What Does State of Incorporation Really Mean?

 

Mitch Kline Profile Picture by: Mitch Kline | January 31, 2018

The Court, in Realtime Data LLC v. Nexentra Systems, Inc., was presented with a question that has been burning in my mind for months (well maybe not burning, but it had occurred to me once). Realtime sued Nexentra in the Central District of California, but Nexentra’s principal place of business is in the Northern District. Apparently, SCOTUS forgot that some states contain multiple judicial districts when it reinterpreted 28 U.S.C. § 1400(b).

“[F]or purposes of § 1400(b) a domestic corporation ‘resides’ only in its State of incorporation.”

The imprecision of that statement is astounding, given the number of corporations incorporated in multi-district states.

In deciding to transfer the case, the Court relied on an SCOTUS case, Stonite Prods. V. Melvin Lloyd Co., which occurred before the Fed. Circuit expanded patent venue, in 1990. In Stonite, the defendant was described as “an inhabitant of the Eastern District of Pennsylvania,” rather than as an inhabitant of the state. The Court also noted that the Stonite decision considered the purpose of the patent venue statute to be the narrowing of the general venue statute, which would have allowed the case to continue anywhere in the state.

Finally, the Court reconciled TC-Heartland’s “State of incorporation” language with its understanding of Stonite by holding that a party’s state of incorporation “merely provides a necessary condition for venue, not a sufficient condition.” A case must also “be brought in the judicial district containing a corporation’s principal place of business,” the Court held.

But what about the second prong of § 1400(b)? A patent infringement action may be brought in the judicial district where the defendant “has a regular and established place of business.” A principal place of business is a species of regular and established, so the Court is reading redundancy into the statute—if a defendant has its principal place of business in a district, venue is proper in that district, regardless of where the defendant is incorporated.

The proper time to consider a defendant’s principal place of business is in a motion to transfer for convenience, under § 1404.

Venue is proper in the district, per the first prong of § 1400(b), but it may very well be more convenient to litigate in the district containing defendant’s principal place of business. Section 1400 is meant to be only an initial filter. By skipping steps, the Realtime Court is eroding at the intended structure of venue laws, and circumventing the proper convenience analysis.

 

 

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