“The Western District of Texas has now apparently become the venue of choice for filing patent infringement actions and it is forecasted to surpass the District of Delaware for the most new filings in 2020. While it is too soon to know if this part of a long-term trend, it does highlight the unsettled nature of patent venue law, especially as courts begin to consider whether a ‘regular and established place of business will require the regular presence of a human agent.’”
In its TC Heartland decision in 2017, the Supreme Court rejected the Federal Circuit’s interpretation of the patent venue law, and held that in order to bring a patent infringement lawsuit against a company in a given district, that company must either reside in that district or have a “regular and established place of business” and have committed an act of alleged infringement there. As expected, this has led to a decrease in the number of patent cases being filed in the Eastern District of Texas, and an increase in the number of cases being brought in other districts, including in the District of Delaware, where many companies are incorporated.
The TC Heartland decision was welcome news to many companies that regarded the Eastern District of Texas as being pro-plaintiff. However, the TC Heartland decision has not stopped plaintiffs from seeking to push the envelope as to the meaning of a “regular and established place of business” in order to seek to establish venue in a more favorable venue. Indeed, according to the Q1 2020 Patent Dispute Report, the Western District of Texas has now apparently become the venue of choice for filing patent infringement actions and it is forecasted to surpass the District of Delaware for the most new filings in 2020. The report also included that this district has become the “preferred venue” for non-practicing entities to bring infringement actions and is on pace to have over 600 patent related cases, with NPEs comprising approximately 80% of all cases. While it is too soon to know if this part of a long-term trend, it does highlight the unsettled nature of patent venue law, and the likelihood that the Federal Circuit, and perhaps the Supreme Court, will have to provide additional guidance on this issue, and especially how technology may impact this review, as seen from in In re: Google LLC, 949 F.3 1338 (Fed. Cir. 2020) (“SIT”). Part 1 of this article will discuss the current status of the Federal Circuit’s understanding of the patent venue statute as set forth in that decision and in In re Cray Inc., 871 F.3d 1355, 1360 (Fed. Cir. 2017).
In SIT, the court determined that defendants’ “regular and established course of business” for the purpose of the patent venue statute can be established by the “regular, physical presence of an employee or other agent of the defendant conducting the defendant’s business at the alleged ‘place of business.” (emphasis added). However, the court rejected plaintiff’s argument that the Eastern District of Texas was a proper venue for an infringement action against Google, because, among other reasons, the two internet service providers (ISPs) that hosted Google servers in that district were not agents to establish that Google had a “regular place of business” within that district. However, the ruling also expressly noted that it did not hold “that a ‘regular and established place of business’ will always require the regular presence of a human agent, that is whether a machine could be an agent.’”
Part 2 of the article will address the February 13, 2020, order by Judge Gilstrup of the Eastern District of Texas who required the parties in Personalized Media Communications LLC v. Google, Netflix, 2:19-CV-00090-JRG (Lead Case) to answer the following question posed by him: “[u]nder what conditions a ‘machine could be an agent’ and whether any such agent of [the defendants] Netflix or Google exists within the Eastern District of Texas?” The ultimate answer to this question may be particularly important to many corporations, especially with regard to companies with online and cloud-based operations that may be operated by third parties, whether such operations meet the definition of a “regular and established place of business” as required for patent venue. Certainly, if the answer to this question is in the affirmative, such companies may be again subject to venue in districts that are generally regarded as plaintiff friendly. Further, even if this issue where to be decided in the negative at this time, it is likely that this issue is far from being decided with finality since the “artificial intelligence” of machines is literally increasing on a day-by-day basis. It also brings up the important societal issue of our relationship with AI machines, which is beyond the scope of this article.
The Patent Venue Statute
In general, pursuant to 28 U.S.C. § 1400(b) venue in a patent case is proper in any judicial district where the defendant (1) has committed acts of infringement; and (2) has a regular and established place of business. The Federal Circuit in SIT emphasized that pursuant to its decision in In re Cray Inc., 871 F.3d 1355, 1360 (Fed. Cir. 2017), that there are three “general requirements to establishing that the defendant has a regular and established place of business: (1) there must be a physical place in the district; (2) it must be a regular and established place of business and; (3) it must be the place of the defendant.”
As to the first requirement that there is a “physical place in the district,” the Federal Circuit in Cray noted that a “place” is defined as “a building or a part of a building set apart for any purpose or quarters of any kind from which business is conducted.” In re Cray, 871 F.3d at 1362. The SIT court stressed that pursuant to Cray this “could be satisfied by any physical place that the defendant could possess or control,” such as by operating a table at a flea market.
Next, the plaintiff must establish that defendant has a “regular and established place of business” that “must be the place of the defendant.” According to the Cray court, this can be established by, for example, operating the business in a “steady, uniform, orderly, and methodical manner. Id. This means that the business may not be temporary or for some special work or particular transaction and that a single act does not constitute business, but a series of such acts does. In undertaking this inquiry, the Cray court provided a number of relevant of considerations to assist the district courts in their analyses, including “whether the defendant owns or leases the place, or exercises other attributes of possession or control over the place,” “whether the defendant conditioned employment on an employee’s continued residence in the district or the storing of materials at a place in the district or the storing of materials at a place in the district so that they can be distributed or sold from that place,” and whether “the defendant itself holds out a place for its business.” Id. However, “it must be a place of the defendant, no solely a place of the defendant’s employee.” Cray at 1362. A defendant’s representations that it has a place of business in the district are relevant to the inquiry including whether the “defendant lists the alleged place of business on a website, or in a telephone or other directory; or places its name on a sign associated with or on the building itself. Id. at 1363-64. However, “the mere fact that a defendant has advertised that it has a place of business or has even set up an office is not sufficient, the defendant must actually engage in business from that location.” Id. The court further counseled district courts to readily compare “the nature and activity of the alleged place of business of the defendant in the district” to “that of other places of business of the defendant in other venues.” Id
The SIT Decision
As explained by the court in Seven Networks LLC v. Google, 315 F.Supp.3d 933, 948 (E.D. Tex. 2018). Google has developed “a content-delivery network that it calls the Edge Network” that delivers information to users throughout the world. Google addresses the “challenges” of delivering this information throughout the world with “its Edge Network, which has three elements: “Core Data Centers, Edge Points of Presence, and Edge Nodes. The Core Data Centers (there are eight in the United States) are used for computation and backend storage. Edge Points of Presence are the middle tier of the Edge Network and connect the Data Centers to the internet. Edge Nodes are the layer of the network closest to users. Popular content, including YouTube videos, video advertising, music, mobile apps, and other digital content from the Google Play store, is cached on the Edge Nodes, which Google refers to as Google Global Cache (GGC).
In SIT, Google argued that its GGC servers housed in the Eastern District of Texas do not meet this “physical place in the district” requirement. The court rejected this argument, but found that pursuant to the service statute for patent cases set forth in 28 U.S.C. § 1694, which must be read in conjunction with 28 U.S.C. § 1404(b), a defendant may have a “’regular and established place of business within the meaning of the venue statute where the defendant has an ‘agent engaged in conducting such business.” SIT at 1343.
Applying this understanding to the facts, the SIT court determined there is no Google employee conducting business in the Eastern District of Texas, but raised the possibility that the Internet Service Providers (“ISPs”) that host Google’s GGC servers are acting as Google’s agents and would provide the basis for venue in that district. However, the court concluded that pursuant to the contracts between Google and the ISPs, Google has a very limited right of interim control over the ISPs provision of network access, and that the ISPs performed installation of the GGC servers, and therefore, the ISPs are not agents of Google. Id. at 1345-46. The court also rejected the argument that “maintenance” services provided by the ISPs creates an agency relationship with Google, noting that “[m]aintaining equipment is meaningfully different from—an only ancillary to—the actual producing, storing and furnishing to customers of what the business offers.” Id. at 1346. The court concluded that the “venue statute should be read to exclude agents’ activities, such as maintenance, that are merely connected to, but do not themselves constitute, the defendant’s conduct of business in the sense of production, storage, transport, and exchange of goods or services.” Id. at 1347. Accordingly, the court concluded that the venue in the Eastern District of Texas was not proper because Google lacked a “regular and established place of business” within that district. Id.
However, and most importantly for the purposes of this article, the SIT court stated: “To be clear, we do not hold today that a ‘regular and established place of business’ will always require the regular presence of a human agent, that is, whether a machine could be an ‘agent.’ Such a theory would require recognition that service could be made on a machine pursuant to 28 U.S.C. § 1694.” Id. at 1347.
As previously mentioned, part 2 of the article will address the question posed by Judge Gilstrup of the Eastern District of Texas, who required the answer “under what conditions can a ‘machine be an agent’ for the purposes of the patent venue statute?