The New Battlefield: Regular and Established Place of Business

By: Gilbert Smolenski *| Guest Writer

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Under the patent venue statute, 28 U.S.C. § 1400(b), venue is proper: (1) where a defendant resides or (2) where a defendant has committed an act of infringement and has a regular and established place of business. From 1990 until May 22, 2017, “resides” was interpreted by the Federal Circuit to take on the same meaning as “resides” in § 1391(c). Therefore, so long as the court had personal jurisdiction over the defendant, venue was proper. On May 22, 2017, however, the United States Supreme Court reversed the Federal Circuit in TC Heartland v. Kraft Food Group Brands, holding that “resides” refers only to the state of incorporation for domestic corporations. This reasserted the Supreme Court’s earlier interpretation of “resides” from Fourco Glass Co. v. Transmirre Products Corp., and consequently opened the door to a new battlefield for patent litigation, specifically the meaning of “regular and established place of business.”

Due to the Federal Circuit’s interpretation of “resides” in 1990, the phrase “regular and established place of business” in § 1400(b) has not been litigated in 27 years. Historically, “regular and established place of business” focused on two factors: “whether the defendant paid for a physical office and whether its local sales representatives were authorized to consummate sales in the district.” While merely operating a business was insufficient, if the defendant owned property in the district, courts typically found venue was proper. The second factor’s analysis regarding sales representatives hinged on whether the defendant had a permanent and continuous presence in the district. Courts following the “permanent and continuous presence” standard often found proper venue when the defendant had an active sales representative who was acting out of their home. Although not directly adopted due to procedural reasons, the Federal Circuit noted preference to the “permanent and continuous presence” standard, and, as a result, the standard was adopted by a majority of districts prior to 1990.

Today, litigants are posed with the question: what does regular and established place of business, specifically permanent and continuous presence, mean in 2017? Over the past 27 years, business and commerce have drastically changed. For example, in 1990, the World Wide Web was invented and society was not nearly as connected as it is today. In 1990, social media and online shopping were non-existent, and e-mail was used by less than one million people. Thus, prior to 1990, it was difficult for businesses to have a national presence; in modern society, however, a sole proprietor has the capability of reaching consumers almost anywhere in the world.

Consequently, courts will have to deal with new factors in determining whether a defendant has established a “permanent and continuous presence” to warrant proper venue. Recently, a case out of the Eastern District of Texas has outlined four factors relevant to determining whether a defendant has a “regular and established place of business” under § 1400(b). The four factors include: (1) the defendant’s physical presence in the district; (2) the defendant’s representation about its presence in the district; (3) the benefits the defendant receives from the district; and (4) the defendant’s targeted interactions with the district. Similarly, a case in the District of Oregon outlined five similar factors that are relevant to the venue inquiry.

How courts will apply modern era facts to these factors is still to be determined.  Until the Federal Circuit or United States Supreme Court outline a clear test, it is likely plaintiffs will continue to push the limits of “regular and established place of business” to gain access to more plaintiff-favorable venues. While it is unlikely that courts will go as far as the personal jurisdiction standards, it appears that courts are willing to expand the definition of “permanent and continuous presence” and open more potential venues for plaintiffs. Ultimately, TC Heartland will not be as impactful as other United States Supreme Court patent cases.  But, in the meantime, it will certainly open a new battlefield in patent litigation.

Gilbert Smolenski is a second-year student at Wake Forest University School of Law.  This summer, he worked as a Summer Associate with Dority & Manning, an Intellectual Property (IP) firm in Greenville, SC, and with Nelson Mullins Riley & Scarborough, specifically with their IP group located in Charlotte, NC. Upon graduation, he intends to practice IP law.