Court: District Court, D. Delaware; September 11, 2017; Federal District Court
Defendants Cook Group Incorporated, Cook Medical LLC, and Cook Medical filed a motion to dismiss for improper venue or to transfer venue, citing the Supreme Court's ruling in TC Heartland LLC v. Kraft Foods Group Brands LLC, which established that a corporate defendant "resides" only in its state of incorporation for patent cases. The Court determined that since Defendants are not incorporated in Delaware, they cannot be said to "reside" there. The second prong of 28 U.S.C. § 1400(b) allows for venue in a district where the defendant has committed acts of infringement and maintains a regular place of business. After reviewing the arguments, the Court found that Defendants do not have a "regular and established place of business" in Delaware, deeming the venue improper. Consequently, the case will be transferred to the United States District Court for the Southern District of Indiana, Indianapolis Division.
The case involves a patent infringement action initiated by Plaintiffs Boston Scientific Corporation and Boston Scientific SciMed, Inc., alleging infringement of four patents related to a hemostatic clip apparatus for stopping gastrointestinal bleeding. BSC is a Delaware corporation with its main office in Massachusetts, while BSSI is a Minnesota corporation and wholly-owned subsidiary of BSC. The Defendants, Cook Medical and CGI, are Indiana corporations and competitors in the endoscopic hemostatic clip market. The litigation commenced on October 27, 2015, with subsequent amendments to the complaint and counterclaims from Defendants, including a motion to stay proceedings pending inter partes reviews, which was granted with certain exclusions.
On April 28, 2017, Defendants sought permission to file an amended pleading to add a defense and counterclaim of inequitable conduct, which was initially denied without prejudice on June 2, 2017. They subsequently filed a renewed motion in June 2017, which included the inequitable conduct claim and introduced a defense of improper venue based on the Supreme Court's TC Heartland decision from May 22, 2017. On June 22, 2017, Defendants filed a motion for improper venue, requesting dismissal or transfer of the case to the Southern District of Indiana under Federal Rule of Civil Procedure 12(b)(3) and 28 U.S.C. § 1406, arguing that venue was improper under 28 U.S.C. § 1400(b). Briefing was completed by July 27, 2017, and oral arguments were held on August 24, 2017.
Legal standards outlined indicate that venue provisions aim to allocate suits to the most appropriate federal forum. A Rule 12(b)(3) motion allows a party to challenge venue, requiring the court to assess its propriety based on relevant statutes. Patent infringement actions are exclusively governed by 28 U.S.C. § 1400(b), rendering the general venue statute inapplicable. If the court finds venue improper, it must either dismiss the case or transfer it to a suitable district. The court evaluates both the complaint and external evidence, accepting venue-related allegations as true unless contradicted by the defendant’s affidavits. There is a lack of consensus on which party bears the burden of proof regarding venue, with some jurisdictions placing it on the plaintiff while others impose it on the defendant. The prevailing view suggests that once a proper objection is made by the defendant, the burden shifts to the plaintiff to demonstrate the chosen district's propriety. However, the Third Circuit has determined that the burden lies with the moving party to prove improper venue.
Improper venue constitutes an affirmative defense, placing the burden of proof on the defendant. The parties agree on the Third Circuit's stance regarding venue motions but dispute whether Third Circuit or Federal Circuit law applies to the current motion. Plaintiffs assert that Third Circuit law governs, whereas Defendants contend that Federal Circuit law should apply. However, Defendants acknowledge the absence of Federal Circuit precedent on whether its law governs motions to dismiss for improper venue or on the burden of proof for such motions. They reference Hoover Group, Inc. v. Custom Metalcraft, Inc., which states that venue is determined by the allegations in the well-pleaded complaint, but it does not resolve the current questions.
The Federal Circuit adopts the regional circuit's law for non-patent issues while applying its own law for substantive patent law matters. The Court must identify whether the burden of proof issue is unique to patent law, noting that procedural matters typically are not. Nonetheless, if a procedural issue is closely tied to patent law or falls within the Federal Circuit's exclusive jurisdiction, it may be governed by Federal Circuit law. The Court concludes that the burden of proof in venue challenges is a procedural issue governed by the regional circuit law, specifically the Federal Rules of Civil Procedure, which require venue challenges to be presented in a responsive pleading or as a separate motion under Rule 12(b)(3).
Thus, the Court will apply Third Circuit law to the procedural aspects of Defendants’ improper venue motion, placing the burden on Defendants to demonstrate improper venue. Conversely, issues related to the interpretation of 1400(b), a statute specific to patent law, will be governed by Federal Circuit law. Therefore, the Court will refer to Federal Circuit precedent to interpret and apply the provisions of 1400(b).
The patent venue statute, 28 U.S.C. 1400(b), allows civil actions for patent infringement to be brought in the district where the defendant resides or where they have committed acts of infringement and maintain a regular business presence. In this case, it is agreed that venue in Delaware is improper under the "resides" clause since the Defendants are incorporated in Indiana. The disputes among the parties focus on three main issues: whether the Defendants have waived their right to challenge venue, whether they have a "regular and established place of business" in Delaware, and whether the Court should order venue-related discovery if it is uncertain about the business presence of the Defendants.
In addressing the waiver issue, Plaintiffs contend that the Defendants forfeited their venue challenge by not raising it in their pleadings and by participating in litigation activities for nearly two years. The Defendants acknowledge the facts but argue against the application of waiver based on the Supreme Court's ruling in TC Heartland.
The discussion includes a historical overview of the legal principles affecting venue determinations. The Supreme Court's 1957 decision in Fourco Glass Co. clarified that for purposes of 1400(b), a defendant "resides" solely in its state of incorporation. However, the 1988 amendment to 28 U.S.C. 1391(c) introduced a broader definition, allowing a corporate defendant to be deemed to reside in any district where it is subject to personal jurisdiction when the action is initiated. The Federal Circuit's 1990 decision in VE Holding Corp. affirmed that the amended 1391(c) governs the interpretation of "resides" in 1400(b), thus expanding the potential venues for patent infringement cases involving corporate defendants.
In 2011, Congress amended 28 U.S.C. § 1391, establishing that this section governs the venue for all civil actions in U.S. district courts, with specific provisions for entities regarding their residency for venue purposes. Between 1990 and 2017, the Federal Circuit's decision in VE Holding dictated venue in patent litigation. However, the Supreme Court's ruling in TC Heartland on May 22, 2017, determined that a domestic corporation "resides" only in its state of incorporation for patent venue purposes, effectively reversing VE Holding.
The document addresses the waiver of venue defenses, noting that a court must dismiss or transfer a case with improper venue unless a party waives this right by failing to timely object. Federal Rule of Civil Procedure 12(h) states that a venue defense is waived if not included in a motion to dismiss or a responsive pleading. An exception exists for intervening decisions from higher courts that change controlling law, particularly if the failure to assert the defense was reasonable given previous strong precedent.
The court examines whether TC Heartland constitutes an intervening change in controlling law that would allow the defendants to avoid waiver of the venue defense. While many district courts view TC Heartland as a reaffirmation of prior law (specifically Fourco), others argue it represents a significant change. The document emphasizes the long-standing application of the Federal Circuit's interpretation of venue in patent cases and contends that the acknowledgment of Fourco's status over the past 27 years would disregard the reality of TC Heartland's impact on venue law.
The Court determined that the TC Heartland decision represented a significant change in the law, establishing an exception to the general waiver rule regarding venue challenges. This conclusion is based on two main points: first, while TC Heartland reaffirmed a prior standard set in Fourco, it addressed a distinct question about Congress's amendments to 1391 and their impact on 1400(b), which had not been evaluated by the Supreme Court before. Second, the precedent established by VE Holding governed patent venue law for 27 years, making it unreasonable to penalize defendants for not challenging a framework that was widely accepted and understood to be valid at the time.
The Court emphasized that expecting defendants to anticipate the TC Heartland ruling, and thus to have acted against established norms, is inconsistent with procedural fairness. Although TC Heartland allows for the possibility of re-evaluating venue, it does not automatically guarantee that a defendant will succeed in a venue challenge. The Court noted that there may still be valid reasons to deny a venue motion, such as if it is raised too late or would unfairly prejudice the plaintiff.
In this case, the defendants' motion to challenge the venue was filed shortly after the TC Heartland decision, and the trial is scheduled for March 12, 2018, allowing ample time for the challenge. Thus, the Court ruled that the defendants should be allowed to pursue their venue challenge given the context and timing of their actions.
Plaintiffs will not be unduly prejudiced by the Court considering Defendants’ improper waiver defense or by transferring venue. The Court finds it inappropriate to penalize Defendants for their required participation in the litigation. The length of any delay, if justified by the futility exception, is not relevant to the current inquiry. Defendants’ involvement does not imply consent to venue in Delaware, leading the Court to examine the merits of their venue challenge.
The Court determines that venue is improper under the first prong of 1400(b) since Defendants do not "reside" in Delaware. It will assess whether a "regular and established place of business" exists in Delaware as per the second prong of 1400(b). The Court may also allow Plaintiffs to conduct venue-related discovery to investigate this issue. Following the Supreme Court's decision in TC Heartland, which overturned VE Holding, the criteria for what constitutes a regular and established place of business is increasingly relevant.
The statute requires a place of business that is regular and established, and the Supreme Court has emphasized that the provisions of 1400(b) should not be liberally interpreted. The Court references the Federal Circuit's 1985 decision in In re Cordis, which illustrates that a defendant can have a regular and established place of business through substantial activities within a jurisdiction, even without formal registration or property ownership. In Cordis, business activities in Minnesota justified the finding of a regular and established place of business despite the company not being registered in the state.
Cordis's mandamus petition argued that its lack of a fixed physical location in Minnesota should determine the absence of a regular and established place of business there. The Federal Circuit rejected this argument, emphasizing that the key factor is whether the corporation conducts business in the district with a permanent and continuous presence, rather than having a formal office. The court contrasted Cordis's situation with previous cases. In Phillips v. Baker, the Ninth Circuit found venue improper for a business with an office in Florida that only conducted temporary operations in California, indicating a lack of permanence. Similarly, in University of Illinois Foundation v. Channel Master Corp., the Seventh Circuit ruled that a single sales employee in Illinois, who worked from home without company records or inventory, did not constitute a regular and established place of business. The Federal Circuit noted that unlike Cordis, which maintained a stock of products in Minnesota, the representatives in Channel Master had no physical inventory or demonstrations, further differentiating the two scenarios.
The District Court concluded that Cordis maintained a regular and established place of business within the judicial district, unlike Channel Master. While the presence of a formal office or store is not mandatory, the statutory requirement for a defendant to have a regular and established “place of business” in the venue remains in effect. The statute necessitates that the defendant possess a physical location where business activities occur, which must be authorized by the defendant. This interpretation aligns with previous rulings, notably Judge Wright's in Clopay Corp. v. Newell Cos., where it was determined that a defendant must be substantially engaged in business at a permanent location within the district under its control. Cordis reinforced the necessity for a meaningful physical presence, which includes not only a location but also employees, products, and literature in the district. The requirement for a “permanent and continuous presence” indicates that a defendant must demonstrate some tangible manifestation in the district, though the evaluation of such presence is factually driven and varies by case. Merely being registered or conducting business in a district does not suffice to establish a regular business presence, as emphasized in several cases including TC Heartland, which clarified that the term "resides" in 1400(b) does not allow for suits where a corporation is only doing business. The legislative intent behind 1400(b) was to specifically govern patent case venues, distinct from the broader criteria applicable to non-patent cases prior to 1988.
Establishing "minimum contacts" with a district for personal jurisdiction does not equate to having a regular and established place of business within that district. A defendant can have sufficient minimum contacts that comply with due process without conducting regular business in the area. The mere existence of a website that allows online purchases does not demonstrate a regular and established presence; such a website can be accessed from anywhere and does not constitute the continuous presence required for jurisdiction. Allowing the maintenance of an interactive website to establish general jurisdiction would lead to the untenable situation where any company with an online presence could be subject to jurisdiction in every state. Historical principles of federal court jurisdiction should not be undermined by advancements in technology like the Internet. Furthermore, simply shipping goods into a district does not create a regular and established place of business.
Plaintiffs allege that the Defendant engages in business activities in North Carolina by selling and shipping products there; however, these claims do not establish that the Defendant has a 'permanent and continuous presence' in the state. Citing the OptoLum case, the document states that simply selling products through stores or maintaining a website for online sales does not suffice to demonstrate a regular place of business under 28 U.S.C. § 1400(b). Similarly, having an exclusive distributorship does not equate to having an established business presence. The text notes that shipping products for distribution without additional factors does not prove a continuous presence either.
The Court outlines its approach to determining if a defendant has a regular and established place of business in Delaware, emphasizing that a fixed physical presence, such as an office, is not mandatory, but some physical presence is necessary. Mere registration to do business or having a website accessible in Delaware is insufficient for venue purposes.
The Court concludes that the Defendants have shown that venue is improper in Delaware. CGI has no physical presence, employees, or corporate offices in the state. Cook Medical's interactions with Delaware, including sales across the U.S. and occasional visits by sales representatives, do not constitute a regular and established place of business. Additionally, a former sales representative who lived in Delaware is no longer employed and had no sales responsibilities there.
Cook Medical and CGI lack physical facilities, corporate offices, and employees in Delaware since September 2016, which indicates that they are merely "doing business" in the state without maintaining a regular and established place of business, as supported by relevant case law. The court concludes that the defendants have demonstrated they do not have such a place in Delaware. Although plaintiffs do not strongly contest this finding, they request permission for venue-related discovery to investigate the relationship between Cook and CGI, potentially linking Cook's actions to CGI. The court acknowledges that jurisdictional discovery is permissible unless the claims are deemed frivolous, but emphasizes that plaintiffs must provide a non-frivolous basis for their request. In this case, since plaintiffs have not challenged the credibility of the defendants' declarations, which affirm their lack of a business presence in Delaware, the court denies the request for discovery. It determines that allowing such discovery would be an inefficient use of resources, as the existing record sufficiently establishes that Delaware is not a proper venue for this case.
Transfer of the case to the Southern District of Indiana, Indianapolis Division, is deemed necessary due to improper venue in the current District. The Court finds that the defendants successfully demonstrated that the venue is inappropriate and that a transfer aligns with the interests of justice, promoting timely resolution on the merits without incurring unnecessary expenses. The Court denies the plaintiffs' request for venue-related discovery and deems moot the defendants' motion for leave to file an amended pleading regarding the improper venue defense. The Court's decision is supported by precedent asserting that, when a case is improperly filed, a court may either dismiss or transfer it as per 28 U.S.C. § 1406(a). During the motions hearing, both Chief Judge Stark and Magistrate Judge Burke were involved, addressing not only this case but also related venue motions in other cases. The reference to defendants' motion as a "motion to dismiss" is a shorthand, acknowledging their alternative request for transfer.
Venue pertains to the location of a patentee's legal redress, not the ability to seek it. Acorda and Beverly Hills Fan are evaluating if Federal Circuit law governs personal jurisdiction inquiries, distinct from procedural motions like Rule 12(b)(2). The consolidated nature of the motions hearing means statements cited from the transcript should not be attributed exclusively to the parties involved but reflect broader positions. For procedural matters, Third Circuit law applies to determine whether a Supreme Court decision constitutes an intervening change in the law that excuses waiver. Judge Newman, in dissenting opinions on Sea Ray Boats, acknowledged that the Supreme Court's TC Heartland decision represented a change in venue law, the only Federal Circuit judge to do so. The Federal Circuit has consistently affirmed the VE Holding precedent, even after legislative amendments to § 1391 in 2011, and has denied certiorari on several writs challenging VE Holding. Various cases illustrate that district courts erred by dismissing actions for improper venue without applying the residency definition from § 1391(c) to § 1400(b) as mandated by VE Holding. Additionally, plaintiffs are not required to have anticipated the change in law, as their complaints referenced only § 1391 for establishing proper venue rather than § 1400(b), implicitly acknowledging VE Holding's binding nature in patent litigation.
Plaintiffs relied solely on § 1391 for venue despite Defendants' improper venue defense being potentially valid before the TC Heartland ruling, raising questions about Plaintiffs' good faith. Defendants sought to amend their answer shortly after the ruling, further supporting their venue challenge. Cook Medical is confirmed to have sold allegedly infringing products in Delaware, while CGI has not engaged in any relevant activities in the District, such as manufacturing or selling medical devices. The Court has determined that both Defendants have shown venue is improper in Delaware due to the absence of a "regular and established place of business." The Court did not need to evaluate the “acts of infringement” requirement further. The Cordis decision, cited by both parties, is viewed as a relevant precedent, though it applies a deferential standard not directly applicable here. Previous Supreme Court cases referenced are factually distinct and offer little guidance. Unlike in Cordis, there is no evidence of Defendants' representatives being present in the District during medical procedures or of inventory being maintained there. The Court rejected Plaintiffs’ discovery request regarding attributing Cook Medical’s Delaware presence to CGI, affirming that Cook Medical does not meet the "regular and established place of business" criterion, which remains unfulfilled even if the infringement acts requirement could potentially be satisfied.
