A patent owner could bring an infringement suit just about anywhere until this past May. That’s when the United States Supreme Court issued TC Heartland v. Kraft Foods Group Brands, which reversed a 1990 decision that broadened the venue criteria for bringing a case.
The Supreme Court reinstated the Fourco Glass rule it had originally been decided in 1957 which allows companies to be sued in their place of incorporation—or where the patent infringement was committed and have a regular and established place of business.
Recently, the U.S. Court of Appeals for the Federal Circuit has given the Supreme Court’s holding in TC Heartland a bit more potency. The first opinion interpreting the Supreme Court’s patent venue decision says that defendants can be sued for infringement only where they maintain a fixed, physical presence. In In re Cray, Federal Circuit Judge Alan Lourie refused to affirm the reasoning of the decision from the Eastern District of Texas that extended venue to companies with staff at home offices there.
The patent venue statute allows lawsuits where companies have “a regular and established place of business.” That language, Judge Lourie held, “cannot be read to refer merely to a virtual space or to electronic communications from one person to another.” He went on to write, “[w]hile the “place” need not be a “fixed physical presence in the sense of a formal office or store,” there must still be a physical, geographical location in the district from which the business of the defendant is carried out.”
In addition, patent venue requires an actual physical place of business established by the company, not just by one of its employees. “Employees change jobs,” the Federal Circuit Judge wrote. “Thus, the defendant must establish or ratify the place of business. It is not enough that the employee does so on his or her own.”
“Four-Factor Venue” Test
Start-ups will be pleased with the decision by the Federal Circuit because the District Court’s “four-factor venue” test would have permitted patent owners to continue to file cases practically wherever they wanted—most likely in their favored forum. In re Cray tamps down any wiggle room for targeting companies in the Eastern District of Texas if they aren’t incorporated or maintaining a physical presence there. That District has been the most popular court for patent infringement cases in the country (It’s particularly popular among non-practicing entities, but Cray involved litigation between two competitors).
Cray, the supercomputer company, argued that under Fourco Glass venue was improper in Texas because Raytheon had no facilities or customers in the Eastern District of Texas, and also doesn’t sell products there.
The District Court Judge said that a physical presence wasn’t essential to establishing the “regular and established” element and he noted, “Technological advances have significantly changed the way businesses operate throughout our nation.”
The trial court judge laid out guidelines for “the modern era” of Internet and e-commerce, which put less weight on physical presence and more on factors like targeted interactions with the district and the revenues earned there.
But Circuit Judge Lourie disagreed. “The district court’s four-factor test is not sufficiently tethered to this statutory language and thus it fails to inform each of the necessary requirements of the statute,” he wrote. While Judge Lourie admitted that “in this new era, not all corporations operate under a brick-and-mortar model.” Nevertheless, he wrote, “we must focus on the full and unchanged language of the statute.”
Judge Lourie further cited to pre-Federal Circuit decisions that held that a home office could be a place of business if, for example, they kept inventory, a showroom, or secretarial staff. None of those were present here.
“The fact that Cray allowed its employees to work from the Eastern District of Texas is insufficient,” Lourie wrote.
Your start-up must be aware of the importance of protecting your patents and other intellectual property. Discuss your patent protection with an experienced California intellectual property legal professional who helps startups define and execute their IP strategies.
Attorney Michael Ahmadshahi focuses on patents, intellectual property, copyright, and trade secrets in Irvine, California. The Michael Ahmadshahi, PhD, Law Offices are also located in Beverly Hills and Sherman Oaks. Call us toll free at (800) 747-6081 or direct at (949) 260-4997 or email firstname.lastname@example.org and let us help you with your trade secret questions and the IP strategy for your startup.