Thought Leadership

Patent Venue: Mapping the contours of “a regular and established place of business”

Client Updates

The Federal Circuit’s recent opinion in Andra Grp., LP v. Victoria's Secret Stores, L.L.C. sheds light on what may qualify as “a regular and established place of business” under the patent venue statute—an inquiry that has received much attention since the Supreme Court’s 2017 landmark decision in TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S. Ct. 1514, 1517 (2017). 6 F.4th 1283 (Fed. Cir. 2021).

TC Heartland reshaped the patent litigation landscape by holding that a domestic corporation “resides” only in its state of incorporation for purposes of the patent venue statute. TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S. Ct. 1514, 1517 (2017). Because the patent venue statute limits patent infringement actions to a judicial district “where the defendant resides or where the defendant has committed acts of infringement and has a regular and established place of business,” TC Heartland has resulted in a renewed focus on what qualifies as a regular and established place of business under the statue. See 28 U.S.C.A. § 1400(b). Indeed, within months of TC Heartland, the Federal Circuit clarified in In re Cray, Inc. that a “regular and established place of business” under the patent venue statute must be: (1) “a physical place in the district;” (2) “regular and established;” and (3) “the place of the defendant.” 871 F.3d 1355, 1360 (Fed. Cir. 2017). The Federal Circuit further clarified in In re Google LLC that “a regular and established place of business requires the regular, physical presence of an employee or other agent of the defendant conducting the defendant’s business at the alleged place of business.” 949 F.3d 1338, 1345 (Fed. Cir. 2020).

In Andra Grp., LP v. Victoria's Secret Stores, L.L.C., the Federal Circuit considered whether the place of business of a corporate entity may be imputed to a related corporate entity. 6 F.4th 1283 (Fed. Cir. 2021). The court confirmed that an entity’s place of business in a jurisdiction does not automatically confer venue on related corporate entities in that jurisdiction. Id. at 1286. The place of business of a corporate entity may, however, be imputed to a related corporate entity if corporate separateness is not maintained. Id. The court further clarified that even when corporate separateness is maintained, if a parent company or a related corporate entity has the right to direct or control the actions of the employees of a subsidiary or has ratified the place of business of the subsidiary as its own, then the parent company or a related corporate entity may be deemed to maintain a regular and established place of business in the jurisdiction in which the subsidiary has its place of business. Id. at 1284-87.

Background
In April 2019, Andra Group (“Andra”) sued (i) L Brands, Inc. (“LBI”), (ii) Victoria’s Secret Stores, LLC (“Stores”); (iii) Victoria’s Secret Direct Brand Management, LLC (“Direct”); and (iv) Victoria’s Secret Stores Brand Management, Inc. (“Brand”) for patent infringement in the Eastern District of Texas. Andra, 6 F.4th 1283. The defendants are related companies (collectively, “Defendants”) and each is incorporated in Delaware (so each “resides” in Delaware). Id. LBI is the corporate parent of Stores, Direct, and Brand. Id. LBI, Direct, and Brand (collectively, the “Non-Store Defendants”) do not have any (direct) employees, stores, or any other physical presence in the Eastern District of Texas (“the District”). Id. Defendants moved to dismiss the infringement suit for improper venue under 28 U.S.C. § 1406(a), or in the alternative, to transfer the lawsuit to the Southern District of Ohio. Id. Magistrate Judge Kimberly Johnson recommended that the Non-Store Defendants be dismissed for improper venue and that the suit should continue against Stores, because testimony by one Stores’ employee supported a finding of the alleged infringing acts in the District. Id. The district court adopted the findings and conclusions of the Magistrate Judge as the findings and conclusions of the court. Id. at 1284. Andra appealed. Id.

The Legal Standard
After confirming that the court reviews a venue challenge de novo and the plaintiff has the burden of establishing proper venue, the Federal Circuit noted that because no defendant resided in Texas (each having been incorporated in Delaware), the plaintiff must show that each defendant committed acts of infringement and maintained a regular and established place of business in the Eastern District of Texas. Andra Grp., 6 F.4th 1283, 1284.

The Federal Circuit’s Analysis
On appeal, Andra argued that the Non-Store Defendants had a regular and established place of business in the District by: (1) having an agency relationship with the Stores’ employees in its retail locations in the District, or (2) ratifying Stores’ locations as their own places of business. Andra, 6 F.4th 1283, 1284.

After reviewing the facts and analogizing them to those in In re Google LLC, the Federal Circuit found that Andra failed to show that any of the Non-Store Defendants—including the corporate parent LBI—exercised the degree of control over Stores’ employees required to find an agency relationship. Id. at 1286. With respect to the corporate parent LBI, the court found that none of LBI’s publicly filed documents that Andra relied upon demonstrated LBI’s control over Stores’ employees. Id. at 1285. In addition, based on the testimony of a Stores’ store manager, the court found that LBI neither controlled the hiring and firing of Stores’ employees nor did it enforce the “code of conduct” that Stores’ employees were required to sign. Id. Specifically, the court found that LBI did not have “the right to direct or control” Stores’ employees, which is an essential element of an agency relationship. Id. Similarly, the court found that Andra failed to show that any of the other Non-Store Defendants (i.e., Stores’ sister companies) had “the right to direct or control” Stores’ employees.

The Federal Circuit also rejected Andra’s second venue theory that the Non-Store Defendants ratified Stores locations as their own places of business such that the Non-Store Defendants may be deemed to have maintained a regular and established place of business in the District. Andra, 6 F.4th 1283, 1286. First, the court noted that a threshold inquiry when determining whether the place of business of one company can be imputed to another, related company is whether they maintained corporate separateness. Id. If corporate separateness is not maintained, the place of business of one corporation may be imputed to the other for venue purposes. Id. But where related companies maintain corporate separateness, the place of business of one corporation is not imputed to the other for venue purposes. Id. There was no assertion that the Defendants did not maintain corporate separateness. Second, the court rejected Andra’s assertion that the corporate parent LBI had ratified Stores’ store locations through its control over store operations and by holding out store locations as its own. Id. It also rejected similar arguments related to the other Non-Store Defendants. Id. The court reasoned that the fact that the entities worked together was not sufficient to show ratification. Id. Moreover, the Non-Store Defendants did not own or lease Stores locations; rather Stores leased and performed all operations at the retail locations. Id.

Having rejected both of Andra’s venue theories, the Federal Circuit affirmed the district court’s decision that venue was not proper in the District as to the Non-Store Defendants. Id. at 1287.

Practice Tips
Because an entity’s place of business in a jurisdiction does not automatically confer venue on related corporate entities in that jurisdiction, potential defendants can leverage their corporate structure to shelter a parent company or related corporate entity from having to defend against patent infringement lawsuits in a jurisdiction where a subsidiary has a place of business. The place of business of a corporate entity may, however, be imputed to a related corporate entity if corporate separateness is not strictly maintained. And even when there is corporate separateness, a parent or related corporate entity may be deemed to maintain a regular and established place of business in the jurisdiction in which the subsidiary has its place of business if the parent or related company either has the right to direct or control the actions of the employees of the subsidiary or has ratified the place of business of the subsidiary as its own. These are fact-intensive inquiries, which highlight the importance of venue-related discovery in such cases.

 

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