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Federal Circuit Clarifies Venue Factors For Regular and Established Place of Business

The home office of a sales executive for a Washington corporation who worked for two years in the Eastern District of Texas was insufficient to establish a "regular and established place of business" in that district for venue under 28 U.S.C. 1400(b), the Federal Circuit held September 21, 2017. In re Cray, Inc., Fed. Cir., No. 2017-129, 9/21/2017.

 

The decision clarifies venue determinations based on a defendant's place of business after the Supreme Court recently rejected the Federal Circuit's views on determining residency-based venue. According to the appellate court, the crucial consideration in this case was that the employee's home did not have sufficient attributes of a place from which the defendant-employer's business was carried out. 

 

In addition, the district court incorrectly held that a defendant need not show a fixed physical location in the district to demonstrate proper venue, the Court concluded. While the "place" of business need not be a formal office or store, "there must still be a physical, geographical location in the district from which the business of the defendant is carried out." Merely showing that there was a physical location where an employee of the defendant carried on certain work for his employer was not enough here to establish that the employer maintained a regular and established place of business in the district. 

 

Background

 

After Raytheon Company sued Cray, Inc. in the Eastern District of Texas for patent infringement, Cray, a Washington corporation, alleged improper venue and moved to transfer the case to the Western District of Wisconsin. Raytheon conceded that residence-based venue in Texas is improper after TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S.Ct. 1514 (2017). However, it claimed venue was proper because Cray committed infringing acts in the Eastern District of Texas and had a regular and established place of business in that district.

 

The district court agreed with Raytheon, concluding that the activities of Cray's sales executive for two years in the Eastern District of Texas supported the infringement allegations and demonstrated that Cray had a regular and established place of business there. Cray petitioned the Federal Circuit for a writ of mandamus to transfer the case based on improper venue.

 

Federal Circuit Finds Venue Improper

 

The appellate court disagreed with the district court and granted Cray's the mandamus petition. According to the Federal Circuit, the district court misapplied the venue statute by failing to give sufficient weight to the literal language of Section 1400(b).  Judge Lourie acknowledged that the "regular and established place of business" language of the statute has only been addressed once in the context of a mandamus petition, citing In re Cordis, 769 F.2d 733 (Fed. Cir. 1985). However, the district court misunderstood the scope of Cordis and misapplied it to the facts of this case, the appellate court held. 

 

Judge Lourie acknowledged that business has changed since the 1983 Cordis decision, noting that the brick-and mortar model is not always the rule, that a business can be conducted virtually, that employees increasingly telecommute, and that retailers may not always warehouse products. However, TC Heartland requires a "focus on the full and unchanged language of the statute, as Cordis did not consider itself obliged to do," he wrote.

 

The 19th century predecessor of the patent venue statute clarified that infringement defendants could be sued outside of their state of incorporation, the Court explained. While it broadened venue, however, the provision did so by defining exact limits of patent venue, according to the Court. Judge Lourie said courts should be careful not to conflate showings meant for other purposes, e.g., personal jurisdiction or the general venue statute, with the showing required to establish proper venue in patent cases. The regular and established place of business standard requires more than the "minimum contacts" for personal jurisdiction or "doing business" for general venue, he added.

 

"Place of Business" Means "Physical Place"

 

Although the "regular and established place of business" requirement depends on the facts of the case, "the analysis must be closely tied to the language of the statute," Judge Lourie wrote. After consulting dictionaries contemporaneous with the 19th century enactment of the statute, he analyzed three requirements in the statutory language.

 

Place: This term requires a physical "place" in the district, and the district court erred in holding that a fixed physical location in the district is not a prerequisite. A virtual space is not enough. While the "place" need not be a formal office or store, there must still be a physical, geographical location in the district from which the business of the defendant is carried out.

 

Regular and established: The term "regular" refers to steady and uniform, not sporadic activity; while a single act would not be sufficient, a series of such acts would. "Established" means stable or permanent. While a business can move its location, it must for a meaningful time period be stable and established. If an employee can move his or her home out of the district at his or her own instigation and with no employer approval, the employee's home is less likely to be considered the employer's place of business.

 

Of the defendant: The place of business must be a place of the defendant, not solely a place of the defendant's employee. The defendant must establish or ratify the place of business; it is not enough for the employee to do so on his or her own.

 

Relevant considerations include whether the defendant owns or leases the place, or exercises other attributes of possession or control over the place. One can also recognize that a small business might operate from a home; if that is a place of business of the defendant, that can be a place of business satisfying the requirement of the statute.

 

Another consideration might be whether the defendant conditioned employment on an employee's continued residence in the district or the storing of materials at a place in the district so that they can be distributed or sold from that place. ... Marketing or advertisements also may be relevant, but only to the extent they indicate that the defendant itself holds out a place for its business.

 

In this case, Raytheon failed to prove that the home of the sales executive was the regular place of business of Cray, according to the Court.

 

The fact that Cray allowed its employees to work from the Eastern District of Texas is insufficient. There is no indication that Cray owns, leases, or rents any portion of [the sales executive's] home in the Eastern District of Texas. No evidence indicates that Cray played a part in selecting the place's location, stored inventory or conduced demonstrations there, or conditioned [his] employment or support on the maintenance of an Eastern District of Texas location. No evidence shows that Cray believed a location within the Eastern District of Texas to be important to the business performed, or that it had any intention to maintain some place business in that district in the event [the sales executive] decided to terminate their residences as a place where they conducted business. ...

 

For purposes of §1400(b), it is of no moment that an employee may permanently reside at a place or intend to conduct his or her business for present and future employers. "The statute clearly requires that venue be laid where 'the defendant has a regular and established place of business, not where the defendant's employee owns a home in which he carries on some of the work that he does for the defendant." [American Cyanamid Co. v. Nopco Chem. Co., 388 F.2d 818, 820 (4th Cir. 1968)].

 

To read the Court's opinion in this case, click here.​