Federal Circuit Provides Standard for Interpreting “Regular and Established Place of Business” for Patent Venue
On 21 September 2017, the Federal Circuit struck down the Eastern District of Texas’ four-factor test for determining what constitutes a “regular and established place of business” under 28 U.S.C. § 1400(b). In doing so, the Federal Circuit articulated three requirements that must be established to support a finding of a “regular and established place of business”: (1) there must be a physical place in the district, (2) the place of business must be “regular” and “established,” and (3) the place of business must be the “place of the defendant.” See In re Cray Inc., No. 2017-129 (Fed. Cir. Sept. 21, 2017). The court emphasized that the venue “analysis must be closely tied to the language of the statute” and held that venue is improper under § 1400(b) if any of the three requirements is not satisfied.
Cray’s Three Requirements
Requirement 1: Physical Place
The Federal Circuit held that § 1400(b) requires a “place,” which is “[a] building or a part of a building set apart for any purpose” or “quarters of any kind” from which business is conducted. The court explained that, while the “place” does not need to be a “fixed physical presence in the sense of a formal office or store,” there must still be “a physical, geographical location in the district from which the business of the defendant is carried out.” The court clarified that virtual spaces or electronic communications from one person to another do not qualify as a “place” under § 1400(b).
Requirement 2: “Regular” and “Established” Place of Business
The Federal Circuit held that the place of business must be “regular” and “established.” The court explained that a business may be “regular,” for example, if it operates in a steady, uniform, orderly, and methodical manner, and that sporadic activity cannot create venue. Further, “a single act pertaining to a particular business will not be considered engaging in or carrying on the business,” whereas “a series of such acts would be so considered.”
In interpreting § 1400(b), the court found that the “established” limitation bolsters its conclusion with regard to the “regular” limitation. The court further explained that the word “established” contains the root “stable,” indicating that the place of business is not transient, and that the place in question must be settled or fixed permanently. As examples of what constitutes and does not constitute an “established” business, the court stated that a company that has a “five-year continuous presence in the district demonstrates that the business was established for purposes of venue,” whereas a different company that semiannually “displayed its products at a trade show in the district had only a temporary presence.”
Requirement 3: Place of the Defendant
The Federal Circuit clarified that the place of business must be “the place of the defendant,” and not solely a place of the defendant’s employee. The court explained that the “[d]efendant must establish or ratify the place of business” and that it “is not enough that the employee does so on his or her own.” In issuing its decision, the court articulated numerous relevant considerations or factors for determining whether this requirement has been established, which are summarized as follows:
- “whether the defendant owns or leases the place, or exercises other attributes of possession or control over the place”;
- the size of the business, where a small business might operate from a home as long as that is a place of business of the defendant;
- “whether the defendant conditioned employment on an employee’s continued residence in the district or the storing of materials at a place in the district so that they can be distributed or sold from that place”;
- the defendant’s representations that it has a place of business in the district; and
- “the nature and activity of the alleged place of business of the defendant in the district in comparison with that of other places of business of the defendant in other venues.”
The court emphasized that this requirement stems from the language of the statute itself, which clearly states that the defendant have “the regular and established place of business.”
Relationship with the Cordis Decision
The Federal Circuit explained that it has previously addressed the phrase “regular and established place of business” in In re Cordis Corp., 769 F.2d 733 (Fed. Cir. 1985). The court did not overturn the Cordis decision, but did, however, explain that the Cordis court had “not consider[ed] itself obliged to” focus on the full and unchanged language of § 1400(b). The court held that the Eastern District of Texas misunderstood the scope and effect of the Cordis decision.
Significance of the Cray Decision
In the wake of the TC Heartland decision, district courts have considered a variety of factors for determining whether the “regular and established place of business” element of § 1400(b) has been satisfied. As a result, application of the venue statute has been less than uniform. The Federal Circuit’s Cray decision, however, provides needed guidance for interpreting the “regular and established place of business” prong of § 1400(b), especially with regard to whether a “physical” place of business is needed.
The Federal Circuit parsed the language of § 1400(b) to get to the three “requirements.” The court explained that the words “regular” and “established” are adjectives modifying the noun “place.” The court further explained that the following words, “of business,” indicate the nature and purpose of the “place,” and that the preceding words, “the defendant,” indicate that it must be that of the defendant.
The court relied on a dictionary definition provided in William Dwight Whitney, The Century Dictionary.
Citing Remington Rand Bus. Serv. v. Acme Card Sys. Co., 71 F. 2d 628, 629 (4th Cir. 1934).
Citing Knapp-Monarch Co. v. Casco Prods. Corp., 342 F.2d 622, 625 (7th Cir. 1965).
Here, the court explained that marketing or advertisements may be relevant, but only to the extent they indicate that the defendant itself holds out a place for its business.
The court explained that potential relevant inquiries “include whether the defendant lists the alleged place of business on a website, or in a telephone or other directory, or places its name on a sign associated with or on the building itself. The court clarified that the mere fact that a defendant has advertised that it has a place of business or has even set up an office is not sufficient, and that the defendant must actually engage in business from that location.