In Re: In Re: Cray Inc

Cray Computer Logo

The Federal Circuit needs to revisit 1400(b), and decide whether its current jurisprudence furthers any sensible policies.

 

by: Mitch Kline | October 3, 2017

 

Last week, the Fed. Circuit issued the In Re: Cray Inc. decision, overturning the Eastern District’s test for establishing venue. This was the first time, following TC Heartland, that the CAFC addressed the meaning of “regular and established place of business”—a requirement that has been applied with little consistency among the various district courts. The Court set out three requirements, each of which must be met to establish venue under § 1400(b):

  1. there must be a physical place in the district;
  2. it must be a regular and established place of business; and
  3. it must be the place of the defendant.

 

The Court prefaced its analysis by recognizing “that the world has changed since 1985 (the last time they addressed the phrase in question):

“In this new era, not all corporations operate under a brick-and-mortar model. Business can be conducted virtually. Employees increasingly telecommute. Products may not, as a rule, be warehoused by retailers, and the just-in-time delivery paradigm has eliminated the need for storing some inventory.”

An astute observation, indeed. If only the Court had remained mindful of these realities throughout its analysis, it may have reached a different conclusion.

The problem lies, in particular, with the first prong of the new test. The Court reasoned that the statute requires a place, which it interprets as “a building or a part of a building set apart for any purpose” or “quarters of any kind.” This limitation is premised on the assumption that business must be conducted in “a building,” where employees gather, and where “literature, documents and products” are stored. Increasingly, these kinds of physical places are not necessary to conduct even extensive business in a locale.

A modern interpretation of the statute would require only that a defendant has established systems and processes to conduct regular business within a district. It is no longer necessary to maintain an office, store, warehouse, or any other traditional brick-and-mortar establishment in every region where a company wishes to operate. It is far more cost effective to provide regional salespeople, for example, with the materials they need electronically, and allow them to operate from their homes. Modern logistics, provided by companies like Amazon and UPS, make it feasible to only maintain inventory at a single, central location, while still serving customers all over the country.

Certainly, if it is convenient enough for a company to conduct regular business in a district, it is convenient enough for venue to be proper in that district. Consider, also, that §1400 is only a threshold requirement; §1404 allows a court to transfer a case to another district “[f]or the convenience of parties and witnesses.” And the statute’s requirement that “the defendant has committed acts of infringement” in the district ensures that proper venue is limited to districts in which defendants have engaged in activity relevant to the lawsuit.

The Federal Circuit needs to revisit 1400(b), and decide whether its current jurisprudence furthers any sensible policies. The Cray decision was notably void of any discussion relating to the purpose of venue laws. Some consideration of this purpose, in the context of the modern economy, would have led to a more enlightened decision.

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