The Federal Circuit Takes a Mulligan and Reins in the Eastern District of Texas’s Assertion of Venue the Second Time Around
The Federal Circuit sent Google an early valentine on February 13, 2020, when it granted the petition for mandamus in In re Google, Case No. 19-126, directing that the Eastern District of Texas either dismiss Super Interconnect Technologies LLC’s (“SIT”) infringement action or transfer it under 28 U.S.C. § 1406(a). The court’s precedential opinion held that the presence of Google’s global cache (“GGC”) servers in the district, where they are hosted and maintained in racks by third party ISPs, is not a “regular and established place of business” for purposes of venue under 28 U.S.C. § 1400(b). The decision is a sort of mulligan for the Federal Circuit, which denied Google mandamus in 2018 in another E.D. Tex. case with virtually the same facts. We expect that the decision will substantially pare back the ability of plaintiffs to nibble around the edges of TC Heartland and In re Cray and maintain venue in favorite locales like E.D. Tex.
The Federal Circuit previously held in In re Cray, Inc., 871 F.3d 1355, 1360 (Fed. Cir. 2017) that a “regular and established place of business” “must be: (1) “a physical place in the district”; (2) “regular and established”; and (3) “the place of the defendant.” Google argued that the first and second elements were unmet. The panel agreed with District Judge Gilstrap that the presence of GGC servers in rackspace within E.D. Tex. satisfied the “physical place in the district” prong. Significantly, however, it also held that the “place of business” requirement “generally requires an employee or agent of the defendant to be conducting business at that place” (Slip Op. at 10), and that the absence of such an employee or agent here doomed venue.
At first blush, the outcome appears entirely logical. Yet in 2018, the Federal Circuit denied Google’s petition for mandamus in an earlier case having “identical facts” (according the district court). Op. Cit. at 6. The panel here thus took pains to rationalize granting mandamus this time around. It particularly credited Judge Reyna’s dissent from denial of mandamus in the earlier case, which accurately predicted conflicting interpretations of “regular and established place of business” by the various district courts. (Judge Reyna was not on this panel.)
Also belying the apparent logic of the outcome is the court’s extended discussion whether Google had an employee or agent with a regular, physical presence at its “place of business” and whether that employee or agent was conducting Google’s business. The record is clear that there is no Google employee conducting business in the Eastern District of Texas. However, there is nonetheless the question of whether the ISPs are acting as Google’s agent.
Op. Cit. at 13. The court relied on the Restatement (Third) of Agency §1.01 for the definition of “agency relationship.” That definition describes it as a “fiduciary relationship.” Given that threshold, the court’s analysis – finding that the ISPs here are not Google’s “agents” – is surprisingly long. Also surprising is that the decision expressly states its holding does not mean that a “‘regular and established place of business’ will always require the regular presence of a human agent.” Id. at 17 (emphasis added). Given the balance of the decision, we do not expect in the foreseeable future any decisions from the Federal Circuit finding that a machine is an “agent.” Id.
In his concurring decision, Judge Wallach noted the absence of information whether Google’s users in the district share information (e.g., search information) with the company in furtherance of its revenue generating activities. In other words, he wondered, are Google’s customers the company’s agents, helping the company do business at each of their computers? The court’s reliance on the Restatement’s definition of agency relationship – requiring a “fiduciary relationship” – should make that inquiry a dead letter.
As previewed above, we expect the court’s decision will pare back the number of circumstances in which district courts find that unusual factual circumstances nevertheless satisfy the patent venue statute in section 1400(b). The proof, of course, will be in the proverbial pudding.