IP Law Daily Court addresses patent venue statute burden of proof in wake of TC Heartland
Wednesday, December 6, 2017

Court addresses patent venue statute burden of proof in wake of TC Heartland

By Pete Reap, J.D., LL.M.

In a patent infringement suit brought by Personal Audio against Google in the Eastern District of Texas, the federal district court in Beaumont, Texas, addressed both the burden of proof under the federal venue state Section 1400(b), and the proper date from which venue should be analyzed, concluding that the interests of justice required transfer of the action to the Delaware district court in which Google is headquartered. The court held that, following the Supreme Court’s decision in TC Heartland, in patent infringement suits the burden of proof to show that venue is proper is on the plaintiff, and that the venue facts are to be examined as of the date the suit is filed (Personal Audio, LLC v. Google, Inc., December 1, 2017, Clark, R.).

On September 15, 2015, Personal Audio, LLC sued Google, Inc., claiming that the Google Play music application infringes United States Patent Nos. 6,199,076 and 7,509,178. On May 5, 2017, the court denied a motion to dismiss filed by Google, concluding that venue was proper in the Eastern District of Texas, based on the 1990 decision in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990). That case held that "resides" in 28 U.S.C. §1400(b) should be interpreted in light of 28 U.S.C. §1391, which has a broad definition of where a corporation resides.

17 days later, the Supreme Court issued the TC Heartland opinion, which abrogated VE HoldingTC Heartland reaffirmed much older precedent that held that Section 1400(b) "is the sole and exclusive provision controlling venue in patent infringement actions, and is not to be supplemented by § 1391(c)." TC Heartland, 137 S. Ct. at 1519. As a result, venue in a patent case is again proper in a district only where (a) a defendant is incorporated, or (b) a defendant has committed acts of infringement and has a "regular and established place of business."

Days after TC Heartland issued, Google renewed its motion to dismiss. On September 27, 2017, Personal Audio responded to Google’s Motion. The parties then discussed the impact of In re Cray Inc., 871 F.3d 1355 (Fed. Cir. Sept. 21, 2017), the Federal Circuit’s first decision discussing TC Heartland.

Section 1400(b) and governing law. Google’s Motion was based on Section 1400(b), which limits where a plaintiff is "allowed" to bring a patent infringement action, the court noted. See TC Heartland, 137 S. Ct. at 1517. It is a statute that is to be narrowly construed as written.

Accepting that Section 1400(b) is to be narrowly construed, the court must also determine whether to apply Federal Circuit law, or the law of the regional circuit, to the issues of burden of proof and the evidence to be considered. Section 1400(b) applies on its face only to patent actions. It is a patent-specific statute that has an essential relationship to matters committed to the Federal Circuit’s exclusive control. Thus, Federal Circuit law, rather than regional circuit law, governs our analysis of what Section 1400(b) requires.

Burden of proof. There is no Federal Court decision assigning the burden of proof in a Section 1400(b) matter. However, Circuit Court opinions issued in patent cases before the creation of the Federal Circuit are persuasive, according to the court. Although the Federal Circuit has not explicitly stated that the burden lies with the plaintiff in a Section 1400(b) motion to dismiss for improper venue, that is the logical implication to be drawn from the only case before Cray in which the Federal Circuit considered whether a defendant had a "regular and established place of business."

The court was unable to find any Circuit Court case holding that in a Section 1400(b) motion to dismiss based on improper venue, the burden of proof is on the movant, so long as the motion was timely filed. Here, Google timely raised the issue by asserting that Personal Audio had chosen a venue that was not permitted under Section 1400(b). The consistent assignment of burden of proof to the plaintiff in Section 1400(b) cases decided by Circuit and district courts before the creation of the Federal Circuit and before the Federal Circuit’s opinion in VE Holding carried greater weight than broad pronouncements on general venue concepts or other venue statutes, the court opined. The court concluded as a matter of law that the burden to show that venue was proper was then on Personal Audio, the plaintiff in this case.

Date from which venue is analyzed. The parties dispute whether venue should be analyzed based on facts and circumstances that exist at the time that the underlying cause of action accrued, or based on facts and circumstances that exist at the time that suit is filed. This was another close question, the court observed.

The language of Section 1400(b) limits the date the suit is "brought" to a date the defendant "resides" or "has a regular and established place of business" in the district. "Bringing" a civil action refers to the act of filing a complaint. The term "resides" is in the present tense. The phrase "the defendant has committed acts" applies to past acts. But the phrase "where the defendant has a regular and established place of business" is in the present tense. Congress could have used "has had a regular and established place of business" but chose not to do so, in the court’s view. Likewise, Congress did not tie venue to any jurisdiction in which a cause of action had accrued. Applying strict statutory construction, venue under Section 1400(b) should be analyzed based on the facts and circumstance that exist on the date suit is filed, the court held.

September 15, 2015, the date the suit was filed, was the relevant date for the venue analysis. Events occurring prior to the filing of suit are irrelevant except to the extent they could logically help prove a continuous presence up to September 15, 2015.

Venue is improper in the Eastern District of Texas. Google is incorporated in Delaware, which is not in the Eastern District of Texas. The first prong of Section 1400(b) could not be satisfied.

Both parties dedicated substantial portions of their briefs to discussing an office space in Frisco, Texas, allegedly belonging to Google. It was uncontested that Google leased the office space in Frisco in November 2011. It was also uncontested that Google closed the office and that there were no Google employees located there as of December 2013. Personal Audio presented no evidence that Google held it out as a place of regular business past December 2013. Finally, it was uncontested that Google canceled the lease on the office space in Frisco on August 31, 2015.

There is a Collin County tax document showing that Google potentially paid personal property taxes on items located at the 6175 W. Main St. property in 2015 and 2016. However, paying taxes on personal property located at an office in Frisco that Google rents to another company did not alone, or in conjunction with other evidence before the court, establish that there was a "regular and established place of business" there under Cray, the court reasoned.

The court did not accept Google’s weak attempts to parse the kind of business that it operated at the office from November 2011 to December 2013. The court refused to read into Section 1400(b) a requirement that defendant’s "main" or "central" business is at the location. From a preponderance of the evidence presented, Google operated the office as a regular and established place of business between November 2011 and December 2013, the court determined. The court also found that there was insufficient evidence for Personal Audio to carry its burden of proving that Google had a "regular and established place of business" in Frisco on September 15, 2015.

Personal Audio contended that "a series of electronic data warehousing and distribution servers" referred to as Google Edge Nodes or Google Global Cache (GGC) established a "regular and established place of business" in this District. The court did not agree. The GGC servers are not "places" under the meaning of the statute and therefore cannot establish a regular and established place of business in this district. The court was also not persuaded that Google exercised sufficient control, if any, over those severs at the time of filing suit, meaning that they could not satisfy the third requirement of Cray, that the place be "of the defendant."

Personal Audio contended that "Google has numerous employees who live and work in the Eastern District of Texas" and from that, argued that these individuals helped demonstrate a "regular and established place of business" for Google in this district. Google’s argument about individual Google employees did not pass muster under the requirements set out by the Federal Circuit in Cray, the court said.

Transfer. A court may sua sponte transfer a case which was filed in the improper district to a district where venue is proper. 28 U.S.C. §1406(a). While this case had not even had a claim construction hearing, it had already dragged on for years. Personal Audio will, more likely than not, be unfairly prejudiced by having to re-file and relinquish three years of potential damages pursuant to Section 286 of the Patent Act, which limits damages to those incurred during the six years before the date on which suit is filed, according to the court. A transfer to a known proper venue would not appear to prejudice Personal Audio. Thus, the interest of justice would be served by transfer.

The case is No. 1:15-cv-00350-RC.

Attorneys: William Morrison Parrish (Hardy Parrish Yang LLP) for Personal Audio LLC. Jeannine Y. Sano (White & Case, LLP) for Google, Inc.

Companies: Personal Audio LLC; Google, Inc.

MainStory: TopStory Patent TexasNews

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