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A Corporate Defendant May Not Be Sued in a State Merely Because of a Limited Number of Employees...

Wednesday, October 4, 2017   (0 Comments)
Posted by: Abbie Elliott
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A Corporate Defendant May Not Be Sued in a State Merely Because of a Limited Number of Employees and Consultants There Who Were Not Involved in Acts of Infringement

By John PaulBrian Kacedon, and Kelly Lu
Edited by Cecilia Sanabria and Robert MacKichan
(Authors and editors are attorneys at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP.)

Abstract: Having a handful of employees who are not involved in the acts of infringement does not establish a “regular and established place of business” to satisfy the venue statute, where the Defendant’s state of incorporation and the center of gravity of the accused activities occurred in a different district.

Companies can be sued for patent infringement where they reside or where they have committed acts of infringement and have a regular and established place of business. Prior to the Supreme Court’s recent decision in TC Heartland, “where the defendant resides” was deemed to be where that defendant was subject to personal jurisdiction. The Supreme Court overruled that interpretation, holding that a domestic corporation “resides” only in its state of incorporation for purposes of the patent venue statute.

Because the Supreme Court’s TC Heartland LLC decision only opined on the definition of where the defendant resides, litigations continue to explore the other basis for proper venue, namely whether the defendant has a “regular and established place of business.”

Background

Townsend sued Brooks in the Middle District of Florida for infringing patents related to Brooks’ cushion material known as “Brooks DNA” incorporated in the midsole of its athletic shoes. Brooks moved to dismiss or transfer the case because of improper venue. Relying on the recent TC Heartland decision, Brooks argued that venue was improper and the case should be dismissed or transferred to the Western District of Washington because of the convenience of the parties and witnesses.

Because Brooks’ state of incorporation was Washington, the court focused on whether the defendant’s acts of infringement and regular and established place of business are in the district, noting that the most appropriate forum is where the “center of gravity” of the accused activities is found. To determine that “center of gravity,” a district court should be as close as possible to the milieu of the infringing device and the hub of activity centered around its production. Here, Brooks had no U.S. facilities outside the Western District of Washington, and all of its activities relating to the accused products, including development of those products, occurred in Washington. Moreover, Brooks operated its business only in the Western District of Washington and China.

The Townsend Decision

Because Brooks’ state of incorporation was Washington, the court focused on whether the defendant’s acts of infringement and regular and established place of business are in the district, noting that the most appropriate forum is where the “center of gravity” of the accused activities is found. To determine that “center of gravity,” a district court should be as close as possible to the milieu of the infringing device and the hub of activity centered around its production. Here, Brooks had no U.S. facilities outside the Western District of Washington, and all of its activities relating to the accused products, including development of those products, occurred in Washington. Moreover, Brooks operated its business only in the Western District of Washington and China.

When arguing that Brooks had a regular and established place of business in Florida, Townsend relied on Brooks’ efforts to sell its products in Florida and on four individuals working for Brooks: a full-time IT employee working remotely from Florida; an employee who supplied knowledge about Brooks’ products at racing events throughout Florida; and two non-employee independent contractors, only one of whom resides in Florida. Declining to apply the four-factor test in Raytheon Co. v. Cray, Inc., No. 2:15-CV-01554-JRG, 2017 WL 2813896 (E.D. Tex. June 29, 2017),1 the court found that Brooks did not have a regular and established place of business in Florida.

Strategy and Conclusion

After TC Heartland, to sue an accused infringer in a venue outside its state of incorporation, a patent owner will need to show that the infringer has a “regular and established place of business” in such venue. Thus, the patent owner will likely want to investigate the infringer’s contacts with a venue beforehand or prepare to ask the court for early discovery on this issue.

The boundaries of what is sufficient to constitute “a regular and established place of business” in a venue remain ambiguous as the law continues to develop. This decision suggests, however, that infringers may not make themselves subject to suit in a venue merely by selling products in the venue or having employees in the venue who are not involved in the infringing activities.

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1 On appeal in Raytheon, the Federal Circuit found that “[t]he 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 [patent venue] statute.” In re Cray Inc., No. 2017-129, 2017 WL 4201535, at *5 (Fed. Cir. Sept. 21, 2017).

This article is for informational purposes and does not constitute legal advice. The views expressed do not necessarily reflect the views of LES (U.S.A. and Canada) or Finnegan, Henderson, Farabow, Garrett & Dunner, LLP.