July 15, 2018

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Federal Circuit Clarifies Venue Law in the Wake of TC Heartland

On September 21, the US Court of Appeals for the Federal Circuit issued an opinion in In re: Cray Inc. clarifying how district courts should determine whether a patent infringement defendant maintains a “regular and established place of business” for purposes of venue under 28 U.S.C. § 1400(b).

In May, the US Supreme Court issued its landmark TC Heartland decision, which held that, for purposes of the patent venue statute of 28 U.S.C. § 1400(b), a corporation “resides” in its state of incorporation. TC Heartland, however, did not address what qualifies as a “regular and established place of business” under the patent venue statute, and courts have subsequently wrestled with uncertainty over that issue.

In June, Judge Rodney Gilstrap of the US District Court for the Eastern District of Texas denied a motion to transfer in Raytheon Co. v. Cray Inc.[1] on the basis that, among other things, the named defendant maintained a “regular and established place of business” in the forum. In his opinion, Judge Gilstrap set out four factors for inquiries into what constitutes such a place of business “in the modern era,” including physical presence, defendant’s representations, benefits received, and targeted interactions with the district. The defendant petitioned for a writ of mandamus directing reversal of the denial of the motion to transfer, which brought the matter before the Federal Circuit.

Court Resolves Uncertainty Regarding Venue Requirements

Noting the uncertainty surrounding the “regular and established place of business” language in the wake of TC Heartland, the Federal Circuit held that Judge Gilstrap had applied an incorrect legal standard, rendering his refusal to transfer the underlying case an abuse of discretion. Specifically, the Federal Circuit held that the district court’s four-factor test was “not sufficiently tethered” to the statutory language of § 1400(b). The Federal Circuit clarified that there are three general requirements to demonstrate a “regular and established place of business” for purposes of the statutory venue inquiry, as follows:

  1. There must be a physical place in the district. The venue statute does not refer “merely to a virtual space or to electronic communications from one person to another.” And while the “place” does not have to be a “fixed physical presence in the sense of a formal office or store,” there must be a “physical, geographical location” in the district.

  2. The place of business must be regular and established. A “regular” business operates in a steady, uniform, orderly, and methodical manner, and sporadic activity does not create venue. An “established” business has sufficient permanence.

  3. The place of business must be “the place of the defendant.” The place cannot be solely a place of the defendant’s employee, and a defendant—not the individual employee—must establish or ratify the place of business. Relevant considerations for this requirement include defendant’s ownership or lease of the place, and whether an employee’s employment is conditioned on continued residence in the district or the storing of materials at a place in the district.

Court Finds No “Regular and Established Place of Business”

In Cray,[2] the plaintiff had argued that, although the defendant does not rent or own an office or any property in the district, venue was proper because defendant allowed two employees to work remotely from their respective homes in the district.

However, the Federal Circuit noted that the defendant did not own, lease, or rent any portion of the employee’s homes, did not select the location of the homes, did not store inventory or conduct demonstrations at the homes, did not condition employment on maintenance of an Eastern District of Texas location, and did not believe the locations of employees’ homes to be important to the business performed. As such, the Federal Circuit concluded that the facts did not show that defendant has a “regular and established place of business” in the Eastern District of Texas. Instead, “they merely show that there exists within the district a physical location where an employee of the defendant carries on certain work for his employer.”

The Federal Circuit vacated the district court’s order denying the defendant’s motion to transfer, and remanded the case to determine the appropriate venue for transfer.

Judges Alan Lourie, Jimmie Reyna, and Kara Farnandez Stoll sat on the panel for the Federal Circuit.

[1] No. 2:15-cv-01554-JRG (E.D. Tex.).

[2] Case No. 17-129 (Fed. Cir.).

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About this Author

Colm Connolly, Morgan Lewis Law Firm, Wilmington, Intellectual Property Litigation Attorney

A former United States Attorney, Colm F. Connolly helps companies and individuals faced with complex legal issues across a wide spectrum of subject matters. A fellow of the American College of Trial Lawyers and a member of the American Law Institute, Colm is a seasoned litigator with a national reputation for his courtroom advocacy. Colm has tried dozens of cases in federal and state courts and has argued more than a dozen times before the US Courts of Appeals for the Second and Third Circuits and the Delaware Supreme Court. His practice includes complex commercial and...

John V. Gorman, Morgan Lewis, Intellectual Property Litigation Lawyer, Complex Commercial Disputes Attorney

John V. Gorman works with a diverse group of clients, from global corporations to nonprofits, facing complex commercial disputes and intellectual property litigation. Representing plaintiffs and defendants, John handles all phases of litigation from inception through trial and post-trial appeals. He advises on commercial cases involving patent, trademark, trade secret, and copyright disputes in federal and state courts throughout the United States. Clients turn to John for assistance with matters involving a wide range of subjects. He is admitted to practice in Pennsylvania only.

Amy Dudash, Morgan Lewis Law Firm, Intellectual Property Attorney

Amy M. Dudash focuses on intellectual property (IP), antitrust, and class action litigation. She represents clients across industries in complex commercial cases involving patents, trademarks, trade secrets, copyrights, antitrust claims, and corporate disputes. She has litigated in federal and state courts throughout the country, in alternative dispute resolution proceedings, and before administrative agencies.