In previous articles, we have examined the test for identifying a “regular and established place of business” under 28 U.S.C. § 1400(b).1 Below, we highlight two cases where courts have analyzed whether a subsidiary’s operations can be imputed to its corporate parent for the purposes of the “regular and established place of business” prong of § 1400(b).
In Ascion, LLC v. Tempur Sealy International, Inc., Case No. 15-12067 (E.D. Mich. Oct. 13, 2017), the Eastern District of Michigan held that a subsidiary’s license to do business in the state was insufficient to establish venue for a patent infringement action against its parent, Tempur Sealy International, Inc. In finding that “[t]here [was] no evidence of [Tempur Sealy’s] physical presence, nor evidence of any actual sales agents or distributors . . . that could be said to be . . . regular and established,” the court noted the “well established principle that proper venue over a subsidiary does not necessarily entail proper venue over its corporate parent.”
In another recent case, Symbology Innovations, LLC v. Lego Systems, 2017 U.S. Dist. LEXIS 161489 (E.D. Va. Sept. 28, 2017), the Eastern District of Virginia determined that a subsidiary’s operation of retail stores within the district could not be imputed to the parent company for venue purposes under § 1400(b). In so holding, the court applied the “formal corporate separateness” test set forth in the Supreme Court’s Cannon Manufacturing Co. v. Cudahy Packing Co. decision, 267 U.S. 333 (1925).
The court explained that, under Cannon, “even where the parent corporation controls a subsidiary’s operations and the companies share a unitary business purpose, the subsidiary’s presence in the forum cannot be imputed to the parent company so long as they maintain formal corporate separateness.” A parent and subsidiary are separate entities for purposes of venue if, for example, they “maintain separate bank accounts, submit separate tax returns, file separate financial statements, . . . meticulously charge each other for any services rendered . . . , [and] the officers and directors of [each] . . . are not all the same.”
Applying Cannon, the Symbology court found that the physical presence in the district of three retail stores owned by a subsidiary was not imputable to the corporate parent, Lego Systems. In particular, the court found that the parent and the subsidiary were “distinct corporate entities with separate finances, assets, officers, and records.” Moreover, “even where there [was] a unitary business purpose to manufacture and sell to ultimate consumers, if the operations of the two or more functional components of that unitary business purpose [were] themselves vested in formally separate entities, then venue over one under Section 1400(b) [could not] be gained by treating the regular and established place of business of the other as the office of the former.” (Id. at *24-25 (quoting Shapiro v. Ford Motor Co., 359 F. Supp. 350, 357 (D. Md. 1973)).) Therefore, the Lego entities maintained “formal corporate separateness,” even though the parent produced goods to be sold by the subsidiary.
Notably, in a case earlier this year, the Eastern District of Texas also appeared to agree that the operations of a subsidiary are not automatically imputable to its corporate parent. See Blue Spike, LLC v. Nook Digital, LLC, 2017 U.S. Dist. LEXIS 120400 (E.D. Tex. July 28, 2017) (“It is clear under 28 U.S.C. § 1400(b) that the mere existence of a wholly-owned subsidiary in a judicial district does not, by itself, suffice to establish venue over the subsidiary’s parent corporation.” (quoting L. D. Schreiber Cheese Co. v. Clearfield Cheese Co., 495 F. Supp. 313, 318 (W.D. Pa. 1980))).
Moving forward, we expect to see more courts grappling with application of the venue rules to corporate families. If the cases discussed above are any indication, plaintiffs will have a hard time relying on the operations of corporate affiliates in establishing a “regular and established place of business.”