The Patent Venue Fight: The Final Chapter?

In previous posts here and here, I've describe the fallout from the Supreme Court's TC Heartland decision, which began to break up the Eastern District of Texas' hold on a large share of district court patent litigation. As further detailed here, I further described that the Eastern District of Texas' interpretation of 28 USC section 1400(b), which was construed in TC Heartland, authorized venue there even if the defendant had no physical location within that district.

Late last week, the Federal Circuit changed that. Issuing this order on a petition for mandamus in In re: Cray, the appellate court held that it was error for the district court to refuse to transfer that case. 

In particular, this newly-issued decision held that a "regular and established place of business" under 28 USC 1400(b) for patent cases must include these three components:

• there must be a physical place in the district; 
• it must be a regular and established place of business; and
• it must be the place of the defendant.

In Cray, the district court had founded venue based on the fact that a single sales employee worked from home within the Eastern District of Texas. The defendant did not pay that employee for the use of his home to operate business there, and that employee did not keep any product or product literature there. It was not listed anywhere as an address of the defendant Cray. In particular, the district court held that venue was proper and "the lack of a physical building in the district is not dispositive" of the finding that a company has a "regular and established place of business" in a district.

Rejecting this interpretation, the Federal Circuit found that this interpretation expanded the statute beyond its literal terms, finding that "there must still be a physical, geographical location in the district from which the business of the defendant is carried out." Further, this must be a business of the defendant, and not merely the defendant's employee. Finding the standard was not met, the Federal Circuit granted the petition and directed the district court to transfer the case to an appropriate district.

In Cray, the Federal Circuit recognized that a business might be operated from someone's home, in which case it could be considered the "regular and established place of business" for  venue purposes.  Certainly, it would appear that companies with retail locations selling infringing products might be proper defendants there. Unquestionably, a defendant can be section 1400(b) in its state of incorporation. In other words, there are plenty of options outside the Eastern District of Texas for patent trials moving forward.

Comments

[[M][a][c][K]]

A decade and a bit ago, before the full rise of EDTx I did an analysis for Japanese clients of the degree to which they tended to suffer from xenophobia in patent cases, and later updated it as a tech GC. In broad terms the results were:

1. Stay north of the Mason/Dixon line;
2. Try to be in major metropolitan areas;
3. Judges are better than juries except in EDVA (especially outside Alexandria);
4. All things being equal, you’re better off in a district with a highly educated jury pool, especially one with a lot of STEM graduates.

Patent litigation risks are something companies consider when making investments. It’s not inconceivable that one effect of TC Heartland would be to deter international tech companies from investing in districts seen as overly pro-patient plaintiff.