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Raytheon Co. v. Cray, Inc.

United States District Court, E.D. Texas, Marshall Division

June 29, 2017

RAYTHEON COMPANY Plaintiffs,
v.
CRAY, INC. Defendant.

          MEMORANDUM OPINION AND ORDER

          RODNEY GILSTRAP UNITED STATES DISTRICT JUDGE

         Before the Court is the Motion of Defendant Cray, Inc. (“Cray”) to Transfer Pursuant to 28 U.S.C. § 1406(a). (Dkt. No. 256.) Having considered the Parties' submissions and the relevant authorities, and for the following reasons, the Court finds that the motion should be and is DENIED.

         I. BACKGROUND

         On September 25, 2015, Raytheon Company (“Raytheon”) filed its Complaint against Cray, Inc., alleging infringement of four patents. (Dkt. No. 1.) Raytheon asserts that Cray has directly infringed at least two of Raytheon's patents by using, selling, or offering to sell high performance computing (“HPC”) products or supercomputer systems to customers within the State of Texas and the Eastern District of Texas. (Dkt. No. 1 ¶¶ 7, 8, 22, 38.) In addition, Raytheon asserts that Cray has indirectly infringed its patents by inducing others in this District to use the accused supercomputer or HPC products. (Dkt. No. 1 ¶¶ 7, 8, 23, 39.)

         On November 25, 2015, Cray filed a Motion to Dismiss for lack of personal jurisdiction and improper venue. (Dkt. No. 21.) Raytheon responded that at the time of Cray's Motion to Dismiss, one of Cray's sales executives, Mr. Douglas Harless, had been working for Cray from within this District for over seven years. (Dkt. No. 22 at 7-8.) Mr. Harless's responsibilities at Cray included “new sales and new account development in [the] Central U.S.” as well as “management of key accounts within the Financial, BioMedical and Petroleum Industries.” Id.

         In addition, Cray sold an accused XC40 supercomputer to the University of Texas System. (Dkt. No. 21 at 4.) While the accused system was delivered and installed at the University of Texas's Austin campus, the system was accessed via remote terminals at various University of Texas facilities, including two campuses within the Eastern District of Texas. (Dkt. No. 21 at 4; Dkt. No. 1 ¶ 7.) Based on these facts, Magistrate Judge Roy S. Payne found that venue was proper in the Eastern District of Texas, under VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), and that the exercise of personal jurisdiction was appropriate. (Dkt. No. 65.) The Court adopted this recommendation. (Dkt. No. 94.)

         Discovery following the Magistrate Judge's Report and Recommendation revealed additional, relevant information regarding Cray's involvement in the Eastern District of Texas. (Dkt. No. 265 at 8-10.)[1] For example, in a map of Cray's “Americas Sales Territories, ” Cray specifically identified Athens, Texas, and listed Mr. Harless as the “Named Account Manager” located there. (Dkt. No. 265, Ex. C at 2.) In addition, Mr. Harless's “office” telephone number, which is listed on Cray's invoices to customers and emails to clients, has an area code associated with several counties in this District. (Dkt. No. 265 at 4; Dkt No. 265, Springfield Decl. ¶¶ 6-7.) Mr. Harless has been identified as the account manager for at least twenty-one separate sales of the accused products to nine different customers. (Dkt No. 265, Springfield Decl. ¶¶ 8-9.) The revenue for the accused sales attributed to Mr. Harless exceeds $345 million. Id. In addition to receiving a salary for his sales activities at Cray, Mr. Harless received reimbursement for (1) his cell phone used for business purposes; (2) Internet fees; and (3) mileage or other costs for business travel. (Dkt. No. 265 at 6; Dkt. No. 256, Hoelzeman Decl. ¶¶ 4-5.) Although Cray did not pay for any secretarial or support staff, Mr. Harless received direct “administrative support” from Cray's Minnesota office such that Mr. Harless could continue to work from his home office. (Dkt. No. 256, Hoelzeman Decl. ¶ 5.) Under this arrangement, Mr. Harless was able to sell products to customers both within Texas and across the nation. At the time the Complaint was filed, Mr. Harless's job responsibilities also extended beyond sales, including the management of key accounts within the financial, biomedical, and petroleum industries. (Dkt. No. 22 at 7-8.)

         As Cray eventually disclosed, Mr. Harless was not Cray's only employee within the Eastern District of Texas. From 2010 to 2011, Cray employed Mr. Troy Testa as a “Sr. Territory Manager.” (Dkt No. 265, Springfield Decl. 2.) Like Mr. Harless, Mr. Testa resided in this District and sold Cray's HPC systems. Id. ¶¶ 2-3. Mr. Testa “[s]old [a] $132, 000 system at [a] 41% margin” within three months of joining Cray; “[c]losed six new customers in [his] first year[, ] including Areva, Amgen and Weir Oil;” and “[h]ad a pipeline of over $6, 000, 000 on a $2, 500, 000 quota” for Cray, all while he resided in the Eastern District of Texas. Id.

         On June 1, 2017, three months before trial, Cray filed a motion to transfer this case under 28 U.S.C. §1406(a) in light of the Supreme Court's decision in TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S.Ct. 1514 (2017). (Dkt. No. 256.) Cray asserts that venue is improper because (1) Cray does not “reside” in this District; and (2) Cray has not committed acts of infringement and does not have a regular and established place of business within this District. (Dkt. No. 256.)

         II. LEGAL STANDARD

         A. Establishing Venue Under § 1400(b)

         “Any civil action for patent infringement 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.” 28 U.S.C. § 1400(b) (2012); TC Heartland, 137 S.Ct. at 1519 (“§ 1400(b) ‘is the sole and exclusive provision controlling venue in patent infringement actions.'” (quoting Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 229 (1957))). If venue is not proper, a defendant may move to dismiss the case or transfer it to a district in which the case could have been originally brought. Fed.R.Civ.P. 12(b)(3); 28 U.S.C. § 1406(a).

         Under the general venue statute, which defines residency “[f]or all venue purposes, ” a domestic corporation resides “in any judicial district in which such defendant is subject to the court's personal jurisdiction.” 28 U.S.C. § 1391(c). However, the Supreme Court has held that this statute is inapplicable in patent infringement cases. TC Heartland, 137 S.Ct. 1514 at 1519.

         While § 1400(b) does not define the word “resides, ” the Supreme Court in Fourco Glass Co. v. Transmirra Products Corp. concluded that, under § 1400(b), a domestic corporation resides only in its state of incorporation. 353 U.S. at 226; TC Heartland, 137 S.Ct. at 1521.

         Even if a domestic corporation does not reside in the district in which the case is filed, venue remains proper if the domestic corporation has committed acts of infringement and has a regular and established place of business within the district. 28 U.S.C. § 1400(b).

         B. The Burden of Proof When Defendant Objects to Venue

         Circuit courts[2], district courts[3], and scholars[4] have reached different answers in allocating the burden of proof in venue disputes. Even courts in this District have rendered conflicting opinions. Compare Langton v. Cbeyond Commc'n, L.L.C., 282 F.Supp.2d 504, 508 (E.D. Tex. 2003) (“[T]he burden of sustaining venue lies with the plaintiff.”), with Sanders v. Seal Fleet, Inc., 998 F.Supp. 729, 733 (E.D. Tex. 1998) (“The burden to demonstrate why venue is improper and why the forum should be changed lies with the movant.”), and Texas Marine & Brokerage, Inc. v. Euton, 120 F.Supp.2d 611, 612 (E.D. Tex. 2000) (same). The Fifth Circuit also has yet to determine which party bears the burden of proof on a motion regarding improper venue. See Gupta v. Lynch, 2014 WL 4063831, at *2 (E.D. La. Aug. 15, 2014) (noting that “district courts in the Fifth Circuit have been inconsistent in allocating the burden of proof” in venue disputes).

         Some courts have held that the burden to establish proper venue lies with the plaintiff. Where the burden of sustaining venue is placed on the plaintiff, courts often rely on older authority recognizing a plaintiff's burden in establishing jurisdictional facts. For example, Langton cited an earlier case from the Southern District of Texas, see Langton, 282 F.Supp.2d at 508 (citing Laserdynamics Inc. v. Acer Am. Corp., 209 F.R.D. 388, 390 (S.D. Tex. 2002)), that in turn relied on a line of cases extending back to K. J. Schwartzbaum, Inc. v. Evans, Inc., 44 F.R.D. 589 (S.D.N.Y. 1968), which recognized that “the burden is on plaintiff to establish the jurisdiction of the court over . . . defendants.” 44 F.R.D. at 591. See also Hoover Grp., Inc. v. Custom Metalcraft, Inc., 84 F.3d 1408, 1410 (Fed. Cir. 1996) (noting that “venue is based on the facts alleged in the well-pleaded complaint”).

         However, many other courts have reached the opposite conclusion and hold that the defendant bears the burden to establish improper venue. These courts reason that requiring plaintiffs to establish proper venue confuses the relationship between jurisdiction and venue. See, e.g., Myers v. American Dental Association, 695 F.2d 716, 724 (3d Cir. 1982) (“[T]hese cases confuse jurisdiction with venue or offer no reasons to support their position”), cert. denied, 462 U.S. 1106 (1983). A motion to dismiss for improper venue is not an attack on the power of the court to hear a particular case. Myers, 695 F.2d at 724 (“[A] motion to dismiss for improper venue is not an attack on jurisdiction but only an affirmative dilatory defense.”). Instead, it is purely an affirmative defense that reflects considerations of convenience. See Panhandle E. Pipe Line Co. v. Fed. Power Comm'n, 324 U.S. 635, 639 (1945) (“Venue relates to the convenience of litigants.”). See also Neirbo Co. v. Bethlehem Shipbuilding Corp., 308 U.S. 165, 168 (1939) (concluding that the right to object to venue is a “privilege” afforded to defendants that must be “asserted . . . seasonably”). Thus, courts have reasoned that because a plaintiff need not plead venue facts, the plaintiff should not bear the burden to establish proper venue. Myers, 695 F.2d 716, 724 (3d Cir. 1982) (“‘[I]t is not necessary . . . for the plaintiff to include allegations showing the venue to be proper.' . . . It logically follows therefore that on a motion for dismissal for improper venue under Rule 12 the movant has the burden of proving the affirmative defense asserted by it.” (quoting Fed.R.Civ.P. Form 2, Advisory Committee note 3)).

         This Court declines to hold whether the burden of proof, in asserting venue, lies with the plaintiff or the defendant. In the matter before the Court, the Parties have not disputed who bears this burden. However, even if the burden lies with the plaintiff, the Court finds that Raytheon has met that burden based on the facts alleged in the complaint and the evidence raised by Raytheon during discovery.

         C. When the Regular and Established Place of Business Must be Considered

         Few courts have considered the proper time period for assessing whether a defendant has a regular and established place of business in the district, but each one has reached the same conclusion: “under the patent venue statute, venue is properly lodged in the district if the defendant had a regular and established place of business at the time the cause of action accrued and suit is filed within a reasonable time thereafter.” Welch Sci. Co. v. Human Eng'g Inst., Inc., 416 F.2d 32, 35 (7th Cir. 1969), cert. denied, 396 U.S. 1003 (1970). See also San Shoe Trading Corp. v. Converse Inc., 649 F.Supp. 341, 345 (S.D.N.Y. 1986); Datascope Corp. v. SMEC, Inc., 561 F.Supp. 787, 789 (D.N.J. 1983), aff'd in relevant part, 776 F.2d 320 (Fed. Cir. 1985). The Court adopts this view.

         III. Analysis

         The Court begins by examining both prongs of § 1400(b): (1) where the defendant resides; and (2) where the defendant has committed acts of infringement and has a regular and established place of business.

         A. Residence

         In patent infringement cases, a domestic corporation “resides” only in its state of incorporation. Fourco, 353 U.S. at 226. As a domestic corporation, Cray is incorporated in the State of Washington. (Dkt. No. 1 ¶ 2; Dkt. No. 256 at 4.) Accordingly, Cray does not reside in this District within the meaning of § 1400(b).

         B. The Judicial District Where the Defendant Has Committed Acts of Infringement and Has a Regular and Established Place of Business

         Having found that Cray does not reside within the Eastern District of Texas, the Court now considers whether “the defendant has committed acts of infringement and has a regular and established place of business” in the Eastern District of Texas. 28 U.S.C. § 1400(b).

         i. Acts ...


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