Late last week, the Federal Circuit granted a writ of mandamus in In re Cray, 2017-129 (Fed. Cir. Sept. 21, 2017), overturning Judge Gilstrap’s four-factor test for determining whether a defendant possesses “a regular and established place of business” in a district such that the defendant could be sued for patent infringement in that district. In re Cray provides useful guidance because it is the first time since the Supreme Court’s TC Heartland decision that the Federal Circuit has weighed in on what constitutes a “regular and established place of business.” The patent venue statute, 28 U.S.C. § 1400(b), provides that venue is proper in a patent infringement lawsuit only where the defendant (1) resides or (2) has “committed acts of infringement and has a regular and established place of business.” TC Heartland clarified that a defendant “resides” only in the state in which it is incorporated. It did not address the second prong, however, which is an alternative way of establishing venue. More frequently patent owners are looking to the second prong to determine the locus of an appropriate venue now that the first prong of the statute has been interpreted narrowly.
After TC Heartland, Judge Gilstrap fashioned a four-factor test for determining whether a defendant has a “regular and established place of business” in a district as required by 28 U.S.C. § 1400(b). Judge Gilstrap’s test considered (1) the physical presence in the district of the defendant’s “property, inventory, infrastructure or people,” specifically noting that “a fixed physical location in the district is not a prerequisite,” (2) defendant’s representations internally or externally as to whether the defendant has a presence in the district, (3) benefits, including sales revenue, received by the defendant from its presence in the district, and (4) the extent to which defendant targeted interactions with customers, consumers, or entities in the district. Raytheon Co. v. Cray, Inc., No. 2:15-CV-01554-JRG, 2017 U.S. Dist. LEXIS 100887 (E.D. Tex., June 29, 2017). Judge Gilstrap held that venue in the Eastern District of Texas was proper because defendant Cray’s employee lived and worked in the district out of his home. Id.
In In re Cray, the Federal Circuit rejected Judge Gilstrap’s four-factor test and found that it was “not sufficiently tethered” to the language of § 1400(b). The Federal Circuit determined that a “regular” and “established” place of business requires a fixed, physical presence belonging to the defendant in the district. That Cray’s employee lived in the district and worked out of his home was not enough. Cray did not pay rent or lease the employee’s home, did not direct its employee to store merchandise or other goods related to the company at the home, nor require the employee to live in the district. Put simply, the Federal Circuit found that the employee’s presence in the district was not a “regular and established place of business” of the defendant, but rather a location of the employee.
Beyond the specific facts at issue in In re Cray, the Federal Circuit provided helpful guidance that the second prong of § 1400(b) requires (1) a fixed, physical presence, akin to a building or part of a building from which business is conducted, (2) that the physical presence be regular in that it operates in a steady, uniform, orderly, and methodical manner, and is not sporadic or transient, and (3) that the location must be a place of the defendant, and not merely the place of an employee, in that the defendant must establish or ratify the location. This guidance, which departs from and overturns the paradigm articulated by Judge Gilstrap, is closely tied to the actual language of the statute. The Federal Circuit did not specifically address whether the presence in a district of corporate agents, such as distributors, could impute a regular and established place of business on the entity that provides goods to the distributor.
Patent owners seeking to determine appropriate jurisdictions to assert their patents should carefully review the physical presence of the defendant in target jurisdictions, rather than merely focusing on the locations of the defendant’s employees. In re Cray clarifies that transient contacts with a jurisdiction are not sufficient to keep a defendant in a jurisdiction where the defendant does not lease or own property, especially where the only physical presence in that district is the unratified personal location of the defendant’s work-from-home employees.