using third-party company to sell products is insufficientSummary of this case from EMED Techs. Corp. v. Repro-Med Sys., Inc.
Case No. 17-cv-01803-SK
ORDER REGARDING DEFENDANT'S MOTION TO DISMISS
Regarding Docket No. 30
This matter comes before the Court upon consideration of the motion to dismiss filed by defendant Automated Packaging Systems, Inc. ("Automated"). Having carefully considered the parties' papers and relevant legal authority, the Court hereby GRANTS Automated's motion to dismiss the complaint filed by Plaintiff Free-Flow Packaging International, Inc. ("FPI") for the reasons set forth below.
In this action, FPI accuses Automated of infringing two of its patents - United States Patent No. 8,323,774 (the "'774 Patent") and United States Patent No. 9,003,743 (the "'743 Patent"). Automated launched the first accused product in October 2011. FPI's first patent-in-suit was issued in December 2012. Automated launched the second accused product in September 2013. In April 2015, FPI's second patent-in-suit was issued. FPI filed this lawsuit against Automated on March 31, 2017. The technology asserted by FPI's patents relates to air pillows and bubble wrap used for packaging. Both FPI and Automated develop machines that customers can use to create bubble wrap or air pillows at their own sites.
Automated is incorporated in and has its principal place of business in Ohio. (Dkt. 30-2 (Declaration of Daryl Manzetti ("Manzetti Decl.")) at ¶ 2.) Automated does not own or lease any office space, manufacturing facilities, or shipping facilities in the Northern District of California (the "District"). (Id. at ¶ 3.) Automated employs four individuals who occasionally conduct business in the District - three sales people (Bart Johnson ("Johnson"), Paul Denton ("Denton"), Eric Voytas ("Voytas")) and one service technician (Alexis Figueroa ("Figueroa")). (Id. at ¶ 4.) The District is just one portion of the area for which each of these employees is responsible. The area for which they are responsible includes the northern half of California, Nevada, Washington, Oregon, Idaho, Montana and Utah. (Id. at ¶ 5.) Automated does not pay for any secretarial or administrative services for any of these employees. (Id. at ¶ 9.) The business cards for these employees do not include their home addresses; the business cards either list Automated's address in Santa Fe Springs, California or in Streetsboro, Ohio. (Id. at ¶ 12.)
None of these employees have authority to enter into agreements with customers on behalf of Automated. (Dkt 30-1 (Manzetti Decl.) at ¶ 7.) These employees do not maintain any inventory of Automated products for sale in the District. (Id. at ¶ 11.) Customers generally place their orders directly with Automated's customer service team located in Santa Fe Springs, California (id. at ¶ 7), which is in the Central District of California. Automated then ships the product to the customer either from Ohio, West Virginia or Santa Fe Springs, depending on the product. (Id.) Customers send their payments to Automated's office or account in Ohio. (Id.)
Johnson lives in the District. (Dkt. 41-5 (Deposition of Bart Johnson ("Johnson Depo.") at 6:20-22.) Johnson's current job title is District Sales Manager. (Dkt. 75-9 (Johnson Depo.) at 11:15-17.) Johnson started working for Automated fifteen years ago as an area sales manager. In 2012, Johnson became a food specialist for Automated, and in 2014, he became the District Sales Manager for the western region of the United States. (Id. at 11:24-12:17.) His territory for Automated includes the Western states of the United States, as well as Canada. (Dkt. 41-5 at 12:17-25.) Approximately once a year, Johnson's supervisor travels to this District to meet with him. More frequently, Johnson travels to meet with his supervisor out of the District. (Id. at 14:16-15:10.)
Typically, customers like to see a demonstration before making a purchase, and typically, Automated ships the machine for the demonstration to Johnson from Santa Fe Springs or Ohio. (Id. at 47:9-18.) Johnson keeps some sample films at his storage unit in the District. (Id. at 48:3-8.) Automated reimburses him for this storage unit. (Id. at 90:16-22.) Johnson keeps some Automated materials, such as sample bags, parts for Autobag, inside pouch machines, product materials, two small boxes of AirPouch films and some other sample film that are not good for sale, as well as a couple of personal items, in that storage unit. (Dkt. 41-5 at 90:2-4, 90:10-22, 92:3-18, 93:7-23.) Voytas and Figueroa both have keys to his storage unit. (Id. at 94:21-23.)
Automated provides a car for Johnson and pays for the maintenance on the car, but Automated deducts a portion from his check to cover the cost of his personal use of the car. (Dkt. 41-5 at 17:25-18:3, 18:15-19:1.) The address on Johnson's business card is Automated's address in Santa Fe Springs. (Dkt. 43-4 (Johnson Depo.) at 62:18-63:1.) The card also includes Automated's telephone number for its corporate office, the 800 number, the fax number for the corporate office, Johnson's cell phone number with a Walnut Creek area code, and his email address. (Dkt. 41-5 at 6:23-7-2, 63:2-11.) Automated pays for a cell phone that Johnson uses for work. (Id. at 88:17-23.) Automated provides laptop computers to all sales and service technicians. (Dkt. 41-7 (Deposition of Daryl Manzetti) at 96:2-4.)
Johnson estimated that, each month, he spent a total of eight days or fewer either working from home or visiting customers within the District. (Dkt. 41-5. at 77:8-78:7.) He further estimated that the sales from the District account for 5.5 to 6.7 percent of the sales for which he is responsible annually. (Dkt. 41-6 (Johnson Depo.) at 78:8-21.)
If customers want to place an order, the purchase orders for machinery are processed by Automated's customer service department in Ohio, and the purchase orders for plastics are processed by Automated's customer service department in Sante Fe Springs. (Dkt. 75-9 at 95:24-96:6.) Automated then sends the product to the customer from Ohio or Santa Fe Springs. (Dkt. 41-5 at 52:15-20.)
Denton was living in the District when he was hired by Automated in September 2013 as an area sales manager. (Dkt 76-2 (Deposition of Paul Denton ("Denton Depo.")) at 9:24-25, 11:4-12.) Denton lived in Alameda when he was hired by Automated until the Fall of 2015. (Id. at 59:2-5.) At that point, Denton moved to Sacramento, but he still worked in the District as part of his geographic area. (Id. at 10:1-8.) In February 2017, Denton was promoted to district sales manager and moved to Atlanta. (Id. at 11:4-25.)
When Denton was an area sales manager, the geographic area for which he was responsible included Central and Northern California, as well as Northern Nevada. (Id. at 47-22-48:2.) Denton has two phone numbers on his business card - an out-of-District number which is denoted as direct, and his mobile number with a District area code. (Dkt. 56-1 (Denton Depo.) at 27:5-24.) The cell phone is his, but Automated reimburses him for his cell phone plan. (Id. at 54:25-55:8.) Automated provides him with a car through a corporate leasing program and covers most of the cost. (Id. at 19:1-17.)
When Denton worked in California, if customers gave him a purchase order, he typically sent the purchase order to Automated's customer service center in Santa Fe Springs to process. (Dkt 76-2 (Denton Depo.) at 39:11-25.) When he was living in Alameda and in Sacramento, Denton typically spent less than twenty-five percent of his time working with customers in the District. (Id. at 47:1-12.) When he lived in Alameda in the District, he spent about fifteen percent of his time working out of his home. (Id. at 52:23-53:2.) He originally moved to California for work with another company and chose Alameda because it was close to the Oakland Airport. (Id. at 47:17-21.)
Voytas was hired to replace Denton as the area sales manager when Denton was promoted and started working on the East Coast. (Dkt. 41-5 (Johnson Depo.) at 66:20-67-6.) Voytas moved to Sacramento, California, outside of the District, to work for Automated in April 2016. (Dkt. 75-11 (Deposition of Eric Voytas ("Voytas Depo.") at 10:5-21.) His phone number has a Sacramento area code. (Dkt. 75-12 (Voytas Depo.) at 6:20-21.) His territory for Automated is the same as Denton's previous territory - Northern and Central California and Northern Nevada. (Dkt. 75-11 at 55:24-56:11.) The cities in California that he visits the most are Fresno and Stockton. (Id. at 56:12-14.) The two other cities in which he spends significant time are Reno and Sacramento. (Id. at 56:15-19.) He estimated that he spends ten percent of his time working in the District and that between five and ten percent of his sales are from the District. (Dkt. 43-7 (Voytas Depo.) at 58:2-14.) He estimated that he meets with an important Automated customer once a quarter, or four times a year, at the customer's facility in the District. (Dkt. 41-10 (Voytas Depo.) at 50:2-21.)
If a customer gives Voytas a purchase order, he submits it to Automated's customer service department in Santa Fe Springs to enter the order. (Dkt. 75-11 at 45:13-46:7.) Automated then sends the customer the product either from Ohio or Santa Fe Springs. (Id. at 46:8-10.) The pricing for the products is determined by Automated. (Id. at 46:15-19.) If Voytas wants to offer a customer a discount, he must obtain approval from the pricing team in Ohio. (Id. at 46:21-47:12.) Voytas does not accept any payments from customers. (Id. at 48:3-8.) If a customer calls Voytas about needing a repair, he forwards the service request to Automated's service manager in Santa Fe Springs. (Id. at 48:11-20.)
Johnson testified that if a customer needs a repair, they call Automated's 800 number, which is directed to a technical support department, either in Ohio or Santa Fe Springs. The technical support department talks to the customer to provide instructions to fix the equipment. If that is not successful, the customer service team sends the call to a field service engineer. (Dkt. 75-9 (Johnson Depo.) at 55:20-57-4.)
Figueroa started working for Automated in June 2013 or 2014 and moved up to Walnut Creek from Southern California. (Dkt 75-7 (Deposition of Alexis Figueroa ("Figueroa Depo.") at 11:16-12:10.). At the beginning of 2016, Figueroa moved out of the District to a city outside of Sacramento, and now currently lives in Granite Bay, California. (Id. at 10:20-11:7.)
Figueroa works as a regional field service engineer for Automated. His region includes Vancouver, Oregon, Seattle, California, Colorado, Idaho, Utah, Nevada and Alaska. (Id. at 12:14-24.) The area code of Figueroa's cell phone number is from Florida. (Id. at 20:3-6.) Figueroa did not provide an estimation of how much time he spent working in the District but did say that he does very little work in that area. (Id. at 71:3-19.) Automated provides him with a laptop but not a printer and does not reimburse him for any office equipment that he has at home. (Dkt. 70-1 (Figueroa Depo.) at 76:2-13.) When Figueroa needs a part for a repair, Automated ships the part to his house. (Id. at 58:2-20.) When he lived in the District, he occasionally stored some parts in Johnson's storage locker. (Id. at 72:4-20.)
A. Motion to Dismiss for Improper Venue.
Plaintiff bears the burden of showing that venue is proper. See Piedmont Label Co. v. Sun Garden Packing Co., 598 F.2d 491, 496 (9th Cir. 1979). In ruling on a motion to dismiss for improper venue, the plaintiff's allegations in the complaint need not be accepted as true, and the court may consider evidence outside the pleadings." Argueta v. Banco Mexicano, S.A., 87 F.3d 320, 324 (9th Cir. 1996). "[T]trial court must draw all reasonable inferences in favor of the non-moving party and resolve all factual conflicts in favor of the non-moving party." Murphy v. Schneider Nat'l, Inc., 362 F.3d 1133, 1138 (9th Cir. 2004). If there are genuine factual issues, the district court may, in its discretion, "hold . . . an evidentiary hearing on the disputed facts." Id. at 1139. If the court holds a hearing, it "may weigh evidence, assess credibility, and make findings of fact that are dispositive on the Rule 12(b)(3) motion." Id. at 1140. Alternatively, the district court may deny the motion to dismiss for improper venue without prejudice to refiling one "if further development of the record eliminates any genuine factual issue." Id. at 1139. The decision to dismiss for improper venue, or alternatively to transfer venue to a proper court, is a matter within the sound discretion of the district court. See King v. Russell, 963 F.2d 1301, 1304 (9th Cir. 1992).
The exclusive patent venue statute, 28 U.S.C. section 1400(b), provides 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." 28 U.S.C. § 1400(b); see also Fourco Glass Co. v. Transmirra Prod. Corp., 353 U.S. 222, 229 (1957) (holding that Section 1400(b) "is the sole and exclusive provision controlling venue in patent infringement actions."). Moreover, the Supreme Court has made clear that the patent venue statute is to be interpreted restrictively because "[t]he requirement of venue is specific and unambiguous; it is not one of those vague principles which, in the interest of some overriding policy, is to be given a 'liberal' construction." Schnell v. Peter Eckrich & Sons, 365 U.S. 260, 264 (1961) (quoting Olberding v. Illinois Cent. R.R. Co., 346 U.S. 338, 340 (1953).
The United States Supreme Court recently clarified in TC Heartland LLC v. Kraft Foods Group Brands LLC that, as applied to domestic corporations, the term "resid[es] . . . refers only to the State of incorporation." 137 S. Ct. 1514, 1521 (2017). The Court in TC Heartland did not address the latter portion of Section 1400(b), which makes venue proper in any judicial district "where the defendant has committed acts of infringement and has a regular and established place of business." 28 U.S.C. § 1400(b).
In In re Cordis Corp., 769 F.2d 733, 737 (Fed. Cir. 1985), the Federal Circuit explained that the test for whether a corporate defendant has a regular and established place in a district "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." See In re Cordis Corp., 769 F.2d 733, 737 (Fed. Cir. 1985). Although few courts have considered the proper time frame for assessing whether a defendants has a "regular and established place in a district," the courts that have examined this issue held that the critical time period is when the claim has accrued if the "suit is filed within a reasonable time thereafter." See Welch Sci. Co. v. Human Eng'g Inst., Inc., 416 F.2d 32, 35 (7th Cir. 1969); see also San Shoe Trading Corp. v. Converse Inc., 649 F. Supp. 341, 344-45 (S.D.N.Y. 1986); Datascope Corp. v. SMEC, Inc., 561 F. Supp. 787, 790 (D.N.J. 1983); Raytheon Co. v. Cray, Inc., 2017 WL 2813896, at *3 (E.D. Tex. June 29, 2017). Automated argues that FPI's claims accrued in September 2013. (Dkt. 76-2.) FPI does not specifically state when it contends that its claims accrued, but argues that it was sometime before the fall of 2015. (Dkt. 71-4 at 2 n. 1.) Presumably, this time period was in April 2015 at the latest, when FPI's second patent-in-suit was issued and after both of Automated's accused products were released.
The inquiry of whether a corporation has a "permanent and continuous presence" in a district is fact-intensive, and courts have expressed a "wide variety of opinions as to the type and extent of contacts which will satisfy" this test. Johnston v. IVAC Corp., 681 F. Supp. 959, 962 (D. Mass. 1987); see also MAGICorp. v. Kinetic Presentations, Inc., 718 F. Supp. 334, 340 (D.N.J. 1989) ("courts and commentators alike are clear that there is no definitive formula for assessing whether the defendant has 'a regular and established place of business' in the district.").
In Cordis, the defendant company employed two sales representatives to market cardiac pacemakers. The company provided each sales representative with a car. The sales representatives maintained offices in their homes, in which they stored company literature, documents and approximately $90,000 worth of inventory of the company's products. The sales representatives completed paperwork and other administrative tasks in their home offices and took income tax deductions for these offices. The company paid for a secretarial service in the district to receive messages, provide typing services, and mail and receive company literature. The secretarial service answered the phone in the defendant company's name. The state telephone directory included the defendant company's name and telephone number and provided the secretarial service's address as the company's address. Hospitals or physicians could obtain the company's pacemakers either through orders placed by the sales representatives in the district or directly from the sales representatives out of their inventory. In addition to making sales and providing the product, the two sales representatives acted as technical consultants during and after surgical implantations of the pacemakers, and gave presentations to medical personnel regarding technological developments. Id. at 735.
The Cordis court stressed that it was deciding a petition for a writ of mandamus, a remedy "to be reserved for the most serious and critical ills, and if a rational and substantial legal argument can be made in support of the rule in question, the case is not appropriate for mandamus, even though on normal appeal, a court might find reversible error." 769 F.2d at 737. In light of this standard, the court held that a "rational and substantial legal argument" could be made to uphold the finding that defendant company had a regular and established place in a district based on the above facts. Id.
In Johnston v. IVAC Corp., 681 F. Supp. 959, 962-64 (D. Mass. 1987), the court held that the activities of sales representatives were insufficient to establish a "permanent and continuous presence." At the time the complaint was filed, the division that sold the accused product employed two sales representatives who resided in and solicited sales in the district. Another company division employed seven sales representatives who serviced the district, four of whom also lived in the district. Id. at 960. The court noted that the sales representatives sent all of their orders to the out-of-district home office, which shipped the orders to the customers, and all payments were made to the out-of-district office. Moreover, although the representatives kept small quantities of the company's products in their homes for demonstration and clinical testing purposes, they did not keep inventory on hand to fill orders directly. Additionally, although the sales representatives provided some technical assistance and addressed some customer complaints, their technical involvement was not as significant as the operating room assistance provided by the salesmen in Cordis. Id. at 964.
Similarly, in Schoofs v. Union Carbide Corp., 633 F. Supp. 4, 5-6 (E.D. Cal. 1985), the court determined that the employment of one full-time salesperson in the district was insufficient to demonstrate venue. The employee visited six to eight customers a day, had a company car without a logo, did not maintain a home office, and did not employ any secretarial help. His business cards listed the company's out-of-district address and a toll-free 800 number. All of the employee's sales were subject to approval and acceptance by the out-of-district office, and the company shipped the product directly to the customer from the out-of-district factory. The employee did not regularly maintain an inventory of the company's product. In addition to sales, the employee occasionally made minor repairs on the product. The court found that the totality of these activities were dissimilar to the district activities in Cordis and did not "comport with the vigorous requirements mandated by the patent infringement venue statute, 28 U.S.C. § 1400(b)." Id.
In contrast, the court in Raytheon Co. v. Cray, Inc., 2017 WL 2813896 (E.D. Tex. June 29, 2017), found that the presence of one full-time employee in the district to solicit sales was sufficient to show that the defendant company had a regular and established place there. The court noted that the employee lived and worked exclusively in the district as a sales representative for the defendant company and had done so for seven years. The company reimbursed the employee for his cell phone, internet fees, and mileage or other costs for business travel. The company also provided him with administrative support to work from his home in the district. The employee contacted and sold products to customers using an "office" telephone number with an in-district area code. Invoices to customers included his name and telephone number. Id. at *9. The accused sales attributable to the employee exceeded $345 million. Id. at *1. In addition to sales, the employee was responsible for new account development and key account management. Id. at *10. Moreover, for approximately two years, the company employed a second person as a senior territory manager who lived and worked in the district and sold the company's product in the district. Id. at *2.
Considering that the Court must not construe the patent venue statute liberally and in comparing the facts here with those in Cordis, the Court concludes that FPI fails to meet its burden to demonstrate that venue is proper in this District. Depending on when FPI's claims accrued, Automated had between one and three employees who resided in the District and three to four employees who spent some time working in the District. However, the Court finds it significant that each of the employees who worked in the District covered a large area in which the District was just one portion. Each of these employees spent, at most, less than twenty-five percent of their time working with customers in this District, and, when added together, was less than half of one employee's time.
As noted above, Johnson estimated that he spent five or six days a month visiting customers in the District, but these were not full days. Denton estimated that he spent less than twenty-five percent of his time working with customers in the District. Voytas, who replaced Denton when he moved to the East Coast for a promotion within Automated, estimated that he spent less than ten percent of his time working in the District. Figueroa did not provide a percent number but estimated that the time he spent with customers in this District was "very little." There appears to be a small window in time (from mid-2016 to early 2017) when both Denton and Voytas worked with customers in the District, but this was, at a minimum, more than a year after FPI's claims accrued. --------
Moreover, although between one and three employees lived in this District and, thus, worked in this District when they worked from home, the location of their residence appears to one of convenience and choice for the employees, as opposed to a requirement by Automated or the location of their workplace. Although they each did or do some work in the District, the District is just a small portion of the geographic areas that these employees covered for Automated. Notably, two of these employees, Denton and Figueroa, moved out of the District, closer to Sacramento, while they worked for Automated, and a fourth employee, Voytas, never lived within the District. None of these employees have ever spent more than a quarter of their time working with customers in this District and two, or half of these employees, spend significantly less than a quarter of their time working in the District.
Therefore, although Automated provides laptops and reimburses these employees for their use of their cars and cell phones for work, these were only expenditures in the District by the employees' choice of residence and for the time period that they lived in the District. The same is true for Automated's reimbursement to Johnson for his storage space. These expenditures are not intentional actions directed at establishing a regular and established place of business in the District. Instead, they are expenditures to support employees who cover broad areas, a portion of which includes the District, and who happen to, at different periods, live within the District.
If a customer agrees to make a purchase, Automated's out-of-District customer service department processes the purchase orders. Automated then sends the products to their customers from its offices in Ohio or Santa Fe Springs, California, which are both outside of this District. Johnson keeps a small amount of Automated's materials in a storage locker for samples and demonstration purposes, but he does not use this material as inventory to fulfill orders.
The business cards for these employees have Automated's out-of-District addresses on them, along with out-of-District work or "direct" phone numbers and fax numbers. The business cards also have the employees' cell phone numbers, two of which have District areas codes. Again, the area code for the cell phone numbers appears to be the employees' choice and a product of where they lived before they started working for Automated. For example, Denton now works in Atlanta, Georgia for Automated, but has retained his 510 District area code on his cell phone. In contrast to the listing of a company address and phone number within the District in Cordis, the addition of a cell phone number with a District area code on the business cards of two out of four employees, does not give the impression that Automated has an office or permanent presence in the District.
Although several of the employees have LinkedIn pages which state that they work in the San Francisco Bay Area, Johnson stated that information was inaccurate and did not know why the pages said that. (Dkt. 41-5 at 65:8-24, 70:17-25; Dkt. 43-5 at 98:11-15.) He also testified that no customer ever contacted him through his LinkedIn page. (Dkt. 43-4 at 98:20-23.)
FPI also relies on the physical presence of and sales from Oakland Packaging, a third-party company which sells products from Automated, as well as products from other companies. However, as another court noted: "It is well settled that the mere presence of independent sales representatives does not constitute a 'regular and established place of business' for purposes of Section 1400(b)." LoganTree LP v. Garmin Int'l, Inc., 2017 WL 2842870, at *2 (W.D. Tex. June 22, 2017) (quoting Kabb, Inc. v. Sutera, 1992 WL 245546, at *2 (E.D. La. Sept. 4, 1992) (citing cases)); see also Dual Mfg. & Eng'g, Inc. v. Burris Indus., Inc., 531 F.2d 1382, 1387 (7th Cir. 1976) (noting that even "exclusive distributorship" and "exclusive, independent distributors" will not create venue under the patent venue statute).
Upon carefully reviewing all of the evidence in the record, the Court finds that the evidence shows, at most, that Automated is doing business in the District. Automated's contacts and business within the District do not demonstrate a permanent and continuous presence of the nature that is required to show venue is proper here. Automated's presence in the District is significantly less than the companies at issue in Cordis and Raytheon. In Cordis, the company employed two sales representatives who maintained offices within their homes for which they took income tax deductions. Cordis, 769 F.2d at 735. Between the two sales representatives, they stored $90,000 worth of inventory in their homes. There is no mention of these employees working anywhere other than in the district. In addition, the company paid for a secretarial service in the district who answered the phone in the company's name, and the state telephone directory included a listing for the company with a local address and telephone number. Id. Similarly, in Raytheon, the company employed two sales persons who lived and worked exclusively in the district. At least one of those employees provided customers with his office telephone number with a district area code, and invoices to customers included his name and telephone number. Therefore, the Court finds that FPI has not met its burden to show that venue is proper here. Because the Court finds that venue is not proper, the Court will not address Automated's additional grounds for dismissal. /// /// ///
For the foregoing reasons, the Court GRANTS Automated's motion to dismiss. The Court will issue a separate judgment in favor of Automated. The Clerk is instructed to close the file.
IT IS SO ORDERED. Dated: August 29, 2017
United States Magistrate Judge