Venue Cray-Z: The Federal Circuit provides additional guidance after Heartland

September 27, 2017

In May of this year, the United States Supreme Court decided TC Heartland LLC v. Kraft Foods Grp. Brands LLC (137 S. Ct. 1514, 197 L. Ed. 2d 816 (2017)) which  abrogated the Federal Circuit’s 30 year old  decision in VE Holding Corp. v. Johnson Gas Appliance Co. (917 F.2d 1574 (Fed. Cir. 1990)) concerning selection of venue in patent actions. For years the circuit had held that a patent infringement action could be brought in virtually any jurisdiction. The high court’s ruling limited that selection allowing only venues in the state of incorporation and the more traditional place where patented items are sold and acts of infringement occurred, highlighting the regular and established place of business standard.

Shortly after Justice Thomas’ opinion in Heartland was released, Eastern District of Texas Judge Rodney Gilstrap ruled on a motion by Cray, Inc requesting to transfer venue of a patent infringement action to the Western District of Wisconsin, where its products were made and where the alleged infringement was occurring. In the opinion Judge Gilstrap denied the transfer, finding that Cray employed two work- from-home employees in the district, which amounted to a regular and established place of business sufficient to confer venue under the Heartland analysis.

Cray applied for emergency mandamus relief, giving the Federal circuit its first chance to revisit the venue analysis since the Supreme Court ruling and weigh in on the meaning of the “regular and established place of business” standard. Original plaintiff, Raytheon Co., opposed the transfer and friend of the court briefs were filed from large interest groups including High Tech Inventors Alliance, a group that represents technology giants like Google, Amazon, and Oracle as well as from other parties eager to help shape the new direction of the court.

In a unanimous decision, a three judge panel of the Federal Circuit decided to overturn the district court opinion and ordered the action transferred out of the Eastern District of Texas. The decision, which focused on only one of the two work from home employees (finding the other employees work from home between 2010 and 2011, prior to the filing of the infringement action, need not be considered) and found that his home office, which Cray neither paid for or owned, was not enough of a presence to constitute a regular and established place of business. Using a three prong test, Circuit Judge Lourie opined that are three general requirements relevant to the patent venue inquiry, “(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.”

Finding that Cray did not have an ownership interest in the employee’s home, did not rent space within the home, and did not own real estate in or require the employee to work within the district, the court ruled that Cray did not meet the requirements of the first prong and venue was not proper in Texas.

The opinion has been well received as a step towards curbing the ability of alleged patent trolls (non-practicing patent holders) to force settlement by forum shopping.

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