Insights

Venue Via the Cloud: Venue for Patent Lawsuits Based on Network Servers

Firm Thought Leadership
 

Almost every modern business today makes use of servers in some capacity to deliver goods or services. These servers (whether hosted locally or in a cloud) are the hidden backbone behind many software, web, and entertainment experiences. Given the prevalence of servers to every major business, companies must consider whether they expose themselves to being sued in a particular jurisdiction merely by maintaining and using servers there. The Federal Circuit in In re Google[1] will likely further explore that question. This article reviews the history of case law in this area along with an in-depth analysis of the recently concluded oral arguments before the Federal Circuit.

Landscape Leading up to In re Google

The 2017 TC Heartland LLC v. Kraft Foods Group Brands LLC decision impacted the demographics of patent infringement lawsuits in the United States.[2] In TC Heartland, the Supreme Court reemphasized that, for patent cases, venue is proper in the judicial district only where (1) the defendant resides, or (2) the defendant has committed acts of infringement and has a regular and established place of business.[3]

 Subsequently, the Federal Circuit in In re Cray set forth a three-part test for courts to use  in considering the second prong’s requirement that the defendant has a regular and established place of business: (1) there must be a physical place in the district; (2) this place must be a regular and established place of business; and (3) the physical place must be the place of the defendant.[4]

 Applying this test in SEVEN Networks, LLC v. Google LLC, Judge Rodney Gilstrap found that Google’s cache servers, located within the Eastern District of Texas, gave rise to venue in the District.[5] Judge Gilstrap’s venue analysis hinged largely on the nature of Google’s business of “delivering information” and the control Google appeared to exert over the servers and the physical space within which the servers were housed.[6] Google petitioned for mandamus relief, but the Federal Circuit declined to intervene, opting instead to “allow the issue to percolate” further.[7] In a dissent from denial of rehearing en banc (joined by Judges Newman and Lourie), Judge Reyna foreshadowed: “The question is not if we will take this issue up, but when . . . .”[8] The Federal Circuit might now be ready to take up the issue.

Background: Super Interconnect Technologies v. Google LLC

On November 2, 2018, four days after Google’s mandamus denial, Super Interconnect Technologies, LLC (“SIT”) sued Google in the Eastern District of Texas for patent infringement.[9] Google moved to dismiss for improper venue under Section 1400(b). Google argued that its servers do not qualify as a regular and established place of business under the three-part test established in Cray. SIT countered that venue was proper based on the simple fact that Google hosts its servers in the District and uses them to store and deliver Google products to residents. Judge Gilstrap denied Google’s motion, noting that Google “urges the same legal arguments that this Court denied in SEVEN” and thus saw “no reason to depart from its prior decision” that venue is proper for the reasons previously outlined in SEVEN.[10] Google again petitioned the Federal Circuit for mandamus relief.

On December 13, 2019, the Federal Circuit heard arguments on the issue of whether computer equipment that is stored in a third-party facility gave rise to venue. The judges[11] lodged questions over whether the place in question must be staffed by a human to qualify as a sufficient place of business under the venue statute.[12] Google argued that it did. According to Google, a qualifying place must be staffed with the defendant’s employee or agent who is regularly present at such place to carry out the service of the business.[13] For example, a self-service laundromat would constitute a qualifying place presumably because employees of the laundromat would maintain regular presence there to service the machines.[14] For additional support, Google pointed to the language of the patent statute governing service, 28 U.S.C. § 1694. That statute states, in part, “where the defendant is not a resident but has a regular and established place of business, service of process, summons or subpoena upon such defendant may be made upon his agent or agents conducting such business.”[15] Such language, according to Google, presumes a defendant’s employee or agent must be present at a qualifying place, which Google claimed was lacking in the present case.[16]

SIT, on the other hand, argued that merely maintaining an operational server in the District, even unaided by human employees, equates doing business in the District by virtue of Google making use of the server to deliver Google advertisements and video content.[17] Google countered with an analogy involving cable boxes. Specifically, Google contended that a server is similar to a cable box that lives in a customer’s home to enable delivery of video content to the customer.[18] In such a scenario, that the cable box is plugged in by the customer—similar to how Google’s servers are connected by Internet Service Providers—does not alone transform the cable box into a place of business of the cable company.[19]

SIT found the cable box analogy misguided. SIT argued that, unlike the present case, the individual cable companies do not provide interactive maps to consumers suggesting that consumer homes are places of business of the cable companies.[20] Here, Google owns the servers and publicly holds out the location of the servers as Google locations on public interactive maps.[21] In other words, according to SIT, Google publicly sold customers on the notion that Google offered faster service by virtue of the servers located in the District.

The judges also pressed each side to consider the venue analysis under a scenario whereby multiple companies shared a single server as opposed to one company using a single server.[22] Under those facts, Google argued it would be absurd to claim that multiple companies are operating a place of business out of a single server box.[23] Google went on to note that the present case is not very different. That is, several shelves are stacked in a room full of “hundreds of servers” used by different companies, thus upholding SIT’s venue theory would result in hundreds of places of business operating out of that single room. [24]

Ultimately, Google cautioned that, were the Federal Circuit to conclude that equipment such as servers can be a regular and established place of business, then just about any equipment that a business uses to carry out a service could be.[25] In fact, Google expressed that it was already facing several suits in the Eastern District of Texas that are premised on equipment-based venue theories.[26] SIT, on the other hand, narrowly framed the issue as one affecting Google and not a national issue required for mandamus given the specific nature of Google’s business and the particulars of this case.[27] Therefore, SIT argued, the Court should deny Google’s petition for mandamus relief or remand to the lower court for additional factual considerations.

Conclusion

In re Google presents another opportunity for the Federal Circuit to provide clarity on the venue question of whether equipment hosted by third-parties constitute a regular and established place of business under 28 U.S.C. § 1400(b). On some level, the Federal Circuit’s denial of mandamus will send a nod of approval to plaintiffs seeking to hinge venue theories on servers; whereas, granting mandamus will likely invoke the opposite effect. In any event, we will be watching closely as the decision may further change the current demographics of patent infringement lawsuits especially for big data companies.



[1] In re Google LLC, No. 2019-126 (Fed. Cir. 2019).

[2] David Varghese, The Patent Landscape Post TC-Heartland, (Oct. 30, 2019), https://www.bakerbotts.com/insights/publications/2019/november/the-patent-landscape-post-tc-heartland.

[3] TC Heartland LLC v. Kraft Foods Group Brands LLC, 137 S. Ct. 1514 (2017).

[4] In re Cray Inc., 871 F.3d 1355 (Fed. Cir. 2017).

[5] SEVEN Networks, LLC v. Google LLC, 315 F. Supp. 3d 933 (E.D. Tex. 2018).

[6] Id. at 951-966.

[7] In re Google LLC, 2018 WL 5536478 at *3 (Fed. Cir. 2018) (per curiam).

[8] In re Google LLC, 914 F.3d 1377, 1382 (Fed. Cir. 2019).

[9] Super Interconnect Techs. LLC v. Google LLC, 2019 WL 3717683 (E.D. Tex. Aug. 7, 2019).

[10] Id.

[11] The parties argued before Judges Dyk, Wallach, and Taranto. Questions posed by each judge were unable to be discerned from the audio recordings of the oral argument.

[12] Oral Argument at 00:32-1:37, In re Google, No 2019-126 (Fed. Cir. 2019), http://http://oralarguments.cafc.uscourts.gov/default.aspx?fl=2019-126.MP3.

[13] Id. at 1:50-2:18.

[14] Id. at 2:19-2:30.

[15] 28 U.S.C. § 1694 (emphasis added).

[16] Oral Argument at 5:06-5:20.

[17] Id. at 34:07-34:20.

[18] Id. at 12:05-12:23.

[19] Id.

[20] Id. at 35:10-36:23.

[21] Id.

[22] Id. at 7:35-7:50.

[23] Id. at 7:51-8:00.

[24] Id. at 8:03-8:16.

[25] Id. at 51:30-51:50.

[26] Id. at 53:43-53:56; see, e.g., Personalized Media Commc’ns, LLC v. Google LLC, No. 2:19-cv-00090-JRG (E.D. Tex. filed Mar. 21, 2019); Uniloc 2017 LLC v. Google LLC, No. 2:18-cv-00550-JRG (E.D. Tex. filed Dec. 31, 2018); Uniloc 2017 LLC v. Google LLC, No. 2:18-cv-00502-JRG-RSP (E.D. Tex. filed Nov. 17, 2018).

[27] Id. at 46:50-47:20.

 

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