Alphabet Inc.'s Google will have to fend off a patent infringement lawsuit in East Texas after a federal appeals court refused to reconsider moving the case to another court.
A divided U.S. Court of Appeals for the Federal Circuit Feb. 5 denied Google’s petition to rehear whether having servers and technical equipment in third-party facilities establishes a regular place of business for the purposes of filing a lawsuit.
The precedential ruling highlights continuing questions in internet and e-commerce-related lawsuits after the U.S. Supreme Court’s 2017 ruling in TC Heartland v. Kraft made it more difficult for patent owners to sue in their preferred venues. Under that ruling, one way to establish venue is to show that the defendant has a regular and established place of business there.
Judges Jimmie Reyna, Pauline Newman and Alan Lourie voted to rehear the case. Reyna, writing the dissent, said the court left unresolved the question of whether conducting business virtually amounts to a regular and established place of business.
“I see no justification for us to sit idly by while uncertainty builds and litigants and courts expend their resources on issues that we could have provided guidance on here,” Reyna wrote.
Question of Control
SEVEN Networks LLC sued Google in for allegedly infringing patents related to data network traffic optimization through servers in East Texas. Google said the case should be transferred because the presence of its servers in the district doesn’t amount to a regular and established place of business under the patent venue statute.
But Judge J. Rodney Gilstrap of the U.S. District Court for the Eastern District of Texas concluded that Google keeps its servers in the district to support its customers and “wholly controls” them. Google asked the full Federal Circuit to rehear the case after a three-judge panel in October dismissed its request to transfer the case.
The panel said Google failed to show any violation of a “clear and indisputable” right that would prompt the court to transfer the case. It suggested that Google may have better luck with that argument in a typical appeal after the district court’s final ruling.
Several online businesses, including Twitter Inc. and Etsy Inc., filed friend-of-the-court briefs in the case highlighting how they would be hurt by Gilstrap’s ruling.
The Federal Circuit would “eventually appreciate the widespread implications of the issue before us in this case,” Reyna said. “The question is not if we will take this issue up, but when, and how many judicial and party resources will have been needlessly wasted by the time we do.”
Other federal courts have grappled with similar questions about whether equipment installed in third-party facilities, including wireless communication routers and cell phone towers, could be considered a regular and established place of business in patent venue arguments.
The Federal Circuit granted mandamus review to correct a East Texas court ruling in In re Cray, Reyna said. Gilstrap had denied computer maker Cray Inc.’s motion to transfer a lawsuit filed against it, in part because a salesperson had worked remotely from there.
The U.S. District Court for the Northern District of Texas in December held that servers in a third-party data center don’t qualify as a regular and established place of business in CUPP Cybersecurity, LLC v. Symantec Corp.
Reyna said he agreed with the North Texas court that there would be “far reaching consequences” of concluding such a venue was proper, which would distort the patent venue statute.
Gilstrap’s ruling in the Google case “could essentially reestablish nationwide venue, in conflict with TC Heartland, by standing for the proposition that owning and controlling computer hardware involved in some aspect of company business (e.g., transmitting data) alone is sufficient,” Reyna wrote.
Hogan Lovells US LLP represented Google. Thompson & Knight LLP represented SEVEN Networks.
The case is In re: Google LLC, Fed. Cir., No. 18-00152, 2/5/19.
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