Section 1400(b) provides that a plaintiff in a patent infringement suit may establish venue in one of two ways: venue is appropriate “in the judicial district where the defendant resides,” and it is also proper “where the defendant has committed acts of infringement and has a regular and established place of business.”
For the past three decades, the United States Court of Appeals for the Federal Circuit had held that Section 1391, which applies to venue generally, governs what it means for a defendant to “reside” in a judicial district. Under that broad understanding, venue was coextensive with personal jurisdiction. That holding obviated any need for reliance on the second prong—the “regular and established place of business” of Section 1400(b).
In TC Heartland LLC v. Kraft Foods Group Brands LLC,1 the U.S. Supreme Court reversed this longstanding precedent. It held that, for purposes of 28 U. S. C. § 1400(b), a domestic corporation “resides” only in its state of incorporation. Following TC Heartland, patent plaintiffs have placed significantly enhanced emphasis on the “regular and established place of business” prong of Section 1400(b).
Raytheon Co. sued Cray, Inc. in the Eastern District of Texas. Cray sought to transfer the action elsewhere. Citing the home office of one employee, Judge Rodney Gilstrap denied the motion to transfer. On September 21, 2017, the Federal Circuit granted a writ of mandamus and ordered the transfer of this case.
Writing for the court, Judge Alan Lourie (joined by Judges Jimmie Reyna and Kara Stoll) identified important standards that govern application of the “regular and established” venue prong. The court held that there are “three general requirements”: “(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.”
First, the court explained that there “must be a physical place in the district.” This excludes “a virtual space or  electronic communications from one person to another.” 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.” A physical place could include an employee’s home where the defendant uses it “to store its ‘literature, documents and products’ and in some instances, [functioning] distribution centers, storing inventory that the employees then directly took to clients.”
Second, the place of business must be “regular and established.” A place of business is “‘regular,’ for example, if it operates in a ‘steady[,] uniform[,] orderly[, and] methodical manner.’” By contrast, a one-time, sporadic or temporary location cannot create venue. Thus, the place “must be settled certainly, or fixed permanently.” For example, a business that semiannually displays its products at a trade show in the district has only a temporary presence and therefore lacks the “sufficient permanence” needed to be a regular and established place of business.2
Third, the location “must be a place of the defendant, not solely a place of the defendant’s employee.” (emphasis in the original.) As a result, the defendant “must establish or ratify the place of business.” In making this determination, courts should consider whether the defendant owns or leases the place or exercises other attributes of possession or control over it.3 When the location is an employee’s house, one relevant inquiry is whether the defendant conditioned employment on the employee’s continued residence in the district and whether the defendant required storing materials at the place in the district for future distribution or sale. It is also relevant whether the place is used for marketing or advertising but only to the extent that the defendant itself holds the place out as its place of business. Thus it is relevant whether the defendant lists the alleged place of business on a website, or in a telephone directory, or places its name on a sign on the building. “But 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; the defendant must actually engage in business from that location.”
The court cautioned that “[c]ourts 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.”
Applying this standard, the court concluded that the house of a Cray employee within the district did not constitute “a regular and established place of business” of defendant Cray because Cray did not own, rent or lease the home; Cray did not select its location or store inventory there; and there was no evidence that Cray sought a location within the district.
Cray is the first chapter in the Federal Circuit’s post-TC Heartland task of setting forth the appropriate limitations on the venue prong resting on a “regular and established place of business.” So long as patent plaintiffs continue to perceive advantage to bringing suits in certain jurisdictions (such as the Eastern District of Texas), parties will continue to explore the outer boundaries of what may qualify as a “regular and established place of business.” Cray is an early signal that the Federal Circuit will impose meaningful constraints on its reach.
Cray and its progeny will be closely watched by businesses that wish to proactively manage the venues in which they are subject to suit. Cray supplies clear guidelines for companies that wish to audit their existing venue exposure, and it provides some predictability to companies that consider venue implications when structuring their operations.
1 TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S.Ct. 1514, 1517 (2017). TC Heartland reaffirmed Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 226–229 (1957), holding § 1400(b) is “the sole and exclusive provision controlling venue in patent infringement actions” and “is not to be supplemented by the provisions of 28 U.S.C. § 1391(c).”
2 The court explained that “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.”
3 The court recognized 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.” Likewise, a defendant’s having a business model whereby many employees’ homes are used by the business might satisfy this statutory requirement.