Friday, September 22, 2017

CAFC discusses venue issues in In re Cray

This petition arises from a patent infringement action
filed by Raytheon against Cray in the Eastern District of
Texas. Cray sells advanced supercomputers that Raytheon
accuses of infringement. Cray is a Washington corporation
with its principal place of business located there.
It also maintains facilities in Bloomington, Minnesota;
Chippewa Falls, Wisconsin; Pleasanton and San Jose,
California; and Austin and Houston, Texas.
Although Cray does not rent or own an office or any
property in the Eastern District of Texas, it allowed Mr.
Douglas Harless and Mr. Troy Testa to work remotely
from their respective homes in that district. Transfer
Order, 2017 WL 2813896, at *1–2 & n.1. Mr. Testa
worked for Cray as a senior territory manager while
residing in the district from 2010 to 2011 before the
underlying suit was filed. Id. at *1 n.1

Mr. Harless worked as a “sales executive” for approximately
seven years with associated sales of Cray systems
in excess of $345 million. Id. at *1. Mr. Harless’s responsibilities
also included “new sales and new account development
in [the] Central U.S.” and “management of key
accounts within the Financial, Biomedical and Petroleum
Industries.” Id. (alteration in original) (quotation marks
omitted). Cray’s “Americas Sales Territories” map, an
internal document, identified Mr. Harless as a “Named
Account Manager” and his location at his Eastern District
of Texas personal home. Id. Mr. Harless received reimbursement
for his cell phone usage for business purposes,
internet fees, and mileage or “other costs” for business
travel. Id. Cray provided Mr. Harless with “administrative
support” from its Minnesota office. Id.


Cray moved to transfer this suit under 28 U.S.C.
§ 1406(a), which provides that “[t]he district court of a
district in which is filed a case laying venue in the wrong
division or district shall dismiss, or if it be in the interest
of justice, transfer such case to any district or division in
which it could have been brought.” Cray argued that it
does not “reside” in the Eastern District of Texas in light
of the Supreme Court’s decision in TC Heartland LLC v.
Kraft Foods Group Brands LLC, 137 S. Ct. 1514 (2017).
The district court agreed that Cray does not reside in the
district. Transfer Order, 2017 WL 2813896, at *4.

Cray further argued that venue was improper in the
Eastern District of Texas because Cray had neither
committed acts of infringement, nor maintained a regular
and established place of business within that district.
The district court, however, rejected that argument. The
court found that Mr. Harless’s activities were factually
similar to the activities performed by the representatives
in In re Cordis Corp., 769 F.2d 733 (Fed. Cir. 1985), in
which this court rejected a mandamus request to reverse
an order denying transfer for improper venue. See Transfer
Order, 2017 WL 2813896, at *8–10. The court did not
rely on Mr. Testa’s activities in determining that venue
was proper.

The CAFC noted:

We recognize that the world has changed since 1985
when the Cordis decision issued. 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.
But, notwithstanding these changes, in the wake of
the Supreme Court’s holding in TC Heartland, effectively
reviving Section 1400(b) as the focus of venue in patent
cases, we must focus on the full and unchanged language
of the statute, as Cordis did not consider itself obliged to
Moreover, district courts, including the trial court in
this case, have noted the uncertainty surrounding and the
need for greater uniformity on this issue, see, e.g., Transfer
Order, 2017 WL 2813896, at *10 (explaining there is
“uncertainty among the litigants regarding the scope of
the phrase ‘regular and established place of business’”
and “the appropriate scope of such venue discovery”);
Regenlab, 2017 WL 3601304, at *2 (S.D.N.Y. Aug. 17,
2017) (“Substantial confusion exists regarding the circumstances
in which an entity will be found to have a
‘regular and established place of business’ in the dis-

trict.”); Johnston v. IVAC Corp., 681 F. Supp. 959, 962–63
(D. Mass. 1987) (collecting cases with a more “restrictive
reading” of the statute and those with a more “‘liberal’
construction” (citation omitted)); Brunswick Corp. v.
Suzuki Motor Co., 575 F. Supp. 1412, 1424 n.5 (E.D. Wis.
1983) (noting that § 1400(b) “demonstrates . . . a need for
nationwide uniformity” offered by the Federal Circuit),
and this court “has a mandate to achieve uniformity in
patent matters,” Panduit Corp. v. All States Plastic Mfg.
Co., 744 F.2d 1564, 1574 (Fed. Cir. 1984). We conclude
that mandamus here will further “supervisory or instructional
goals” on an “unsettled and important” issue, an
appropriate basis upon which to grant the mandamus
petition. In re Queen’s Univ. at Kingston, 820 F.3d 1287,
1291 (Fed. Cir. 2016) (quoting In re Nintendo Co., Ltd.,
544 F. App’x 934, 936 (Fed. Cir. 2013)); see also BP Lubricants,
637 F.3d at 1313. Although the law was unclear
and the error understandable, the district court abused its
discretion by applying an incorrect legal standard, which
we now clarify in this opinion.


As discussed in greater detail below, our analysis of
the case law and statute reveal three general requirements
relevant to the inquiry: (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. If any statutory requirement is not
satisfied, venue is improper under § 1400(b).

The issue in this case:

The parties’ primary dispute concerns
whether Mr. Harless’s home, located in the Eastern
District of Texas, constitutes “a regular and established
place of business” of Cray.


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