Important e-Commerce Venue Question Left Open – For Now

By Peter Schechter and Suzanne Lecocke

Companies accused of patent infringement remain in limbo after the CAFC’s decision in In re: Google LLC, in which the CAFC declined to decide 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.

In TC Heartland,[1] the U.S. 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.  That decision struck at plaintiffs seeking venue in the U.S. District Court for the Eastern District of Texas (EDTX), generally viewed as the most patent-friendly trial court in the nation.

After TC Heartland, the number of patent lawsuit filings in the EDTX dropped by half and a significant number of further cases were transferred to the defendant’s state of incorporation.  Accordingly, the EDTX jurists came up with an expansive interpretation after TC Heartland of the statutory phrase “regular and established place of business.”  Nearly all of those expansive interpretations have been rejected, whether on appeal to the Court of Appeals for the Federal Circuit (“CAFC”) or by the more unusual and extraordinary procedure of mandamus, a special type of “emergency” interlocutory appeal.  Nearly all – but not all ….

The case in point, In re: Google LLC,[2] deals with whether the physical location of a company’s data servers—in this case Google’s servers—constitute “a regular and established place of business.”  Global technology company SEVEN Networks, LLC (“SEVEN”) sued its competitor Google, Inc. for alleged infringement of at least ten of SEVEN’s patents, in EDTX.  SEVEN justified its choice of EDTX by asserting that Google owns data servers that are located at the facilities of independent Internet Service Providers (ISPs) in EDTX.   Google sought dismissal of the case on the ground that it was filed in the wrong venue, in violation of section 1400(b).  Google argued that a regular and established place of business must be “fixed permanently” to the ground.  The district court disagreed and denied Google’s motion to dismiss based on contractual provisions between Google and the ISPs, including: (1) Google operates and maintains, and provides all technical support for, the servers; (2) Google treats its servers at the ISPs the same way that it treats its own servers located at Google-owned or Google-leased facilities; (3) the ISPs must inform Google of the specific rack on which each Google server is located, must obtain Google’s consent to place the server on that rack, and may not move the server without Google’s consent; and (4) the ISPs cannot access the servers in the absence of a Google representative’s presence or consent.  Simply put, the ISPs provide only the physical building (including security, maintenance, etc.), the electrical and communication connections, the physical racks for the servers, and the rack space.

In response to denial of its venue motion, Google petitioned the CAFC for the extraordinary remedy of mandamus—an expedited procedure used to correct a clear abuse of discretion by a trial court.   In October 2018, a 2-1 divided panel of CAFC circuit judges denied Google’s mandamus petition, with Circuit Judge Reyna dissenting from the denial.  Google filed a combined petition for rehearing and rehearing en banc.  The CAFC’s active circuit judges were polled and Google’s petition was rejected by a 9-3 vote.  In denying mandamus, two thirds of the CAFC judges determined that Google’s contracts with the ISPs show “strong Google control over the servers and their physical location.”  The CAFC determined 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, 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.”

Circuit Judge Reyna again dissented, joined by Circuit Judges Newman and Lourie.  Judge Reyna, in his dissent, differed: “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.”  The dissent raised such questions as whether a computer in a home office or a cell phone tower is sufficient to constitute a regular and established place of business.

While it may seem at first glance that the CAFC missed a golden opportunity to set straight the venue question of what constitutes “a regular and established place of business” once and for all, this particular case involving Google and its possibly unique practices regarding housing its data servers was also ostensibly not the appropriate case in which to do so.

Several unanswered questions are now the subject of much discussion:

  1.  How many district court cases must be decided, and how much disagreement must there be between differing district courts before the CAFC agrees to decide this important issue by way of a mandamus petition?
  2. What would constitute exceptional circumstances not present in the Google case, for the CAFC to take the case on a petition for mandamus?  Note that the alternative is for the CAFC to address the issue when reviewing a final judgment rendered after trial and all post-trial proceedings in an appeal in the usual course – which may not occur for several years.
  3. 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?
  4.  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?
  5. 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?
  6. 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?
  7. 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?
  8. 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?
  9. Would the presence of a company’s owned robots in the venue be sufficient?

The CAFC’s refusal to decide the important venue question presented in the SEVEN Networks case has implications for all patent infringement cases.  Just one day after the CAFC’s denial to hear the mandamus petition en banc, the lawsuit between SEVEN Networks and Google was dismissed by reason of settlement.  We will all be waiting and watching for this issue to re-surface; stay tuned ….

[1] TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 581 U.S. ___, 137 S. Ct. 1514 (2017).

[2] No. 2018-152 (Fed. Cir. Feb. 5, 2019) (Before Prost, Chief Judge, Newman, Lourie, Dyk, Moore, O’Malley, Reyna, Wallach, Taranto, Chen, Hughes, and Stoll, Circuit Judges) (Dissent by Reyna, Circuit Judge, joined by Newman and Lourie, Circuit Judges).