24 Mar 2020 in Newsletter
Patent Venue Statute Requires Presence of Defendant’s Employee or Agent in Judicial District
The US Court of Appeals for the Federal Circuit (CAFC) has ruled that a company might have a place of business in a judicial district for patent infringement litigation venue purposes even when it does not have any “place” in the district that has any characteristics of real property or a leasehold interest. However, the Court also held that the company must have at least an employee or agent carrying on the company’s business at that “place” in order for venue to be proper in the judicial district. While the CAFC ruled that a Google Global Cache server was not itself an agent of Google, the Court left unanswered the question of under what circumstances a machine could be considered to be a defendant’s in-district agent for purposes of the patent venue statute, 35 USC § 1400(b).
In late 2018, the US Court of Appeals for the Federal Circuit (CAFC) declined a mandamus petition filed by Google asking whether a company’s data servers located at independent Internet Service Provider facilities in a judicial district constitute that company’s “regular and established place of business” in that venue for patent infringement venue purposes. Several months later, in denying Google’s petition for rehearing, the CAFC stated that “it is not known if the district court’s ruling involves the kind of broad and fundamental legal questions relevant to § 1400(b)” that require its immediate intervention [by the extraordinary remedy of mandamus], and that “it would be appropriate to allow the issue to percolate in the district courts so as to more clearly define the importance, scope, and nature of the issue for us to review.” Dissenting from that refusal to hear the case at that time, three Circuit Judges wrote: “Leaving this issue to percolate longer in the courts as the majority suggests will only result in wasted judicial and litigant resources as they continue to wrestle in uncertainty.”
After another year of “wasted judicial and litigant resources,” the issue has now been decided. Or has it? Although the CAFC’s latest Google decision has answered some questions, it has raised others. Thus, contrary positions continue to be the subject of lawyers’ argument, resulting in even more wasted judicial and litigant resources.
By way of quick review, in TC Heartland, the US Supreme Court decided that according to the patent venue statute, 28 U.S.C. § 1400(b), a domestic company can be sued for patent infringement only where it is either: (1) incorporated or (2) has “a regular and established place of business” and has committed acts of infringement. Then, in the case In re: Google LLC, the CAFC was asked—but declined—to decide whether the physical location of a company’s data servers—in this case Google’s own “Google Global Cache” (GGC) servers—constitute “a regular and established place of business.” Global technology company SEVEN Networks, LLC (“SEVEN”) chose to sue competitor Google, Inc. for alleged infringement in the US District Court for the Eastern District of Texas (EDTX). SEVEN justified its choice of venue with the contention that Google owns the GGC servers that are located at the facilities of independent Internet Service Providers (ISPs) in EDTX, and Chief District Judge Gilstrap agreed with that interpretation of the venue statute and controlling precedent interpreting it. Within days of the CAFC’s refusal to decide the issue by way of mandamus, SEVEN and Google settled their patent infringement case.
The same theory of venue had been asserted by other plaintiffs, however, against Google as well as against other companies sued in patent cases filed in EDTX. Chief District Judge Gilstrap repeatedly found the presence of Google’s GGC servers located at independent Internet Service Provider facilities in the judicial district to be sufficient grounds for the purposes of the patent venue statute, 35 USC § 1400(b). In one such case filed by Super Interconnect Technologies LLC (SIT), Google again sought the extraordinary remedy of mandamus and on February 13, 2020, the CAFC finally agreed to decide the issue. The Court of Appeals first explained why it was now time to decide the issue when just a year earlier it was not, explaining: (1) the dissenting Circuit Judges in the earlier case had accurately predicted the development of a significant number of trial court decisions reaching opposite results on the same basic legal issue; (2) the venue issue will not likely be presented for adjudication through the normal appellate processes, resulting in even more wasted judicial and litigant resources, and (3) the issues of whether a server rack, shelf, or analogous space can qualify as a “place of business” at all, and whether a “regular and established place of business” requires the regular presence of an employee or agent of the defendant conducting the business have been “crystallized” with greater “clarity.”
Turning to the substantive issues, the CAFC reiterated the three general requirements necessary to prove that a defendant has a regular and established place of business: “(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.” Focusing on the first requirement, Google argued that a “place” must have the characteristics of a real property or leasehold interest. The CAFC rejected this position and found that leased shelf space or rack space can serve as a “place” under the patent venue statute. All hope was not lost for Google, however.
Google next focused on the second Cray requirement and argued that a “place of business” requires a place where an employee or agent of the defendant is conducting the defendant’s business. The CAFC agreed, basing its conclusion, in part, on language found in another statutory provision relating to service of process in patent cases, 28 USC § 1694 (“In a patent infringement action commenced in a district where the defendant is not a resident but has a regular and established place of business, service of process, summons or subpoena upon such defendant may be made upon his agent or agents conducting such business.” (emphasis added)). The Court went on to analyze whether the in-district ISPs were Google’s agents for the purpose of patent venue, and found that they were not under the facts and circumstances of the case. Explaining further, the CAFC said: “The venue statute should be read to exclude agents’ activities, such as maintenance, that are merely connected to, but do not themselves constitute, the defendant’s conduct of business in the sense of production, storage, transport, and exchange of goods or services.”
The CAFC also noted “the importance of relatively clear rules, where the statutory text allows, so as to minimize expenditure of resources on threshold, non-merits issues, of which venue is one.” Ironically, the Court then concluded its opinion by stating it does “not hold today that a ‘regular and established place of business’ will always require the regular presence of a human agent, that is, whether a machine could be an ‘agent,’” opening up yet another veritable Pandora’s Box of uncertainty and potentially years more of “wasted judicial and litigant resources,” to quote Circuit Judge Reyna. Indeed, immediately after the CAFC’s decision was issued on February 13, EDTX Chief Judge Gilstrap on that very same day ordered Google, Netflix, and other parties of other potentially affected cases pending in the district to answer at least the following questions:
- What sources of law should the Court consider in determining agency relationships including, without limitation, the federal common law of agency in statutory contexts related to employment, such as the Fair Labor Standards Act, Title VII, or the Fair Housing Act?
- Under what conditions “a machine could be an agent,” and whether any such agent of Netflix or Google exists within the Eastern District of Texas?
So much for “relatively clear rules … minimiz[ing] expenditure of resources on threshold, non-merits issues, of which venue is one.”
Google answered Chief Judge Gilstrap’s first above-quoted question by asserting that the district court should look to existing Federal Circuit law, rather than regional circuit law, when assessing whether qualifying “agency relationships” exist under the CAFC’s recent Google decision. Google argued that the Federal Circuit determines the meaning of the term “agent” in light of “the ‘essential elements of agency’ derived from the generic principles embodied in the Restatement (Third) of Agency.” Although the brief filed by Personalized Media Comm’ns, LLC (PMC) is heavily redacted, it appears that PMC generally agrees with Google’s position, at least to the extent that courts should look to the Restatement (Third) of Agency, even if not with Google’s view that it is only the Federal Circuit’s interpretation of that treatise that matters.
As to the second question noted above, Google answered that “a machine could only qualify as an ‘agent’ if technology and the law advanced to a place where a machine could ‘consent’ to be controlled by the principal,” and [t]hat technological and legal future has not yet arrived,” among other arguments. Due the extensive redaction of PMC’s brief, it is more difficult to discern PMC’s answer to Chief District Judge Gilstrap’s seemingly simple question. Nonetheless, PMC flatly asserts that Google’s “servers are Google’s agents.” It appears that PMC argues at least that a machine is a company’s agent when the machine is controlled by the company, and the company is liable for actions taken, or instructions carried out, by the machine; this argument seemingly conflates principles of agency with use of the term “agent” in the sense of “tool or object or instrument used to accomplish or perform an act.” There is no doubt that Google’s servers are tools of its business, but that does not automatically mean that there is an agency relationship between Google and its servers.
Worse still, PMC answered Chief District Judge Gilstrap’s questions by asserting that discovery is required before venue can be determined on at least the following topics: (i) the nature of google’s business model and Google’s relationship with third parties that promote or support Google’s products and services within the judicial district; and (ii) how Google’s server program “actually operates vis-à-vis ISPs and how Google or its agents instructs, controls, and interacts with [its] servers.” A state of the law in which such far-ranging litigation discovery is needed in order to determine a “threshold, non-merits issue, of which venue is one,” makes no sense and cannot be wise or correct.
It should be noted that a petition with the CAFC seeking en banc rehearing of the February 13, 2020 Google mandamus decision by the full membership of the court has recently been filed by Super Interconnect Technologies, LLC (SIT), the plaintiff whose EDTX case was ordered to be dismissed or transferred due to improper venue. SIT argues that the Court of Appeals has improperly “grafted” a requirement onto the patent venue statute requiring an employee or agent of the defendant to be conducting business within the judicial district, where no such requirement appears in the statute itself. There may yet be another chapter to this story.
In our previous Monthly Insights article published soon after the CAFC had denied Google’s petition for rehearing its previous refusal to consider the mandamus petition in the case filed by SEVEN Networks, we posed a number of questions that remained unanswered. It is instructive to revisit those questions and consider which, if any, have been answered in any definitive manner:
Question: Will the dissenters’ view (as explained by Circuit Judge Reyna) ultimately be correct that the patent venue statute, 28 U.S.C. § 1400(b), is effectively expanded by the EDTX reasoning?
Answer: Yes; the CAFC conceded as much in its recent decision.
Question: Will the type of business or technology company, i.e., being in the business of nationwide data transfer (rather than merely transferring data of the business), be a key determinant in allowing nationwide venue in certain limited circumstances?
Answer: At this time, it appears that this question is best answered “no.” The CAFC did not discuss or analyze this subject as it might relate to Google’s servers.
Question: Will data servers, generally, be treated differently than home computers, phone towers, or internet towers, and other telecommunications facilities? Or is the case unique to Google’s unique practices regarding its distributed placement of its owned servers?
Answer: There are many different sets of facts and circumstances relating to servers, home computers, phone towers, internet towers, and other telecommunications facilities that make broad generalizations difficult or impossible. While the outcome in Google could be viewed as being limited to the facts of that case, there are certainly some general rules regarding patent infringement venue that may be discerned, as discussed above.
Question: What will be the determining factor or factors in deciding what should be “a regular and established place of business” – control over the server or other device located at a place, or whether the device is “attached to the ground,” or whether the company that owns the device actually has employees regularly present and working at the place?
Answer: As the Google decision makes clear, neither Google’s “control over the server” nor the ISP’s control over the premises where the server rack is located, secured, and maintained, are sufficient to establish venue as to Google under the patent venue statute, 35 USC § 1400(b). However, it is clear that the result would have been different, and the requirements of the venue statute held to be satisfied, if Google employees were regularly present and working at the ISP’s EDTX facilities, regardless of whether Google owned or leased the server racks themselves, or whether the server racks were permanent “fixtures” or moveable devices, or whether the servers were attached to versus merely sitting on rack shelves.
Question: Will some absolute factor be considered outcome-determinative in all cases (that is, will there be a “bright line test”) or will the correct answer depend on a court’s balancing of several factors, similar to the “minimum contacts” test to establish personal jurisdiction?
Answer: If there is some “bright line test,” the CAFC has not yet told us what it is, notwithstanding its stated preference for “relatively clear rules … minimiz[ing] expenditure of resources on threshold, non-merits issues, of which venue is one,” as the ongoing EDTX venue disputes and supplemental briefing make crystal clear.
Question: Will there be a distinction between a company whose primary business is sending data via data servers (or through internet towers, as the case may be) versus a company who merely stores its company data on a server?
Answer: The answer to this question is not yet known. As best as can be gleaned, PMC would say “yes, there should be such a distinction” in view of its preferred meaning of the term “agent,” but Google would likely disagree, and the Court of Appeals for the Federal Circuit has not addressed the precise question.
Question: Would the presence of a company’s owned robots in the venue be sufficient?
Answer: Even according to Google, the answer might depend on the nature of the robot in question. Google seems to concede that a robot, that is, a machine, could qualify as an “agent” if technology and the law advanced to a place where the robot could “consent” to be controlled by its owner. While Google asserts that such a “technological and legal future has not yet arrived,” it may well arrive in the not-too-distant future.
We will continue to monitor and report important developments in this still-evolving area of the law concerning patent litigation.
 In re Google LLC, 914 F.3d 1377 (Fed. Cir. 2019) (order denying reh’g and reh’g en banc).
 In re Google LLC, 949 F.3d 1338 (Fed. Cir. 2020).
 TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 581 U.S. ___, 137 S. Ct. 1514 (2017).
 In re Google LLC, 914 F.3d 1377 (Fed. Cir. 2019) (order denying reh’g and reh’g en banc).
 In re Cray, Inc., 871 F.3d 1355, 1360 (Fed. Cir. 2017).
 Personalized Media Comm’ns, LLC v. Google LLC, Civ. Action No. 2:19-CV-00090-JRG, Order (Dkt. 156) (EDTX Feb. 13, 2020).