The Eastern District Court of Texas is Trying to Go Cray on Google

Intellectual property (IP), including patents, is the lifeblood of our industry. Obtaining IP rights is only half the battle for our small company members; they also bear the burden of fending off infringement claims, including tenuous ones, in distant courts.  This phenomenon is especially prevalent in the patent space, which is what TC Heartland v. Kraft Foods (TC Heartland)[1] effectively resolved. However, the Eastern District of Texas is at it again by attempting to chip away at the TC Heartland ruling by deciding that a company merely using servers within the Eastern District of Texas is enough to establish venue for purposes of patent litigation.[2] This has a direct impact on internet-enabled economy stakeholders—many of which include our members—that use or have servers within that district. But fear not, Google is challenging the Eastern District of Texas in the Federal Circuit.[3]

A TC Heartland Refresher

The TC Heartland case sent a sonic boom through the patent community when the Court decided that the long-standing patent venue statute, Section 1400(b) of the United States Code, was the exclusive statute governing patent litigation. The Supreme Court decision also ameliorated stakeholders’ growing concerns that a few courts held a monopoly over patent litigation cases; chief among them was the court in the Eastern District of Texas. TC Heartland’s practical effect limited the ability of patent holders to haul businesses, no matter their size, into faraway courts in jurisdictions where they had never done business. TC Heartland decided that venue—the court where an entity is sued—is only appropriate where: 1) the business resides (i.e., where the company is incorporated); or 2) where the corporation has committed the infringing act and where it has a “regular and established” place of business.

Under TC Heartland, it is easy to determine where a company resides by simply finding where the company is incorporated. However, how do courts determine where a corporation has a “regular and established” business? Unfortunately, the Supreme Court neither defined nor addressed this ambiguous distinction in the TC Heartland case. The Court left the determination to lower courts, and not surprisingly, the Eastern District of Texas was quick to define these terms in the Raytheon v. Cray (Cray) patent case.[4]

When the Eastern District of Texas Went Cray

As we previously lamented,[5] the Texas court’s decision in Cray raised serious concerns for small business app developers and patent holders. Judge Rodney Gilstrap, the judge presiding over the Raytheon v. Cray case, ruled that courts should analyze the “totality of the circumstances” when deciding whether a corporation has a “regular and established” business in a venue. As a result, Judge Gilstrap established a new four-factor “totality of circumstances” test to help courts determine whether a corporation has a “regular and established” business in a location. The original Cray case challenged the notion of the proper venue for patent litigation, which has serious implications for the U.S. Supreme Court’s recent decision in TC Heartland. Judge Gilstrap established a new four-factor “totality of circumstances” test to help courts determine whether a corporation has a “regular and established” business in a location. Judge Gilstrap defined the “totality of the circumstances” as: 1) physical presence in the district; 2) defendant’s representation within the district; 3) benefits received from the district; and 4) targeted interactions with the district.[6] Ultimately, as Judge Gilstrap admitted, it was extremely unclear as to how this would apply to companies that provide services over the internet.

 

Thankfully, the Federal Circuit tempered the effects of Cray by granting Cray’s petition for a writ of mandamus—a motion that allows the appellate court to review and correct a lower court’s decision—where it almost ignored the “totality of circumstances” analysis. The Federal Circuit limited the definition of a “place of business” for purposes of patent venue to defendant having 1) a real property that 2) operates in a “steady, uniform, orderly, and methodological” manner within a meaningful span of time that 3) the defendant or its agents exercise control over to further the defendant’s business.[7]

Google Strikes Back

In this case currently before the Federal Circuit, Google is appealing the Eastern District Court of Texas’s decision that found if an internet service provider (ISP) within the Eastern District of Texas hosts an internet company’s servers on its network, then that company is subject to jurisdiction in that district for purposes of patent venue. In effect, if your business’s service relies on servers that use networks in a particular judicial district (or at least in the Eastern District of Texas), then a patent holder can sue your business in that district because it has a “regular and established place of business” under the patent venue statute. Google has since appealed this ruling to the Federal Circuit and submitted a writ of mandamus.

What Does This Case Mean for App Developers?

The Eastern District Court of Texas’s ruling, if upheld, completely undoes the effect of TC Heartland and puts our members at risk of getting sued in faraway, unrelated courts for patent infringement claims; thus, returning us to the former status quo. Our members can attest that their data knows no bounds and recognizes no borders. If this decision is adopted broadly, it would resurrect several of the loopholes in federal patent law that TC Heartland sought to resolve. App developers, connected device companies, and technology innovators rely on internet-based solutions, ultimately making them susceptible to the lower court’s definition of an established place of business by virtue of an ISP hosting their innovative products via their servers. We need the Federal Circuit to correct the lower court’s overbroad reading in order to ensure that the protections TC Heartland provides for our members remain intact.

[1] 137 S.Ct. 1514 (2017).

[2] Personal Audio, LLC v. Google, Inc., 280 F. Supp. 3d 922, 933-35 (E.D. Tex. 2017).

[3] In re Cray, 871 F.3d 1355 (2017).

[4] 258 F.Supp.3d 781 (E.D. Tex. 2017).

[5] https://actonline.org/2017/09/07/something-cray-is-happening-in-the-eastern-district-of-texas/.

[6] See id. (outlining the district court’s four-factor test for “totality of circumstances”).

[7] In re Cray, 871 F.3d 1355 (2017).

By |2018-08-29T12:51:26+00:00August 29th, 2018|Uncategorized|