Mind Your Own Place of Business
Addressing whether the place of business of a defendant’s distributor should be considered a place of business of the defendant, Circuit Judge Bryson, sitting by designation in the US District Court for the Eastern District of Texas, explained that even where a distributor is “necessary” to a defendant’s business, without more, its place of business is not imputed to defendant for purposes of patent venue. EMED Techs. Corp. v. Repor-Med Sys., Inc., Case No. 2:17-cv-728-WCB-RSP (E.D. Tex., June 4, 2018) (Bryson, J).
EMED Technologies Corp. filed a patent infringement action against Repro-Med Systems, Inc. (RMS), a New York corporation with its principal place of business in Chester, New York. RMS moved to dismiss under 12(b)(3) for improper venue because it is incorporated in New York and has no offices in the Eastern District of Texas. RMS does, however, sell products through various distributors it lists on its website. Two of its listed distributors have established places of business in the Eastern District of Texas, and RMS’s website directs potential customers in the Eastern District to these two distributors. RMS and its distributors have an otherwise arms-length supplier-distributor relationship.
EMED argued that venue was proper, and the district court granted limited discovery on whether RMS had a regular and established place of business in the Eastern District of Texas. At deposition, RMS’s chief financial officer admitted that RMS’s customers “require RMS to conduct its business through a distributor” because it is more convenient for the customers. EMED then argued that because the distributors were “necessary to conduct the business of the defendant,” the distributors’ place of business should be imputed to RMS.
The district court disagreed, finding that without more, an arms-length business relationship does not cause a distributor’s place of business to be attributed to its supplier. There was no allegation that the distributors and RMS acted as a single corporate entity, and the court cautioned that a “necessary distributor” theory essentially reverted patent venue under § 1400(b) into a test for personal jurisdiction, which the US Court of Appeals for the Federal Circuit explicitly rejected in In re: Cray (IP Update, Vol. 20, No. 9), following the Supreme Court of the United States’ decision in TC Heartland (IP Update, Vol. 20, No. 5).
Finding that the distributors’ place of business was not a place of business of the defendant, the district court found venue in the Eastern District of Texas improper and transferred the action to the Southern District of New York, where RMS’s principal place of business was located.