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IS A GOOGLE SERVER A “PLACE” FOR PURPOSES OF PATENT VENUE?

March 22, 2019

IS A GOOGLE SERVER A “PLACE” FOR PURPOSES OF PATENT VENUE? THE FEDERAL CIRCUIT’S REFUSAL TO REHEAR IN RE GOOGLE HINTS THAT IT MIGHT BE

By: Jenna Saunders, Volume 103 Staff Member

The Supreme Court’s recent holding in TC Heartland has given patent litigators yet another opportunity to challenge the patent system’s adaptability to our technologically driven society. This case effectively limited the districts wherein venue[1] may be proper under 28 U.S.C. § 1400(b).[2] This statute specifies that proper venue for a patent infringement action exists “in the judicial district where” 1) “the defendant resides,” or 2) “the defendant has committed acts of infringement and has a regular and established place of business.”[3] Despite TC Heartland’s clarifying purpose, the case gave rise to new questions surrounding the interpretation of the phrase, “regular and established place of business” within § 1400(b).[4] While the Federal Circuit has provided guidance to resolve this issue,[5] its recent inaction in In re Google has allowed district courts to stretch the definition of the phrase beyond its intended meaning.[6]

I. APPLYING THE DEFINITION OF A “PLACE” UNDER § 1400(B) TO GOOGLE SERVERS

A. In re Cray: Defining the Regular and Established Place of Business

The Federal Circuit established in In re Cray that there are “three general requirements” relevant to determining whether there is a “regular and established place of business” in a particular district: “(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.”[7] It also provided considerations that can help inform whether each requirement has been met.

The court specified that a physical place need not be a “fixed physical presence in the sense of a formal office,” but there must “be a physical, geographical location in the district from which the business of the defendant is carried out.”[8] Moreover, the place cannot “refer merely to a virtual space or electronic communications from one person to another.” [9] The second requirement contains two inquiries. First, the place of business must be regular, meaning that it operates “in a steady, uniform, orderly and methodical manner.”[10] Second, it must be established, meaning that it is “settled certainly or fixed permanently.”[11] The third requirement establishes that the place must actually be claimed by the defendant as its own. Moreover, the defendant must exercise some attribute “of possession or control over” it.[12] For example, the defendant could own, lease, or engage in business from the place.[13]

B. In re Google: Stretching the Definition of a “Place”

District courts have produced conflicting results while applying the principles set forth by In re Cray. Of note, the Eastern District of Texas recently issued two decisions that directly contradict one another.[14] Google, a Delaware corporation, was the defendant in both cases.[15] The plaintiffs asserted that the Eastern District of Texas was a proper venue based on the assertion that “Google Global Cache” (GGC) servers stored in the district constitute a “regular and established place of business.”[16]

GGC servers are part of Google’s “Edge Network,” the medium through which it provides web-based services.[17] GGC servers are the part of the Edge Network that is closest to end-users.[18] Internet Service Providers (ISPs) store the servers in their warehouses via contracts with Google.[19] Popular Google content is then cached and served locally to ISP customers through these servers.[20]

Personal Audio was the first plaintiff to assert that the GGC servers constituted a regular and established place of business in the Eastern District of Texas.[21] Judge Clark determined that Personal Audio failed to show proper venue because the servers did not meet two prongs of the In re Cray inquiry.[22]

Despite Personal Audio’s failure, SEVEN Networks succeeded in demonstrating venue in the same district on a nearly identical argument.[23] Judge Gilstrap held that the warehouses wherein the GGC servers were stored qualified as a physical place. He fixated on the language in In re Cray: “[§ 1400(b)] cannot be read to refer merely to a virtual space.”[24] He noted that the inclusion of the word, merely, implies that a virtual space may qualify as a physical place if “additional facts are present.”[25] He reasoned that the relevant “additional facts” in the case were that Google “exercises exclusive control over the digital aspects of the GGC,” the physical server, and the physical rack that the server is stored on.[26]

Judge Gilstrap found that the second requirement was met because Google and the ISPs had entered into five-year agreements which had been ongoing prior to the litigation.[27] The requirement that the place be “of the defendant” was fulfilled because Google exerts exclusive control over the servers and their location once they are installed.[28]

Google subsequently sought a writ of mandamus at the Federal Circuit to direct Judge Gilstrap to dismiss or transfer the case for improper venue.[29] The court declined review on grounds that the ruling did not “involve the kind of broad and fundamental legal questions relevant to § 1400(b)” that would warrant mandamus review and that “it would be appropriate to allow the issue to percolate in the district courts so as to more clearly define the importance, scope, and nature of the issue.”[30] Google then filed a petition for panel rehearing or rehearing en banc. Both petitions were denied, with Circuit Judge Reyna, joined with Judge Newman and Judge Lourie, dissenting from the decision.[31]

II. THE AFTERMATH OF IN RE GOOGLE

The conclusion of In re Google has left the patent community with far-reaching uncertainty regarding where defendants may be subject to venue. Many of the world’s leading technology companies, including Adobe, Amazon, Cisco, Google, HP, Intel and Netflix assert that the scope of Judge Gilstrap’s opinion is extremely unclear: there is no way of knowing what other pieces of hardware will qualify as a place, or for that matter, what functions that hardware must perform to qualify as a place of business. [32]

This uncertainty gives plaintiffs in patent infringement actions confidence to assert venue in districts they may not have previously considered. For instance, if Judge Gilstrap’s opinion is good law, patentees may assert that a defendant has a place of business in any district where the defendant owns equipment, regardless of whether the defendant owns or leases any real property in that district. Judge Clark highlighted these concerns in Personal Audio. He commented that, if the GGC servers were a place where business is conducted, the consequences would “distort the scope of [§ 1400(b)]” such that “every single AT&T tower would then possibly become a place of business for AT&T.”[33]

III. IN RE GOOGLE EXPANDED THE DEFINITION OF A “PLACE” BEYOND ITS INTENDED MEANING

Judge Gilstrap’s opinion stretched the definition of a “place” beyond what could have been contemplated by Congress when it enacted § 1400(b). Congress enacted the predecessor to § 1400(b) to prevent courts from finding that venue exists in any district wherein the defendant could be served.[34] Judge Gilstrap’s opinion stands for the proposition that the presence of electronic hardware in a district is enough to warrant venue.[35] This is clearly contrary to Congress’ intent: if Congress enacted § 1400(b) to restrict venue from existing in every district where a defendant could be served, it certainly did not intend for venue to exist in every district where a defendant has a mere electronic presence.[36]

The error in Judge Gilstrap’s opinion is magnified when analyzed in concert with In re Cray. Judge Gilstrap held that the GGC servers are more than a virtual space because they are a physical piece of equipment over which Google asserts exclusive control.[37] This expands the Federal Circuit’s interpretation of the term, “place.” In re Cray specifically points out that the definition of a “physical place” includes a building, “part of a building set apart for any purpose,” or “quarters of any kind.”[38] The GGC servers cannot qualify as a place under these definitions because they are not a building, a part of a building, or “quarters of any kind.” Rather, they are physical hardware that exists on a rack.[39]

In addition, the fact that Google exerted exclusive control over the servers does not transform them from a collection of hardware to a place. Judge Gilstrap correctly noted that In re Cray contemplates, as relevant considerations regarding whether a place is “of the defendant,” whether the defendant “exercises [] attributes of possession or control over the place.”[40] However, In re Cray does not contemplate whether the defendant exercises attributes of possession over an object.[41]Therefore, Judge Gilstrap’s assertion that the GGC servers are more than a virtual space because Google asserts control over them stretches the definition of place to an object, which is beyond what In re Cray imparted on the term.

IV. CONCLUSION

The Federal Circuit’s decision not to grant mandamus in In re Google has signaled to the legal community that venue can be established in the Eastern District of Texas for Google and companies like it.[42] This trend will cost defendants significant expenses litigating patent infringement actions in a venue where they do not actually conduct business.[43] Such expense is glaringly wasteful. The mere existence of a server surely does not meet the definition of a place as articulated in In re Cray. The Federal Circuit should therefore resolve the uncertainty produced by In re Google and reduce the potential for waste of judicial resources and litigation costs by taking up this issue sooner rather than later.

  1. Venue refers to the geographic location where a case is brought. 28 U.S.C. § 1390 (2012). If a civil suit is brought in a court where venue is improper, the suit must be dismissed or transferred. 28 U.S.C. § 1406 (2012). ↑
  2. See TC Heartland LLC v. Kraft Foods Group Brands LLC, 137 S Ct. 1514, 1516 (2017) (holding that, for purposes of § 1400(b), the defendant resides only in its state of incorporation). ↑
  3. 28 U.S.C. § 1400(b) (2012). ↑
  4. The holding in TC Heartland runs contrary to nearly thirty years of precedent that assumed the defendant resides in any district where they are subject to personal jurisdiction. See TC Heartland, 137 S. Ct. at 1519–20. Very few cases claimed venue under the second prong of § 1400(b) prior to TC Heartland, which resulted in a gap in the case law regarding how courts should interpret the phrase: “regular and established place of business.” David A. Serati, Filling the Jurisprudential Gap: “Regular and Established Place of Business”After In re Cray, Inc., 96 Wash. U. L. Rev. 395, 403 (2018). ↑
  5. See In re Cray Inc., 871 F.3d 1355 (Fed. Cir. 2017). ↑
  6. See generally In re Google LLC, 914 F.3d 1377 (Fed. Cir. 2019). ↑
  7. In re Cray, 871 F.3d at 1360. ↑
  8. Id. ↑
  9. Id. ↑
  10. Id. ↑
  11. Id. ↑
  12. Id. ↑
  13. Id. at 1363. ↑
  14. Compare Personal Audio, LLC v. Google, Inc., 280 F. Supp. 3d 922 (E.D. Tex. 2017), with Seven Networks, LLC v. Google LLC, 315 F. Supp. 3d 933 (E.D. Tex. 2018). ↑
  15. Seven Networks, 315 F. Supp. 3d at 942; Personal Audio, 280 F. Supp. 3d at 931. ↑
  16. Seven Networks, 315 F. Supp. 3d at 950; Personal Audio, 280 F. Supp. 3d at 933. ↑
  17. Seven Networks, 315 F. Supp. 3d at 949. ↑
  18. Id. at 949. ↑
  19. See id. at 950, for pictures of an ISP’s interior rack spaces in which GGC servers are stored. ↑
  20. Id. ↑
  21. See Personal Audio, 280 F. Supp. 3d at 933–34. ↑
  22. Id. at 934. ↑
  23. Seven Networks, 315 F. Supp. 3d at 950–51 (opining that the decision of Personal Audio did not comport with the text of § 1400(b) or with In re Cray). ↑
  24. See id. at 953 (citing In re Cray, 871 F.3d at 1362). ↑
  25. Id. at note 3. ↑
  26. Id. at 951 (emphasis removed). ↑
  27. Id. at 957. ↑
  28. Id. at 965. ↑
  29. In re Google LLC, No. 2018-152, 2018 WL 5536478, at *1 (Fed. Cir. Oct. 29, 2018). ↑
  30. Id. at *3–*4. ↑
  31. In re Google, 914 F.3d at 1377. ↑
  32. Brief of Etsy, et al., as Amici Curiae in Support of Petitioner, In re Google LLC, No. 2018-152, 2018 WL 5536478 (Fed. Cir. Oct. 29, 2018). ↑
  33. Personal Audio, 280 F. Supp. 3d at 934. ↑
  34. See Schnell v. Peter Eckrich & Sons Inc., 365 U.S. 260, 262 (1961) (“Congress adopted the predecessor to § 1400(b) as a special venue statute in patent infringement actions to eliminate the ‘abuses engendered’ by previous venue provisions allowing such suits to be brought in any district in which the defendant could be served.”). ↑
  35. See Seven Networks, 315 F. Supp. 3d at 967. ↑
  36. This conclusion is bolstered by the undisputed fact that no Google employee even visited the places where the [GGC] servers are installed. In re Google, 914 F.3d at 1381 (Reyna, J., dissenting). Moreover, the GGC servers alone were literally the only basis on which Judge Gilstrap found venue. See id. ↑
  37. Seven Networks, 315 F. Supp. 3d at 951. ↑
  38. In re Cray, 871 F.3d at 1362. ↑
  39. Seven Networks, 315 F. Supp. 3d at 965. ↑
  40. In re Cray, 871 F.3d at 1363. ↑
  41. See In re Google LLC, 914 F.3d at 1381 (Reyna, J., dissenting). ↑
  42. Since the Federal Circuit’s denial of mandamus review, thirty-four patentees have filed cases against Google in the Eastern District of Texas. In re Google, 914 F.3d at 1380 (Reyna, J., dissenting). ↑
  43. See id. at 1381–82. ↑
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