A Refresher on Venue in Patent Cases, and Some Considerations to Avoid Facing a Billion Dollar Patent Infringement Verdict in Texas by Challenging Venue from the Get-Go

The Eastern and Western Districts of Texas are the most popular forums for U.S. patent infringement lawsuits.  Local rules that promote rapid litigation of even very complex patent cases, historically low success rates of defendants seeking to exit Texas with a transfer or dispositive motion, a disinclination to stay cases while PTAB patent challenges are pending, and perceptions that Texas juries are more patentee-friendly, have contributed to this trend.  Indeed, statistics show that patent cases litigated in Texas have historically had higher-than-average plaintiff success rates and damages awards compared to other parts of the country.[1]  Texas juries granted patent owners more than $3.7 billion in damages in just seven trials in Texas during the pandemic of 2020-21,[2] including a massive $2.18 billion award against Intel in March 2021 and awards in multiple other cases exceeding $100 million.[3]  As a result, plaintiffs filed more than 30% of all U.S. patent infringement lawsuits in these two Texas districts in 2020.[4]  The Western District of Texas was the top choice nationwide, chosen for more than 21% of cases, while the Eastern District of Texas was chosen for almost 10% of cases, making it the third most popular district.  The Northern and Southern Districts of Texas also made the list of top ten patent case venues, drawing almost 4% of all cases between them.

For many companies, litigating in Texas can be inconvenient and costly.  But what can companies do to try to mitigate the possibility of facing a patent infringement lawsuit in Texas? 

Although it can be difficult to persuade a Texas court to transfer a case out of the state, there are steps companies can take to lower the likelihood that suits filed in Texas stay there.  For example, a plaintiff cannot maintain a patent infringement lawsuit in a Texas federal court unless the defendant is subject to personal jurisdiction[5] and venue in Texas.  This insight focuses on the issue of venue, and steps companies may consider to reduce the probability that venue is proper and increase the probability that another venue is clearly more convenient. 

1.       Mitigating the Risk Venue is Proper in Texas

A federal court where a patent case is filed must have proper “venue” to hear the suit.  Venue addresses whether a particular federal district court is a sensible geographic location for the suit based on the relationship of the parties and facts to that district.  Objections to venue must be raised at the start of a lawsuit to avoid waiver.  When the defendant challenges venue in a patent case, plaintiff bears “the burden of establishing proper venue.”  In re ZTE (USA) Inc., 890 F.3d 1008, 1013 (Fed. Cir. 2018)

For a non-U.S. company, venue is generally proper in any federal judicial district.  Because the protections of venue only apply to persons and entities that reside in the United States, non-U.S. companies may be sued in any district where they are subject to personal jurisdiction.  The company may still however seek to change the venue for convenience purposes, as described in the next section.  

For U.S. companies, the Supreme Court recently clarified that a plaintiff can only bring patent litigation against a U.S. company in the judicial district (1) where the defendant is incorporated, or (2) where the defendant has committed acts of infringement and has a regular and established place of business.  TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S. Ct. 1514, 1517 (2017) (a domestic corporation “resides” only in its State of incorporation for purposes of the patent venue statute).  Focusing on the latter aspect of the second part of this test for venue, a “regular and established place of business” means that the defendant has (1) a physical place in the district, (2) that physical place is a regular and established place of business, and (3) the place is the defendant’s place of business.  In re Cray Inc., 871 F.3d 1355, 1360 (Fed. Cir. 2017). 

First, under the “physical place” test, it is not generally enough to have a purely virtual business location or send communications to or from the district – there must be a physical building, office, room, or physical space of some kind where the company’s business is transacted.  A company may have a “physical place” in a district if it regularly (more than sporadically or temporarily) stores literature, documents, products, or inventory in a fixed location like an employee’s home or distribution center.  A “physical space” that supports venue may also be found if the company leases shelf space in a store or rack space in a server farm, sells wares at a certain flea market booth, or engages a secretarial service in the district to perform tasks, if done on a regular or continuous basis.  See id. at 1362 (citing In re Cordis Corp., 769 F.2d 733, 737 (Fed. Cir. 1985)). 

Second, for the physical location to qualify as a regular and established “place of business,” there generally must be a company employee or agent physically conducting the company’s ongoing business at that location.  See In re Google LLC, 949 F.3d 1338, 1344 (Fed. Cir. 2020); Nat’l Steel Car Ltd. v. Greenbrier Cos., No. 6:19-cv-00721-ADA, 2020 U.S. Dist. LEXIS 132270, at *15 (W.D. Tex. July 27, 2020) (“With no evidence of either a GCI or GRSH employee or agent at the San Antonio property conducting either GCI or GRSH business, the Court could not find that the second Cray factor had been satisfied to render venue proper.”); Peerless Network, Inc. v. Blitz Telecom Consulting, LLC, No. 17-CV-1725, 2018 U.S. Dist. LEXIS 49628, 2018 WL 1478047, at *3-4 (S.D.N.Y. Mar. 26, 2018) (voice-over-internet protocol routers installed in third-party facility insufficient to establish venue); Automated Packaging Sys., Inc. v. Free-Flow Packaging Int’l, Inc., No. 5:14-CV-2022, 2018 U.S. Dist. LEXIS 5910, at *27-*28 (N.D. Ohio Jan. 12, 2018) (owning and controlling equipment in customer facilities insufficient to establish venue). 

Thus, a company may be able to maintain some business relationships with entities in Texas without leading to venue if it avoids a principal-agent relationship with a local Texas entity or its employees.  Agency is found where (1) the company has the right to direct or control the agent, (2) the company manifests consent that the agent is acting for the company, and (3) the agent consents to so act.  Under this test, for example, there was no venue in In re Google based on Google’s relationship with the internet service provider that provided its network resources in Texas.  The court found the ISP was not Google’s agent because Google had only minimal control over the ISP’s provision of network access, the ISP’s installation of the servers was only a one-time (not ongoing) task, and because the ISP’s maintenance of the equipment (though performed to Google’s specifications) was an ancillary task and not part of Google’s main business.  949 F.3d at 1344; see also Agis Software Dev., LLC v. ZTE Corp., No. 2:17-CV-00517-JRG, 2018 U.S. Dist. LEXIS 235914, at *7-8 (E.D. Tex. Sep. 28, 2018) (finding no venue where the facts did not show that ZTE controlled work conducted at a call center, controlled or ratified it generally, or that its relationship with the vendor was “more intimate and controlling than a traditional arms-length contractual relationship”).  Using a similar analysis, a Texas district court found venue improper for out-of-state affiliates of a local store, because the affiliates did not “exercise [] control over” the local store’s employees.”  Andra Grp., LP v. Victoria’s Secret Stores, LLC, No. 4:19-cv-288-ALM-KPJ, 2020 U.S. Dist. LEXIS 53868, at *12 (E.D. Tex. Feb. 24, 2020).

Third, for the physical location to qualify as the “defendant’s place,” a defendant company generally must exercise some indicia of possession or control over the place, by establishing, renting, owning, or leasing the place, or otherwise ratifying it in some way.  This rule means that a company may avoid venue based on a work-from-home employee’s residence in Texas, in certain circumstances.  See Cray, 871 F.3d at 1361-62.  For example, courts are less likely to find venue based on an employee’s home workplace when the following circumstances are present:

• The company does not own, lease, or control any local office workspace for local employees;

• Employees’ home offices are not owned, leased, or otherwise controlled by the company;

• Employees are not required to live in the particular district as a condition of their employment;

• The company does not provide housing allowances, reimbursements, or support to remote employees conditioned on their location in the local district;

• The company does not ask or require employees to store, distribute, or sell company materials from their home (i.e., the company has not taken possession of any portion of the home office);

• The company does not hold out a local home office as an official place of business, for example by listing them on marketing materials or the company website;

• Employees are discouraged or prohibited from conducting in-person business meetings or hosting visitors for business purposes (during business hours) at their home or remote offices;

• Job listings for the position state the job location is a “remote” position;

• The company does not tie or relate sales employees’ territories to their place of residence; and

• The company does not associate employees’ phone numbers or addresses with business operations or advertising, although they may be listed on invoices or internal directories. 

Conversely, the following facts have supported finding venue in district courts:

• The company maintains a physical local office in the district for its employees;

• The company is operated mainly from a local home office of a high-ranking employee, officer or director;

• The company publishes or otherwise holds out a local phone number or address as an official company number or address in advertising or on the company website;

• The company engages an ongoing secretarial service locally to answer calls placed to the company, support employees in their home offices, receive messages, and provide typing services, mail and receive shipments of company literature and products;

• The company asks or requires employees to store company literature, documents, inventory, and products in local home offices; and

• The company allows customers to order or directs employees to ship products directly from the local office rather than from an out-of-state office.

Against this backdrop, there are certain steps companies can take to minimize the chances that venue in Texas is proper for them.  One is avoiding a physical place of business in Texas, such as an office or other company-controlled work location.  While remote employees or affiliates in the district will typically not establish venue in a patent case, companies that do have such employees or vendors should try to ensure none of the additional facts discussed above are present.  A company should not require employees to live in the district, subsidize their residences, or treat employees’ home offices like official company offices.  And the company should assess its work relationships with local affiliates and vendors (and their employees), to make sure those relationships are arms-length transactions, and not principal-agent interactions that might give rise to imputing venue to the principal.  

2.       Strategies for Transferring the Case from Texas to a More Convenient Forum

If venue is improper, as described in the previous section, the Texas district court must either dismiss the case or transfer it to a district or division where venue is proper.  28 U.S.C. § 1406(a).  Often this means transferring the case to a federal district court in another state, but the case can also be transferred to a different district in the same state (such as from the Western District of Texas to the Eastern District of Texas).  Thus, avoiding venue in Texas means avoiding venue in each of its judicial districts.  Under this rule, cases must be transferred to a district where venue is proper and parties otherwise cannot generally consent to a transferee district.

If venue is proper in a Texas district, defendants can still seek to transfer the case to another district “for the convenience of parties and witnesses” and “in the interest of justice” under 28 U.S.C. § 1404(a).  Under this rule, the court may transfer the case to any district or division where it might have been brought or to which all parties have consented.  Id.  

In deciding whether to grant such a transfer motion, district courts weigh private and public factors such as the following:

• Private Factors

  • The relative ease of access to sources of proof;

  • The availability of compulsory process to secure the attendance of witnesses;

  • The cost of attendance for willing witnesses; and

  • All other practical problems that make trial of a case easy, expeditious and inexpensive.

• Public Factors

  • The administrative difficulties flowing from court congestion;

  • The local interest in having localized interests decided at home;

  • The familiarity of the forum with the law that will govern the case; and

  • The avoidance of unnecessary problems of conflict of laws or the application of foreign law.

In re Volkswagen of Am., Inc., 545 F.3d 304, 315 (5th Cir. 2008).  The district court often has great discretion to grant or deny convenience transfers because no one of these factors is dispositive.  Action Indus., Inc. v. U.S. Fid. & Guar. Corp., 358 F.3d 337, 340 (5th Cir. 2004).  That said, if the parties have validly contracted to litigate against each other in a certain forum, that fact will weigh heavily in favor of transferring the case to the agreed forum.  See Atl. Marine Constr. Co. v. United States Dist. Court, 571 U.S. 49, 64 (2013) (with a valid forum selection clause, the district court should (1) give no weight to the plaintiff’s choice of forum, and (2) consider the public factors only, and so the forum-selection clause will “control except in unusual cases”). 

Foreign companies may also move to dismiss a case under the forum non conveniens doctrine if they can show that trial in a desired foreign forum (often identified in a forum selection clause) would “best serve the convenience of the parties and the ends of justice.” Halo Creative & Design, Ltd. v. Comptoir Des Indes, Inc., 816 F.3d 1366, 1369 (Fed. Cir. 2016).  Such dismissals are rare because it is generally difficult to assure a United States court that the foreign court “could or would assert jurisdiction over a United States patent infringement action.”  In re Fortinet, Inc., 803 F. App’x 409, 410 (Fed. Cir. 2020).

Companies should keep in mind that although district courts rarely suspend lawsuits while a motion to transfer venue is pending, they are expected to rule on those motions promptly.  An appeals court may issue a mandamus order that the district court stay a case and rule on a pending transfer motion if it appears that substantive issues in the case (such as claim construction) may be decided before the transfer motion is ruled on.  In re Tracfone Wireless, Inc., No. 2021-118, 2021 U.S. App. LEXIS 6689, at *5 (Fed. Cir. Mar. 8, 2021); In re SK Hynix Inc., 835 F. App’x 600 (Fed. Cir. 2021); cf. In re ADTRAN, Inc., No. 2021-115, 2021 U.S. App. LEXIS 8148, at *3 (Fed. Cir. Mar. 19, 2021) (denying mandamus but stating that failure to rule on venue issues promptly “might tip the balance in favor of mandamus relief upon reapplication in the future”).

As the factors shown above suggest, a company increases its chances of successfully transferring out of Texas by minimizing its presence in Texas districts, and fortifying its presence where it is headquartered.  Generally, transfer is more likely to a venue where the company has its center of gravity, i.e., where its headquarters is located, and where employees, witnesses and documents relevant to the case can be found.  See, e.g., Correct Transmission LLC v. Adtran, Inc., No. 6:20-CV-00669-ADA, 2021 U.S. Dist. LEXIS 93102, at *11 (W.D. Tex. May 17, 2021).  It is also important to assess (a) plaintiff’s connection, if any, to the district and whether any such connection is ephemeral – transfer is more likely if plaintiff lacks connection to the district where suit was filed, and (b) the location of the inventors and other third-party witnesses. 

3.       Conclusion

As this article shows, there are various considerations to reduce the risk that a company faced with a patent infringement suit is subject to venue in the federal district courts in Texas, or to seek the dismissal or transfer of cases out of Texas after they are filed.  By reducing the risk that venue is proper in a district court in which the company does not reside, you might avoid having to litigate in an inconvenient and risky forum thousands of miles away from your principal place of business.  We therefore recommend that anyone at risk or involved in a patent infringement lawsuit should seek legal advice tailored to their situation from a qualified attorney as soon as the issue arises. 

[1] PWC 2018 Patent Litigation Study, May 2018.
[2] https://www.bloombergquint.com/onweb/texas-distanced-juries-hit-big-tech-with-3-7-billion-of-awards.  
[3] https://patentlyo.com/patent/2021/03/billion-albrights-courtroom.html; Lex Machina search for damages awards in Patent cases in the Western and Eastern Districts of Texas from January 1, 2020 to May 12, 2021.
[4] Lex Machina Patent Litigation Report, March 2021. 
[5] Personal Jurisdiction is a low bar and can be very difficult to avoid, so this paper focuses more on the venue considerations in a patent case.  For more information on personal jurisdiction, our white paper Key Considerations for Foreign Companies Facing U.S. Litigation contains an extended discussion of personal jurisdiction over foreign defendants that applies to out-of-state defendants in this context as well.