From the outset, it was unclear to what extent the Supreme Court's recent holding in TC Heartland LLC v. Kraft Foods Groups Brands LLC, 137 S. Ct. 1514 (2017), would change the landscape of patent filings in Texas—and more particularly the Eastern District of Texas. Some initial news reports following the decision claimed that the Eastern District of Texas was finished as a patent venue, while others cautioned patience and counseled against premature reports of the Eastern District's demise.

Such uncertainty arose because TC Heartland resolved only one of the two prongs of the patent venue statute. The exclusive patent venue statue, 28 U.S.C. § 1400(b), provides that “[a]ny civil action for patent infringement may be brought in the judicial district where [1] the defendant resides, or [2] where the defendant has committed acts of infringement and has a regular and established place of business.” The TC Heartland decision confirmed that a corporate defendant “resides” in its state of incorporation for the purposes of patent venue. The decision, however, was silent on what constitutes a corporation's “regular and established place of business.” So an expected wave of argument regarding the scope and boundaries of this prong began nationwide—an argument that continues to play out.

Initially, district courts grappled with the scope of this “regular and established place of business” requirement, with some holding that the requirement would be tantamount to “minimum contacts” for personal jurisdiction or “doing business” for general venue. In November, however, the Federal Circuit rejected these approaches in In re Cray, 871 F.3d 1355 (2017), a mandamus petition out of the Eastern District of Texas. There, the Federal Circuit rejected any attempts to conflate the place of business requirement with the tests for personal jurisdiction or general venue. Instead, the Federal Circuit established a three-part test—a “regular and established place of business” must (1) be a physical place in the district; (2) be a regular and established place of business, and (3) be the place of the defendant.

Under the facts of Cray, where the defendant did not own or lease any real estate in the Eastern District of Texas but instead had a single work-at-home employee within the district, this test was not met and venue was improper. Under the Federal Circuit's test, the “place” at issue must be “of the defendant.” A residence wholly owned by a work-at-home employee is not a “place of the defendant.” This was recently confirmed by a district court in Uniloc USA, Inc. v Nutanix, Inc., Case No. 2:17-cv-174 (E.D. Tex. Dec. 6, 2017). There the court found that even 19 work-at-home employees in the venue were insufficient to create a regular and established place of business “of the defendant.”

While those courts that have weighed in on work-at-home employees have come to similar conclusions, it remains to be seen what factors—if any—may complicate this analysis. Different conclusions might be reached in the future should, for instance, at-home employees accompany a corporate “virtual office” in a venue. Virtual office services, which may be favored by technology or internet start-ups, often supply a corporate mailing address. While the physical space may be owned by the company supplying the office services, the terms of any lease or agreement associated with such services may be sufficient for a court to deem it a “place of the defendant” for venue purposes. At the very least, this remains an open question for the courts.

The current state of the law is also less clear for places of business that are not “of the defendant” but nonetheless bear some corporate affiliation with the defendant. At least one court has recognized that this is an unsettled question and that a place of business for an affiliate, alter ego, or agent may be enough to create a regular and established place of business.

In Bristol-Myers Squibb Co. v. Aurobindo Pharma, USA Inc., Case No. 1:17-cv-374 (D. Del. Nov. 28, 2017), the court recognized that the Federal Circuit's decision in Cray did not specifically address whether a physical place of an affiliate, alter ego, or agent could be attributed to a defendant for venue purposes. For example, a physical place of a corporate affiliate or subsidiary might be established or ratified by defendant, or controlled in some other manner by the defendant. Such a case would be distinguishable via the typical situation of a work-at-home employee. The court in Bristol-Myers also went on to note that the operation of an “alter ego or a sham entity” would likely be attributable to the defendant. At the very least, the court permitted discovery into these questions and the corporate formalities at play—a process that is still ongoing in that case.

As can be expected, the question of whether corporate formalities will be upheld or ignored will be highly fact-specific, and at least one court has taken on this analysis very recently. In West View Research, LLC v. BMW North America, LLC, Case No. 16:cv-2590 (S.D. Cal Feb. 5, 2018), the court found venue improper in Southern California in favor of BMW. While BMW indisputably had dealerships in Southern California, those dealerships were distinct corporate entities. Even though BMW exercised some modicum of control over those dealerships via their operating agreements, BMW had no ownership stake in the dealerships and the court found no evidence that they operated as an alter ego for BMW. Accordingly, venue was improper as BMW had to other operations in the venue—save for a single work-at-home employee, which as discussed above is not sufficient.

This area of the patent venue dispute, however, is currently evolving. Going forward, it is likely that the nature and extent of corporate ties and formalities will be examined closely by courts to determine whether the defendant has a place of business in the plaintiff's chosen venue.

Michael Bittner is an intellectual property litigation partner in the Dallas office of Winston & Strawn. He can be reached at [email protected].