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Your State or Mine: Patent Lawsuits Can Now Only Be Brought Where Corporations Have Physical Locations

October 3, 2017

For decades, companies have been subject to patent infringement lawsuits almost anywhere that they had sales, whether through a physical store or online. Often, based on online sales, the defendant corporation could be brought into any location where the end customer was located, even if only one product was sold in that state. Based on a new Federal Circuit decision (In re Cray Inc.), that is no longer true.

In May, the U.S. Supreme Court ruled in TC Heartland LLC v. Kraft Foods Group Brands LLC that the patent venue statute (28 U.S.C. § 1400(b)) should be the sole statute to control venue for corporations in patent lawsuits. Therefore, the general venue statue (28 U.S.C. § 1391(c), allowing venue to be proper anywhere a corporation is subject to personal jurisdiction, was not applicable anymore in patent cases. The Supreme Court clarified that the patent venue statute only allows a civil action for patent infringement where the defendant resides (where it is incorporated), or where the defendant has committed acts of infringement and has "a regular and established place of business." Since TC Heartland, the meaning of what constitutes "a regular and established place of business" became the question of the day for district courts hearing motions for a transfer of venue.

In Raytheon Co. v. Cray, Inc., Judge Gilstrap of the Eastern District of Texas created a four factor test for determining a "regular and established place of business", interpreting the Supreme Court's decision in TC Heartland as not requiring a physical location for the defendant in the district for venue to be proper, and deeming venue to be proper because the defendant had an employee in Texas.

On appeal, the Federal Circuit overturned the lower court, holding that a defendant corporation must have a physical location in the district where a patent lawsuit can be brought and setting forth three general requirements: (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. Although a formal office or store may not be required, there still must be "a physical, geographical location in the district from which the business of the defendant is carried out" -- it cannot be a "virtual space."

Second, the place of business must be "regular", operating in a steady, uniform, orderly and methodical manner, rather than spurts of sporadic or temporary activity. Third, the place must belong to the defendant, not the defendant's employee. Owning or leasing the space or exercising some "possession or control over the place" all qualify. In setting forth this test, the Federal Circuit found that merely having an employee work from home in the district did not establish venue and that the Texas district court erred as a matter of law in holding that a fixed physical location in a district was not a prerequisite to proper venue.

What does this change in the law mean for a company which is sued for patent infringement? Before any other evaluations take place, the company should gather information about where it is incorporated, does business and has physical locations, including any office or warehouse space. These activities and locations don't need to be related to the allegedly infringing product or service. Then you and your counsel can decide whether it is appropriate to file a motion to transfer venue.

Read more about our Intellectual Property practice.

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