Serving server farms

Although it might seem simple, venue for patent cases under Section 1400(b) has evolved considerably over the years, expanding and contracting under liberal and narrow interpretations. The patent venue statute states, "Any civil action for patent infringement may be brought in the judicial district [1] where the defendant resides, or [2] where the defendant has committed acts of infringement and has a regular and established place of business." 28 U.S.C. Section 1400(b).

While recent decisions explore the second part of Section 1400(b) (i.e., where a corporation has a regular and established place of business), older decisions in patent venue focused on the first half of the statute and the meaning of the word "resides" because in non-patent cases, a defendant corporation is "deemed to reside ... in any judicial district in which such defendant is subject to the court's personal jurisdiction with respect to the civil action in question." 28 U.S.C. Section 1391(c).

Thus, the first big question in patent venue was whether Section 1391(c)'s definition of "reside" should be read into Section 1400(b) for patent cases. See Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222-23 (1957). In Fourco, the U.S. Supreme Court took a narrow view, holding "[Section] 1400(b) is the sole and exclusive provision controlling venue in patent infringement actions, and that it is not to be supplemented by the provisions of [Section] 1391(c)" -- in other words, the Fourco court held that a corporation only resides in the state of its incorporation for patent venue purposes. Id.

Then, in 1988, Congress amended Section 1391(c) to includes the preamble words, "For purposes of venue under this chapter." See 28 U.S.C. Section 1391(c) (1988). Based on this amendment, the issue of re-interpreting Section 1391(c) rose to the U.S. Court of Appeals for the Federal Circuit in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (1990). In VE Holding, the court noted that the phrase "this chapter" referred to chapter 87 of title 28, which encompasses, among other things, Section 1400(b). Id. at 1578. Thus, the Federal Circuit broadened the scope of patent venue and held that venue was proper in a patent case wherever personal jurisdiction was proper -- a significant expansion. Id. at 1584.

Over time, certain districts (e.g., the Eastern District of Texas) gained reputations for being plaintiff-friendly in patent cases, and plaintiffs began to gravitate towards those courts. As this trend of forum shopping grew, so did criticisms against it. This tension came to a head in 2017. See TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S. Ct. 1514, 1517 (2017). In TC Heartland, the Supreme Court reverted back to the narrow interpretation held in Fourco and reaffirmed that "[a] domestic corporation 'resides' only in its State of incorporation for purposes of the patent venue statute." TC Heartland, 137 S. Ct. at 1517; see Fourco, 353 U.S. at 228.

Now, the focus has largely shifted to the second prong of 1400(b) -- specifically, what constitutes a "regular and established place of business"? Indeed, in the age of modern technology, it is not always clear.

In 2017, the Federal Circuit set out three requirements for a regular and established 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." In re Cray Inc., 871 F.3d 1355, 1360 (Fed. Cir. 2017) (granting writ of mandamus because a single employee working from home did not constitute a regular and established place of business).

However, the Cray test did not definitively answer all questions, and district courts have disagreed on whether a company's server located in a third-party data center can constitute a regular and established place of business for patent venue purposes. See, e.g., Personal Audio, LLC v. Google, Inc., 280 F. Supp. 3d 922, 934 (E.D. Tex. 2017) (server does not constitute a regular and established place of business); SEVEN Networks, LLC v. Google LLC, 315 F. Supp. 3d 933 (E.D. Tex. 2018) (server does constitute a regular and established place of business).

Moreover, the Federal Circuit declined to address the issue when Google petitioned for a writ of mandamus seeking dismissal in SEVEN -- the court denied the petition (over a dissent by Judge Jimmie Reyna), explaining that the issue did not warrant mandamus action. See In re Google LLC, 2018-152 (Fed. Cir. Oct. 29, 2018). Google also filed a petition for panel rehearing and rehearing en banc, but the court denied rehearing. In re Google LLC, 914 F.3d 1377 (Fed. Cir. 2019). Significantly, Judge Reyna dissented again (joined by Judge Pauline Newman and Judge Alan Lourie), arguing that the court's decision failed to address "a critical issue that increasingly affects venue in legal actions involving e-commerce." Id. at 1378 (Reyna, J., dissenting).

Recently, this issue reappeared before the Federal Circuit when the Eastern District of Texas denied Google's motion to dismiss for lack of venue in Super Interconnect Technologies LLC v. Google LLC, 2:18-CV-00463-JRG (E.D. Tex. Aug. 7, 2019). Again, Google petitioned for a writ of mandamus dismissing the case, based on the same argument that its servers did not constitute a regular and established place of business.

This time, the Federal Circuit granted mandamus. In re Google, 2019-126 (Fed. Cir. Feb. 13, 2020). Unlike before, the court decided that mandamus was appropriate in light of the growing disagreement among district courts, and in applying the three-step test from Cray, the court noted that a "'regular and established place of business' requires the regular, physical presence of an employee or other agent of the defendant conducting the defendant's business as the alleged 'place of business.'" Id. at *3-*5. Thus, since the only individuals physically present at Google's servers conduct maintenance as opposed to carrying out Google's business, the Federal Circuit held that venue based solely on Google's servers, located in a third-party server farm, was improper. Id. at *8.

Notably, though, despite concurring in the judgment, Judge Wallach highlighted the possibility of "Google's end users becom[ing] agents of Google in furtherance of its business by virtue of voluntarily or involuntarily sharing information generated on Google's servers." Id. (Wallach, J., concurring). Thus, the question of whether a server can constitute a regular and established place of business for patent venue purposes arguably remains open, and there consequently remains some uncertainty for litigants. At minimum, the overall scope of patent venue remains in flux.

Cases like TC Heartland and Cray have clearly kept the scope of Section 1400(b) quite narrow. Arguably, such a restrictive approach in requiring a "physical place" as well as a "place of the defendant" does not take into account the way business is conducted in today's world. With cloud-based computing and remote employees working across the country becoming quite common, it seems overly simplistic to restrict patent venue to a corporation's state of incorporation or a physical place of business.

On the other hand, does Section 1400(b) really contemplate that a server, located in a data center owned by a third-party, should subject its owner to a patent lawsuit by constituting a regular and established place of business? For now, it seems that the answer is no, and the Federal Circuit has indicated that it will continue to take a restrictive approach to patent venue. In re Google LLC at *7. But as Judge Wallach notes, "it may be that under the analysis ... Google is indeed doing business at the computer of each of its users/customers." Id. at *8. Indeed, if the courts buy into this theory, we may see a significant re-expansion of patent venue rules before the year is up. 