Federal Circuit: Server Is Not A Regular And Established Place Of Business

Today, the Federal Circuit granted a writ of mandamus, ordering the Eastern District of Texas to dismiss or transfer a case for lack of venue.  This order is the latest in a series of Federal Circuit decisions, post-TC Heartland, where the Eastern District of Texas has tried to hold on to patent cases even when venue isn’t appropriate.

Patent Plaintiffs Want Venue In Texas

In a case decided soon after TC Heartland, E.D. Texas Judge Gilstrap found venue appropriate due to a remote employee who chose to live in the Eastern District, even though the defendant company hadn’t established any locations in the district.  The Federal Circuit found that to be an abuse of discretion—a “fixed physical location in the district is [] a prerequisite to proper venue.”

So, in a follow-on case involving SEVEN Networks, the Eastern District turned around and decided that collocating servers in a district was the type of fixed physical location that justified venue.  Google requested mandamus, and the Federal Circuit denied mandamus and rehearing.  Several judges presciently noted in their dissent from denial that the denial would “leave unanswered a critical issue that increasingly affects venue in legal actions involving e-commerce.”  

After this decision, NPEs began to file lawsuits against companies with collocated servers in E.D. Texas.  Those cases included the one the Federal Circuit decided today—Super Interconnect Technologies (SIT) v. Google—filed only four days after the denial of mandamus.

Today’s Decision

In today’s decision, the Federal Circuit revisited the question they avoided in the SEVEN Networks case.  E-commerce and Internet technology, which heavily utilizes the kind of remote hosting and caching servers at issue here, is seriously impacted by the threat of being hauled into court in a district where you have no presence simply because your content is hosted on a local server.  

Although the facts of the case are nearly identical—in both cases, the accused servers are local caching servers—the Federal Circuit found that “the prediction of our dissenting colleagues has proven accurate.”  The prediction that this issue would come up time and again was confirmed.

And the Federal Circuit, once it decided to decide the issue, realized that assigning venue based on a collocated server contradicted the intent of the venue statute.  Noting that the statute was intimately intertwined with the service statute, the Federal Circuit found that a regular and established place of business requires the “regular, physical presence of an agent at the place of business” and “permanent agency”, not just intermittent presence.

None of those exist for collocated servers.  While the decision did not draw out the full analogy, it did refer to older technologies like railways and telegraph lines, where one entity might have a railway that ran through a district and hire local mechanics to maintain the railway.  That earlier situation was never intended to provide venue—and the modern equivalent, of data centers storing data, doesn’t either.

Meaningful Impacts

In today’s technological environment, where cloud hosting and collocating equipment and data is important to providing the best experience for users, this decision has real and positive impacts.  Companies will no longer be faced with choosing between avoiding the risk of being hauled into court in a district and providing residents of that district with an adequate product. This is particularly important for smaller companies who may rent collocated servers to provide better services—one example is the recent trend towards “gaming as a service”, which needs local hosting due to the need for low latency.  Startups in this space no longer face the risk of expensive cross-country litigation simply because they locate servers to minimize latency.  Instead, they can collocate servers in the needed locations, knowing that they conduct business where they are—the district in which their design, coding, and sales staff exist and operate.

There are a couple hooks left in this decision that might lead to a third attempt from the Eastern District to hold onto jurisdiction—for instance, it leaves open the possibility that a machine might be an agent that could accept service.  But for the time being, the Internet can breathe easy—mere presence of a server doesn’t mean you have to go to Texas.

Joshua Landau

Joshua Landau is the Patent Counsel at the Computer & Communications Industry Association (CCIA), where he represents and advises the association regarding patent issues.  Mr. Landau joined CCIA from WilmerHale in 2017, where he represented clients in patent litigation, counseling, and prosecution, including trials in both district courts and before the PTAB.

Prior to his time at WilmerHale, Mr. Landau was a Legal Fellow on Senator Al Franken’s Judiciary staff, focusing on privacy and technology issues.  Mr. Landau received his J.D. from Georgetown University Law Center and his B.S.E.E. from the University of Michigan.  Before law school, he spent several years as an automotive engineer, during which time he co-invented technology leading to U.S. Patent No. 6,934,140.

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