EDTX says leased retail space can be a regular and established place of business for patent venue

In an opinion made public on May 9^th, a federal judge in the Eastern District of Texas denied a motion to dismiss for improper venue. See Tinnus Enters. v. Telebrands Corp., Case No. 6:17-CV-00170-RWS (E.D. Tex. May 1, 2018).  Notably, the Court in Tinnus found that a “regular and established place of business” can exist when a manufacturer or wholesaler leases a space within a brick-and-mortar retail store. Id. at 4-5.

District Judge Robert W. Schroeder supported the report and recommendation of Magistrate Judge John D. Love which found that defendant Telebrands consistently leases space with retailers in the district, creating ongoing, long-term relationships with those retailers.  Id. at 4.  Judge Schroder concluded that the defendant had crafted a regular and established place of business for patent venue purposes by holding out leased store space as their own, paying fees to construct the leased space, and controlling product placement, sales, and displays within that space.  Id.

The Tinnus opinion expands upon a shift in patent venue rulings. In 1957, the Supreme Court established 28 U.S.C. § 1400(b) as the “sole and exclusive provision controlling venue in patent infringement actions.  Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 226-229 (1957).  § 1400(b) states “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.”  28 U.S.C. § 1400(b).  In Fourco, the Supreme Court determined that a domestic corporation “resides” only in its state of incorporation under § 1400(b).  Fourco., 353 U.S. at 226-29.

At the time, the governing statute on venue, 28 U.S.C. § 1391(c), defined “residence” as the place of incorporation or the place where a company is licensed to do business or is doing business. Id. at 223.  Subsequent amendments to the definition of residency in § 1391(c) altered the meaning of corporate residence for venue purposes, expanding it to any district in which a corporation could be subject to personal jurisdiction.  In the 1990s, the Federal Circuit extended § 1391(c)’s revised definition of residency to apply to patent venue claims. See VE Holding Corp v. Johnson Gas Appliance Co., 917 F.2d 1574, 1583 (Fed. Cir. 1990), cert. denied, 499 U.S. 922 (1991).  Residency in § 1391(c) and residency in § 1400(b) were thus long considered synonymous.

The Supreme Court’s recent decision in TC Heartland reset the definition of residency in § 1400(b), divorcing the patent venue statute’s construction from § 1391(c). TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S. Ct. 1514, 1520 (2017). In TC Heartland, the Supreme Court held that “residence” in § 1400(b) refers only to the state of incorporation, and further held that the expanded definition of “residence” in § 1391(c) was not intended to alter § 1400(b)’s construction of the term. Id.

A brief period of uncertainty followed the TC Heartland decision as federal courts struggled to define the decision’s impact. A federal district court in Washington state found that TC Heartland changed the governing definition of “residence” in a novel fashion.  Westech Aerosol Corp. v. 3M Co., 2017 U.S. Dist. LEXIS 95768, *4 (W.D. Wash. 2017).  By contrast, a federal district court in Texas found that TC Heartland simply reaffirmed the definition of “residence” already established in the 1957 Fourco case.  Elbit Systems Land and C4L Ltd. v. Hughes Network Systems, LLC, 2017 U.S. Dist. LEXIS 94495, *60, 2017 WL 2651618 (E.D. Tex. 2017).

The question of TC Heartland’s import was clearly answered in In re Micron Tech., Inc., a Federal Circuit decision that concluded that TC Heartland decision was indeed an extension of Fourco. In re Micron Tech., Inc., 875 F.3d 1091, 1099 (Fed. Cir. 2017). In Micron, the Federal Circuit emphasized the Supreme Court’s TC Heartland ruling that “the amendments to § 1391 did not modify the meaning of § 1400(b) as interpreted by Fourco,” and further confirmed that the definition of residence in § 1391(c) is inapplicable to the definition of residence in § 1400(b). Id.

In the year since Micron, a number of closely watched decisions have issued that provide guidance on reconciling TC Heartland’s strict construction of “residence” with commerce in an era of mass retail and digital omnipresence. Chief among these cases is In re Cray, where the Federal Circuit held that “a regular and established place of business” requires that (1) there be a physical place in the district; (2) this place be a regular and established place of business; and (3) the physical place be the place of the defendant. In re Cray Inc., 871 F.3d 1355, 1360 (Fed. Cir. 2017).  The defendant in Cray did not rent or own an office or property in the Eastern District of Texas, however, company employees worked remotely from their domiciles within the district.  The Federal Circuit determined that the defendant played no role in selecting, enforcing, or utilizing the location of the telecommuting employees, and therefore found that these telecommute arrangements were insufficient to create a “regular and established place of business” for patent venue purposes.  Id. at 1364-1365.

Following Cray, decisions issued by the Eastern District of Texas have held that (1) the presence of a telecommuting employee does not satisfy the patent venue statute; (2) distribution centers can constitute a “regular and established place of business;” and (3) electronic data warehousing locations and distribution servers are not a “regular and established place of business. See GEODynamics, Inc. v. DynaEnergetics US, Inc., No. 2:17-cv-00371-RSP, 2017 U.S. Dist. LEXIS 207850, at *3-4 (E.D. Tex. Dec. 18, 2017); Pers. Audio, LLC v. Google, Inc., 280 F. Supp. 3d 922, 933 (E.D. Tex. 2017).

The recent Tinnus opinion further defines the meaning of “regular and established place of business.”  See Tinnus Enters. v. Telebrands Corp., Case No. 6:17-CV-00170-RWS (E.D. Tex. May 1, 2018). The opinion provides additional guidance to practitioners defining “residence” under TC Heartland, Micron, and Cray: teleworking employees are not enough, but leased retail space in brick-and-mortar stores might be.