After Heartland

• Nike, Inc. v. Skechers USA, Inc., 3-16-cv-00007 (ORD June 30, 2017, Order) (Papak, MJ)

Broad Venue Discovery Authorized to Determine Existence of Regular and Established Place of Business
Following the Supreme Court decision in TC Heartland LLC v. Kraft Foods Group Brands, LLC, (2017), the court partially granted plaintiff's motion to compel venue-related discovery as relevant and proportional to the needs of the case. "Defendant must disclose its total product sales in Oregon, with one exception. . . . [I]nformation on its direct internet sales is unlikely to lead to relevant evidence on whether Defendant has a 'regular and established place of business' in Oregon. . . . Defendant must disclose the activities of third-party vendors of Defendant's products, and Defendant's relationships with these vendors, because such information could lead to relevant evidence. . . . [I]nformation on the activities of Defendant's agents, whether the agent is based in Oregon or not, [and] information on professional services in Oregon retained by Defendant could lead to relevant evidence and is proportional to the needs of the case. . . . Defendant must disclose any substantial amount of personal property it owns, leases, or manages in Oregon, including marketing materials, demonstration equipment, and product literature. . . . Defendant's leases of trade show booths or conference spaces could lead to relevant evidence and should be produced. . . . [Phone number and address] listings created by third parties independently of Defendant are not discoverable, but Defendant must disclose any other listings that it directed."

• Raytheon Company v. Cray, Inc., 2-15-cv-01554 (TXED June 29, 2017, Order) (Gilstrap, USDJ)

Judge Gilstrap Recognizes Four-Factor Test for Determining Regular and Established Place of Business Under 28 U.S.C. § 1400(b)

In determining whether defendant maintained a regular and established place of business in the forum for purposes of 28 U.S.C. § 1400(b), the court recognized a four-factor approach consisting of physical presence, defendant's representations, benefits received, and targeted interactions. "Since the Supreme Court’s decision in [TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S. Ct. 1514 (2017)], this Court has received a number of motions to dismiss or transfer based on improper venue. It is evident from these motions, and their subsequent briefing, that there is uncertainty among the litigants regarding the scope of the phrase 'regular and established place of business.' . . . [T]his Court now attempts to provide guideposts to point the venue analysis in a single coherent direction. . . . First, the Court considers the extent to which a defendant has a physical presence in the district, including but not limited to property, inventory, infrastructure, or people. At the most basic level, a retail store, warehouse, or other facility in the district weighs strongly in favor of finding a regular and established place of business. However . . . the lack of a physical building in the district is not dispositive. . . . Other forms of physical presence may also help support a finding of a regular and established place of business, such as inventory or property in the district[,] [and] the presence of equipment or infrastructure that is owned (or leased) by a defendant and used to provide services to customers. . . . Additionally, courts have considered the presence of employees in the district when determining whether a defendant has a regular and established place of business. . . . Second, the Court looks at the extent to which a defendant represents, internally or externally, that it has a presence in the district. . . . Third, the Court considers the extent to which a defendant derives benefits from its presence in the district, including but not limited to sales revenue. . . . Finally, the Court looks at the extent to which a defendant interacts in a targeted way with existing or potential customers, consumers, users, or entities within a district, including but not limited to through localized customer support, ongoing contractual relationships, or targeted marketing efforts."

Employing Exclusive Sales Representative Within District Sufficient to Establish Regular and Established Place of Business

Following the Supreme Court's decision in TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S. Ct. 1514 (2017), the court denied defendant's motion to transfer for improper venue and found that defendant had a regular and established place of business in the forum through its employment of a sales representative in the forum. "At the time this case was filed, [defendant's sales representative in the forum] worked exclusively for [defendant] as a sales executive in this District. [The sales representative] had been working full-time for [defendant] from within the Eastern District of Texas for over seven years. [Defendant] paid [him] a salary and maintained [his] compensation plan online through its human resources department, which outlined his territory and assignments. . . . [Defendant] provided [its sales representative] with 'administrative support' from [defendant's] Minnesota office such that [he] could continue working from his office in the Eastern District of Texas. Under this arrangement, [he] contacted and sold products to customers using an 'office' telephone number with an Eastern District of Texas area code. . . . Technology has revolutionized the way businesses operate and the way consumers interact with those businesses. . . . This important shift has been recognized by many courts."

• iLife Technologies, Inc. v. Nintendo of America, Inc., 3-13-cv-04987 (TXND June 27, 2017, Order) (Lynn, USDJ)

TC Heartland Does Not Qualify as Intervening Change of Law Excusing Waiver of § 1400(b) Venue Challenge

Following the recent Supreme Court decision in TC Heartland LLC v. Kraft Foods Group Brands LLC, 137 S. Ct. 1514 (2017), the court denied defendant's motion to dismiss or transfer plaintiff's patent infringement action for improper venue two months before trial because TC Heartland was not an intervening change in law. "[Defendant's] argument . . . appears to be that following the decision in [VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990)] in 1990 up until the Supreme Court decided TC Heartland in May of 2017, the highest authority available had deemed [Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957)] overridden by congressional action, and accordingly the Supreme Court’s reaffirming of Fourco constituted a change of law. . . . [E]xcept where congressional abrogation of a Supreme Court decision is express, 'only [the Supreme] Court may overrule one of its precedents' -- whether through its own opinion or recognition of congressional override -- and until that occurs, Fourco is and still was the law. . . . The intervening twenty-seven years may have created reliance on VE Holding by litigants, including [defendant], but that 'does not change the harsh reality' that a party could have 'ultimately succeeded in convincing the Supreme Court to reaffirm Fourco, just as the petitioner in TC Heartland did.'” 

• https://www.law360.com/articles/941916?utm_source=chrome-widget&utm_medium=extensions&utm_campaign=latest_news

In a decision last week, U.S. District Judge Rodney Gilstrap looked to tackle what it means to have a "regular and established place of business" in the modern age, outlining a four-factor test that will guide his decisions about whether cases will remain in the district.

The test takes into account whether a company has a retail store in the district, as well as the sales revenue the company has generated in the district. But Judge Gilstrap emphasized that no single factor was dispositive. He said he would take a flexible approach, looking at all the circumstances of the case.

https://www.orrick.com/Insights/2017/05/Supreme-Court-Restricts-Patent-Venue
Finally, it is likely that TC Heartland will not apply to foreign defendants. The Supreme Court was clearly aware of this issue, and in footnote 2 of the decision declined to express any opinion on the subject. In the same footnote, however, the Court cited Brunette Machine Works, Ltd. v. Kockum Indus., Inc., 406 U.S. 706 (1972), which held that foreign corporations could be sued in any district, due to a "long-established rule that suits against aliens are wholly outside the operation of all the federal venue laws, general and special." Nonetheless, TC Heartland did not express any position on the continuing viability of Brunette. As a practical matter, foreign companies who have been sued in the Eastern District of Texas or some other place they don't want to be, will at least have an argument for transfer to the venue where other related actors can properly be sued. As a matter of strategy, foreign corporations should continue to reduce their risk by organizing any U.S. activities to occur through a U.S. subsidiary with a "regular and established place of business" outside of undesirable districts. Going forward, because that subsidiary will have a meaningful domicile and chosen place(s) of doing business, the foreign parent will have a stronger argument for transfer.  

https://www.mwe.com/en/thought-leadership/publications/2017/05/supreme-court-changes-the-patent-venue-landscape

Practice Note

The Supreme Court’s decision will have a significant impact on patent litigation. First, the most immediate consequence is the likely diminishment of the Eastern District of Texas as a popular patent litigation forum since most companies often sued in the Eastern District of Texas are neither incorporated in Texas nor have a regular and established place of business in the Eastern District of Texas. Second, there may be a concomitant increase in the number of filings in Delaware (where many companies are incorporated), the Northern District of California, the Southern District of New York, and other districts in which technology and pharmaceutical companies are headquartered. Third, there will likely be increased motion practice as to whether a defendant has a “regular and established place of business” in a district sufficient to support venue under § 1400(b). Fourth, there may be an increase in the number of filings against the foreign parent corporations of US subsidiaries since, under the applicable venue statutes, foreign defendants can be sued in any judicial district where personal jurisdiction is found. Finally, in actions where a patent holder seeks to sue multiple defendants, the patent holder may have to bring multiple actions in multiple jurisdictions to comply with the venue requirements. This will result in additional cost for the patent holder and may result in additional motion practice and/or the implementation of multidistrict litigation (MDL) processes, which could, in turn, introduce both delay and a certain amount of uncertainty.