Cloud IpQ

The Eastern District of Texas has been the hotbed of patent ligation for years, and that is undoubtedly threatened in light of the Supreme Court’s decision on venue in TC Heartland.  But the Eastern District clearly won’t go down without a fight in order to hold onto its patent litigation forum preeminence.

Where Did That Come From?

In June 2017, Judge Gilstrap refused to transfer a case filed against Cray Inc. by Raytheon, finding that venue was proper even in light of TC Heartland.  Judge Gilstrap created a controversial four part test for determining whether a defendant has a “regular and established place of business” as required by the venue statute – 28 U.S.C. §1400(b).  According to Judge Gilstrap, the following four factors should be considered in determining what constitutes regular and established places of business “in the modern era:” (1) physical presence, (2) defendant’s representations, (3) benefits received, and (4) targeted interactions with the district.  Keep in mind that this four factor test finds absolutely no support in precedent from the Federal Circuit or the Supreme Court.

Nice Try, but – Nah Bro

On September 20, 2017, in a decision on Cray’s Petition for Writ of Mandamus – In re: Cray Inc. (Fed. Cir. 2017) – the Federal Circuit found that Judge Gilstrap abused his discretion in refusing to transfer the case for improper venue.  According to the Federal Circuit, the case law and statute reveal three general requirements relevant to the “regular and established place of business” 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.  If any statutory requirement is not satisfied, venue is improper under § 1400(b).  With regard to Cray’s ties to the Eastern District, the Federal Circuit found that the district court erred as a matter of law in holding that “a fixed physical location in the district is not a prerequisite to proper venue.”  As to the second requirement, sporadic activity does not constitute a “regular and established place of business.”  Finally, an employee’s home, even if a residential home office, is not a “place of the defendant.”  On this last requirement, the Court noted that “[o]ur decision here comports with a number of appellate court decisions concerning employees working from their homes.”  In light of these considerations, the Federal Circuit vacated the denial of Cray’s motion to transfer venue, and directed the Eastern District to grant the motion and transfer the case to an appropriate venue.

This is a very important decision as a follow-on to the Supreme Court’s TC Heartland decision.  In spite of Judge Gilstrap’s attempts to shape venue law, more and more patent suits are being transferred, and more and more plaintiffs are choosing to take their (NPE litigation) business elsewhere.  This decision could have broad consequences for patent litigation generally, including the rising tide of patent lawsuits targeting cloud computing.