By Robbie Manhas, a Managing Associate in the Washington, DC office of Orrick LLP, and Cynthia B. Stein, a Managing Associate in the San Francisco, CA office of the firm. Both practice in the Supreme Court and Appellate practice group. They, along with other Orrick attorneys, filed an amicus brief on behalf of Etsy, HP, Netflix, RingCentral, Red Hat, Salesforce, SAP America, Twitter, and the High Tech Inventors Alliance in support of Google in In re Google LLC.
The U.S. Court of Appeals for the Federal Circuit recently dropped some breadcrumbs on an increasingly important question of patent law: What contacts amount to a “regular and established place of business” under the patent-venue statute, 28 U.S.C. § 1400(b), which provides that “[a]ny civil action for patent infringement may 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”?
Following TC Heartland LLC v. Kraft Foods Group Brands LLC, 137 S. Ct. 1514 (2017), which held that § 1400(b)’s “residence” prong refers only to a corporate defendant’s state of incorporation, plaintiffs bringing infringement suits have increasingly relied on § 1400(b)’s “place of business” prong, which TC Heartland left untouched. One such plaintiff is SEVEN Networks, which in May 2017 sued Google for patent infringement in the Eastern District of Texas. See SEVEN Networks, LLC v. Google LLC, 315 F. Supp. 3d 933 (E.D. Tex. 2018). When Google moved to transfer the case for improper venue, SEVEN responded that venue was proper because Google had committed acts of infringement in the district and that its maintenance of servers housed at the local facilities of various Internet Service Providers (ISPs) constituted a “regular and established place of business.”
The district court’s analysis was cabined by the Federal Circuit’s opinion in In re Cray, 871 F.3d 1355 (Fed. Cir. 2017), which set out guidelines for determining when the “place of business” prong of § 1400(b) is established: “(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.” Id. at 1360. The district court judge, Judge Gilstrap, held that under Cray, Google’s servers and the rack space they occupy “both independently and together” amount to a “regular and established place of business.” 315 F. Supp. 3d at 954; see id. at 964. He likened the servers to “warehouses,” citing authorities finding warehouses to be places of business. Id. at 948, 957-60. He concluded that it was irrelevant that Google did not actually engage in business at the servers’ location and likewise held that the size of their impact was irrelevant so long as the servers furthered some business purposes. Id. at 956, 961-62. Finally, he reasoned that the servers and racks were “of the defendant” because Google owned the servers and tightly controlled both the servers and rack space through its contracts with ISPs. Id. at 965.
Google petitioned for mandamus to the Federal Circuit. See In re Google LLC, 2018 WL 5536478 (Fed. Cir. Oct. 29, 2018). It argued that neither the servers nor the racks satisfy the physical-place requirement because the servers themselves are not occupiable space, and the racks likewise are not real property where Google employees could or do work. Nor are the servers or racks a “regular and established place of business,” Google argued, because they have little to no impact on Google’s business or users. And neither is “of the defendant,” because the ISPs install, store, and maintain the servers, and they own and control the rack space.
In a split per curiam opinion, a Federal Circuit panel denied review without opining on the merits. The majority, Judges Dyk and Taranto, observed that “the scope of the district court’s decision is, in many respects, unclear,” and might be limited to cases presenting similar factual scenarios. 2018 WL 5536478, at *2 (quotation marks omitted). It was thus “not known if the district court’s ruling involve[d] the kind of broad and fundamental legal questions relevant to § 1400(b)” that would make the case “appropriate for mandamus.” Id. The majority therefore preferred “to allow the issue to percolate in the district courts.” Id. at *3. Judge Reyna dissented.
Google petitioned for rehearing. That request was denied. In re Google LLC, 914 F.3d 1377, 1377-78 (Fed. Cir. 2019). Judge Reyna again dissented, joined by Judges Newman and Lourie.
The dissenters lamented that the panel’s decision “le[ft] unanswered a critical issue that increasingly affects venue in legal actions involving e-commerce”: “whether [a company’s] servers … , which have no physical interaction with [the company]’s employees or customers and are installed by third-parties in facilities of third-party [ISPs] … , constitute a regular and established place of business.” Id. at 1378. They also noted a number of unresolved subsidiary questions: “To what extent does the defendant have to be ‘present’ in the district to be ‘engaging in business’? Is owning, renting, or leasing real property required to establish a ‘place’? Is a piece of equipment a ‘place’? Is a shelf where equipment is installed a ‘place’ where business is conducted? Would we have held differently if the employer in Cray exercised ‘exclusive control’ over the equipment in the employee’s home office?” Id. at 1381.
The dissenters wished to settle these questions given the “growing uncertainty among district courts and litigants as to the requirements of § 1400(b) when conducting business virtually through servers and similar equipment in the district.” Id. at 1379. They noted, for example, another decision from the Eastern District of Texas that “wrestled with the same issue involving the same defendant yet reached a different and contrary conclusion” than Judge Gilstrap below—rejecting that Google servers in local ISP facilities constituted a regular and established place of business. Id. (citing Personal Audio, LLC v. Google, Inc., 280 F. Supp. 3d 922, 934 (E.D. Tex. 2017)). Similarly, they pointed to CUPP Cybersecurity, LLC v. Symantec Corp., a decision from the Northern District of Texas that concluded that servers at a third-party data center did not constitute a regular and established place of business. Id. at 1380 (citing CUPP, No. 3:18-CV-1554, Dkt. 44, at 4-6 (N.D. Tex. Dec. 21, 2018)). And they remarked that “[a]mici comprising similarly situated technology companies who provide internet infrastructure and services filed briefs in support of the mandamus petition and expressed concern over the impact of this issue on their business—evidence of this case’s importance and broad implications.” Id.
The dissenters signaled that they would side with Google and reject Judge Gilstrap’s decision that the servers and facility here constituted a regular and established place of business. To start, they “agree[d]” with CUPP’s observation “that there would be ‘far reaching consequences’ of concluding that venue was proper”—“which would ‘distort the scope of the statute’”—because of “the tension between the statute and the realities of the continued change in the nature of the marketplace and how goods and services are traded.” Id. (quoting CUPP, No. 3:18-CV-1554, Dkt. 44, at 6). And although they “agree[d] that possession and control over a place are important factors when considering the merits,” they remarked that “exclusive ownership and control over the servers may be insufficient under Cray,” stressing that “no Google employee has ever visited the places where the servers are installed” and that “those facilities [do not] resemble one of the many Google offices in other venues that would satisfy § 1400(b) under a straightforward application of the statute.” Id. at 1381.
The dissenters also demurred against broadly reading Judge Gilstrap’s decision. They noted that, “[f]or many companies, the reasoning of the district court’s holding could essentially reestablish nationwide venue … by standing for the proposition that owning and controlling computer hardware involved in some aspect of company business (e.g., transmitting data) alone is sufficient.” Id. They pointedly referred to such a result as “in conflict with TC Heartland.” Id.
Given the dissent, as well as the panel majority’s suggestion that the venue questions involved should “percolate” in the district courts, litigants should preserve their arguments. The Federal Circuit will continue to be confronted with these issues. When and how it will resolve them, however, remains to be seen.