In re: Cray, Inc., Venue and Remote Employees

Venue was a hot topic for patent law in 2017 due in heavy part to the US Supreme Court granting certiorari in TC Heartland v. Kraft Foods. TC Heartland involved a motion to transfer venue in a patent matter, i.e., where 28 USC §1400 governs venue. See the Just Intellectuals eNewsletter, June 2017 ed., Venue Matters? Yes, Venue Matters – Section 1400(b). Section 1400(b) states that “[a]ny civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.”

In May of 2017, the Supreme Court ruled that the patent venue statute does not incorporate the definition of “residence” from the general venue statute (§1391), meaning that under the first clause of §1400(b) venue is only appropriate in the defendant-corporation’s place of incorporation. From there the question remained as to the breadth of the second clause of §1400(b), in other words, what facts are needed to establish proper venue based upon the defendant having “a regular and established place of business” in the subject district?

This question has been intensely watched by patent stakeholders since June because there are a few districts in the federal system that are favored by plaintiff-patent-owners for filing: those include the Eastern District of Texas (at 44%), the District of Delaware (at 9%) and the Central District of California (at 5%). Many accused infringers loathed being dragged into these venues seen as overly patent friendly forums. TC Heartland was supposed to put a stop to this once and for all so that those poor persecuted corporate litigators could sleep better at night. Thank God. But those pesky plaintiff patent owners still did not get the hint to file in an accused infringer’s favored district, thus In re Cray.

In re Cray involves a patent infringement suit brought by Raytheon in the ED of Texas. Cray, Inc., the accused infringer, sells advanced supercomputers that allegedly infringe Raytheon’s patent(s). Cray is a State of Washington based company with various facilities around the country. Raytheon argued that venue was proper in the ED of Texas because Cray has some employees who worked remotely from their respective homes in the district. Cray moved for transfer to another venue but the district court denied the motion to transfer finding that venue was proper due to the presence of employees working from home in the district, namely a sales executive. Cray filed a writ of mandamus.

The Court of Appeals panel granted the writ finding that the district court’s denial of the transfer motion was an abuse of discretion because the defendant had no ownership/controlling interest in the domiciles of its employees and have no “regular and established place of business” under §1400(b). The Lourie panel started by enumerating a three-prong test for determining if a defendant’s activity in the forum constitutes a regular and established place of business:

As discussed in greater detail below, our analysis of the case law and statute reveal three general requirements relevant to the inquiry: (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 the defendant. If any statutory requirement is not satisfied, venue is improper under § 1400(b).

at 8.

First, the panel found err in the district court’s failure to appreciate that a physical place in the district is required. at 11. Citing dictionary definitions of “place,” the panel reasoned that “[t]he statute thus cannot be read to refer merely to a virtual space or to electronic communications from one person to another.”). Though the location need not be fixed. Id.

Second, the panel reasoned with respect to “regular” and “established” that regularity had to do with consistency – “sporadic activity cannot create venue” – and established spoke to longevity – “[i]ndeed, court decisions have stressed the importance of sufficient permanence.” at 12.

Last but not least, the panel stressed that the location “must be a place of the defendant, not solely a place of the defendant’s employee” meaning the company must have an ownership/controlling interest in the place. at 13. “Relevant considerations include whether the defendant owns or leases the place, or exercises other attributes of possession or control over the place.” Id. The panel reasoned that since Cray neither had the requisite ownership or control of its employee’s premises, playing no role in the purchase or selection of the location, the employee homes were seen as immaterial to Cray’s operations. Venue in the ED TX was determined to be improper under §1400(b) and the case was remanded to the district court to consider which of the possible alternative venues was appropriate.

After In re: Cray we have learned that employees working from home alone is probably not enough to be considered a “regular and established place of business” under §1400(b). Whether this will reduce filings against major original equipment manufacturers in the ED of TX is still a valid question. Many can be said to own/control retail locations in the district. However, companies may also be able to avoid the district by only selling wholesale in that area. We will just have to wait and see how TC Heartland reshapes patent venue practically speaking.