Permissible Venue for U.S. Patent Infringement Suit Restricted Again
Resolving a split of authority among U.S. federal district courts, the Court of Appeals for the Federal Circuit held that independently owned Hyundai and Volkswagen automobile dealerships are not agents of Hyundai and Volkswagen for the purposes of selling cars to consumers and providing warranty services. Thus, the dealerships do not constitute the “regular and established place of business” of the auto makers required to satisfy the patent venue statute.
The patent venue statute, 28 U.S.C. § 1400(b), states that a patent infringement action “may be brought 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.” Since the U.S. Supreme Court’s decision in TC Heartland LLC v. Kraft Foods Group Brands LLC,[1] § 1400(b) has been held to limit permissible venue for a patent infringement suit to only a defendant corporation’s state of incorporation or any district where the defendant has a “regular and established place of business” and is alleged to have committed an act of infringement.
After the TC Heartland decision, the U.S. Court of Appeals for the Federal Circuit (CAFC) established three conditions for satisfying the venue statute: “(1) there must be a physical place in the district; (2) it must be a regular and established place of business; and (3) it must be the place of the defendant.”[2] In 2020, the CAFC held that the “place of the defendant” requirement could be satisfied in appropriate circumstances by the place of business of a defendant’s agent.[3] A year later, the CAFC clarified that not every agency relationship will suffice; instead, it must be shown that the defendant actually engages in business from the agent’s location, thereby ratifying the agent’s place of business as the defendant’s own.[4]
Federal district courts faced with the question of whether independently owned auto dealerships are the type of agents required to satisfy the patent venue statute have reached conflicting answers. As the CAFC pointed out, questions of control often arise in the context of franchise agreements, and courts have recognized that “[s]ome degree of control by the franchisor over the franchisee would appear to be inherent in the franchise relationship.” Quoting precedent from other areas of law, the CAFC said that in the franchise context, “the most significant factor to consider is the degree of control that the franchisor maintains over the daily operations of the franchisee or more specifically, the ‘manner of performing the very work in the course of which the accident occurred.’”
Generally speaking, federal district courts in the Eastern and Western Districts of Texas have decided that automobile dealerships are the sort of agents that satisfy the patent venue statute for the purpose of infringement suits against the auto makers themselves, while courts elsewhere have decided that dealerships are not agents of the manufacturers for patent venue purposes. At least one other federal trial court elsewhere has explicitly declined to answer the question until further guidance is provided by the CAFC.
Now, in In Re: Volkswagen Group of America, Inc.,[5] the CAFC has resolved the split of authority by holding that independently owned Hyundai and Volkswagen automobile dealerships are not agents of Hyundai and Volkswagen for the purposes of selling cars to consumers and providing warranty services. Thus, the dealerships do not constitute the “regular and established place of business” of the auto makers required to satisfy the patent venue statute. The auto makers cannot be sued for patent infringement in a judicial district merely because there are independent dealerships in the district who are selling cars made by those auto makers.
The CAFC focused on the nature of the agency relationships and explained that “just because a party may be a principal’s agent for a particular purpose does not mean that the party is the principal’s agent for another.” Referring back to a point made previously in In re Google, the court said that the agency relationship must be such that the auto manufacturers have the “power to give interim instructions” to the dealerships with respect to the allegedly infringing activities. In that earlier decision, the CAFC explained that “interim control” is characterized by the power to exert control over the business “throughout the duration of the relationship.” While Hyundai and Volkswagen set standards for the sales and warranty functions of the dealerships, they did not exercise any day-to-day control of how those functions were performed.
The In Re: Volkswagen Group of America decision will benefit franchisors who set conditions and standards for, but do not control the daily activities of, their franchisees. The federal judicial districts where those franchisors, such as auto makers, may be sued for patent infringement is now clearly further restricted under the CAFC’s latest interpretation of the patent venue statute, 28 U.S.C. § 1400(b).
[1] 137 S.Ct. 1514 (2017).
[2] In re Cray Inc., 871 F.3d 1355, 1360 (Fed. Cir. 2017).
[3] In re Google, 949 F.3d 1338 (Fed. Cir. 2020).
[4] Andra Group v. Victoria’s Secret, 6 F.4th 1283 (Fed. Cir. 2021).
[5] ___ F.4th ___, 2022 WL 697526 (Fed. Cir. Mar. 9, 2022).
