Federal Circuit Delivers Another Blow to Patent Plaintiffs by Narrowly Defining Patent Venue Statute

On September 21, 2017, the Federal Circuit Court of Appeals rejected the test recently adopted by Judge Gilstrap of the Eastern District of Texas to determine whether a district is an appropriate venue for patent cases following the Supreme Court’s TC Heartland decision.  See In re: Cray Inc., Case No. 17-129, __ F.3d __ (Fed. Cir. Sept. 21, 2017).

Applying his new test, Judge Gilstrap held that the defendant maintained “a regular and established place of business” in the Eastern District of Texas merely because one of its sales representatives worked from his home in the district.  The Federal Circuit found this permissive test was not sufficiently tethered to the statutory language, and it articulated three requirements to establish venue in a particular district for a patent case under the “regular and established place of business” prong of the patent venue statute:

  1. There must be a physical place in the district;
  2. It must be a regular and established place of business; and
  3. It must be the place of defendant’s business. 

With respect to the first requirement, the Court found the district court impermissibly broadened the venue statue when it held that a fixed physical location in the district is not a prerequisite to proper venue.  The Court held that a “physical place” does not refer merely to a virtual space or electronic communications in the district.  While the place need not be a fixed physical presence in the sense of a formal office or store, it still must be a physical, geographical location from which the business is carried out.

As to the second requirement, the Court found that the district court erred in finding that the presence of a remote work-at-home employee in the district satisfied the venue statute’s requirement of a “regular and established place of business.”  The Court held that sporadic activity or a transient presence is not “regular and established,” and that if an employee can move out of the district without permission, the employee’s home is not a “regular and established place of business.”

With respect to the third requirement, the Court stated that the place of business must be the place of the defendant’s business, not merely a place where an employee can perform work.  The defendant must establish or ratify the place of business, because otherwise, the mere existence of a physical location where an employee performs work would always establish venue.  The Court set forth considerations for determining whether a place where work is performed constitutes a defendant’s place of business:  (1) whether defendant owns or leases the place or exercises other attributes of possession or control; (2) whether defendant conditioned employment on continued residence in the district or the storing of materials at a place in the district so they can be sold or distributed from there; (3) whether defendant represents it has a place of business in the district, such as on its website or in directories, or by placing its name on a sign or building; and (4) whether the nature and activity of the alleged place of business, in comparison to the defendant’s other places of business, reveals it is not really a place of business at all.

This decision, coupled with TC Heartland, significantly curbs a patent plaintiff’s ability to drag a defendant into a remote forum, such as the Eastern District of Texas.  It also gives companies a roadmap to structure their businesses to avoid venue for patent infringement actions in a particular forum and litigants a guide for challenging venue when sued for patent infringement in a district where they do not have a regular and established place of business. 

You can read the full Federal Circuit decision here.

Tyz Law Group