In re Cray Inc.

In re Cray Inc.
871 F.3d 1355
Authored by Samantha Farish

Statement of Facts: Cray Inc. (“Cray”) sells advanced supercomputers. Raytheon Company (“Raytheon”) brought a patent infringement suit against Cray in the United States District Court for the Eastern District of Texas. Cray is incorporated in Washington and keeps its principal place of business there. Cray facilities are also maintained in parts of Minnesota, Wisconsin, California, and Texas. The offices belonging to Cray in Texas are not within the Eastern District (the “District”), where Raytheon brought the suit.

Raytheon asserted that venue was proper because of the residence of Cray’s sales executive, Mr. Douglas Harless. Cray allowed Mr. Harless to work remotely while residing in the Eastern District of Texas. A company map that identified Mr. Harless as a named account manager also provided the location of his personal home. He communicated with customers from this home, but kept no Cray merchandise or product literature there. Cray provided Mr. Harless with administrative support from the Minnesota office. When the usage was business related, Cray reimbursed Mr. Harless for his internet fees, cell phone services, and gas mileage. Cray did not pay Mr. Harless to operate its business out of his home and it never advertised publicly that this residence was a place of business.

Procedural History: Cray brought a Rule 12(b)(3) motion to dismiss for improper venue pursuant to 28 U.S.C. § 1400(b), which establishes appropriate venue for patent infringement claims. Cray thus sought transfer of the case under § 1406(a). Cray asserted venue was improper because (1) it did not reside in the District; (2) it had not committed any acts of infringement in the District; and (3) Cray had no regular and established place of business within the District. The lower court denied the motion. The issue on appeal is a petition for a writ of mandamus reversing the lower court’s denial and directing the case be transferred.

Questions Presented: First, did the lower court commit error by applying incorrect law when it denied Cray’s motions for improper venue and transfer? If so, should a writ of mandamus be issued in this case?

Holding: First, yes, the lower court committed error when it incorrectly construed precedent as the basis for denial of a motion to dismiss for improper venue. Therefore, a writ of mandamus is appropriate to decide a basic and undecided legal question. Case remanded.

Reasoning: The Federal Circuit found that the lower court misapplied the holding of In re Cordis Corp., 769 F.2d 733 (Fed. Cir. 1985). The lower court failed to apply Cordis with the context of the Supreme Court’s recent decision, TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S.Ct. 1514, 1517 (2017). Because the lower court did not correctly apply precedent in reaching its decision, the court found that its denial of Cray’s motion to transfer was an abuse of discretion.

In Cordis, the Federal Circuit similarly reviewed a petition for a writ of mandamus which sought dismissal of a patent infringement case based on improper venue. The court denied issuing the writ because it found a rational and substantial basis in support of the lower court’s denial of the improper venue motion. In affirming the lower court, the Federal Circuit found that the question of proper venue is not whether the defendant has a fixed physical presence such as a formal office or store. However, Cordis did not reference the statutory language used in § 1400(b). TC Heartland, 137 S.Ct. at 1517, made it clear that § 1400(b) is the standard for venue in patent cases. This statute was meant to narrow the courts previously allowing patent cases by conferring jurisdiction to more permanent jurisdictions. Given this purpose, the Federal Circuit cautioned that the standard of venue in § 1400(b) requires more than the minimum contacts that may be necessary when applying general venue law. This section specifies that a patent infringement action can be brought anywhere the defendant resides or has committed acts of infringement and within the district in which he has a regular and established place of business.

Applying this standard to determine whether venue was proper in this case, the court found three requirements. First, the district must contain a physical place. The Federal Circuit was critical of the lower court’s holding that a fixed physical place is not a prerequisite for proper venue. While this need not be a formal office or store, as in Cordis, venue requires some physical geographical location where business is conducted.

Second, the place of business must be regular and established. The court found that a regular business is not sporadic, but steady and orderly. A series of acts is necessary. Further, to be an established business, the court stressed the importance of permanence. Here, the employee could move his home out of the district without Cray’s approval. The court found this is not regular and established.

Third, venue is only proper if the business is the defendant’s place. The court found that this element requires the defendant to ratify or establish a place for the purpose of the business. Here, the physical location was an employee’s residence and thus did not belong to Cray.

The Federal Circuit held that the facts could not support a finding that Cray has a regular and established place of business in the Eastern District of Texas. By misconstruing precedent, the lower court found that venue was proper and thus failed to address arguments regarding where the case should be transferred. The case was remanded for that purpose.

 

 

 

 

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