Patent Venue: Cyberspace does not Expand Place of Business

Important mandamus order narrowing patent venue. In re Cray (Fed. Cir. 2017) [Read the Case]

Following the Supreme Court’s decision in TC Heartland, the debate has moved to interpretation of the requirement that an infringement defendant have either residence or “a regular and established place of business” in the chosen venue.

Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business. 28 U.S.C. § 1400(b).

In Raytheon v. Cray, the defendant is a Washington corporation with facilities in Austin and Houston – both of which are outside of the Eastern District of Texas. Still, E.D. Texas Judge Gilstrap found the company to fit within the regular and established place of business venue requirement based upon evidence that. Two Cray sales executives worked from home within the district – developing new sales and accounts worth ~ $350 million over the past 7 years.  The execs received reimbursement for certain utilities and charges within the district and publicly advertised their “office” phone numbers within E.D. Texas.

In the process of deciding its case, Judge Gilstrap also set forth an open four-factor test finding a regular and established place of business: physical presence, defendant’s representations, benefits received, and targeted interactions with the district.

As a general matter, Judge Gilstrap’s interpretation appears fairly broad, and on writ of mandamus, the Federal Circuit has rejected Gisltrap’s analysis and directed that he transfer the case to a more appropriate venue.

As a patent-focused statute, the Federal Circuit applies its own law to interpret the scope of 1400(b).  Here, the Federal Circuit interprets the requirement of a “regular and established place of business” to require three key elements: (1) a physical place within the district (2) that is a regular and established place of business (3) of the defendant.  The key focus here – regular and established place of business – i.e., a place of business that is both regular and established. According to the appellate panel these elements are requirements of the statute and all of them “must be present” for venue to be proper under the provision.   Thus:

The district court’s four-factor test is not sufficiently tethered to this statutory language and thus it fails to inform each of the necessary requirements of the statute.

According to the appellate panel, a court’s venue inquiry walk step-by-step through each of the requirements of the statute to ensure that each is present. “We stress that the analysis must be closely tied to the language of the statute.”

In looking at the application in this particular case, the Federal Circuit found that the home office and local sales were not sufficient to fill the statutory requirements.

= = = = =

The decision here further solidifies the impact of the TC Heartland case — spreading jurisdiction out and away from E.D. Texas.

Of note, in its analysis, the Federal Circuit paid special attention to historical application of the statute that was originally adopted in 1897.  At that time, one congressman indicated its purpose was to “give original jurisdiction to the court where a permanent agency transacting the business is located.” 29 Cong. Rec. 1900 (1897) (statement of Rep. Lacey).  The court favorably cited pre-Federal-Circuit cases from the various circuits. Phillips v. Baker, 121 F.2d 752, 756 (9th Cir. 1941) (“A ‘regular place of business’ is, obviously, a place where such business is carried on ‘regularly’ and not merely temporarily, or for some special work or particular transaction.”); Knapp-Monarch Co. v. Casco Prods. Corp., 342 F.2d 622, 625 (7th Cir. 1965); Remington Rand Bus. Serv. v. Acme Card Sys. Co., 71 F.2d 628, 629 (4th Cir. 1934);  Am. Cyanamid Co. v. Nopco Chem. Co., 388 F.2d 818, 820 (4th Cir. 1968); Grantham v. Challenge-Cook Bros., Inc., 420 F.2d 1182, 1185–86 (7th Cir. 1969); Univ. of Ill. Found. v. Channel Master Corp., 382 F.2d 514, 516 (7th Cir. 1967); Shelton v. Schwartz, 131 F.2d 805, 808 (7th Cir. 1942).  In addition, the court revisited its important Cordis decision on point: In re Cordis Corp., 769 F.2d 733 (Fed. Cir. 1985).

= = = = =

The opinion here is by Judge Lourie and joined by Judges Stoll and Reyna, and the basic holding is that the statute means the same as it did in 1897 and the same as it did in the 1940s and the same as it did in the 1980s (the last time it was interpreted directly).  Even if taken en banc, I would not expect any significant departure from this result.

64 thoughts on “Patent Venue: Cyberspace does not Expand Place of Business

  1. This is easily one of the worst-reasoned opinions from the Federal Circuit this year. It’s a joke that this panel tries to distinguish Cordis. That’s an affront to Judge Friedman, who authored, Cordis, as well as Markey and Rich–all three of whom are rolling their graves at the thought that the Federal Circuit can so easily issue an outcome-driven opinion with such poor legal reasoning. When this panel has to write “We stress that no one fact is controlling,” you know there is something wrong, particularly when the opinion essentially hangs its hat on the “physical location” requirement.

    1. Yes, this decision makes extensive efforts to distinguish Cordis on its facts. But also Cordis was not binding precedent, since a grant or denial of mandamus, unlike a normal appeal, is discretionary, as they noted. Also, it was before the Supreme Court’s decision in TC Heartland. This is the first Fed. Cir. venue decision since then. But not the first Fed. Cir. mandamus decision overruling E.D.TX venue transfer refusals on other grounds [ever since E.D.TX’s own 5th Cir. did so in the Volkswagen case.]

      1. Yes, this decision makes extensive efforts to distinguish Cordis on its facts.

        This decision is abysmal for its treatment of the facts.

      2. With respect, your comment is incorrect. To say Cordis wasn’t binding precedent misunderstands the appellate and mandamus process, and the effect of mandamus decisions. Of course, Cordis was binding precedent. And if you think Cordis isn’t binding precedent, then the court’s current decision in Cray is not binding precedent.

    2. Cordis strikingly similar on the facts and procedural posture, and it was a solid panel applying the Fourco test and the mandamus standard of review.

      I don’t think Cray is inconsistent with Cordis, though, except in one way–which is that Cray is more aggressive/active/engaged/ [insert appropriate synonym here] with the mandamus standard of review than the Cordis panel was. The Cray panel could easily have denied the petition on the theory that Cray’s right to relief wasn’t “clear and indisputable.” That’s more or less what Cordis did.

      Nonetheless, Federal Circuit mandamus practice in 2017 isn’t what it was in 1985. In In Re Volkswagen, 545 F. 3d 304 (5th Cir. 2008), the CA5 sat en banc and issued a writ of mandamus ordering the Eastern District of Texas to grant a transfer motion. Ever since that case, the Federal Circuit has been more willing to issue writs of mandamus to decide important threshold issues. TC Heartland would seem to encourage this trend further. The Supreme Court didn’t seem to be bothered by the interlocutory posture or the highly deferential mandamus standard. If the Supreme Court in TC Heartland and the 5th Circuit in In re Volkswagen weren’t bothered by the mandamus posture, it’s hard to see why the Federal Circuit should have been bothered in this case.

      Also, Cordis says this: “The use of mandamus however is limited to exceptional circumstances to correct a ‘clear abuse of discretion or ‘usurpation of judicial power” by the trial court.” The 1985 Federal Circuit didn’t have the experience the 2017 Federal Circuit does with a decade-plus of shenanigans by the Eastern District of Texas.

      1. The 1985 Federal Circuit didn’t have the experience the 2017 Federal Circuit does with a decade-plus of shenanigans by the Eastern District of Texas.

        Where are the actual censures for these shenanigans?

        If there is a problem – the answer is NOT playing “move the venue” games.

        The answer is in fixing the problem and then applying that fix to ALL venues.

        1. That seems to be what the court did here. Venue is an issue that comes up early in cases, so district courts can issue rulings on venue, and it may take years before the Federal Circuit can review those rulings because there’s no final judgment. Ordinarily, I think mandamus is reserved for glaring errors by the district court, where the petitioner’s right is “clear and indisputable.” That’s the way the Cordis panel looked at the question — they didn’t say that venue was proper there; only that the district court’s opinion was rational and arguable enough that mandamus was inappropriate:

          As noted by our predecessor court the remedy of mandamus is “strong medicine” to be reserved for the most serious and critical ills, and if a rational and substantial legal argument can be made in support of the rule in question, the case is not appropriate for mandamus, even though on normal appeal, a court might find reversible error. …

          As the record indicates that a rational and substantial legal argument may be made in support of the court’s order denying Cordis’ motion to dismiss for lack of proper venue, we decline to issue the writ.

          In 2017, though, there’s a line of cases that allows for mandamus review for “supervisory” reasons on “unsettled and important” issues. It looks a lot like the Supreme Court’s certioriari jurisdiction. Under that view, the district court’s decision doesn’t need to be totally irrational; it just needs to be wrong about an unsettled and important issue (or so it appears).

          Although the law was unclear and the error understandable, the district court abused its discretion by applying an incorrect legal standard, which we now clarify in this opinion.
          ….
          We conclude that mandamus here will further “supervisory or instructional goals” on an “unsettled and important” issue, an
          appropriate basis upon which to grant the mandamus petition. In re Queen’s Univ. at Kingston, 820 F.3d 1287, 1291 (Fed. Cir. 2016) (quoting In re Nintendo Co., Ltd., 544 F. App’x 934, 936 (Fed. Cir. 2013)); see also BP Lubricants, 637 F.3d at 1313.

          I would suggest that EDTexas shenanigans have made reviewing courts less hesitant to exercise mandamus review in the last 10 years. In re Volkswagen in the 5th Circuit, TC Heartland in the Supreme Court (not an ED Texas case, but ED Texas shenanigans were the elephant in the room. The Texas AG’s amicus brief in that case is worth a read), and a bunch of cases in the CAFC. Dennis’s posts on the Volkswagen case are worth reading too. link to patentlyo.com

          1. That seems to be what the court did here.

            Except that is not a censure.

            That is not a correction of the ability of a single court to do something, and then changing all courts to institute that correction regardless of the venue game.

            No, dcl, this is NOT what I suggest.

            Not in the least.

    3. JRG, agreed. Cordis remains controlling law as this panel has no authority to overturn it.

      Where there are facts like those in Cordis present, the Federal Circuit will follow it, I am sure.

      1. the Federal Circuit will follow it, I am sure

        Really?

  2. Doesn’t this put the cart before the horse:

    or where the defendant has committed acts of infringementand has a regular and established place of business?

    How can proper venue be decided under this part of the rule before a triall has determined there was an act of infringement?

    1. No. It’s based on the allegation of where infringement occurred.

  3. I think anon has it right. Their offices were in the E.D. of Texas whether or not the goon squad thinks so or not.

    And, anon, has a very good point that for all other purposes related to the government, your office is where you are sitting and working. I.e., the IRS, state bars, state taxes, etc. So, the goon squad just came up with their own little private rule for their judicial activism purposes.

    1. for all other purposes related to the government, your office is where you are sitting and working. I.e., the IRS, state bars, state taxes, etc.

      LOL

      Folks, this is why you don’t get legal advice off the Internets.

      Pro tip: Bob and Doug Cray weren’t the plaintiffs in this lawsuit.

      1. Nor were they the defendants. They were employees who worked from home.

      2. Pro tip: Bob and Doug Cray weren’t the plaintiffs in this lawsuit.

        Pro tip: go back and learn agency law.

        1. Pro tip: citations and explanations are useful.

          What does whether or not these sales representatives were agents have to do with whether there was Cray maintained “regular” and “established” place of business there? I doubt these people had signs out in front of their houses saying “CRAY ENTERPRISES” or whatever, nor do I doubt that Cray listed these people’s home addresses as being part of its business. Nor do I imagine Cray had any control over these people’s homes–it’s not as though Cray could like schedule conferences or whatever. Cray did not maintain a place of business there, as any reasonable human being who speaks English can tell you.

          You are conflating two entirely different parts of the law. The statute means what it says. The language is not that difficult. What part of “regular” “established” and “place of business” do you have difficulty understanding?

          1. Do you understand why agency law is mentioned?

            This is NOT conflation.

    2. Really? Does this mean that my home is a law firm?

      1. Does this mean that my home is a law firm?

        Yup. Also that hotel you frequently stay in and that grocery store where you frequently check your work email.

      2. Marshall Isdun: a quip. Such a smart little boy.

        In my case, I am practicing law in the state I sit according to the state bar, and I have to fill out forms each year. I have to pay state taxes. Etc.

        Do you have a point?

        1. Do you have a point?

          Yes his point was that when law firm employees work from their home it doesn’t turn their home into a regular and established place of business of the law firm.

          Nuance! It’s really tough for the patent maximalists, the worst people in the world and also the st 0 0 pi dest.

          1. Nuance! It’s really tough for…

            From the most obtuse person on these boards…

            Stultifying.

      3. Marshall, do you claim a home office for income tax purposes?

      4. From the buffer….

        Your comment is awaiting moderation.
        September 22, 2017 at 5:21 pm

        The great legal answer:

        It depends.

    3. Also, I’m pretty sure you’re wrong about taxes and state bars etc. Let’s say (Ahem) that I work at a law firm in Manhattan. I have a New York law license. But, because prices in Manhattan are insane, I live in Jersey. My firm has a lax work from home policy, and I work from home alot because, you know, transit sucks alot.

      My firm does not have to pay NJ taxes from the fees I earn while working form home, and I do not have to have a NJ license simply because I’m working in NJ. How is this any different? From what I can tell, these people weren’t strategically placed there because they were servicing that area, they were there because of personal reasons, and their business allowed them to work from home.

      1. Let’s move you to entirely working out of your home in Jersey.

        Do you still think your “set-up” is kosher?

        Would you mind explaining that to the New Jersey tax collectors…?

        1. I pay New Jersey income taxes no matter what. However, the law firm does not pay it’s income taxes in NJ simply because of the fact that I work from home. Even if I never went into the office (like some partners, basically) their office is still in NYC.

  4. Note that the “$350 million in sales over the past 7 years” allegedly developed by 2 Cray sales executives allowed to work from home in E.D. TX [instead of at their office outside E.D.TX] is not even asserted to be any sales of any Cray products to anyone in E.D. TX, and the recited facts suggest otherwise.
    [Not surprising – no need for a big and very expensive supercomputer to count cows, or even local counsel fees.]

    1. Gilstrap would have been satisfied if they’d used an ATM in East Texas.

      These guys are going to shrivel up fast without the attention they crave.

    2. Paul,

      The Eastern District of Texas contains the two highest per capita income counties in Texas with populations over 100,000 (large cattle ranches and/or oil holdings can really skew the less populated counties’ stats), Colin and Denton. Some of the latest corporate residents include the North American offices of Toyota and Nissan, FedEx , a division headquarters of Boeing, Raytheon’s Space and Airborne Systems headquarters, and more.
      I’ll bet there might be a super computer or two in the eastern district.

      1. I wouldn’t know, I only checked out the industries in Marshall Texas where most patent cases end up. It warn’t none of them. What towns are those in?

        1. The cities of Denton, Frisco (new home of the Dallas Cowboys), McKinney, most of Plano, and more “burbs” than you’ll never hear of, but mainly its the northward flow of the Dallas suburbs taking advantage of all that room. A handful of Apple stores, I believe Denton has an Amazon shipping center, and a whole lot more technical infrastructure is around, so the Eastern District may slow down but will still do it’s fair share of business (way to much for the patent haters’ tastes).

          1. PI, you are confusing “patent haters” with all those simply hating being forced to very inconveniently and wastefully travel back and forth to, and live in for days, little Marshall Texas, an out of the way place that had no relationship at all to thousands of companies sued there for patent infringement over the years.

      2. I believe both of those counties are in the Sherman Division. Yet, barely any cases were ever filed in that division or before Judges Schell or Mazzant, who sit in Plano and Sherman respectively. So what’s going on? Why does ED Texas allow you to pick your judge by filing in a specific division, in which there may only be 1 or 2 judges? Also, why are there so many different courthouses in the district? Seems like a waste of taxpayer money.

  5. based upon evidence that. Two Cray sales executives worked from home within the district

    Is a home office “cyberspace” for tax purposes?

    Since the “presence” is not “real” for patent purposes (seemingly making a somewhat special “patent” exception), is this something that the Supreme Court would frown upon?

    1. the “presence” is not “real” for patent purposes

      What in the world are you rambling on about now?

      1. Seriously?

        “Home office” somehow confuses you?

        1. “Home office” somehow confuses you?

          Not at all. What confuses me is the nonsense that you wrote, which I quoted verbatim in my comment.

          You do know how to read, don’t you? Of course you do. Now run along and go kick dust in someone else’s face you silly person.

          1. Home office is related to the quote you presented.

            You do know how to read, don’t you?

            Indeed – Malcolm ploying his number one meme of Accuse Others….

            1. Home office is related to the quote you presented.

              So is Led Zeppelin’s 7th studio album. That doesn’t impart meaning into your nonsense.

              1. Except the relation here does matter – in the legal context.

                Obtuse. Is it deliberate?

                1. Yes, we’ve seen this shtick before.:

                  Malcolm’s Accuse Others meme….

                  Seen countless times over the last eleven and half years.

                2. Every time you two go at it I’m reminded of the crotchety old men in the theatre box on “The Muppets”. Sometimes I wish Dennis would put a limit on this non-sense. It usually takes a couple of posts before it devolves, but not always. Just my two cents, no need of you two being on the same side of an argument with me.

                3. Patent Investor,

                  You should pay closer attention to the exchanges.

                  While I will add barbs (in addition to solid content), Malcolm only (except on the rarest of occasions) have barbs – and barbs that miss at that.

    2. Agreed

      Since equivocation, whether explicit or implicit, straddles the voluntarily blurred boundary of reality and subjectivity in the minds of many, it becomes eminently convenient (unsurprisingly) for one to have the ability to err on whatever side which produces the desired result, reality and reason notwithstanding.

      1. There certainly seems to be a driver here of a specific desired result.

        Perhaps the CAFC panel should review agency law…

      2. I do note that there is a long line of cases supporting the outcome here – there is a path of “means” to this desired Ends.

        But those long line of cases seem to make a consistent Ends of not finding venue even though a plain factual understanding (vis a vis agency) SHOULD dictate a different result.

    3. I think anon has it right. Their offices were in the E.D. of Texas whether or not the goon squad thinks so or not.

      And, anon, has a very good point that for all other purposes related to the government, your office is where you are sitting and working. I.e., the IRS, state bars, state taxes, etc. So, the goon squad just came up with their own little private rule for their judicial activism purposes.

      And some of the comments in this thread are absurd. How is it material to whether they sold the computers if the computer were not sold to a company in the E.D. of Texas? It is not relevant. They sold the computers no matter where the company that bought them was located. Just ridiculous comments again from people that don’t care about the law (or reality) and are only focused on weakening the patent system.

  6. So much for all the premature crowing that Gilstrap’s venue decision was the law.

    1. Hadn’t heard any such crowing…

      1. ABOTA threw a tantrum after Rep. Issa described Gilstrap’s decision as “overreach” and “reprehensible.”

        1. Issa is a piece of work himself.

          Not sure who ABOTA is, and certainly do not remember any tantrums…

          1. Issa is a piece of work himself.

            Yes he is. But he was right about King Rodney.

    2. This is just a ridiculous comment from Paul F. Morgan. We all knew this was going to the CAFC.

  7. Sweet.

    The only downside to this is that we’re unlikely to see a repeat of that Academy Award winning performance a few years back. That’s when a grown up patent attorney — a Texan, for gosh sakes — openly wept on the stand because it was sooooooo unfair to suggest that there was anything unseemly going on in East Texas (widely understood to be the most fair and just place on the planet — positively dripping with compassion and understanding! LOL).

    1. Idk about fair but it is actually a pretty good looking courthouse if this is it.

      link to google.com

      I’m not sure where the samsung skating rink is though if that is the right building.

      1. 6, that building is gorgeous but it isn’t the federal courthouse. It is the old Harrison County Courthouse, now a museum.

        This is the federal courthouse – not nearly as impressive:

        link to google.com

        Also, I believe the skating rink is by the Tyler, TX courthouse. This is Marshall. There are 6 different court locations in E.D. Texas.

        1. The skating rink is between the old Harrison County Courthouse and the building that has Capital One Bank written on it, in Marshall. It’s only set up during the winter, of course, so you wouldn’t see it on Google Street view.

        2. Thanks, I thought it might be that one instead but I figured they’d be crazy to not be in the mazin’ building across the way.

          Man why do we just make shty buildings for gubmit nowadays?

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