It has become commonplace for companies such as Google to use local servers to provide faster service to customers. This practice has raised the question as to whether those local servers constitute “a regular and established place of business” for the purposes of establishing venue in patent infringement suits in the districts where the servers are located.
Specifically, the patent venue statute, 28 U.S.C. § 1400(b), limits the districts where patent infringement cases can be filed to either (1) where the defendant resides, which for a corporation is where it is incorporated, or (2) where the defendant has a regular and established place of business and has committed acts of infringement.
In Super Interconnect Technologies, LLC v. Google LLC, Super Interconnect sued Google for patent infringement in the Eastern District of Texas. Google filed a motion to dismiss or transfer for improper venue. Prong (1) of the patent venue statute does not apply because Google is not incorporated in Texas, and Google argued Prong (2) is not satisfied because Google does not have “a regular and established place of business” in the district. At the time the complaint was filed, Google did have Global Cache servers in the district for local data caching. These servers were hosted and operated by local internet service providers (“ISPs”) rather than by Google. The District Court ruled that the servers, along with the alleged acts of infringement, satisfied the second prong of the venue statute and thus denied Google’s motion to dismiss.
In a prior case, the Eastern District had similarly found Google’s servers in the district to be sufficient to establish venue. The Federal Circuit denied Google’s petition for a writ of mandamus in this prior case. However, in dissent, Judge Reyna warned the “majority fails to recognize the far-reaching implications” of its decision.
In Super Interconnect, Google again petitioned for a writ of mandamus. In considering the petition, the Federal Circuit noted its previous denial was based on the observation that it was not known at the time if the district court’s ruling involved the type of broad and fundamental legal questions appropriate for mandamus, and there was a lack of disagreement among district courts. However, since that decision, Judge Reyna’s prior concern proved accurate and inconsistencies arose in the district courts’ decisions.
As a result, the Federal Circuit considered whether Google had a regular and established place of business in the district. In In re Cray, Inc., the Federal Circuit previously ruled that “’a regular and established place of business’ under the venue statute must be: (1) ‘a physical place in the district’; (2) ‘regular and established’; and (3) ‘the place of the defendant.’”
First, the Court determined that a physical place in the district does not necessarily need to be owned or leased by the defendant, but instead “merely needs to be a ‘physical, geographical location in the district from which the business of the defendant is carried out.” Here the servers are physically located in the district in “a fixed, geographic location” and thus were found to satisfy the first prong in In re Cray.
Next the Court considered whether the servers are a “place of business.” The Court determined a “‘place of business’ generally requires an employee or other agent of the defendant conducting the business at that place.” As the Court stated, this “is apparent from the service statute for patent cases, now codified at 28 U.S.C. § 1694,” which is intricately linked with the patent venue statute. The service statute points out that if a “suit is brought in a district of which the defendant is not an inhabitant, but in which such defendant has a regular and established place of business, service upon a defendant may be made by service upon the agent or agents engaged in conducting such business.” The Court stated that “[t]he service statute plainly assumes that the defendant will have a ‘regular and established place of business’ within the meaning of the venue statute only if the defendant also has an ‘agent … engaged in conducting such business.’” Therefore, the Court concluded 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.’”
The Court then addressed the question of “whether Google had an employee or agent with a regular, physical presence at its ‘place of business’ and whether that employee or agent was conducting Google’s business.” Google did not have any employees in the Eastern District of Texas, but Super Interconnect argued that the ISPs were Google’s agents. The ISPs, however, were only obligated to perform on-site installation and maintenance of the servers within their datacenters and to provide network access. The Federal Circuit found these activities are “meaningfully different from” and “only ancillary to” “the actual producing, storing, and furnishing to customers of what [Google’s] business offers.” Therefore, the Court concluded that “the Eastern District of Texas was not a proper venue because Google lacked a ‘regular and established place of business’ within the district since it has no employee or agent regularly conducting its business at its alleged ‘place of business’ within the district.” Therefore, the Federal Circuit ordered District Judge Gilstrap to dismiss or transfer the case.
The Court noted, however, that it was not addressing whether “a ‘regular and established place of business’ will always require a human agent, that is, whether a machine could be an ‘agent.’”
Joining and concurring, Judge Wallach also noted that “[g]iven the absence from the record of information sufficient to understand Google’s business model, the question remains for the District Courts to determine whether Google’s end users become agents of Google in furtherance of its business by virtue of voluntarily or involuntarily sharing information generated on Google’s servers. If, for example, by entering searches and selecting results a Google consumer is continuously providing data which Google monetizes as the core aspect of its business model, it may be that … Google is indeed doing business at the computer of each of its users/customers.” We will likely see plaintiffs using Judge Wallach’s concurrence as a basis for venue arguments in upcoming matters.