Venue in the Eastern District of Texas Post-TC Heartland

Raytheon Company v. Cray, Inc., E.D. Tex. (June 29, 2017) (Judge Rodney Gilstrap)

On June 29, 2017, Judge Gilstrap of the Eastern District of Texas issued an opinion analyzing the factors to consider when determining whether, in the absence of “residence” in the district, a defendant “has committed acts of infringement and has a regular and established place of business” there for purposes of satisfying the venue statute.  This is an issue that the Federal Circuit has not touched since 1985, leaving litigants and courts to review numerous, not always consistent, regional court decisions.

This particular patent case concerns technologies allegedly incorporated into a Cray XC40 supercomputer installed at the University of Texas Austin’s campus (which is not in the Eastern District of Texas).  While this case has been pending since 2015, Cray had timely filed a motion to dismiss for improper venue early in the action.

First, on the issue of whether it is plaintiff’s to establish that venue is proper or defendant’s burden to establish that it is not, Judge Gilstrap declined to hold either way.  Instead, he ruled that even if plaintiff had the burden, it met the burden of establishing venue.

Second, Judge Gilstrap analyzed whether there had been an act of infringement by the defendant in the district.  He declined to determine whether or not there had, in fact, been infringement (i.e., the ultimate question on the merits), but accepted Raytheon’s allegations that there had been inducement of infringement in the district.  To support this allegation, Judge Gilstrap noted that Cray “does not deny that it knew that the accused XC40 supercomputer would be used by the entire university system, including users at campuses within the district.”  (Opinion at 9).  Judge Gilstrap also found that efforts of a Cray account manager located in the Eastern District of Texas to sell the accused product constituted infringing offers to sell within the district, even if the sale would be consummated outside of the Eastern District.  Finally, Judge Gilstrap declined to opine on whether the act of infringement is required to be related to the “regular and established place of business,” finding that Cray’s acts were tied to the “regular and established place of business” in this case.

Finally, Judge Gilstrap analyzed whether Cray had a “regular and established place of business” in the Eastern District of Texas.  Judge Gilstrap applied the facts in this case to the precedent on the question of venue, particularly the decision in In re Cordis Corp., 769 F.2d 733 (Fed. Cir. 1985), the last time the Federal Circuit had directly addressed this question.  In this case, Judge Gilstrap found that Cray did have a regular and established place of business.

Judge Gilstrap did not stop at analyzing the facts in this case, but went on to provide litigants in other cases a description of the factors to be considered in establishing venue, based on his review of existing precedent.  According to Judge Gilstrap, the four factors to consider are:

  1. Physical Presence. Presence of a retail store, warehouse, or other facility will weigh heavily towards a finding of a regular and established place of business.  However, the lack of such a physical building is not dispositive.  Other facts that could also support a finding of a physical presence include the presence of equipment or employees in the district.
  2. Defendant’s Representations. The extent to which a defendant has represented that it has a presence in the district would weigh in favor of a finding of a regular and established place of business.  This is true, even if the defendant has no actual presence (e.g., the presence is actually that of an agent or a representative).
  3. Benefits Received. Deriving benefits from a presence in the district, including sales revenues, can support a finding of a regular and established place of business, especially if those benefits are significant.
  4. Targeted Interactions with the District. The extent to which the defendant has targeted interactions with existing or potential customers, consumers, users, or other entities in the district would weigh in favor of a finding of a regular and established place of business.    Additionally, the existence of “ongoing” contracts governed by the law of the forum state with a company in the forum state, would support a finding of a regular and established place of business.

Judge Gilstrap concludes by stating that none of the factors alone are dispositive but should be considered with facts at hand to determine whether “a domestic business enterprise seeks to materially further its commercial goals within a specific district through ways and means that are ongoing and continuous.”  (Opinion at 26.)

It will be interesting to see if other district courts adopt these same factors promulgated by Judge Gilstrap, and how the Federal Circuit will view these factors.  However, given the continued popularity of the Eastern District of Texas among plaintiffs, Judge Gilstrap’s views will remain important at least for the time being.  Currently, Judge Gilstrap has over 500 active patent cases in his docket (according to figures from Docket Navigator), and the Eastern District of Texas has received over 10% of all new patent filings since the Supreme Court decision in TC Heartland.