Source: https://litigation.consusgroup.com/2017/06/30/the-edtx-empire-strikes-back-raytheon-company-v-cray-inc-stuck-in-edtx/
Timestamp: 2019-04-23 06:47:41+00:00

Document:
06-30-2017 – Following the Supreme Court’s defendant-friendly ruling in TC Heartland, Cray tried to move the litigation out of the Eastern District of Texas. Judge Gilstrap is having none of it.
“management of key accounts within the Financial, BioMedical and Petroleum Industries.” Id.
In addition, Cray sold an accused XC40 supercomputer to the University of Texas System.
1 Cray failed to meet its discovery obligations in this case. The Court’s Discovery Order requires parties to, “without awaiting a discovery request,” “produce or permit the inspection of all documents, electronically stored information, and tangible things in the possession, custody, or control of the party that are relevant to the pleaded claims or defenses involved in this action.” (Dkt. No. 28 ¶ 3(b).) Cray not only failed to disclose several relevant documents while briefing the original Motion to Dismiss under § 1406, but has also failed to disclose documents contradicting Cray’s assertions in the current Motion at issue before this Court. (Dkt. Nos. 21, 25, 69, 256). See also (Dkt. No. 265, Stringfield Decl.
Cray’s objection to the Court’s Report and Recommendation, and after Judge Gilstrap adopted the Court’s Report and Recommendation on September 23, 2016″). For example, one of Cray’s declarations states that “Cray’s employee records indicate that, of [Cray’s] employees, only a single employee—Douglas Harless—resides in the Eastern District of Texas.” However, independent outside research by Raytheon revealed that from 2010 to 2011, Mr. Troy Testa resided in and worked for Cray as a senior territory manager within the Eastern District of Texas. (Dkt. No. 265, Stringfield Decl. ¶ 2.) Even Cray’s 30(b)(6) designee acknowledged the existence of relevant, unproduced documents. One example of these documents is an internal Cray document outlining an employee’s sales territory. (Dkt. No. 265, Ex. G at 154:4–159:22) (“Q. Compensation plan? A. Yes. In compensation plans, we outline [an employee’s] territory or their assignments. Q. Where would Mr. Harliss’s [sic] compensation plan be maintained? A. I believe it’s in Seattle, online in Seattle with our human resources department.”).
which is listed on Cray’s invoices to customers and emails to clients, has an area code associated with several counties in this District. (Dkt. No. 265 at 4; Dkt No. 265, Springfield Decl. ¶¶ 6–7.) Mr. Harless has been identified as the account manager for at least twenty-one separate sales of the accused products to nine different customers. (Dkt No. 265, Springfield Decl. ¶¶ 8–9.) The revenue for the accused sales attributed to Mr. Harless exceeds $345 million. Id. In addition to receiving a salary for his sales activities at Cray, Mr. Harless received reimbursement for (1) his cell phone used for business purposes; (2) Internet fees; and (3) mileage or other costs for business travel. (Dkt. No. 265 at 6; Dkt. No. 256, Hoelzeman Decl. ¶¶ 4–5.) Although Cray did not pay for any secretarial or support staff, Mr. Harless received direct “administrative support” from Cray’s Minnesota office such that Mr. Harless could continue to work from his home office. (Dkt. No. 256, Hoelzeman Decl.
¶ 5.) Under this arrangement, Mr. Harless was able to sell products to customers both within Texas and across the nation. At the time the Complaint was filed, Mr.
Eastern District of Texas. From 2010 to 2011, Cray employed Mr. Troy Testa as a “Sr. Territory Manager.” (Dkt No. 265, Springfield Decl. ¶ 2.) Like Mr. Harless, Mr. Testa resided in this District and sold Cray’s HPC systems. Id. ¶¶ 2–3. Mr. Testa “[s]old [a] $132,000 system at [a] 41% margin” within three months of joining Cray; “[c]losed six new customers in [his] first year[,] including Areva, Amgen and Weir Oil;” and “[h]ad a pipeline of over $6,000,000 on a $2,500,000 quota” for Cray, all while he resided in the Eastern District of Texas. Id.
Grp. Brands LLC, 137 S. Ct. 1514 (2017). (Dkt. No. 256.) Cray asserts that venue is improper because (1) Cray does not “reside” in this District; and (2) Cray has not committed acts of infringement and does not have a regular and established place of business within this District.
“Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” 28 U.S.C. § 1400(b) (2012); TC Heartland, 137 S. Ct. at 1519 (“§ 1400(b) ‘is the sole and exclusive provision controlling venue in patent infringement actions.'” (quoting Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 229 (1957))). If venue is not proper, a defendant may move to dismiss the case or transfer it to a district in which the case could have been originally brought. Fed. R. Civ. P. 12(b)(3); 28 U.S.C. § 1406(a).
Under the general venue statute, which defines residency “[f]or all venue purposes,” a domestic corporation resides “in any judicial district in which such defendant is subject to the court’s personal jurisdiction.” 28 U.S.C. § 1391(c). However, the Supreme Court has held that this statute is inapplicable in patent infringement cases. TC Heartland, 137 S. Ct. 1514 at 1519.
While § 1400(b) does not define the word “resides,” the Supreme Court in Fourco Glass Co. v. Transmirra Products Corp. concluded that, under § 1400(b), a domestic corporation resides only in its state of incorporation. 353 U.S. at 226; TC Heartland, 137 S. Ct. at 1521.
Even if a domestic corporation does not reside in the district in which the case is filed, venue remains proper if the domestic corporation has committed acts of infringement and has a regular and established place of business within the district. 28 U.S.C. § 1400(b).
Fifth Circuit have been inconsistent in allocating the burden of proof” in venue disputes).
Inc., 84 F.3d 1408, 1410 (Fed. Cir. 1996) (noting that “venue is based on the facts alleged in the well-pleaded complaint”).
Panhandle E. Pipe Line Co.
(concluding that the right to object to venue is a “privilege” afforded to defendants that must be “asserted . . . seasonably”). Thus, courts have reasoned that because a plaintiff need not plead venue facts, the plaintiff should not bear the burden to establish proper venue. Myers, 695 F.2d 716, 724 (3d Cir. 1982) (“‘[I]t is not necessary . . . for the plaintiff to include allegations showing the venue to be proper.’ . . . It logically follows therefore that on a motion for dismissal for improper venue under Rule 12 the movant has the burden of proving the affirmative defense asserted by it.” (quoting Fed. R. Civ. P. Form 2, Advisory Committee note 3)).
This Court declines to hold whether the burden of proof, in asserting venue, lies with the plaintiff or the defendant. In the matter before the Court, the Parties have not disputed who bears this burden. However, even if the burden lies with the plaintiff, the Court finds that Raytheon has met that burden based on the facts alleged in the complaint and the evidence raised by Raytheon during discovery.
San Shoe Trading Corp. v.
Converse Inc., 649 F. Supp. 341, 345 (S.D.N.Y. 1986); Datascope Corp. v. SMEC, Inc., 561 F. Supp. 787, 789 (D.N.J. 1983), aff’d in relevant part, 776 F.2d 320 (Fed. Cir. 1985). The Court adopts this view.
The Court begins by examining both prongs of § 1400(b): (1) where the defendant resides; and (2) where the defendant has committed acts of infringement and has a regular and established place of business.
District within the meaning of § 1400(b).
Having found that Cray does not reside within the Eastern District of Texas, the Court now considers whether “the defendant has committed acts of infringement and has a regular and established place of business” in the Eastern District of Texas. 28 U.S.C. § 1400(b).
those acts in the district is sufficient to satisfy this requirement of the venue statute.
Cray argues: (1) the sale of an accused XC40 supercomputer to the University of Texas was not an “act of infringement” within the Eastern District of Texas because the system was delivered and installed at the University of Texas’s Austin campus; and (2) Mr. Harless did not commit acts of infringement because Mr. Harless did not make sales or offers to sell to customers in the Eastern District of Texas.
conduct infringes the accused products is an ultimate question on the merits, not one that can, or should, be decided on a motion to dismiss for improper venue. See Astute Tech., LLC v. Learners Digest Int’l LLC, No. 2:12-CV-689-WCB, 2014 WL 12596468, at *5 (E.D. Tex. Apr. 28, 2014) (Bryson, J.). Accordingly, the Court will not address, at this point, whether Cray induced infringement of the Asserted Patents. Rather, the Court will accept Raytheon’s allegation that Cray induced users in this District to infringe the Asserted Patents. That conduct is sufficient to constitute an “act of infringement” under § 1400(b). See Funnelcap, 392 F. Supp. at 943.
Cyberinfrastructure (UTRC) initiative, sponsored by The University of Texas System, as well as partner institutions Texas Tech and Texas A&M.
(Dkt. No. 22-34, Ex. 33 at 4 n.1) (emphases added). The evidence cited demonstrates that Cray’s conduct and relationship with the University of Texas System, which includes established locations in this District, is sufficient to constitute an act of induced infringement within the District for purposes of venue.
Cray also asserts that Mr. Harless’s “offers to sell” the accused products while working in this District are not acts of infringement because he did not make any offers to customers within this District. (Dkt. No. 256 at 10–11.) However, Cray’s “offers to sell” are not limited to the location of where an HPC product might ultimately be installed—especially where the buyer is a university system comprised of multiple locations and intends all parts of the system to use and enjoy the product or service purchased.
Court’s holding does not address or extend to the “offer to sell” context.
Halo, 831 F.3d at 1377 (“[U]nder North American Philips, a sale may occur at multiple locations, including the location of the buyer, for purposes of personal jurisdiction.”).
“originate from Cray’s corporate office in Minnesota.” (Dkt. No. 256 at 8; Dkt. No. 256, Morreale Decl. ¶¶ 3–5.) However, Mr. Harless’s price quotations to his customers include the date of the quotation, the expiration date for the quotation, a description of the product sold, the quoted price, the account executive of the sale, and a section that indicates who prepared the quotation. (Dkt. No. 265, Ex. E.) Mr. Harless is listed as the account executive of the potential customer and the representative who prepared the quotation. Id. In addition, Mr. Harless’s “903” office telephone number and his email are listed in the “Quotation prepared by” section of the quotation. Id. Mr. Harless, on behalf of Cray, communicated a manifestation of willingness to enter into a bargain through the price quotations he sent to potential customers. See MEMC Elec. Materials, Inc. v. Mitsubishi Materials Silicon Corp., 420 F.3d 1369, 1376 (Fed. Cir. 2005) (holding that an “offer to sell” occurs when one “communicate[s] a manifestation of willingness to enter into a bargain, so as made as to justify another person in understanding that his assent to that bargain is invited and will conclude it”). Mr. Harless’s price quotations are “offers to sell” on behalf of Cray. See 3D Sys., Inc. v. Aarotech Labs., Inc., 160 F.3d 1373, 1379 (Fed. Cir. 1998) (“As a matter of federal statutory construction, the price quotation letters can be regarded as ‘offer[s] to sell’ under § 271 based on the substance conveyed in the letters, i.e., a description of the allegedly infringing merchandise and the price at which it can be purchased.”).
that these were sales from Minnesota and not his own.
Corp., 258 F. Supp. 598, 602 (W.D. Okla. 1966); Jeffrey Galion, Inc. v. Joy Mfg. Co., 323 F. Supp. 261, 266–67 (N.D. W. Va. 1971). Other courts, however, have reached the opposite conclusion, holding that “the regular and established place of business need not be the business connected with the alleged patent infringement.” Ferguson v. Ford Motor Co., 77 F. Supp. 425, 436 (S.D.N.Y.
Nothing in the language of Section 1400(b) justifies the conclusion that a defendant’s place of business in the district must have some connection with the accused device. The statute requires only that the defendant have committed acts of infringement in the district and have a regular and established place of business there; there is no requirement that the two factors be related.
v. Chicago Wood Finishing Co., 180 F. 770, 771 (C.C.S.D.N.Y. 1910) (Hand, J.) (“Even if they committed no act of infringement there, it would still be a place of business within the act, which clearly differentiates between the two.”).
The Fifth Circuit addressed this issue in Gaddis v. Calgon Corp., 449 F.2d 1318 (5th Cir.
and established place of business present in the District.” 449 F.2d at 1320. The Fifth Circuit instead held that the totality of the circumstances together “add[ed] up to enough to establish venue.” Id. at 1320. While this Court considers it proper to follow the courts that have held that the statute creates no relationship between the act of infringement and the regular and established place of business, the Parties in this case do not dispute whether Mr. Harless’s offers to sell are related to Cray’s regular and established place of business in the Eastern District of Texas.
Accordingly, the Court declines to act on this question at this time.
[exists] . . . .”).
Cir. 1961); Gen. Radio Co. v. Superior Elec. Co., 293 F.2d 949, 951 (1st Cir. 1961); Phillips v.
Baker, 121 F.2d 752, 756 (9th Cir. 1941); Warner-Lambert Co. v. C.B. Fleet Co., 583 F. Supp.
Coleco, 247 F. Supp. at 575.
Shelter-Lite, Inc. v. Reeves Bros., 356 F. Supp. 189, 195 (N.D. Ohio 1973) (“[A]n unyielding rule that a regular and established place of business cannot arise by virtue of a salesman operating out of his residence is at odds with the practicalities and necessities of the business community.”). The Federal Circuit resolved these competing authorities in In re Cordis Corp., 769 F.2d 733 (Fed. Cir. 1985).
Minnesota secretarial service, and phone calls to the number were answered “Cordis Corporation.” Id. Furthermore, the two employees stored Cordis literature, documents, and products in their home offices. Id. Although Cordis was not registered to do business in Minnesota and did not own or lease property in the state, the accused products could be ordered directly from the Florida office or through a Minnesota sales representative. Id. In addition to sales, the two Cordis representatives also acted as technical consultants and were present in the operating room during a significant number of surgical implantations, provided post-implantation consultations, and gave presentations regarding technological developments. Id.
Based on these facts, the Federal Circuit denied Cordis’s petition for a writ of mandamus. Id. at 734. It ultimately concluded that “the appropriate inquiry is whether the corporate defendant does its business in that district through a permanent and continuous presence there and not . . . whether it has a fixed physical presence in the sense of a formal office or store.” Cordis, 769 F.2d at 737.
The facts in the present case closely parallel the facts in Cordis. At the time this case was filed, Mr. Harless worked exclusively for Cray as a sales executive in this District. (Dkt. No. 2236, Ex. 35). Cf. Tyler, 236 U.S. at 725 (finding that there was no regular and established place of business where the representative was also employed by another corporation which paid for the lease from which he maintained an office as representative of both corporations). Mr. Harless had been working full-time for Cray from within the Eastern District of Texas for over seven years.
While Mr. Harless did not have samples or products stored at his home, Cray admits that Mr. Harless could not do so because “the accused systems take up entire rooms and weigh thousands of pounds.” (Dkt. No. 256 at 8.) See Brunswick Corp. v. Suzuki Motor Co., 575 F. Supp.
in Cordis. (Dkt. No. 274 at 4.) See Cordis, 769 F.2d at 737.
The activities performed by Cray in this Court’s view are factually similar to the activities performed by the representatives in Cordis and therefore are sufficient to meet the “regular and established place of business” requirement of § 1400(b).
“regular and established place of business.” As a result, litigants have cited numerous cases, each of which seems to employ a different analysis as to whether a regular and established place of business exists in a particular case. The Court has also received a number of requests for venue related discovery. Litigants have further expressed uncertainty regarding the appropriate scope of such venue discovery.
“jumbled” and “irreconcilable” case law, one frustrated court noted: “We can discern nothing even remotely approximating a uniform approach in the case law to the problem of whether the activities of an employee (or employees) operating out of a home office constitute a ‘regular and established place of business’ . . . Nor can we discern any clear trend in the law over time or in the wake of Cordis.” Lace v. Lace, No. 89 C 0414, 1989 WL 103364, at *2 (N.D. Ill. Aug. 28, 1989).
business office. See, e.g., Herbert v. Diagnostic Prod. Corp., No. 85 CIV. 0856, 1986 WL 6781, at *2 (S.D.N.Y. June 10, 1986). This Court finds such factual minutia inappropriate. Such encourages both gamesmanship, as well as excessive and costly venue discovery. This ultimately amounts to a distraction from the merits of the case. As the Supreme Court’s recent admonition in Hertz Corp. v. Friend makes clear, administration of a threshold statute such as a venue statute should remain “as simple as possible.” 559 U.S. 77, 80 (2010).
“hard cases,” such as cases involving telecommuting via the Internet, the Court emphasized that the narrowed inquiry would at least “point courts in a single direction.” Id. at 95–96.
say today might be obsolete tomorrow.” Packingham v. North Carolina, No. 15-1194, 2017 WL 2621313, at *5 (U.S. June 19, 2017). Understanding this reality, it remains important to focus on a tailored set of factors promoting administrative simplicity, but remaining flexible enough to encompass future developments in technology. While these factors are not intended to supplant the statutory language, the Court views these factors as “a framework for the factual inquiry needed to ascertain coverage under the statutory scheme.” See Hall v. Dep’t of Treasury, 264 F.3d 1050, 1056 (Fed. Cir. 2001).
“advances in technology may alter the weight” given to the factors used in the 28 U.S.C. § 1404 convenience analysis). Regardless of the area of law, a consistent theme among courts is that the technological advances that foster growth and advancement in today’s business world cannot be ignored. With this theme in mind, the Court turns to the issue before it.
The following factors, gleaned from prior courts and adapted to apply in the modern era, serve two purposes. First, they focus the regular and established place of business analysis such that parties may address only the relevant facts of the case and avoid costly and far-flung venue discovery, wherever possible. Second, while promoting administrative simplicity, they nonetheless encompass the flexibility earlier courts found appropriate when interpreting the statutory text in light of diverse business structures and practices which evolve with advances in technology. In sum, these guideposts are intended to provide a tailored “totality of the circumstances” approach to venue, guided by the important goal of administrative simplicity.
Shelter-Lite, Inc. v. Reeves Bros., 356 F. Supp. 189, 195 (N.D. Ohio 1973) (“[A]n unyielding rule that a regular and established place of business cannot arise by virtue of a salesman operating out of his residence is at odds with the practicalities and necessities of the business community.”). Consistent with the reasoning of these earlier courts, this Court is persuaded that a fixed physical location in the district is not a prerequisite to proper venue. However, such a presence is a persuasive factor for courts to consider.
Other forms of physical presence may also help support a finding of a regular and established place of business, such as inventory or property in the district. See Hemstreet v. Caere Corp., No. 90 C 377, 1990 WL 77920, at *2 (N.D. Ill. June 6, 1990) (considering “whether inventory, demonstration equipment, or other property of the defendant corporation is kept within the district”). Facts supporting a physical presence could also include the presence of equipment or infrastructure that is owned (or leased) by a defendant and used to provide services to customers. Additionally, courts have considered the presence of employees in the district when determining whether a defendant has a regular and established place of business. See Cordis, 769 F.2d at 735. The Court is persuaded that any such type of physical presence in the district favors a finding that a defendant has a regular and established place of business in the district.
The question is whether the defendant had accepted [the representative’s] office as a place of business of their own—of such business as they might wish to do in the East. . . . In the face of their own advertisements, and of the representations that they allowed [the representative] to make, that he was their Eastern agent, they cannot with a good grace now deny that they had any business in the East at all, merely because most of their sales were concluded [elsewhere].
revenue from such business. See, e.g., Instrumentation Specialties Co. v. Waters Assocs., Inc., No.
“substantial annual sales” in the district).
brand strength and business goodwill by targeting particular communities in the district, with or without generating concurrent revenue. Such efforts may include localized marketing or sponsorships intended to promote the business. Many domestic corporations budget annual expenditures for “business development,” and the use of these funds within a particular district may be a reasonable area of inquiry. These types of localized customer interactions (through whatever means) weigh in favor of a finding that a defendant has a regular and established place of business in a district.
None of these factors should alone be dispositive, and other realities present in individual cases should likewise be considered. Courts should endeavor to determine whether a domestic business enterprise seeks to materially further its commercial goals within a specific district through ways and means that are ongoing and continuous. Such a conclusion should be driven by a fair consideration of the totality of the circumstances, and not by the siren call of bright line rules or an overt attachment to form.
changes. The above factors are included for such purposes. For the reasons stated above, the Court hereby DENIES Cray’s Motion to Transfer Venue Pursuant to § 1406 (Dkt. No. 265).
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