Cray Inc. recently filed a petition to the U.S. Court of Appeals for the Federal Circuit, asking the court to transfer his patent infringement case from the Eastern District of Texas. In 2015, Raytheon filed a lawsuit against Cray, alleging the company infringed four Raytheon patents related to supercomputer hardware and software in East Texas.
According to Judge Rodney Gilstrap, Cray having a single salesperson who worked out of his home in the Eastern District was enough to qualify as “regular and established” business in the region, therefore finding that Cray must face trial there. But, some lawmakers in support of patent reform efforts disagree with Gilstrap’s controversial interpretation of the TC Heartland decision. If this appeal fails and a single salesman is enough to maintain venue, it could lessen the patent venue reform decision’s impact.
Hanson Bridgett's Robert McFarlane who regularly handles patent and trade secret disputes, sat down with Inside Counsel to discuss the significance of this appeal. He shared what exactly constitutes as "regular and established" business, as decided in the TC Heartland ruling.
TC Heartland did not define a new standard to determine whether an accused infringer has a regular and established place of business within a judicial district. In fact, 28 U.S.C. §1400(b), the provision that governs venue in patent cases, provides that a patent infringement case may be filed 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. According to McFarlane, long-standing Federal Circuit precedent held that a corporation sued for patent infringement was deemed to reside in any judicial district in which it is subject to the court’s personal jurisdiction.
“TC Heartland rejected this broad interpretation of venue under the first prong by holding that a corporation “resided” only within the state of its incorporation,” he explained. “This holding, which relied on the long-ago holding of Fourco Glass Co. Transmirra Products Corp., limits the districts where venue will be proper under the first prong, giving rise to numerous cases that must examine the long-forgotten second prong and its construct of a regular and established place of business. However, TC Heartland did not provide any guidance on the second prong, thereby leaving the issue for lower courts to develop.”
Judge GIlstrap articulated a four-factor test to determine whether a defendant has a regular and established place of business as required in the second prong. First, the Court considers the extent to which a defendant has a physical presence in the district, including property, inventory, infrastructure, or people. However, the lack of a physical building in the district is not dispositive. In fact, Judge Gilstrap found that other forms of physical presence may also help support a finding of a regular and established place of business, including inventory or property in the district, the presence of infrastructure that is owned or leased by a defendant and used to provide services to customers.
He was persuaded that any such type of physical presence in the district favors a finding that a defendant has a regular and established place of business in the district. Judge GIlstrap gave briefer descriptions of his remaining three factors, and indicated that the Court should examine the extent to which a defendant represents that it has a presence in the district; derives benefits from its presence in the district, including sales revenue and; 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.
Judge GIlstrap concluded, “None of these factors should alone be dispositive, and other realities present in individual cases should likewise be considered. Courts should endeavor to determine whether a domestic business enterprise seeks to materially further its commercial goals within a specific district through ways and means that are ongoing and continuous. Such a conclusion should be driven by a fair consideration of the totality of the circumstances, and not by the siren call of bright line rules or an overt attachment to form.”
Judge Gilstrap found that the presence of Cray’s single sales person and his activities in the Eastern District of Texas was sufficient to establish that venue was appropriate in that district. There has been a lot of effort for over a decade to change the patent venue statue so that a disproportionate number of patent defendants no longer find themselves defending infringement suits in the Eastern District of Texas, despite having negligible contacts to the district. TC Heartland was seen as remedying the issue without the need for additional Congressional action, so Judge Gilstrap’s decision makes the hurdle so low to demonstrate a regular and established place of business, that the impact of TC Heartland won’t be as significant as anticipated by thousands.
“His decision establishes an incredibly low threshold for finding venue under the second prong of the governing statute,” said McFarlane. “Consequently, the Supreme Court’s decision in TC Heartland may have little impact on the current practice of filing patent infringement cases in far-flung districts that plaintiffs consider to be friendly to the patentee, but that have little connection to the parties or to the facts at issue.”