“proponents of venue change (many large Internet-based companies in Silicon Valley) clearly believe that they are now (effectively) immune from action in plaintiff-friendly environments.”
by: Nick Gross, special guest contributor | July 3, 2017
While there is still considerable debate concerning the merits and logic of the SCOTUS’s TC Heartland decision, it is apparent that the effects are being felt immediately through the patent litigation ecosystem. Patent assertions were down significantly right after the decision, but this was simply a pause as litigators tweaked their facts/pleadings to pass muster under the “new” interpretation of venue disrupting almost 30 years of practice.
In already-filed cases, there is a flurry of activity in some of the previously “popular” jurisdictions there is a flurry of activity as plaintiffs are voluntarily dismissing and transferring actions to bring them into compliance with TC Heartland. An example can be seen in the Wireless Switch IP cases filed against Lenovo (No. 6:17-cv-140-JRG-JDL)
What will the future bring? The answer lies in the new pleadings seen in places like EDTX, where the limits of the new interpretation – particularly for ecommerce companies – will tested for several years until the new boundaries become better crystallized. In fact a recent decision by Judge Gilstrap in Eastern District Texas (Raytheon v Cray CV-01554) – which is important enough to address in a later follow up post – contains some useful insights to practitioners on the different factors that are likely to be considered by courts addressing venue issues.
The main proponents of venue change (many of which are large Internet-based companies in Silicon Valley) clearly believe that they are now (effectively) immune from action in plaintiff-friendly environments like EDTX. It remains unclear if such confidence is justified.
The Internet (at least in its present form) did not exist during the more liberal venue rules introduction in during the late 80s early 90s. Since a plaintiff could assert venue effectively almost anywhere (coextensive with jurisdiction) against a corporate defendant the case law effectively stagnated for more than 20 years.
TC Heartland now requires that an action be brought only in districts where the defendant has “committed acts of infringement” and has “a regular and established place of business” 28 U.S.C. § 1400(b). Thus, there are two parts to the rule, neither of which were seriously tested against the advances in technology we are now experiencing in which virtual “business” is conducted on a regular basis by consumers daily in their homes through browsers directly to e-commerce sites or through customized smartphone apps.
Leaving aside the first part of the test (which is certainly worthy of its own treatment but is a little more predictable given parallel developments over the years) it is clear that going forward advocates of limited venue will try to certainly cite to older precedent which considered the issue more in the sense of physical presence, either in the form of a physical location for the business, or personnel under its control. In these older cases the presence of a single non-dedicated independent salesperson (W. S. Tyler Co. v. Ludlow-Saylor Wire Co., 236 U.S. 723 (1915)) was not sufficient to satisfy venue.
However at least one significant pre-Internet CAFC case (In Re Cordis Corp., 769 F.2d 733, 737 (Fed. Cir. 1985)) determined (albeit on mandamus review) that a fixed physical presence was not necessary. In Cordis, the presence of exclusive company sales reps, combined with company literature, product, promotions, etc., and a listing in the phone book was considered sufficient. Cordis was cited by Judge Gilstrap in the Cray case referenced above to find that venue was appropriate.
Given the rapid rise of e-commerce in reaching out and engaging with customers directly in their homes, however, there is no question that creative plaintiff’s lawyers will attempt to show that there is a paradigm shift in how the phrase “regular and established place of business” should be interpreted in the modern age. For example, many plaintiffs will likely argue that the large e-commerce companies satisfy this requirement by loading pages/cookies onto a customer’s PC, or installing apps on their phones. Both of these techniques have the effect of creating an embedded physical presence to do business with the customer on the latter’s device. Many of these companies employ sophisticated engagement software also which effectively act as electronic service or sales agents operating within the devices, and perforce within the physical locations of their customers.
This type of creative approach can be seen in recent filings in EDTX by Uniloc, a well-known patent litigant. In their Complaint against Google, for example, the “venue” discussion spans some 30! pages and is replete with similar analogies and explanations of Google’s extensive “business” dealings in eastern Texas. Some typical excerpts:
“…the Google Hangouts app and its associated system, Google allows individuals to communicate with one another, including communications between two or more residents in the Eastern District of Texas….”
“Defendant maintains highly interactive and commercial websites, accessible to residents of Texas and the Eastern District of Texas, through which Defendant promotes its products and services, including the Google Hangouts app and services that infringe the patents-in-suit…”
“Defendant provides its Google Express business and services to the residents of the Eastern District of Texas by advertising and inviting the residents of the Eastern District of Texas to shop on its Google Express website, then Defendant arranges for a delivery company to bring the goods and products purchased through the Google Express website to the residents of the Eastern District of Texas”
In Cray the Court noted similar targeted marketing to consumers within the Eastern District as being a factor to be considered in the venue question. It will be intriguing to see whether Google (and other similar billion dollar Internet companies) contest Uniloc’s venue assertions, or if they waive venue in this instance. Whether it is through Uniloc or another plaintiff, it is likely we will soon see some insights into the EDTX Courts’ perception of when venue is satisfied for this type of defendant.
About the author:
J. Nicholas (Nick) Gross is a Berkeley based solo IP law practitioner with 30 years of experience representing high technology companies in Asia, Europe and Silicon Valley, including in the areas of patent prosecution, patent assessment, brokering, licensing and enforcement matters. His PTO experience encompasses all phases of patent procurement including drafting, PTAB appeals, post grant challenges and appearances at the Federal Circuit. He has worked with inventors in a number of complex technologies, including xDSL communications, mobile applications, magneto-electronic devices, flash memories, solar modules, semiconductor processing, epitaxial materials, speech recognition, Internet/e-commerce, microprocessor architectures and computer software.
Nothing posted at this site should be construed as legal advice or an offer for legal services. Should you need assistance on an IP matter, feel free to contact me at via email here.