An Abandoned Office May Constitute a “Regular and Established Place of Business”

March 20th, 2018

The United States District Court for the Middle District of Florida recently held that venue for a patent infringement lawsuit was proper even though the defendant closed its regular and established place of business in that judicial district “weeks before suit was filed,” reasoning that the delay in filing the complaint was not unreasonable. ParkerVision, Inc. v. Apple, Inc., No. 3:15-cv-1477-J-39JRK, slip op. at 16 (M.D. Fla. Mar. 8, 2018).

Under 28 U.S.C. § 1400(b) (1999), venue is proper in a patent infringement action “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.” Therefore, § 1400(b) sets forth two alternative tests for venue in patent infringement lawsuits and venue is proper if either test is satisfied.

In ParkerVision, defendant Qualcomm filed a motion to transfer the lawsuit to the Southern District of California, contending that venue was improper under § 1400(b). ParkerVision, slip op. at 4.

Regarding the “residence” test for venue in a patent infringement action, the Supreme Court recently overturned years of precedent by holding that a domestic corporation resides only in its state of incorporation. TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S. Ct. 1514, 1521 (2017). Notably, in ParkerVision, Qualcomm’s state of incorporation was Delaware. Parkervision, slip op. at 9 n.3. Thus, in light of the TC Heartland holding, the parties agreed that the defendants did not “reside” in the Middle District of Florida. Id., slip op. at 8-9. Therefore, the court noted that venue would be proper only if the alternative venue test in § 1400(b) is satisfied. Id.

Such alternative venue test has two prongs: 1) “the defendant has committed acts of infringement” in the judicial district; and 2) the defendant “has a regular and established place of business” in the district. 28 U.S.C. § 1400(b) (1999). Regarding the first prong, the court in ParkerVision noted that “‘an allegation of infringement – even if contested – is sufficient to establish venue is proper’ for the purposes of Section 1400(b).” ParkerVision, slip op. at 17 (quoting Intellectual Ventures II LLC v. FedEx Corp., No. 2:16-CV-00980-JRG, 2017 U.S. Dist. LEXIS 193581, at *24 (E.D. Tex. Nov. 22, 2017)). In light of this standard, the court in ParkerVision held that the allegations in the complaint satisfy the first prong of the alternative venue test under § 1400(b). Id., slip op. at 18.

Regarding the second prong of the alternative venue test, Qualcomm asserted improper venue because it did not have a “regular and established place of business” in the Middle District of Florida when the complaint was filed. Id., slip op. at 7. In this regard, Qualcomm established that two corporate offices had previously been located in the Middle District of Florida, with the last office closing in November 2015—between two and six weeks prior to ParkerVision filing its complaint on December 14, 2015. Id., slip op. at 11.

Based on these facts, Qualcomm reasoned that venue was improper, citing Personal Audio, LLC v. Google, Inc., for the proposition that “venue is determined under § 1400(b) by the facts and situation as of the date suit is filed,” because § 1400(b) is written in the present tense. Id., slip op. at 12 (quoting Personal Audio, LLC v. Google, Inc., No. 1:15-CV-350, 2017 U.S. Dist. LEXIS 198937, at *19 (E.D. Tex. Dec. 1, 2017)). In Personal Audio, defendant Google had a place of business in the district until December 2013, and Personal Audio filed a complaint of patent infringement on September 15, 2015—21 months after Google’s business operations in the district had ceased. Personal Audio, 2017 U.S. Dist. LEXIS 198937, at *25. In holding that venue was improper in the district, the court reasoned that a 21-month delay between the closing of defendant’s business and the filing of the complaint was an “unreasonable delay.” Id.

Notably, Qualcomm’s line of reasoning appears to be supported by a textual interpretation of § 1400(b). See 14D Charles Alan Wright et al., Federal Practice and Procedure §3823 (4th ed. 2013) (“Section 1400(b) appears to require that the defendant’s place of business be in the chosen district at the time of the commencement of the action . . . .”); see also San Shoe Trading Corp. v. Converse, Inc., 649 F. Supp. 341, 345 (S.D.N.Y. Oct. 27, 1986) (identifying the “compelling” argument that the use of the present tense “has” in § 1400(b) indicates that Congress intended to require an established place of business when the complaint if filed).

By contrast to the holding in Personal Audio, other courts have held that venue is proper “if the defendant had a regular and established place of business at the time the cause of action accrued and suit is filed within a reasonable time thereafter.” Welch Sci. Co. v. Human Eng’g Inst., Inc., 416 F.2d 32, 35 (7th Cir. 1969). In Welch, the defendant had closed its business thirty-seven days before the complaint was filed. Id. at 36. Nevertheless, the Welch court held that venue was proper, explaining that “a defendant cannot establish a business in a particular judicial district and then abandon or sell it without remaining amenable to suit for venue purposes in that district for a reasonable time.” Id.

In ParkerVision, the court held that the “regular and established place of business” prong of § 1400(b) was satisfied and venue was therefore proper. ParkerVision, slip op. at 16, 22. In this regard, the court acknowledged that “using the exact date of filing of the Complaint [to determine venue] is too rigid” and followed the Federal Circuit’s guidance that “no precise rule has been laid down and each case depends on its own facts.” Id., slip op. at 15-16 (quoting In re Cray Inc., 871 F.3d 1355, 1361 (Fed. Cir. 2017)).

More specifically, the court explained that ParkerVision’s “two- to six-week delay in filing suit after Qualcomm had closed its office in this District is at most five days more than the 37-day delay in Welch, and much less than the 21-month delay in Personal Audio.” Id., slip op. at 16. In addition, the court reasoned that the decision in Personal Audio appeared “to be based, at least in part, on the unreasonableness of the delay between the termination of a regular and established place of business and the filing of the lawsuit.” Id., slip op. at 16. Ultimately, the court concluded that “the fact that ParkerVision filed suit . . . within weeks after Qualcomm closed its doors is reasonable” and thus that venue was proper. Id., slip op. at 15-16.

Takeaway:  While some courts determine venue under § 1400(b) based on the physical presence of the defendant at the time of filing the complaint, others may find that the “regular and established place of business” requirement of § 1400(b) is satisfied even after a defendant has abandoned physical presence in a judicial district so long as the delay in filing the complaint is reasonable.