On Monday, Judge Gilstrap (E.D. Tex.) denied Riddell's motion to dismiss for improper venue in Kranos IP Corp. v. Riddell, Inc., Civ. No. 2:17-cv-443-JRG (E.D. Tex. Aug. 28, 2017). The court held – in what arguably is dicta – that Riddell's employment of two full times sales representatives in the district, among other facts, constituted a "regular and established place of business" under the second prong of the patent venue statute, 28 U.S.C. § 1400(b). In reaching this decision, Judge Gilstrap followed the four-part test he previously articulated in Raytheon Co. v. Cray, Inc., Civ. No. 2-15-cv-01554, 2017 U.S. Dist. LEXIS 100887, 2017 WL 2813896 (E.D. Tex. Jun. 29, 2017) – a decision now before the Federal Circuit in a petition for mandamus (we have been tracking the developments for this petition: see our July 19, August 2, and August 10 weekly updates).
Raytheon Factor One: Physical Presence in the District. In finding this factor favored venue, the court noted that i) Riddell employs two full-time direct sales representatives in the district, each of whom works from home; ii) one of whom identifies himself as a “NorthEast Texas Sales Rep at Riddell” with a local area code phone number ; iii) both employees receive, keep, and display samples of the allegedlyinfringing products (football helmets) in the district; and iv) defendant Riddell also allegedly has “sales showrooms” in the district where the helmets were displayed.
Raytheon Factor Two: Representations Regarding Presence in the District. The court reasoned that Riddell holds out its direct sales representatives as local contact persons for Riddell. Thus, the court found that the second Raytheon factor weighed in favor of venue.
Raytheon Factor Three: Benefits Received from the District. Riddell argued that prior decisions had held that merely “doing business” in a district is not enough to find a regular and established place of business. The court agreed, but explained that “evidence regarding sales in a district is a factor in the venue analysis,” and that “significant sales revenue from a district suggests that the defendant’s place of business there is indeed ‘regular and established,’” even if such revenue “will not typically alone be sufficient.” The court found that plaintiffs’ allegations provided insufficient detail as to the volume of Riddell’s sales generated from within the Eastern District of Texas—the broad allegation that Riddell derived “substantial revenue” there, without more, was given little weight. Thus, the court found the third Raytheon factor neutral.
Raytheon Factor Four: Targeted Interactions with the District. The court explained that “the purpose of the fourth Raytheon factor is to identify how a defendant has specifically targeted the distinct communities within a particular district.” Plaintiffs’ generalized allegations—that Riddell engaged in nationwide marketing efforts that included the district, provided a reconditioning service for all customers, and maintained a website accessible to viewers in the district and elsewhere—were not the type of “localized” acts relevant under the fourth Raytheon factor. On the other hand, Riddell’s maintenance of showrooms and representatives’ sales presentations in the district constituted “targeted interactions” favoring venue under the fourth Raytheon factor.
Having weighed the four Raytheon factors, the court held that Riddell had a regular and established place of business in the Eastern District of Texas, and was subject to venue there. The court did not stop there, however. As in Raytheon, the court additionally (or perhaps alternatively) analogized to the Federal Circuit’s decision in In re Cordis, 769 F.2d 733 (1985), which also involved two full-time, in-district sales representatives: “The activities of Riddell’s sales representatives in this District largely mirror the activities of the sales representatives in Cordis.”
Despite finding venue proper under § 1400, the court then granted Riddell’s motion to transfer for convenience under § 1404(a). It is noteworthy that the court devoted 14 pages to the § 1400 analysis, which was ultimately moot, and an additional 10 pages concerning transfer (including a great quote from Bissinger’s Friday Night Lights). Possibly, the court took the opportunity to clarify and apply its Raytheon test for future litigants. One other item of note is the court’s continued emphasis of Cordis above and beyond the four-factor Raytheon test, which perhaps suggests some doubt as to whether the four-factor test will survive scrutiny or, perhaps, that Cordis is an unspoken, fifth factor.