In re Cray Inc.
- Reporters:
- , , , ,
- Before:
- Lourie, Reyna, Stoll
ORDER
Cray Inc. (“Cray”) petitions for a writ of mandamus vacating the order of the United States District Court for the Eastern District of Texas denying its motion to transfer the case to the United States District Court for the Western District of Wisconsin. See Raytheon Co. v. Cray, Inc., No. 2:15-cv-01554-JRG, 258 F.Supp.3d 781, 2017 WL 2813896 (E.D. Tex. June 29, 2017) (“Transfer Order”). Raytheon Company (“Raytheon”) opposes the petition. The district court misinterpreted the scope
Background
This petition arises from a patent infringement action filed by Raytheon against Cray in the Eastern District of Texas. Cray sells advanced supercomputers that Raytheon accuses of infringement. Cray is a Washington corporation with its principal place of business located there. It also maintains facilities in Bloomington, Minnesota; Chippewa Falls, Wisconsin; Pleasanton and San Jose, California; and Austin and Houston, Texas.
Although Cray does not rent or own an office or any property in the Eastern District of Texas, it allowed Mr. Douglas Harless and Mr. Troy Testa to work remotely from their respective homes in that district. Transfer Order, 258 F.Supp.3d at 783-787 & n.1, 2017 WL 2813896, at *1-2 & n.1. Mr. Testa worked for Cray as a senior territory manager while residing in the district from 2010 to 2011 before the underlying suit was filed. Id. at 784 n.1, 2017 WL 2813896 at *1 n.1
Mr. Harless worked as a “sales executive” for approximately seven years with associated sales of Cray systems in excess of $345 million. Id. at 783, 2017 WL 2813896 at *1. Mr. Harless’s responsibilities also included “new sales and new account development in [the] Central U.S.” and “management of key accounts within the Financial, Biomedical and Petroleum Industries.” Id. (alteration in original) (quotation marks omitted). Cray’s “Americas Sales Territories” map, an internal document, identified Mr. Harless as a “Named Account Manager” and his location at his Eastern District of Texas personal home. Id. Mr. Harless received reimbursement for his cell phone usage for business purposes, internet fees, and mileage or “other costs” for business travel. Id. Cray provided Mr. Harless with “administrative support” from its Minnesota office. Id. He provided “price quotations” to customers, listing himself as the “account executive” and the person who prepared the quotation. Id. at 790, 2017 WL 2813896 at *6. The communications also identified his home telephone number as his “office” telephone number with an Eastern District of Texas area code. Id.
Mr. Harless, however, did not maintain Cray products at his home, nor did he maintain product literature at his home because it was available online. Id. at 793, 2017 WL 2813896 at *9. It is undisputed that Cray never paid Mr. Harless for the use of his home to operate its business, or publicly advertised or otherwise indicated that his home residence was a Cray place of business.
Cray moved to transfer this suit under
Cray further argued that venue was improper in the Eastern District of Texas because Cray had neither committed acts of infringement, nor maintained a regular and established place of business within that district. The district court, however, rejected that argument. The court found that Mr. Harless’s activities were factually similar to the activities performed by the representatives in In re Cordis Corp., 769 F.2d 733 (Fed. Cir. 1985), in which this court rejected a mandamus request to reverse an order denying transfer for improper venue. See Transfer Order, 258 F.Supp.3d at 792-796, 2017 WL 2813896, at *8-10. The court did not rely on Mr. Testa’s activities in determining that venue was proper.
Although the district court found that Cordis resolved this case, the district court then went on “[f]or the benefit of” other litigants and counsel to set out four factors for inquiries into what constitutes a regular and established places of business “in the modern era,” including physical presence, defendant’s representations, benefits received, and targeted interactions with the district. Id. at 795-799, 2017 WL 2813896 at *11-14. The court, however, “decline[d] to expressly apply the factors ... in this particular case; although, [it noted that it was] satisfied that had it done so, the result would remain the same.” Id. at 799 n.13, 2017 WL 2813896 at *14 n.13.
Cray petitions for a writ of mandamus directing reversal of the district court’s denial of its motion to transfer venue and directing the district court to transfer this case to the Western District of Wisconsin pursuant to
Discussion
I. The Mandamus Standard
We may issue a writ under the All Writs Act,
A writ of mandamus may issue where: (1) the petitioner has “no other adequate means to attain the relief he desires”; (2) the petitioner shows “his right to mandamus is ‘clear and indisputable’”; and (3) the issuing court is “satisfied that the writ is appropriate under the circumstances.” In re TC Heartland LLC, 821 F.3d 1338, 1341 (Fed. Cir. 2016) (quoting Cheney v. U.S. Dist. Court for the Dist. of Columbia, 542 U.S. 367, 380-81, 124 S.Ct. 2576, 159 L.Ed.2d 459 (2004)), rev’d and remanded sub nom., on other grounds, TC Heartland LLC v. Kraft Foods Grp. Brands LLC, — U.S. —, 137 S.Ct. 1514, 197 L.Ed.2d 816 (2017). Similarly, mandamus may be appropriate, as it is here, to decide issues “important to ‘proper judicial administration.’” In re BP Lubricants USA Inc., 637 F.3d 1307, 1313 (Fed. Cir. 2011) (quoting La Buy v. Howes Leather Co., 352 U.S. 249, 259-60, 77 S.Ct. 309, 1 L.Ed.2d 290 (1957)). Additionally, the Supreme Court has approved the use
That is the circumstance here: the district court misunderstood the scope and effect of our decision in Cordis, and its misplaced reliance on that precedent led the court to deny the motion to transfer, which we find to have been an abuse of discretion.
As Cray points out, for nearly the last 30 years, venue in patent infringement cases has largely turned on whether a defendant “resides” in the district in question. Following the Supreme Court’s recent decision in TC Heartland, litigants and courts are raising with increased frequency the question of where a defendant has a “regular and established place of business.” See, e.g., Transfer Order, 258 F.Supp.3d at 794, 2017 WL 2813896, at *10 (“Since the Supreme Court’s decision in TC Heartland, this Court has received a number of motions to dismiss or transfer based on improper venue.”); Regenlab USA LLC v. Estar Techs., Ltd., No. 16-CV-08771 (ALC), 2017 WL 3601304, at *2 (S.D.N.Y. Aug. 17, 2017) (“In light of TC Heartland, the parties agree that venue is improper ... under the first prong of
We have addressed that phrase only once in the context of a previous mandamus petition—in Cordis. See 769 F.2d at 736-37. Cordis found that “a rational and substantial argument may be made in support of the court’s order denying Cordis’ motion to dismiss for lack of proper venue.” Id. at 737. It thus held in those circumstances that “we decline to issue the writ.” Id. The court did state that the “appropriate inquiry” is not “whether [Cordis] has a fixed physical presence in the sense of a formal office or store.” Id. But, notably, the court did not, in its opinion, evaluate venue in light of the statutory language of
We recognize that the world has changed since 1985 when the Cordis decision issued. In this new era, not all corporations operate under a brick-and-mortar model. Business can be conducted virtually. Employees increasingly telecommute. Products may not as a rule be warehoused, by retailers, and the just-in-time delivery paradigm has eliminated the need for storing some inventory. But, notwithstanding these changes, in the wake of the Supreme Court’s holding in TC Heartland, effectively reviving Section 1400(b) as the focus of venue in patent cases, we must focus on the full and unchanged language of the statute, as Cordis did not consider itself obliged to do.
Moreover, district courts, including the trial court in this case, have noted the uncertainty surrounding and the need for greater uniformity on this issue, see, e.g., Transfer Order, 258 F.Supp.3d at 794, 2017 WL 2813896, at *10 (explaining there is “uncertainty among the litigants regarding the scope of the phrase ‘regular and established place of business’” and “the appropriate scope of such venue discovery”); Regenlab, 2017 WL 3601304, at *2 (S.D.N.Y. Aug. 17, 2017) (“Substantial confusion exists regarding the circumstances in which an entity will be found to have a ‘regular and established place of business’ in the district.”); Johnston v. IVAC Corp., 681 F.Supp. 959, 962-63 (D. Mass. 1987) (collecting cases with a more “restrictive reading” of the statute and those with a “more ‘liberal’ construction” (citation omitted)); Brunswick Corp. v. Suzuki Motor Co., 575 F.Supp. 1412, 1424 n.5 (E.D. Wis. 1983) (noting that
II. The Meaning of the Venue Statute
In matters unique to patent law, this court applies its own law. Midwest Indus., Inc. v. Karavan Trailers, Inc., 175 F.3d 1356, 1359 (Fed. Cir. 1999) (en banc in relevant part), cert. denied 528 U.S. 1019, 120 S.Ct. 527, 145 L.Ed.2d 409 (1999).
As discussed in greater detail below, our analysis of the case law and statute reveal three general requirements relevant to the inquiry: (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. If any statutory requirement is not satisfied, venue is improper under
In the late 1800s, when
To resolve the uncertainty, Congress enacted
The statute of course allows broader venue than merely the place of a defendant’s incorporation, providing “patent claimants an advantage” compared to claimants in other federal-question cases at the time, Brunette Mach. Works, Ltd. v. Kockum Indus., Inc., 406 U.S. 706, 713 n.13, 92 S.Ct. 1936, 32 L.Ed.2d 428 (1972); but the statute also clearly narrows jurisdiction relative to the courts that previously allowed patent suits wherever the defendant could be served, see id. at 712-13, 92 S.Ct. 1936. “Congress adopted the predecessor to
Courts should be mindful of this history in applying the statute and be careful not to conflate showings that may be sufficient for other purposes, e.g., personal jurisdiction or the general venue statute, with the necessary showing to establish proper venue in patent cases. As the district court correctly stated, “the regular and established place of business standard requires more than the minimum contacts necessary for establishing personal jurisdiction or for satisfying the doing business standard of the general venue provision,
The statutory language we need to interpret is “where the defendant ... has a
In deciding whether a defendant has a regular and established place of business in a district, no precise rule has been laid down and each case depends on its own facts. The “requirements” listed above and discussed below inform whether there exist the necessary elements, but do not supplant the statutory language. We stress that the analysis must be closely tied to the language of the statute.
As noted above, when determining venue, the first requirement is that there “must be a physical place in the district.” The district court erred as a matter of law in holding that “a fixed physical location in the district is not a prerequisite to proper venue.” Transfer Order, 258 F.Supp.3d at 795, 2017 WL 2813896, at *11. This interpretation impermissibly expands the statute. The statute requires a “place,” i.e., “[a] building or a part of a building set apart for any purpose” or “quarters of any kind” from which business is conducted. William Dwight Whitney, The Century Dictionary, 732 (Benjamin E. Smith, ed. 1911); see also Place, Black’s Law Dictionary (1st ed. 1891) (defining place as a “locality, limited by boundaries”). The statute thus cannot be read to refer merely to a virtual space or to electronic communications from one person to another. But such “places” would seemingly be authorized under the district court’s test.
While the “place” need not be a “fixed physical presence in the sense of a formal office or store,” Cordis, 769 F.2d at 737, there must still be a physical, geographical location in the district from which the business of the defendant is carried out. In Cordis, for example, a defendant used its employees’ homes to store its “literature, documents and products” and, in some instances, like distribution centers, storing inventory that the employees then directly took to its clients. 769 F.2d at 735. Defendant also engaged a secretarial service physically located in the district to perform certain tasks. Id.
The second requirement for determining venue is that the place “must be a regular and established place of business.” The district court’s test fails to recognize that the place of business must be “regular.” A business may be “regular,” for example, if it operates in a “steady[,] uniform[,] orderly[, and] methodical” manner, Whitney, supra, at 5050. In other words, sporadic activity cannot create venue. See Phillips v. Baker, 121 F.2d 752, 756 (9th Cir. 1941) (“A ‘regular place of business’ is, obviously, a place where such business is carried on ‘regularly’ and not merely temporarily, or for some special work or particular transaction.” (quoting Winterbottom v. Casey, 283 F. 518, 521 (E.D. Mich. 1922))). Indeed, “[t]he doing of a single act pertaining to a particular business will not be considered engaging in or carrying on the business; yet a series of such acts would be so considered.” Regular, Black’s Law Dictionary (1st ed. 1891).
Accordingly, while a business can certainly move its location, it must for a meaningful time period be stable, established. On the other hand, if an employee can move his or her home out of the district at his or her own instigation, without the approval of the defendant, that would cut against the employee’s home being considered a place of business of the defendant.
Finally, the third requirement when determining venue is that “the regular and established place of business” must be “the place of the defendant.” As the statute indicates, it must be a place of the defendant, not solely a place of the defendant’s employee. Employees change jobs. Thus, the defendant must establish or ratify the place of business. It is not enough that the employee does so on his or her own.
Relevant considerations include whether the defendant owns or leases the place, or exercises other attributes of possession or control over the place. One can also recognize that a small business might operate from a home; if that is a place of business of the defendant, that can be a place of business satisfying the requirement of the statute.
Another consideration might be 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. See, e.g., Cordis, 769 F.2d at 735; Am. Cyanamid Co. v. Nopco Chem. Co., 388 F.2d 818, 820 (4th Cir. 1968); Grantham v. Challenge-Cook Bros., Inc., 420 F.2d 1182, 1185-86 (7th Cir. 1969); Univ. of Ill. Found. v. Channel Master Corp., 382 F.2d 514, 516 (7th Cir. 1967); Shelton v. Schwartz, 131 F.2d 805, 808 (7th Cir. 1942). Marketing or advertisements also may be relevant, but only to the extent they indicate that the defendant itself holds out a place for its business.
The district court is correct that a defendant’s representations that it has a place of business in the district are relevant to the inquiry. Potentially 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
A further consideration for this requirement might be 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.* Such a comparison might reveal that the alleged place of business is not really a place of business at all.
III. Application of the Venue Statute to This Case
With the above discussion in mind, we turn to the facts of this case. The parties’ primary dispute concerns whether Mr. Harless’s home, located in the Eastern District of Texas, constitutes “a regular and established place of business” of Cray.
Cray points out that Mr. Harless’s home was not listed in any business directories or websites, that he did not maintain product literature or products at his home, and that he was the only employee within the district. It argues that the online business materials and generalized administrative support are not evidence of a place of business of Cray in the Eastern District of Texas. Cray argues that its “Americas Sales Territories” map, identifying Mr. Harless’s Eastern District of Texas location, does not indicate that Cray was doing business from that location because it merely was an internal presentation listing his address. Cray argues that it paid for no part of Mr. Harless’s home or rent, and that it stored nothing there. Cray contends that Mr. Testa is irrelevant here because his employment ended well before Raytheon filed its complaint.
Raytheon responds that Cray made a “conscious decision” to hire Mr. Harless and Mr. Testa, knowing that they lived in the Eastern District of Texas. It notes that Cray paid at least Mr. Harless a salary and offered administrative support and reimbursed him for phone, internet, and business-related travel expenses. Raytheon also notes that Mr. Harless’s social media profiles identified his location in the Eastern District of Texas as a Cray employee and that he corresponded with customers listing a phone number with an Eastern District of Texas area code. Raytheon argues that Cray did not need to store business materials with Mr. Harless or Mr. Testa because many were available online and that Cray’s large products physically could not be stored there. Raytheon contends that Mr. Harless’s activities extended beyond merely making sales and also contends that Cray did have customers in the Eastern District of Texas, even though Mr. Harless was not responsible for them.
The third requirement identified above, that the regular and established place of business must be “the place of the defendant,” is crucial here. The facts presented cannot support a finding that Mr. Harless’s
Raytheon argues that a residential home office is “no less permanent than any conventional store or office,” noting that often (as is the case here) the employee may have resided there before the employment began. Respondent’s Br. 22-23 n.6. Raytheon has the wrong perspective. For purposes of
Raytheon also argues that Cray customers were present in the district, but makes no suggestions that Mr. Harless or Mr. Testa served them. Raytheon points to no evidence that the employees’ location in the Eastern District of Texas was material to Cray. Instead, it appears that Mr. Harless and Mr. Testa were “free to live where [they] chose as far as [the defendant] was concerned.” Grantham, 420 F.2d at 1185.
These facts are in contrast with those in Cordis, where it was clear that the place of business was established by Cordis. Cordis’s business specifically depended on employees being physically present at places in the district, and it was undisputable that Cordis affirmatively acted to make permanent operations within that district to service its customers there. Cordis publicly advertised a secretarial service office located within the district as a place of business of its own and used its employees’ homes like distribution centers.
Unlike in Cordis, where the appellant received secretarial services from a third-party located within the district, all expense reimbursements and administrative support for Cray’s employees were provided from outside of the district. Further, the reimbursements and support were not conditioned on any particular employee location. Raytheon also argues that Cray’s “Americas Sales Territories” map identifying Mr. Harless as a “Named Account Manager” and his location at his Eastern District of Texas personal home as further evidence that Cray had a “regular and established” place of business in the district. That map, however, was not advertised publicly and has little probative value.
Raytheon’s remaining arguments are similarly unavailing. Mr. Harless’s social media profiles and phone number indicate at most that he conducted business from
Our decision here comports with a number of appellate court decisions concerning employees working from their homes. In Channel Master Corp., for instance, the Seventh Circuit addressed whether a defendant that employed a single salesman who used his home as a base for his sales activities in promoting his employer’s products demonstrated that the defendant had a regular and established place of business there. 382 F.2d at 515. Like Raytheon, the plaintiff in that case argued that the employee “maintains control of a permanent establishment in the district for his employer, and systematically conducts a substantial portion of the employer’s business in the district from this location.” Id.
The Seventh Circuit rejected that argument. Like Mr. Harless, the salesman in Channel Master was reimbursed by the defendant for certain business expenses. But, also like Mr. Harless, he maintained in his home “no stock in trade, no displays, no samples, and no showroom.” Id. at 516. He also “conducted no demonstrations of the products,” received no business visitors, and had no staff or even secretarial help located in his home office. Id. Under these circumstances, the court concluded that the employee’s home could not “by any stretch of the imagination” be characterized as a regular and established place of business of the defendant. Id.; accord Grantham, 420 F.2d at 1185-86.
Likewise, in American Cyanamid, the Fourth Circuit refused to accept the argument that “it is sufficient under
Similarly, the facts here do not show that Cray maintains a regular and established place of business in the Eastern District of Texas; they merely show that there exists within the district a physical location where an employee of the defendant carries on certain work for his employer.
We stress that no one fact is controlling. But taken together, the facts cannot support a finding that Cray established a place of business in the Eastern District of Texas. Thus venue cannot exist there under
Because venue is lacking in the Eastern District of Texas, Cray seeks transfer to
Because the district court determined that venue was proper, it did not address the parties’ arguments regarding where the case should be transferred. We leave that determination for the district court on remand.
Accordingly,
It Is Ordered That:
The petition is granted to the extent that the district court’s order denying Cray’s