Still Open For Discussion: Venue Based On Presence Of Servers
The US Court of Appeals for the Federal Circuit elected not to decide en banc whether servers or similar equipment in third-party facilities constitute a regular and established place of business under the patent venue statute. In re: Google, Case No. 18-152 (Fed. Cir. Feb. 5, 2019) (per curiam) (Reyna, J, dissenting).
After being sued by Seven Networks in the Eastern District of Texas, Google filed a motion to dismiss for lack of venue, arguing that the presence of its servers in a data center operated by a third party did not establish a regular and established place of business. The district court denied the motion, and Google petitioned the Federal Circuit for a writ of mandamus directing the district court to dismiss or transfer the case for improper venue. In an unpublished opinion, the Federal Circuit denied the petition, finding mandamus inappropriate because it was “not known if the district court’s ruling involves the kind of broad and fundamental questions relevant to § 1400(b) and it would be appropriate to allow the issue to percolate in the district courts so as to more clearly define the importance, scope, and nature of the issues.” Google filed a petition for panel rehearing and a petition for rehearing en banc, which the Federal Circuit denied.
Judge Reyna issued a dissenting opinion, arguing that the majority ignored the purpose of mandamus relief and left unanswered critical issues that increasingly affect venue in legal actions involving e-commerce. Judge Reyna argued that mandamus review is part of the Federal Circuit’s supervisory and instructional duty, and given the nature of its exclusive jurisdiction over federal questions involving patent law, the Court has a duty to ensure uniformity and predictability. He noted that the Federal Circuit has taken up several cases since TC Heartland (IP Update, Vol. 20, No. 5) to ensure that § 1400(b) is not given expansive construction, and pointed to growing uncertainty among district courts regarding the requirements of § 1400(b) when a company conducts business virtually through servers or similar equipment in the district. He argued that the issues in the present case are relevant to every technology company that conducts business over the internet, and that the denial of Google’s petition was a signal to file cases against Google in the Eastern District of Texas. In support, he noted that since October 29, 2018, when the original panel decision issued, 34 new cases have been filed against Google in the Eastern District.
Judge Reyna also noted that in justifying its mandamus denial, the Federal Circuit found that the district court focused on specific details of Google’s contracts with internet service providers, including Google’s “strong control” of servers. While Judge Reyna agreed that while possession and control over a place are important factors in a venue analysis, he argued that the Court should have considered these factors en banc because the district court’s holding could be interpreted to stand for the proposition that owning and controlling computer hardware involved in some aspect of the company is sufficient to establish venue. He found that the current case would have allowed the Court to decide to what extent a defendant must be “present” in the district to have a regular and established place of business, and he saw no principled reason to wait for this question to “percolate” further among district courts.
Practice Note: By the time the Federal Circuit decides the question of venue based on location, possession and control of servers, it is possible that dozens of cases will have proceeded through motion practice, discovery, claim construction or trial before being potentially thrown out by a reversal of a ruling on a motion to dismiss for improper venue.