by Dennis Crouch
In re Volkswagen Group of America; In re Hyundai Motor America (Fed. Cir. 2022)
On appeal here, the Federal Circuit delved into franchise law — holding that independently owned and operated VW/Hyundai car dealerships located in the W.D. Texas do not count as a “place of business” of the car distributors. As such, venue is improper under 28 U.S.C. 1400(b).
In ordinary civil actions, venue is proper in any district that would have personal jurisdiction over the defendant. 28 U.S.C. 1391. Thus, for most federal cases, venue is not a major hurdle. But, in the 1800s, Congress created a special statute that substantially limits proper venue in patent cases (well before the expansion seen in Section 1391. In Fourco (1957), and again in TC Heartland (2017), the Supreme Court gave weight to the patent-focused statute. Today, there are two ways to show proper venue over a US corporate defendant:
- The defendant is incorporated in the state; or
- The defendant committed acts of infringement in the district and also has a “regular and established place of business” in the district.
TC Heartland, interpreting Section 1400(b).
In 2020, StratosAudio sued VW Group of America (VW) for patent infringement in Judge Albright’s court located in Waco, Texas. VW is incorporated NJ and does not have its own “place of business” in the district. However, there are VW dealerships in Waco and Austin. The question is whether those can count as a “place of business” for the defendant.
The laws of most states, including Texas, prohibit auto manufacturers and distributors from operating a dealership within the state. Still, Judge Albright found sufficient control by the distributor as well as ratification by the distributors.
On mandamus, the court further defined its requirements to determine whether a dealership can count as the place of business for a manufacturer or distributor:
- Is the dealership the VW’s agent?
- Does the dealership conduct VW’s business?; and
- Has VW ratified the dealership as its place of business?
Slip Op. These requirements stem from the court’s 2020 Google decision requiring physical presence of an “agent of the defendant conducting the defendant’s business at the alleged place of business.” In re Google LLC, 949 F.3d 1338 (Fed. Cir. 2020). In addition, the ratification requirement appears in Cray: “Thus, the defendant must establish or ratify the place of business. It is not enough that the employee does so on his or her own.” In re Cray Inc., 871 F.3d 1355 (Fed. Cir. 2017). These three elements are independent requirements that must each be met before a place-of-business maintained by a separate legal entity will “count” as the place-of-business of the defendant.
Not Agents: Here in particular, the court found that the dealerships located in W.D.Texas are not agents of VW Group of America. And, therefore, the dealerships are not a place-of-business of VW Group. The court’s approach was to follow the Restatement (Third) of Agency in focusing on the right of control/direction by the principal; and consent to the agency relationship by both the principal and agent. In the end, the court found that the dealerships had “full control over their day-to-day operations, such as sales.” Thus, the court found no agency relationship there. The court admitted some control over things such as:
- who can be employed, what roles are required, and other employment requirements;
- minimum inventory;
- requirement of performing warranty work (warranty is promised by VW, not the dealer);
- use specified tools when performing warranty and maintenance work;
- use distributor-approved computer hardware and software;
- compliance with distributors’ standards regarding dealership appearance and use of signs and brand logos;
- maintaining working capital;
- attending mandatory training and or certificates.
However, the court found that there was a lack of “interim control” once those parameters are set.
No agent, no place of business, no venue.
Fed Cir: a building that says VOLKSWAGEN, has VOLKSWAGEN signage all over it, has employees in it all wearing VOLKSWAGEN uniforms, and that exclusively sells and services VOLKSWAGEN vehicles, is not, in fact, VOLKSWAGEN’s place of business. https://t.co/f4GHOKD9Oq
— Paul R. Gugliuzza (@prgugliuzza) March 9, 2022