Federal Circuit Clarifies How Venue Under TC Heartland Will Be Applied
In In re Cray Inc., No. 2017-129 (Fed. Cir. Sept. 21, 2017) the Federal Circuit issued a decision clarifying the Supreme Court’s ruling in TC Heartland LLC v. Kraft Foods Group Brands LLC, 137 S. Ct. 1514 (2017). This Supreme Court case had rejected long-standing patent venue precedent, clarifying that, for the purposes of the patent venue statute, a domestic corporation “resides” only in its state of incorporation. As such, a patent plaintiff is restricted to suing a domestic corporate defendant in its state of incorporation, or in a judicial district where the defendant allegedly has committed acts of infringement and has a “regular and established place of business”.
In the district court decision below, Raytheon Co. v. Cray, Inc., No. 2:15-cv-01554-JRG, 2017 WL 2813896 (E.D. Tex. June 29, 2017), Judge Gilstrap of the Eastern District of Texas had outlined a four-factor test for whether the defendant had a “regular and established place of business” in a district, requiring consideration of the following four factors:
(1) The extent to which a defendant has a physical presence in the district, including but not limited to property, inventory, infrastructure, or people.
(2) The extent to which a defendant represents, internally or externally, that it has a presence in the district.
(3) The extent to which a defendant derives benefits from its presence in the district, including but not limited to sales revenue.
(4) The extent to which a defendant interacts in a targeted way with existing or potential customers, consumers, users, or entities within a district, including but not limited to through localized customer support, ongoing contractual relationships, or targeted marketing efforts.
Applying this test, Judge Gilstrap found that venue was proper over the defendant, Cray, in the Eastern District, based on the fact that two sales employees of Cray worked from their homes within the district.
The Federal Circuit somewhat unsurprisingly overturned this determination, holding that venue was improper and the four-factor test was “not sufficiently tethered to [the] statutory language” and thus “fail[ed] to inform each of the necessary requirements of the statute.” Instead, the Federal Circuit set forth its own venue factors under TC Heartland, requiring that each element of a three-prong test be met before venue would be proper. Specifically:
“(1) there must be a physical place in the district;” (that is, there must be some physical, geographical location within the district in which the business of the defendant is carried out)
“(2) it must be a regular and established place of business;” (that is, business must be conducted in more than a sporadic fashion) and
“(3) it must be the place of the defendant” (that is, the defendant corporation rather than a mere employee of the defendant must operate or exercise control over that location).
Applying this test, the Federal Circuit found that the factors were not met, and an employee working from home on their own does not sufficiently “establish or ratify” the place of business as being a place of business of the defendant corporation.