Employees working from home do not establish place of business for venue under TC Heartland

In Re: Cray, Inc., (Fed. Cir. Sep. 21, 2017) (Before Lourie, Reyna, and Stoll, J.) (Opinion for the court, Lourie, J.)

The Federal Circuit applied the recent Supreme Court’s TC Heartland decision to grant a writ of mandamus, directing the Eastern District of Texas to transfer Raytheon’s patent case to a proper venue. The district court refused the transfer based on notions of targeting the district for a benefit, according to a four-part test it adapted from In re Cordis Corp. The Federal Circuit disagreed, holding that the listed criteria were not sufficiently tethered to the relevant statute, 28 U.S.C. § 1400(b).

Raytheon Company (“Raytheon”) alleged patent infringement against Cray, Inc. (“Cray”) in the Eastern District of Texas. Cray is a Washington corporation with facilities in Minnesota, Wisconsin, California, and Texas, but no offices in the Eastern District of Texas. Raytheon’s basis for venue stemmed from the activities of two Cray employees who worked remotely from their homes in that district. Cray petitioned for a writ of mandamus to vacate the district court’s order denying its motion to transfer the case to the United States District Court for the Western District of Wisconsin.

28 U.S.C. § 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.” At issue was whether the activities of the Cray employees amounted to “a regular and established place of business” in the Eastern District of Texas. The Court reviewed Cordis and TC Heartland, and determined that § 1400(b) requires: 1) a physical place in the district; 2) that is regular and established; and 3) is the place of the defendant.

Regarding a “physical place,” the Court noted there must be a physical, geographical location in the district from which the defendant carries out business. The Court defined “regular” as steady and not sporadic. Also, it defined “established” to mean the business is not transient, but instead is settled certainly or fixed permanently. A “virtual” office in a voluntary location is insufficient

The Court focused principally on the third factor. Raytheon failed to show that the at-home work of its employees was conducted at “the place of the defendant.” Cray did not own, lease, or rent any portion of the employee homes. Cray did not select the location, store inventory or conduct demonstrations there, or condition employment on maintaining a location in the district.

A writ of mandamus is reserved for exceptional circumstances including, as here, abuse of discretion. The court was found to have abused its discretion by misapplying Cordis to the present facts. Accordingly, the Court granted the writ of mandamus, vacated the decision of the lower court, and ordered the court to transfer the case to an appropriate venue.

In determining venue in a patent infringement case, the location of defendant’s employees who work from home is not a regular and established place of defendant’s business when the defendant corporation has no material connection to that place, as by rent, inventory, conditioning employment based on the location, or other relevant facts.

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There are currently 3 Comments comments. Join the discussion.

  1. Joachim CS Martillo September 29, 2017 7:36 am

    I wonder where the place of business is when the defendant only has a virtual office and just a PO Box wherever the defendant is incorporated.

    Regarding a “physical place,” the Court noted there must be a physical, geographical location in the district from which the defendant carries out business. The Court defined “regular” as steady and not sporadic. Also, it defined “established” to mean the business is not transient, but instead is settled certainly or fixed permanently. A “virtual” office in a voluntary location is insufficient.

  2. Bemused September 29, 2017 11:13 am

    This opinion from the CAFC shows two things: (1) Its a results oriented decision to continue to curtail the filing of patent cases in the EDTX; and (2) It illustrates the on-going 19th Century mentality of the CAFC (and SCOTUS) by ignoring the practical realities of today’s digital business model. What about instances where an entity that sells web-based content (e.g. gaming company, software downloads, etc) houses such content on a web hosting service’s servers located in the EDTX? Does that qualify as a regular and established place of business? It seems to me that answer is yes, because that entity made the decision to place, store and “sell” its inventory (i.e. web content) in the EDTX. However, according to the CAFC it seems the answer to that hypothetical would be no.

  3. Joachim Martillo September 29, 2017 11:38 am

    Bemused@2, I have the impression that many in the judicial branch simply don’t understand the cloud computing environment, in business today functions.

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