For years, patent owners, especially those that have never “performed” the patent, used the U.S. Court of Appeals for the Federal Circuit’s broad interpretation of the patent venue statute to force infringement lawsuits into favorable jurisdictions. The U.S. District Court for the Eastern District of Texas was the model; often referred to as the “patent district,” patent holders most frequently—and non-practicing entities (aka “patent trolls”) overwhelmingly—filed suit in the Eastern District of Texas, regardless of where the allegedly infringing party conducted business. Patent trolls leaned on sympathetic (and self-interested) judges to bully easy settlements out of defendants and force end consumers to pay more for all sorts of products.
Patent venue is governed by its own statute; a lawsuit for patent infringement can be brought 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 thirty years, the Federal Circuit read “reside” to include any jurisdiction in which the defendant was subject to personal jurisdiction—effectively opening venue to every jurisdiction.
But this manipulation of venue was brought to a standstill in TC Heartland LLC v. Kraft Foods Group Brands LLC. There, the U.S. Supreme Court held that for the purposes of patent venue, a company only resides in its state of incorporation. With such clear language, patent plaintiffs had to rely on a different basis to shop for their preferred forum. Many began to ask courts to interpret the “regular and established place of business” language from the statute as broadly as the Federal Circuit had read residence before TC Heartland.
But the first district court judges to reach the question have balked. Shortly after TC Heartland, the Federal Circuit announced a three-part test to determine where defendants have a regular and establish 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.” Following the spirit of TC Heartland as well as its text, courts applying the test have been careful to not allow venue to become a meaningless hoop for patent plaintiffs to jump through. A recent decision of the Southern District of New York is an example.
In Peerless Network, Inc. v. Blitz Telecom Consulting, LLC, Peerless, a telecommunications company, alleged that Blitz, a former contracting partner, infringed several process patents. Although Blitz is incorporated and has its principle place of business in Florida, Peerless brought suit in New York. Blitz moved to dismiss or transfer the action for improper venue.
When framing the case, the court put the matter simply: “The full extent of Defendants’ physical presence in the Southern District of New York is a shelf containing a piece of [their] telecommunications equipment” which was “the size of a breadbox.” Peerless argued that because of this shelf, Blitz had a regular and established place of business in New York. The court held that in order to be a place of business, the defendant must “engage in business from that location,” meaning that it is “the location where some person performs that verb.”
The court acknowledged that this definition is still very human-centric, and “unsatisfying in an economy increasingly characterized by virtual transactions,” but Blitz had no employees stationed in New York and did not interact with customers from its shelf. The statute and the Supreme Court were clear and “whatever a ‘place of business’ is, it is not a shelf.” Thus, the court transferred the case to the Middle District of Florida, where the parties were already engaged in related litigation.
Peerless Network, Inc. v. Blitz Telecom Consulting, LLC reflects an important movement away from the abuses of the patent-venue system so represented by the Eastern District of Texas. Courts are now requiring plaintiffs to demonstrate venue in a real and meaningful way. Such scrutiny will help lessen the influence of courts sympathetic to plaintiffs’ arguments and help make the resolution of patent-infringement disputes fairer for all parties.
Also published by Forbes.com on WLF’s contributor page.