Opinion
CASE NO. 4:15–CV–1133
07-26-2017
MANTISSA CORPORATION, Plaintiff, v. ONDOT SYSTEMS, INC. ; Lone Star National Bank; and Lone Star National Bancshares–Texas, Inc., Defendants.
Anthony John DeMarco, Young Basile Hanlon & MacFarlane, P.C., Houston, TX, Daniel P. Mullarkey, Polsinelli PC, Kenneth A. Godlewski, Washington, DC, for Plaintiff. Adam Burrowbridge, Wilson Sonsini, et. al., Washington, DC, Henry Ting–Hsi Pan Wilson Sonsini, et. al., Jose Carlos Villarreal, Austin, TX, Ryan R. Smith, Wilson Sonsini Goodrich & Rosati, Palo Alto, CA, for Defendants.
Anthony John DeMarco, Young Basile Hanlon & MacFarlane, P.C., Houston, TX, Daniel P. Mullarkey, Polsinelli PC, Kenneth A. Godlewski, Washington, DC, for Plaintiff.
Adam Burrowbridge, Wilson Sonsini, et. al., Washington, DC, Henry Ting–Hsi Pan Wilson Sonsini, et. al., Jose Carlos Villarreal, Austin, TX, Ryan R. Smith, Wilson Sonsini Goodrich & Rosati, Palo Alto, CA, for Defendants.
MEMORANDUM AND ORDER
Dena Hanovice Palermo, United States Magistrate Judge
Pending before the Court in this patent infringement suit is Defendant Ondot Systems, Inc.'s "Rule 12(c) Motion for Judgment on the Pleadings for Improper Venue, and, in the alternative, Motion for Severance and Transfer of Venue." ECF No. 101. As explained below, the Court DENIES that motion.
Pursuant to 28 U.S.C. § 636(c), the parties consented to have this Court conduct all further proceedings in this case. ECF No. 99.
BACKGROUND
Plaintiff Mantissa Corporation ("Mantissa") is the exclusive licensee of, and holds all substantial rights and interests in, U.S. Patent No. 7,779,456 (the '456 Patent) and U.S. Patent No. 8,353,027 (the '027 Patent) (collectively, the "patents-in-suit"). Mantissa brings this suit under 35 U.S.C. § 271, alleging that Defendants Ondot Systems, Inc. ("Ondot"), Lone Star National Bank, and Lone Star National Bancshares–Texas, Inc. (collectively, "Defendants") "have committed, and continue to commit, direct acts of infringement of the '456 Patent and the '027 Patent by making, using, offering to sell and selling products, systems and services embodying the patented invention." ECF No. 38 at ¶ 15. DISCUSSION
Citing Rule 12(c) of the Federal Rules of Civil Procedure, Ondot moves to be dismissed from this suit on grounds that the Southern District of Texas is an improper venue as to it. ECF No. 101 at 1. In the alternative, Ondot requests, pursuant to 28 U.S.C. § 1406(a), that the case as to it be severed from the case against the other Defendants and transferred to the Northern District of California. ECF No. 101 at 1, 4.
28 U.S.C. § 1406(a) states:
The district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.
A. Applicable Law
The patent venue statute, codified at 28 U.S.C. § 1400(b), provides that an action for patent infringement may be brought in a judicial district where either: (1) "the defendant resides" or (2) "the defendant has committed acts of infringement and has a regular and established place of business."
In Fourco Glass Co. v. Transmirra Products Corp. , 353 U.S. 222, 77 S.Ct. 787, 1 L.Ed.2d 786 (1957), the Supreme Court held that, for purposes of § 1400(b), a domestic corporation "resides" only in its state of incorporation. Id. at 226, 77 S.Ct. 787. In so holding, the Supreme Court rejected the argument that a provision of the general venue statute, 28 U.S.C. § 1391(c), modified the patent venue statute. Fourco , 353 U.S. at 228, 77 S.Ct. 787. On the contrary, § 1400(b)"is the sole and exclusive provision controlling venue in patent infringement actions, and ... it is not to be supplemented by the provisions of 28 U.S.C. § 1391(c)." Fourco, 353 U.S. at 229, 77 S.Ct. 787.
In the sixty years since Fourco was decided, the text of § 1400(b) has remained the same. In 1988, however, Congress amended § 1391(c) to state:
(c) For purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced....
Judicial Improvements and Access to Justice Act, Pub. L. No. 100–702, § 1013(a), 102 Stat. 4642 (1988). Soon after the 1988 amendment took effect, the Federal Circuit, in VE Holding Corp. v. Johnson Gas Appliance Co. , 917 F.2d 1574 (Fed. Cir. 1990), interpreted the phrase "[f]or purposes of venue under this chapter" to mean that, "[o]n its face, § 1391(c) clearly applies to § 1400(b), and thus redefines the meaning of the term ‘resides’ in that section." VE Holding, at 1578. Concluding that "[§] 1391(c) as it was in Fourco is no longer," id. at 1579, the Federal Circuit held that, under § 1400(b), "venue in a patent infringement case includes any district where there would be personal jurisdiction over the corporate defendant at the time the action is commenced." Id. at 1583.
The Supreme Court did not grant review of the Federal Circuit's decision in Johnson Gas Appliance Co. v. VE Holding Corp.. See 499 U.S. 922, 111 S.Ct. 1315, 113 L.Ed.2d 248 (1991) (denying petition for writ of certiorari). But neither did it affirm VE Holding's conclusion that Congress, in enacting the 1988 amendment to the general venue statute, effectively overruled Fourco 's interpretation of § 1400(b). See Missouri v. Jenkins , 515 U.S. 70, 85, 115 S.Ct. 2038, 132 L.Ed.2d 63 (1995) ("[T]he denial of a writ of certiorari imports no expression of opinion upon the merits of the case ...." (quoting United States v. Carver , 260 U.S. 482, 490, 43 S.Ct. 181, 67 L.Ed. 361 (1923) )); Maryland v. Baltimore Radio Show , 338 U.S. 912, 919, 70 S.Ct. 252, 94 L.Ed. 562 (1950) ("[A]ll that a denial of a petition for a writ of certiorari means is that fewer than four members of the Court thought it should be granted,... such a denial carries with it no implication whatever regarding the Court's views on the merits of a case which it has declined to review.").
On May 22, 2017, the Supreme Court issued a decision in TC Heartland LLC v. Kraft Foods Grp. Brands LLC , ––– U.S. ––––, 137 S.Ct. 1514, 197 L.Ed.2d 816 (2017). In TC Heartland , the Supreme Court abrogated VE Holding and reaffirmed Fourco's holding that "the word ‘residence’ in § 1400(b) has a particular meaning as applied to domestic corporations: It refers only to the State of incorporation." TC Heartland , 137 S.Ct. at 1520 (brackets and footnote omitted). In its decision, the Supreme Court rejected the argument that "Congress changed the meaning of § 1400(b) when it amended § 1391," explaining that "[t]he current version of § 1391 does not contain any indication that Congress intended to alter the meaning of § 1400(b) as interpreted in Fourco. " Id.
B. Ondot Waived Its Challenge to Venue
For the Southern District of Texas to be a proper venue as to Ondot, Ondot must either (1) "reside" in this district or (2) "ha[ve] committed acts of infringement and ha[ve] a regular and established place of business" in this district. See 28 U.S.C. § 1400(b). In determining whether venue is proper under the facts of this case, the Court may look to the allegations in Mantissa's first amended complaint and other appropriate evidence in the record. See Ambraco, Inc. v. Bossclip B.V. , 570 F.3d 233, 238 (5th Cir. 2009) ; Uviado, LLC ex rel. Khan v. United States , 755 F.Supp.2d 767, 780 (S.D. Tex. 2010) (Rosenthal, J.).
It is undisputed that Ondot is a Delaware corporation. ECF No. 38 at ¶ 2; ECF No. 59 at ¶ 2. Thus, it would appear that, under Fourco and TC Heartland, Ondot does not "reside" in this district within the meaning of § 1400(b). The Court concludes, however, that Ondot waived any objection to venue in this case.
In light of this conclusion, the Court does not consider whether Ondot "committed acts of infringement" and has a "regular and established place of business" in this district.
A party waives a challenge based on a defect in venue if it fails to raise the issue in a timely fashion in accordance with the Federal Rules of Civil Procedure. Specifically, Rule 12(b)(3) of the Federal Rules of Civil Procedure requires a party to assert a defense of improper venue "before pleading if a responsive pleading is allowed." In addition, Rules 12(h)(1)(A) and 12(g)(2) prohibit a party who makes one Rule 12 motion from later making another Rule 12 motion "raising a defense or objection" based on improper venue, provided that such defense or objection "was available to the party but omitted from its earlier motion." A motion under " Rule 12(c) cannot be used to assert Rule 12(b) defenses that have not been raised previously in the pleadings or by preliminary motion or are not expressly preserved by Rule 12(h)." 5C Charles Alan Wright et al., Federal Practice & Procedure § 1367 (3d ed. 2017).
Mantissa filed its first amended complaint on May 3, 2016. ECF No. 38. On May 20, 2016, before filing an answer to Mantissa's first amended complaint, Ondot filed a Rule 12(b)(6) motion to dismiss. ECF No. 45. Ondot did not raise the issue of improper venue in that motion. On August 26, 2016, Ondot filed an answer to the first amended complaint. ECF No. 59. Nearly nine months after that, on May 24, 2017, Ondot raised the issue of improper venue for the first time during a telephone status conference with the Court. As this timeline shows, Ondot failed to comply with the requirements of Rule 12 and therefore has waived its objection to venue.
Ondot argues that it did not waive the issue of improper venue because that defense was not "available" to it until the Supreme Court issued its decision in TC Heartland on May 22, 2017. Prior to that date, Ondot maintains, the Federal Circuit's decision in VE Holding was controlling authority. And since Ondot was indisputably "subject to personal jurisdiction" in this district when this suit was commenced, venue in this district was proper as to Ondot under VE Holding 's interpretation of § 1400(b)'s "residence" provision.
A defense or objection is not "available" to a party under Rule 12, and thus not subject to waiver, "if its legal basis did not exist at the time of the answer or pre-answer motion." Chatman–Bey v. Thornburgh , 864 F.2d 804, 813 n.9 (D.C. Cir. 1988). In recent weeks, several federal district courts have examined the issue of waiver in connection with TC Heartland. With near unanimity, those courts have held that TC Heartland does not constitute an "intervening change in controlling law" and thus does not excuse a party's failure to object to venue in a timely manner. Infogation Corp. v. HTC Corp. , No. 16-CV-01902-H-JLB, 2017 WL 2869717, at *4 (S.D. Cal. July 5, 2017) (collecting cases); Amax, Inc. v. ACCO Brands Corp. , No. 16-CV-10695-NMG, 2017 WL 2818986, at *3 (D. Mass. June 29, 2017) ; iLife Techs., Inc. v. Nintendo of Am., Inc. , No. 3:13-CV-04987, 2017 WL 2778006, at *5–7 (N.D. Tex. June 27, 2017) ; Elbit Sys. Land & C4I Ltd. v. Hughes Network Sys., LLC , No. 215-CV-00037-RWS-RSP, 2017 WL 2651618, at *19–21 (E.D. Tex. June 20, 2017) ; Cobalt Boats, LLC v. Sea Ray Boats, Inc. , No. 2:15-CV-21, 254 F.Supp.3d 836, 839–40, 2017 WL 2556679, at *3 (E.D. Va. June 7, 2017). As a district court in the Northern District of Texas has explained:
One district court has reached a different conclusion. See Westech Aerosol Corp. v. 3M Co., No. C17-5067-RBL, 2017 WL 2671297, at *2 (W.D. Wash. June 21, 2017). The Court is not bound by Westech and finds it unpersuasive. See Reebok Int'l Ltd. v. TRB A CQUISITIONS LLC, No. 3:16-CV-1618-SI, 2017 WL 3016034, at *3–4 (D. Or. July 14, 2017) (declining to follow Westech ).
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[E]xcept where congressional abrogation of a Supreme Court decision is express, "only [the Supreme] Court may overrule one of its precedents"—whether through its own opinion or recognition of congressional override—and until that occurs, Fourco is and still was the law. In VE Holding , the Federal Circuit clearly thought that Congress had implicitly overridden Fourco by statutory amendment. However, until the Supreme Court considered the question, Fourco remained the law. The intervening twenty-seven years may have created reliance on VE Holding by litigants, ... but that "does not change the harsh reality" that a party could have "ultimately succeeded in convincing the Supreme Court to reaffirm Fourco , just as the petitioner in TC Heartland did."
iLife Techs. , 2017 WL 2778006, at *7 (internal citations omitted).
The Court agrees with this reasoning. In TC Heartland , the Supreme Court clearly held that the definition of where a domestic corporation "resides" for purposes of § 1400(b) has remained the same since Fourco was decided in 1957. Because TC Heartland did not change the law in this regard, the improper venue defense was available to Ondot at all relevant times. Ondot was therefore required to assert its improper venue defense in accordance with Rule 12 ; by failing to do so, it waived any objection to venue in this district. Cf. Engel v. CBS, Inc. , 886 F.Supp. 728 (C.D. Cal. 1995) (holding that defendants did not waive venue challenge where Congress amended the venue statute while the case was pending).
Ondot contends that "waiver typically requires a showing of prejudice to the other party" and that "Mantissa will not be prejudiced by a change in venue given the substantial amount of work that remains" to be done in this case. ECF No. 101 at 4. A party may waive an improper venue defense by failing to comply with Rule 12's express limitations; that is what happened in this case. Alternatively, a party may waive such an objection by implication if it takes actions that are "inconsistent" with an improper venue defense. See Ferraro Foods, Inc. v. M/V IZZET INCEKARA , No. 01-CV-2682 (RWS), 2001 WL 940562, at *3 (S.D.N.Y. Aug. 20, 2001) ; Sherman v. Moore , 86 F.R.D. 471, 473–74 (S.D.N.Y. 1980). Courts have found prejudice to be a relevant consideration in determining whether waiver by implication has occurred, see Ferraro Foods , 2001 WL 940562, at *4 ; Sherman , 86 F.R.D. at 474, but Ondot cites no apposite caselaw holding that prejudice is relevant to waiver under the express terms of Rule 12. The Court therefore declines to consider whether Mantissa would suffer prejudice from a transfer of venue in this case.
CONCLUSION
The Court finds that Ondot has waived its objection to venue in this district. Accordingly, Ondot's " Rule 12(c) Motion for Judgment on the Pleadings for Improper Venue, and, in the alternative, Motion for Severance and Transfer of Venue" is DENIED .