Judge Gilstrap Provides Guide for Post-TC Heartland Venue Analysis

Judge Gilstrap Provides Guide for Post-TC Heartland Venue Analysis

In the aftermath of TC Heartland, Judge Rodney Gilstrap is taking the position that venue should be simple. As he explains his position in Raytheon Co. v. Cray, Inc.[1], simplicity is consistent with Supreme Court precedent and judicial economy.

“Venue” refers to the propriety of a case being tried in a particular district court. Venue for patent litigation is dictated by 28 U.S.C. § 1400(b):

Any 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 late May, the Supreme Court’s decision in TC Heartland LLC v. Kraft Foods Grp. Brands LLC rejected the Federal Circuit’s interpretation of “resides” that had allowed patent plaintiffs to easily find venue almost anywhere in the country. Rather, the Court announced, a “domestic corporation ‘resides’ only in its State of incorporation for purposes of the patent venue statute.” This rejection of Federal Circuit precedent has reopened an old debate – what constitutes “a regular and established place of business?” With 548 pending patent cases on his docket (nearly 60% of E.D. Texas’s patent caseload), Judge Gilstrap was eager to answer exactly this question and announced a four-part totality of the circumstances test.

The question at the heart of the Raytheon dispute was whether Cray’s presence in the Eastern District of Texas is sufficient to support venue in a post-TC Heartland world. Judge Gilstrap highlighted several key facts to support his finding of proper venue. In the way of infringing acts, he pointed to Cray’s employee offering to sell the allegedly infringing super computer from his home office in the Eastern District and remote use of a super computer located in Austin by campuses located in the District.

The “regular and established place of business” requirement proved a slightly more difficult question. Judge Gilstrap anchored his analysis on this point to the Federal Circuit 1985 case In re Cordis Corp. where the court concluded: “[T]he appropriate inquiry is whether the corporate defendant does its business in that district through a permanent and continuous presence there and not . . . whether it has a fixed physical presence in the sense of a formal office or store.”[2] The judge found the facts of Cordis comparable to Cray’s situation. Cray’s representative maintained a home office at the company’s expense and had duties to the company beyond sales such as account development and management. Having found acts of infringement and a regular and established place of business, Judge Gilstrap held that venue was proper under § 1400(b).

Though the question at issue was fully resolved, the judge did not end his analysis. He went on to say that “[i]t is evident from these motions, and their subsequent briefing, that there is uncertainty among the litigants regarding the scope of the phrase ‘regular and established place of business.’” In addition to confusion in the immediate case, the judge referred to “a number of requests for venue related discovery” and “uncertainty regarding the appropriate scope of such venue discovery.” Despite declining to “expressly apply the factors . . . in this particular case,” the judge proceeded to outline what is, in his view, an analysis most consistent with the Supreme Court’s “focus on administrative simplicity” in administration of a “threshold statute such as a venue statute.”

According to Judge Gilstrap, a thorough review of case law dealing with the “regular and established place of business” language revealed courts using a “variety of detailed factual inquiries” that were “jumbled” and “irreconcilable.” An attempt to synthesize the cases, the judge’s proposed four factor, totality of the circumstances test is:

• Physical Presence

This factor involves a consideration of “the extent to which a defendant has a physical presence in the district, including but not limited to property, inventory, infrastructure, or people.” The judge clarified that a “fixed physical location” in the District is not required for a finding of venue, but, “such a presence is a persuasive factor for courts to consider.” Equipment or employees in the district may also weigh in favor of finding proper venue.

• Defendant’s Representations

Next, a court should examine “the extent to which a defendant represents, internally or externally, that it has a presence in the district.” Judge Gilstrap based this factor on Judge Learned Hand’s conclusion, early in patent law history, that a defendant who advertises a place of business cannot subsequently deny any connection to that place.

• Benefits Received

This factor received only a short treatment by Judge Gilstrap. His formulation of the inquiry is “the extent to which a defendant derives benefits from its presence in the district, including but not limited to sales revenue.”

• Targeted Interaction with the District

Finally, a court should consider “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.” The judge referred to these types of interactions with customers as “localized” and supportive of a finding of proper venue.

Judge Gilstrap’s goal with his four-factored approach is to “avoid costly and far-flung venue discovery” and promote a simplistic approach that is nevertheless flexible. The judge concluded his opinion with a bit of wisdom: “[O]ur courts should employ analytical methods for establishing patent venue which are rooted in the wisdom of the past, but which also embrace the future’s changes.”

Judge Gilstrap is far from the only judge grappling with the change in venue law precipitated by TC Heartland. On July 5, 2017, Judge Huff of the Southern District of California found that a defendant’s conduct during a one-year litigation waived its venue objection and concluded that TC Heartland did not amount to “an intervening change in controlling law.”[3] Judge Gorton of the District of Massachusetts similarly concluded that a failure to previously raise a venue objection was not cured by TC Heartland.[4]

[1] No. 2:15–CV–01554–JRG, 2017 WL 2813896 (E.D. Tex. June 29, 2017).

[2] 769 F.2d 733, 737 (Fed. Cir. 1985).

[3] Infogation Corp. v. HTC Corporation, No.: 16-cv-01902-H-JLB, 2017 WL 2869717 (S.D. Cal. July 5, 2017); see also iLife Tech., Inc. v. Nintendo of Am, Inc., No. 3:13-cv-04987, 2017 WL 2778006, at *7 (N.D. Tex. June 27, 2017) (“[T]he Court concludes that TC Heartland does not qualify as an intervening change in law.”).

[4] Amax, Inc. v. ACCO Brands Corp., No. 16-10695-NMG, 2017 WL 2818986 (D. Mass. June 29, 2017)

[View source.]