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Nov 1, 2017

Challenging Patent Venue in the Eastern District of Texas

By: Chris Lindstrom

The Eastern District of Texas Federal Court (“EDTX”) has long been a hotbed for patent litigation. However, over the past 3 months, the United States Court of Federal Claims has made it more difficult to sue out-of-state companies in the district and harder to keep cases from moving that have already been filed. 

As background, a 2014 study found that 25% of the 6,000 patent cases filed in the United States were filed in EDTX.   Over the past decade, the EDTX has had numerous record breaking verdicts in patent cases.  It is sought out by patent holders nationwide for lawsuits, and the EDTX became well-known for being the “go to” venue for patent holders and what is commonly known as “patent trolls.”  

The first blow to venue in EDTX came in May 2017.  In TC Heartland v Kraft Foods Group Brands, 137 S. Ct. 1514 (2017), the United States Supreme Court clarified that under 28 U.S.C. § 1400(b), venue is only proper in a particular district if the defendant resides in that district or if “the defendant has committed acts of infringement and has a regular and established place of business” in that district.

After the decision in TC Heartland, over 350 motions to transfer venue, or to outright dismiss cases for lack of venue, were filed in cases in the EDTX.  The first opinion was issued by the EDTX in June 2017 by Judge Rodney Gilstrap in Raytheon, Co. v. Cray, Inc., Case No. 15-cv-1554.

In that case, the plaintiff, Raytheon, sued a Cray, a company based in Seattle, in the Eastern District of Texas.  After the ruling in TC Heartland, Cray moved to transfer the case to a federal court in the Western District of Washington on the basis it did not have any physical presence in the EDTX other than two employees that lived there.   Judge Gilstrap denied the request to move the case on the basis two of Cray’s employees lived in the EDTX and worked remotely from their homes.  He set out a four-factor analysis that concluded a physical presence in a District was “not a prerequisite to proper venue.”

However, that ruling was quickly appealed to the United States Court of Appeals for the Federal Circuit where it was overturned in September 2017.  In In re Cray, 871 F.3d 1355 (Fed. Cir. 2017), the Court of Appeals held the only issue was whether the defendant had a “regular and established place of business” in the district where suit was filed.  In order for venue to be proper, three requirements needed to be met:

(1) a physical place, i.e., a physical, geographical location in the district from which the business of the defendant is carried out, such as a building or part of a building set apart; 

(2) the place of business must be “regular” and “established,” i.e., not transient or sporadic; and 

(3) the “regular” and “established” place of business must be that of the defendant, “not solely a place of the defendant's employee.”

With regard to the two employees working remotely in the Eastern District of Texas, the Court of Appeals held that the third factor was not met.  The case was then remanded back to Judge Gilstrap to transfer the case to a proper venue.

In the wake of Cray, it appeared the EDTX would be losing many of the patent cases pending on its dockets.  However, the issue of which defendants had not waived the ability to seek a transfer of venue remained open.   On November 15, 2017, the Court of Appeals for the Federal Circuit issued an opinion that answered this question.

In In re Micron Technology Inc., Case No. 2017-138, the Court of Appeals held the Supreme Court’s ruling in TC Heartland was a “change in the law.”   This is significant because that means that a defendant that did not previously challenge venue may be able to do so now.   As a general rule, defendants that do not seek to change venue early in the case are deemed to have waived that argument.   However, there is an exception to that waiver when an "intervening change in the law” occurs.

However, the Court of Appeals pointed out that said there are situations which a trial court can find that a defendant has still waived the right to seek a venue transfer.   Courts have the power to “to manage their own affairs so as to achieve the orderly and expeditious disposition of cases.”

While that language is broad enough for trial courts to keep many cases already filed on their dockets, it does appear that the days of the EDTX having 25% of all patent cases filed in the United States have come to an end.