Patent Venue Distances itself Further from the Eastern District of Texas

LA-2017-09-21-Cray-WEBPAGE By Derk Westermeyer

In the month prior to the Supreme Court’s decision in TC Heartland LLC v. Kraft Foods Group Brands LLC, nearly one-third of all patent suits filed were filed in the Eastern District of Texas. One month after the Supreme Court’s decision, the number of patent suits filed in the Eastern District of Texas dropped by 50 percent. This trend looks to continue after the Federal Circuit’s opinion in its In Re: Cray Inc.

In TC Heartland, the Supreme Court breathed life back into the patent venue statute, 28 U.S.C. § 1400(b). Prior to TC Heartland, patent suits could be brought in any district where an infringing act occurred. For a major company, this is virtually any district in the United States. As such, many non-practicing entities chose to bring patent suits in the Eastern District of Texas. After TC Heartland, the Supreme Court required patents suits to follow the patent venue statute. As such, patent suits can only “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.” While the Supreme Court brought back this statute with its decision in TC Heartland, it did not specify what constituted a “regular and established place of business.” However, in its In Re: Cray Inc. decision, the Federal Circuit answered this question by setting forth a three-part test.

The three-part test requires the court to find: (1) a physical place in the district, (2) the physical place is a regular and established place of business, and (3) the physical place belongs to the defendant.

A “physical place” is any place in the district that is dedicated to business that is not virtual. A brick-and-mortar store or a distribution center are typical examples of “physical places” that are dedicated to business.  In contrast, a customer being able to access a business’s website in the district alone would not meet the standard.

A place of business is considered “regular and established” when business is conducted in a steady, uniform, and orderly manner, and when the location is settled certainly or fixed permanently. The Federal Circuit suggested that a semiannual trade show would not be a regular and established business, while a store that had been operating continuously for five years would meet the requirement.

The final requirement stresses that the business must exert some control over the physical location through some means, such as a lease.  Thus, an employee working from a home office would not satisfy the third requirement unless the home office is the company’s principal place of business. Venue would thus not be proper if any part of this test is not met.

The Federal Circuit’s decision effectively shuts down the Eastern District of Texas’s grip on patent litigation. With the focus of this interpretation of the statute on the defendant’s business, it seems that only major retailers can be exposed to patent suit in the Eastern District of Texas.

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