• “Not so fast . . .”: Eastern District of Texas Adopts Approach that Narrows Impact of TC Heartland
  • July 13, 2017 | Authors: Anna C. Halsey; Ann G. Fort; Ronald W. Zdrojeski; Matthew J. Bowness
  • Law Firms: Eversheds Sutherland (US) LLP - Atlanta Office; Eversheds Sutherland (US) LLP - Atlanta Office
  • When the US Supreme Court decision in TC Heartland was published, many patent practitioners thought that the decision would adversely affect the Eastern District of Texas, a popular venue for patentees because of its quick time to trial, local patent rules, and relatively plaintiff-friendly juries. That conclusion seems premature as a result of an opinion by District Judge Rodney Gilstrap that takes a broad view of proper venue under TC Heartland.

    The patent venue statute, 28 U. S. C. § 1400(b), provides that venue is proper “in the judicial district where the defendant resides,” or “where the defendant has committed acts of infringement and has a regular and established place of business.” For decades following the 1988 amendment of the “corporate residence” general venue statute, and the later Federal Circuit VE Holding Corp. ruling applying it, courts have consistently interpreted “the judicial district where the defendant resides” as coextensive with personal jurisdiction, and thus found patent infringement venue to be proper anywhere that the defendant made sales.

    In TC Heartland, the Supreme Court overturned this precedent and held that “a domestic corporation ‘resides’ only in its State of incorporation for purposes of the patent venue statute.” Because the “judicial district where the defendant resides” had been interpreted so broadly, the “place of business” provision was rarely relied upon. Following TC Heartland, however, the “place of business” provision has become much more important. Judge Gilstrap’s opinion in Raytheon is the first decision interpreting this provision from a major patent litigation jurisdiction since TC Heartland.

    Focusing on the second half of the patent venue statute, “venue is properly lodged in the district if the defendant had a regular and established place of business at the time the cause of action accrued …” Raytheon Company v. Cray, Inc., 2017 WL 2813896. In Raytheon, Judge Gilstrap announced a test using four factors “gleaned from prior courts and adapted to apply in the modern era” that will be used when determining whether a defendant has a regular and established place of business in the Eastern District of Texas. The four factors are:

    (1) Physical presence;
    (2) The extent to which the defendant represents, internally or externally, that it has a presence in the district;
    (3) The extent to which a defendant derives benefits from its presence in the district, including but not limited to sales revenue; and
    (4) The extent to which the defendant interacts in a targeted way with existing or potential customers, consumers, users, or entities within a district.

    The test is a “totality of circumstances” approach to venue, in which the four factors are to be considered as non-dispositive “guideposts.” The factors are designed to serve two purposes. First, they are designed to “focus the regular and established place of business analysis such that parties may address only the relevant facts of the case,” thereby avoiding costly and “far-flung” venue discovery. Second, they “encompass the flexibility earlier courts found appropriate when interpreting the statutory text in light of diverse business structures and practices with evolve with advances in technology.” (These issues are of no import to foreign corporation defendants, however. Under previous Supreme Court precedent, venue against them is proper “in any judicial district,” even in patent cases.)

    The test articulated in Raytheon is flexible and appears to be relatively broad, which could limit the impact of the TC Heartland decision. The test should thus be encouraging for litigants looking to lay venue in the Eastern District of Texas, and disappointing to those who wish to avoid it. But whether the test will be adopted by other courts and, more importantly, whether the test will be approved by the Federal Circuit, remains to be seen.