Supreme Court Reversal of TC Heartland May Place Focus on "Regular and Established Place of Business" for Proper Venue
March 2017 (No. 1)
Intellectual Property and Technology
Action Item: In which jurisdictions can you expect patent venue to be proper if the Supreme Court reverses Federal Circuit in TC Heartland, and holds that the broad definition of corporate residence in the general venue statute—section 1931—is not properly incorporated into the first test of patent venue statute—section 1400(b)? As described in my previously published article, What High Court Will Consider In Patent Venue Case (Law360), section 1400(b) provides two tests for proper venue in patent cases: (1) “where the defendant resides,” and (2) “where the defendant has committed acts of infringement and has a regular and established place of business.” Under the Federal Circuit’s broad definition of corporate residence, the first test has been so broad that the second test is rendered superfluous. A Supreme Court reversal, however, may make the second test relevant again. This advisory explores the scope of venue under the second test by looking at the definition of “regular and established place of business.”
Based on an earlier version of section 1931, the Supreme Court held in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957) that “§ 1400(b) is the sole and exclusive provision controlling venue in patent infringement actions,  that it is not to be supplemented by the provisions of [the general venue statute] 28 U.S.C. § 1391(c)” and that corporate residence under section 1400(b) can only be the place of incorporation. Id. at 226-29. In VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), the Federal Circuit held that a 1988 amendment to section 1391 rendered Fourco inapplicable and required that the broad definition of corporate residence in section 1391—“any judicial district in which such defendant is subject to the court's personal jurisdiction with respect to the civil action in question”—be imported into section 1400(b). Id. at 1479. And after a 2011 amendment to 1391 that TC Heartland argued nullified VE Holding, the Federal Circuit in In re TC Heartland LLC, 821 F.3d 1338 (Fed. Cir. 2016) held that this broad definition of corporate residence in section 1391 is still properly imported into section 1400(b). Id. at 1342-43.
The Federal Circuit’s broad interpretation of patent venue in VE Holding resulted in the concentration of patent cases in a few select districts viewed as being plaintiff-friendly, most notably the Eastern District of Texas. It also resulted in the first test under section 1400(b) being so broad that the second test was rendered superfluous for corporate defendants. If the Supreme Court were to reverse the Federal Circuit in TC Heartland, however, it may decide that corporate residence under the first test is limited to the place of incorporation, as it did in when addressing an earlier version of section 1391 in Fourco. Such a decision could result in a more uniform distribution of patent cases, and would also make the second test relevant again. That raises an important question: What is a “regular and established place of business” under the second test of section 1400(b)?
The Meaning of “Regular and Established Place of Business”
Prior to the second test being rendered superfluous in VE Holding, the Federal Circuit addressed the scope of “regular and established place of business” in In re Cordis Corp., 769 F.2d 733 (Fed. Cir. 1985). In that case, Medtronic, a Minnesota corporation with its principal place of business in Minneapolis, Minnesota, sued Cordis for patent infringement in the United States District Court for the District of Minnesota. Id. at 734. Cordis, a Florida corporation with its principal place of business in Miami, was not registered to do business in Minnesota, and did not lease or own any offices or other property in Minnesota. Id. at 735. Cordis did, however, market and sell the accused products (pacemakers) in Minnesota through two salaried employees that worked from their homes in Minnesota, and claimed a tax deduction for their home offices. Cordis supplied the employees with company cars. Hospitals could purchase the accused pacemakers directly from the sales people from stock kept in their houses. Cordis paid for a secretarial service in Minnesota to assist the employees, and the secretarial service answered the phone “Cordis Corporation.” Id.
Cordis argued that venue was improper because it did not “rent or own a fixed physical location within Minnesota,” which “absolutely precludes a finding that it has a regular and established place of business as required by § 1400(b).” Id. at 736. The court disagreed, holding that, “in determining whether a corporate defendant has a regular and established place of business in a district, the appropriate inquiry is whether the corporate defendant does its business in that district through a permanent and continuous presence there and not . . . whether it has a fixed physical presence in the sense of a formal office or store.” Id. at 738.
In so holding, the court distinguished two cases relied on by Cordis. The first, Phillips v. Baker, 121 F.2d 752 (9th Cir. 1941), involved “a seasonal pre-cooling operation for grain shippers which was conducted by means of a fully transportable apparatus which was assembled at each location, kept in place until the procedure was performed and then dismantled for conveyance to the next location either within or without the jurisdiction.” Id. at 736. The court distinguished Phillips by noting that, unlike Cordis’ presence in Minnesota, “the company’s presence within the district [in Phillips] was merely temporary, and there was no way to contact its representatives except by communication with the home office in Florida.” Id.
Cordis also relied on University of Illinois Foundation v. Channel Master, 382 F.2d 514 (7th Cir. 1967), where the Seventh Circuit found that venue was improper where Channel Master, a New York corporation, was sued in Illinois for patent infringement. Like Cordis, the only Channel Master employees in the district was a sales person that worked from home. The court, however, distinguished University of Illinois by noting that all orders were taken from, all payments made to, and all sales shipped from the New York home office, and not from the employee’s home office as with the Cordis employees. And unlike the Cordis employees, the Channel Master employee did not keep any stock or samples in his house. Importantly, the court noted that, while the Channel Master employee in Illinois did provide technical training in the district, there was no evidence that he provided training regarding the accused product in the district. Id. at 737.
The Timing of a “Regular and Established Place of Business”
The Seventh Circuit also weighed in on when the “regular and established place of business” must exist for venue to be proper. In Welch Scientific Co. v. Human Engineering Institute Inc., 416 F.2d 32 (7th Cir. 1969), the court held that a “regular and established place of business” need not exist in the district at the time the complaint is filed, as long as it existed “at the time the cause of action accrued and suit is filed within a reasonable time thereafter.” Id. at 35. In that case, the court held that venue was proper where the complaint was filed thirty-seven (37) days after the defendant terminated its “regular and established place of business.” Id. at 36.
Based on these decision issued before the second test was rendered superfluous in VE Holding, “regular and established place of business” under the second test is established where a defendant’s presence in the jurisdiction is “permanent and continuous” and is related to the alleged infringing acts. A defendant need not have a physical office in the jurisdiction, but the defendant’s presence cannot be temporary. Any corporation seeking to avoid litigation in any particular jurisdiction should consider terminating any “permanent and continuous” presence in the jurisdiction as soon as possible to strengthen the argument that any subsequently-filed complaint is not filed “within a reasonable time” after the presence ended.
© 2017 Blank Rome LLP. All rights reserved. Please contact Blank Rome for permission to reprint. Notice: The purpose of this update is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This update should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.