United States: Full Federal Circuit Defers Addressing Venue Based On Presence Of Servers In District

Last Updated: February 18 2019
Article by Ravi Ranganath, Charlene M. Morrow and Catherine McCord

On February 5, 2019, in a per curiam order, the United States Court of Appeals for the Federal Circuit denied Google's petition for rehearing en banc, and deferred for another day the question of whether the presence of hardware or web traffic in a district gives rise to venue. Dissenting Judges Reyna, Newman, and Lourie expressed their concern that the Court not leave unresolved the issue of whether "conducting business virtually through servers and similar equipment" may give rise to venue under Section 1400(b). In re Google LLC, No. 2018-152, 2019 WL 438198, at *2 (Fed. Cir. Feb. 5, 2019). Specifically, the dissent expressed concern that the Court left open the following questions:

  • "To what extent does the defendant have to be 'present' in the district to be 'engaging in business'?"
  • "Is owning, renting, or leasing real property required to establish a 'place'?"
  • "Is a piece of equipment a 'place'?"
  • "Is a shelf where equipment is installed a 'place' where business is conducted?"
  • "Would we have held differently if the employer in Cray exercised 'exclusive control' over the equipment in the employee's home office?"

Id. at *3.

On October 29, 2018, a panel of the Federal Circuit had declined to review on a writ of mandamus an order of the Eastern District of Texas holding that Google's cache servers in that district constituted a "regular and established place of business" under 28 U.S.C. § 1400(b). In re Google LLC, No. 2018-52, 2018 WL 5536478, *3 (Fed. Cir. Oct. 29, 2018). The panel decision, which will stand, denied review on a writ of mandate on the basis that it was not known whether this ruling involves "a broad and fundamental legal question" that will arise in venue cases and concludes that "it would be appropriate to allow the issue to percolate in the district courts" prior to further review by the Court of Appeals. Id.

As district court decisions on whether the presence of hardware in a district may give rise to venue in the district for patent cases are inconsistent, the result of the en banc denial is that the question of where proceedings may be filed will remain unresolved, resulting in continued uncertainty for litigants. As the dissent notes, the Federal Circuit will be forced to take up this issue in subsequent appeals: "[t]he question is not if [the Court] will take this issue up, but when...." 2019 WL 438198, at *4.

Background

SEVEN Networks filed suit against Google in the Eastern District of Texas on May 17, 2017, alleging patent infringement. Google moved to dismiss the complaint arguing that venue was improper under Section 1400(b), which permits patent cases to be filed "where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business." Because it was undisputed that Google did not "reside" — i.e. was not incorporated in — the Eastern District of Texas, the dispute focused on the second part of the venue statute. More specifically, the court considered whether Google Global Cache servers — located at third-party facilities in the district and used to deliver frequently requested content to nearby users of Google services — were regular and established places of business of Google. Under the Federal Circuit's opinion in In re Cray, Inc., 871 F.3d 1355 (Fed. Cir. 2017), to establish venue under this prong of Section 1400(b), "(1) there must be a physical place in the district; (2) it must be a regular and established place of business; and (3) it must be the place of the defendant." Applying this standard, Chief Judge Rodney Gilstrap found that Google's cache servers gave rise to venue in the Eastern District of Texas because (1) the servers were a physical rather than a virtual "place," (2) the servers were a place of business, akin to a local data "warehouse" used for storage and distribution of content, and (3) the servers were a place of business "of Google" because Google exercised exclusive control over them.

Conflicting District Court Decisions

As the dissenting jurists note, the SEVEN Networks opinion already diverged from the opinion of another court in the same district addressing the same issue, Personal Audio, LLC v. Google, Inc., 280 F.Supp. 3d 922, 934 (E.D. Tex. 2017). And at least one other court in the Northern District of Texas declined to extend the logic of SEVEN Networks, noting the "far reaching consequences" of concluding that servers at a data center could be a regular and established place of business. CUPP Cybersecurity, LLC v. Symantec Corp., No. 3:18-cv-1554, Dkt. No. 44, at *4-6 (N.D. Tex. Dec. 21, 2018). In addition, the Eastern District of Texas has signaled that a defendant who contracts for web services, but does not deploy them itself, is not subject to venue in the district. See Seven Networks LLC v. Google LLC, 315 F.Supp.3d 933, 951 n.27 (E.D. Tex. 2018).

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