In the wake of the TC Heartland v. Kraft Foods decision on May 22, 2017, there is considerable uncertainty about the future of the Eastern District of Texas patent docket. In that decision, the Supreme Court ruled that the venue for a patent dispute is determined by the patent venue statute (28 U.S.C. Section 1400(b)), instead of the general venue statute (Statute 1391) which had been the law of the land for the previous 27 years. According to 1400(b), the proper venue for a patent dispute is “in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.”
The ruling effectively siphons the jet fuel for the rocket docket in the Eastern District of Texas (EDTX). In fact, the data has already shown a dramatic shift in patent dispute filings in the month following the ruling. In 2017 prior to TC Heartland, filings for patent cases in the EDTX were at similar proportions to those observed in recent years; the EDTX had the highest proportion of patent cases filed in the U.S. at 34.3%. Delaware (DED) was second with 13.5% and the Central District of California (CDCA) was third with 6.3%. But, in the month following the ruling, as of June 30th, Delaware surpassed EDTX with the highest proportion—23.6%. EDTX now stands at second with 16.9%. The CDCA remained third with 9.2% of filings. Before the ruling, the District of New Jersey (DNJ) was fourth with 4.6%, but after the ruling, that standing has been relinquished to the Northern District of California (NDCA). The NDCA moved from sixth before the ruling with 3% to fourth after the ruling with 7.7%.
However, Judge Gilstrap of the Marshall Division of EDTX, recently offered elucidating criteria for determining if the “regular and established place of business” (REPB) prong is satisfied. While there is little disagreement that where a defendant resides is the state of incorporation, what constitutes a REPB is a matter that has drawn more conjecture. On June 29th in Raytheon v. Cray, Cray argued that in light of TC Heartland, EDTX is an improper venue because the case does not meet the 1400(b) standard. Cray argued that although it has an employee who resides in the venue, this did not constitute a REPB.
In the decision, Judge Gilstrap opined that a conventional interpretation of REPB is not adequate for the modern era, citing that we are now “coming to the realization that the Cyber Age is a revolution of historic proportions.” In that vein, Judge Gilstrap provided a 4-factor test to evaluate REPB that he describes as: “gleaned from prior courts and adapted to apply in the modern era.”
Factor One: Physical Presence
A physical presence, such as warehouses or retail offices. The presence of employees, including those working from home, would be included, and indicative of a REPB.
Factor Two: Defendant’s Representations
The defendant has represented that it is doing business in the district. This would weigh in favor of a REPB, even if no business was actually transacted.
Factor Three: Benefits Received
The defendant has received significant revenue from its presence in the venue.
Factor Four: Targeted Interactions with the District
The defendant has engaged in targeted interaction with customers, users, or entities within the district through marketing efforts.
In the matter of Raytheon v. Cray, Judge Gilstrap ruled that because Cray’s employee conducted business from his residence and would regularly offer the alleged infringing product for sale from his home, this met the REPB test.
The implication of this ruling for large tech companies that maintain a national, virtual workforce could be far reaching. Additionally, it will be of interest to see if this ruling impacts high-tech jobs in rural areas, particularly EDTX. It may be some time before we know how the Federal Circuit will handle Judge Gilstrap’s REPB test, and until then, it’s likely that filings will continue to slow. However, it does seem that if Judge Gilstrap has anything to say about it, the East Texas rocket docket won’t flame out without a fight.