Unique Procedural Posture Leads to No Sanctions in Frivolous Appeal
Reaffirming that the plaintiff in a patent case has the burden of establishing that venue is proper, the US Court of Appeals for the Federal Circuit affirmed a district court’s dismissal. The Court ultimately denied the defendant’s request for sanctions, however, because the question of which party bears the burden relating to venue had not been decided when the appeal was filed. Westech Aerosol Corporation v. 3M Company, GTA-NHT, Inc. DBA Northstar Chemical, Case No. 18-1699 (Fed. Cir. July 5, 2019) (Reyna, J).
In January 2017, Westech filed a patent infringement suit in the Western District of Washington against 3M and Northstar Chemical. 3M moved to dismiss for failure to state a claim, prompting Westech to file an amended complaint. In May 2017, after Westech filed an amended complaint that 3M also moved to dismiss, the Supreme Court of the United States issued its decision in TC Heartland finding that for purposes of the patent venue statute, 28 USC § 1400(b), a corporation “resides” only in the state where it is incorporated.
Following TC Heartland, 3M amended its motion to dismiss, arguing that venue was improper because neither 3M nor Northstar had a regular and established place of business in the Western District of Washington. In response, Westech conceded that the amended complaint did not assert facts that supported venue under TC Heartland, and thus sought leave to amend its complaint. Westech filed a second amended complaint. However, instead of pleading any facts to support proper venue, Westech simply parroted the language of § 1400(b). 3M once again moved to dismiss for improper venue, just before the Federal Circuit issued its decision in In re: Cray Inc. which held that for purposes of venue, a defendant must have a physical place in the district that serves as a regular and established place of business. The district court found that venue was improper because there was no factual basis showing that 3M or Northstar had a regular and established place of business in the district. Westech appealed.
The Federal Circuit found that Westech failed to show that venue was proper in the Western District of Washington. The Court noted that under In re: ZTE (USA) Inc., Westech has the burden of establishing that venue is proper, and under Cray, the regular and established place of business must be physically present in the district. The Court found that Westech failed to plead any facts showing that 3M had a regular and established place of business in the Western District of Washington.
After Westech had filed its opening brief on appeal, 3M moved for sanctions, arguing that Westech’s appeal was frivolous because the district court’s judgment was plainly correct and because Westech disregarded both Cray and ZTE in its appeal brief. The Federal Circuit found that the appeal was not frivolous “as filed” because ZTE issued after Westech filed its opening brief. The Court found that the appeal was frivolous “as argued,” however, because Westech ignored Cray and ZTE despite being aware of both decisions during the pendency of the appeal. While the Court noted that Westech’s behavior on appeal bordered on sanctionable, the Court found that sanctions were unwarranted because the question of who shoulders the burden of establishing venue had not yet been answered at the time Westech filed the appeal.