils down to control. For defendants working through third-party resellers, agents, contractors, or remote workers, a clear venue strategy is not just helpful—it's critical.

Patent Venue Statute

In patent litigation, venue is strictly governed by 28 U.S.C. Section 1400(b). A defendant can be sued for patent infringement only:

1. In its state of incorporation.
2. Where it has committed acts of infringement and has a "regular and established place of business."

The Cray test established in Cray, 871 F.3d 1355, 1360 (Fed. Cir. 2017). breaks this down into three factors:

1. Physical Place: Defendants must have a physical place in the district.
2. Regular and Established: The location must be regular and not temporary.
3. Of the Defendant: The place must be controlled by the defendant, not just a third party.

For defendants working through resellers or contractors, the third Cray factor—control—is usually the most important and most contested.

Where Courts Draw the Line on Patent Venue

Recent cases illustrate how courts apply the Cray test—especially when third parties are involved. For defendants, the outcomes often hinge on the degree of operational control. The cases below highlight companies that operate through third-party relationships, including independent retailers, contractors, or remote employees in Texas:

1. Selling through Retailers May Not Be Enough

• Key takeaway: Merely having products on shelves in a district—even in physical stores—may not be enough if you don't control how they are sold.
• Defense tip: Highlight the lack of control over retail displays, pricing, and product placement. Ensure that agreements with third-party retailers clarify that you do not control the retail space and minimize any appearance of operational control.
• Key takeaway: The more operational control you have over third parties—through manuals, service contracts, or performance requirements, the more likely venue will stick.
• Defense tip: Avoid providing detailed sales or service instructions. Emphasize that the relationship with the retailer is transactional.
• Ice Rover v. Brumate (W.D. Tex. 2023): The court dismissed the case for improper venue because the defendants sold products through independent third-party retailers and exercised no control over product placement or pricing. Selling through platforms like Amazon does not establish a "regular and established place of business." See Ice Rover v. Brumate, No. 622CV00794ADADTG, (W.D. Tex. Aug. 28, 2023).
• 3D Scan Guide v. Chrome Full Arch Guided Systems (E.D. Tex. 2024): In contrast, venue was proper where the defendant provided detailed, step-by-step instructions to third party retailers on how to sell and service its products. See 3D Scan Guide v. Chrome Full Arch Guided Systems, No. 2:23-CV-00194-JRG, (E.D. Tex. Mar. 14, 2024).

2. Employees that Work from Home? Maybe.

• Key takeaway: If you let employees operate with your tools, vehicles, or name—especially if governed by detailed procedures—you may be subject to that venue.
• Defense tip: Make clear policies that employees work remotely by their own choice and don't perform critical business functions from home unless necessary. Also, avoid storing inventory in residential locations.
• IoT Innovations v. Monitronics International (E.D. Tex. 2023): Venue was upheld because the defendant's remote employees stored company-owned vehicles and equipment in their homes, and performed installations following strict company procedures. The court found that these homes were effectively business locations of the defendant. See IOT Innovations v. Monitronics International, No. 2:22-CV-0432-JRG-RSP, (E.D. Tex. Sept. 11, 2023), report and recommendation adopted, No. 222CV00432JRGRSP, (E.D. Tex. Sept. 27, 2023).

3. Licensing Software Alone Does Not Establish Venue

• Key takeaway: Licensing agreements including ongoing operational involvement are more likely to support venue. Simply authorizing use of software or trademarks may not be enough to establish venue.
• Defense tip: Structure licensing to reflect limited control. Avoid directing how licensees run their business, unless venue is acceptable in that location.
• Quantum Technology Innovations v. Valve (E.D. Tex. 2024): Valve licensed its Steam gaming platform to Texas gaming cafés, but exercised no control over their day-to-day operations. The court found that venue was improper. Valve's additional ties—such as selling gift cards and running cloud servers—were too attenuated. See Quantum Technology Innovations v. Valve Corporation, No. 2:23-CV-425-JRG-RSP, (E.D. Tex. Aug. 8, 2024).

If your business relies on third-party relationships in Texas, assess:

• Control: Do you direct how your product is marketed, sold, or serviced?
• Permanence: Is there a consistent business function occurring in the district?
• Physicality: Are employees or partners storing your equipment or performing core business functions locally?

To defeat venue, emphasize independence of third parties and absence of control. To support venue, plaintiffs will try to show interim control or operational integration.

Knowing the Odds: Bose Plays Its Hand Smart

When recently sued in the Eastern District of Texas, Bose responded with a declaratory judgement (DJ) action in Massachusetts, arguing venue was improper because it isn't incorporated in Texas and has no places of business there.

The plaintiff, FCS, pointed to Bose's use of authorized sellers and sales representatives within Texas. But, venue requires more than just shelf space. In 2020, for example, Bose chose to close all of its retail stores in Texas, preferring instead to sell online, or through third-party retailers such as Best Buy, Target, and Walmart. Courts have held that selling through big-box retailers, like Best Buy, without controlling how products are stocked, sold, or serviced, does not establish venue. In an earlier case, Bose demonstrated that it did not maintain "interim control" over any of the retailer's operations, employees, or inventory decisions. See Koss v. Bose, (W.D. Tex. June 22, 2021).

So, when FCS sued Bose for patent infringement in the Eastern District of Texas, Bose was prepared to move to dismiss the complaint for improper venue. See Compl., Fleet Connect Solutions v. Bose, No. 24-cv-00941, (E.D. Tex. Nov. 15, 2024). However, shortly after filing the declaratory judgement action, FCS voluntarily dismissed the EDTX suit on Feb. 4, 2025.

Knowing the Odds: Motion to Dismiss vs. Motion to Transfer

If dismissal is unlikely, a motion to transfer may be the next best play. For example, over the past five years:

• 27% of motions to dismiss for improper venue have succeeded.
• 45% of motions to transfer have succeeded.

Success varies by judge:

• Judge Payne (E.D. Tex.): 72% (of 29) of transfer motions granted.
• Judge Albright (W.D. Tex): 43% (of 327) granted.
• Judge Gilstrap (E.D. Tex.): 23% (of 33) granted.

Final Takeaways: Know the Cray Factorsand Know Your Control

Venue fights in Texas often come down to one question: Who is in charge? If you are working with third-party retailers, contractors, or remote workers—clarify that they operate independently. Avoid imposing the kind of direction that courts equate with control.

As the great song by Alabama goes, "If you're going to play in Texas / you've got to have a fiddle in the band." But in patent litigation? "If you're going to sue in Texas / you've got to meet the Cray factors."

Originally published by Texas Lawyer

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.