IP Law Daily Texas court’s refusal to transfer venue was abuse of discretion
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Thursday, September 21, 2017

Texas court’s refusal to transfer venue was abuse of discretion

By Mark Engstrom, J.D.

The federal district court in Marshall, Texas, abused its discretion in denying a motion by supercomputer manufacturer Cray Inc. to transfer venue in a patent infringement suit brought by Raytheon Company, the U.S. Court of Appeals for the Federal Circuit has ruled. Because Cray did not maintain a regular and established place of business in the Eastern District of Texas, venue there was improper under 28 U.S.C. §1400(b). Mandamus relief was granted to Cray, the decision of the district court was vacated, and the district court was ordered to grant Cray’s motion to transfer the case to an appropriate forum (In re Cray Inc., September 21, 2017, Lourie, A.).

Cray, a Washington corporation with its principal place of business in that state—and with facilities in Bloomington, Minnesota; Chippewa Falls, Wisconsin; Pleasanton and San Jose, California; and Austin and Houston, Texas—sought mandamus relief from an order of the Eastern District of Texas, which denied Cray’s motion to transfer Raytheon’s infringement suit to Wisconsin.

Cray did not rent or own an office or property in the Eastern District of Texas, but it allowed two employees—Douglas Harless and Troy Testa—to work remotely from their homes in that district. Testa worked for Cray as a senior territory manager while he resided in the district from 2010 to 2011 (before the underlying suit was filed), and Harless worked as a "sales executive" for approximately seven years.

According to the Federal Circuit, the district court "misunderstood the scope and effect" of In re Cordis Corp., 769 F.2d 733 (Fed. Cir. 1985), and the district court’s "misplaced reliance on that precedent led the court to deny the motion to transfer," which was an abuse of discretion. Although the law was "unclear" and the error of the district court was "understandable," the district court had applied an incorrect legal standard.

The only question before the Federal Circuit was whether Cray had a "regular and established place of business" in the Eastern District of Texas, within the meaning of §1400(b). The court noted that Federal Circuit law, rather than regional circuit law, governed its analysis of §1400(b), which required that "a defendant ha[ve]" a "place of business" that was "regular" and "established." Each of those requirements had to be present. According to the Federal Circuit, the district court "fail[ed] to inform each of the necessary requirements of the statute" because its "four-factor test" was insufficiently tethered to the statutory language.

The primary dispute concerned whether Harless’s home, located in the Eastern District of Texas, constituted a "regular and established place of business" for Cray. According to the Federal Circuit, the facts of record could not support that finding. The same was true for Testa, to the extent that he was relevant to the court’s analysis. The fact that Cray permitted its employees to work from the Eastern District of Texas was insufficient to establish a regular and established place of business in that district.

There was no indication that Cray owned, lease, or rented any portion of Harless’s home in the Eastern District of Texas, the court explained, and no evidence indicated that Cray had played a part in selecting that location, had stored inventory or conducted demonstrations there, or had conditioned Harless’s or Testa’s employment or support on the maintenance of a location in the Eastern District of Texas. Finally, no evidence showed that Cray believed that a location within the Eastern District of Texas was important to the business that Cray performed, or that Cray had any intention of maintaining a place of business in that district if Harless or Testa terminated their residences as a place where they conducted business.

For purpose of §1400(b), it was "of no moment that an employee may permanently reside at a place or intend to conduct his or her business from that place for present and future employers," the court stated. Moreover, Raytheon did not indicate that Harless or Testa served Cray’s customers in the Eastern District of Texas. And unlike in Cordis, where the appellant had received secretarial services from a third-party that was located within the district, all of Cray’s expense reimbursements and administrative support for its employees were provided from outside of the district. Raytheon’s remaining arguments were similarly unavailing.

The court’s decision comported with other appellate court decisions regarding employees who worked from their homes, the court observed. Taken together, the facts of record could not support a finding that Cray had established a place of business in the Eastern District of Texas. Venue there was therefore improper under §1400(b).

Cray sought a transfer to the Western District of Wisconsin, but Raytheon preferred a transfer to the Western District of Texas. Because the district court found that venue was proper in the Eastern District of Texas, it did not address the parties’ arguments regarding the appropriate venue for any transfer. The Federal Circuit left that determination to the district court on remand.

The case is No. 2017-129.

Attorneys: David Keith Tellekson (Fenwick & West LLP) for Cray Inc. Thomas J. Filarski (Steptoe & Johnson, LLP) for Raytheon Co. Mike McKool (McKool Smith, PC) for Ericsson Inc. and Nokia USA Inc.

Companies: Cray Inc.; Raytheon Co.; Ericsson Inc.; Nokia USA Inc.

MainStory: TopStory Patent FedCirNews

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