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Kranos IP Corp. v. Riddell, Inc.

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

August 28, 2017

KRANOS IP CORPORATION, KRANOS IP II CORPORATION, KRANOS CORPORATION d/b/a SCHUTT SPORTS, Plaintiffs,
v.
RIDDELL, INC., Defendant.

          MEMORANDUM OPINION AND ORDER DENYING MOTION TO DISMISS OR TRANSFER BASED ON IMPROPER VENUE BUT GRANTING TRANSFER UNDER SECTION 1404

          RODNEY GILRAPUNITED STATES DISTRICT JUDGE

         Before the Court is Defendant Riddell, Inc.'s (“Riddell”) Motion to Dismiss or Transfer to the Northern District of Illinois Pursuant to 28 U.S.C. § 1406(a) or 28 U.S.C. § 1404(a). (Dkt. No.7.) Having considered the Motion, the corresponding briefing, and the relevant authorities, the Court finds that venue is proper in this District. Thus, the portion of Riddell's Motion based on improper venue is DENIED. However, the Court is of the opinion that the Northern District of Illinois is a clearly more convenient forum for this particular case. As such, Riddell's Motion based on § 1404(a) is GRANTED. As a result, this case is hereby TRANSFERRED to the Northern District of Illinois.

         I. BACKGROUND

         This is a competitor case between two companies that specialize in the design and manufacture of football helmets used by athletes throughout the United States. Plaintiffs Kranos IP Corporation, Kranos IP II Corporation, and Kranos Corporation d/b/a Schutt Sports (collectively, “Schutt”) brought this patent infringement suit against Defendant Riddell, alleging infringement of three patents related to football helmets. The products accused of infringement in this case are various football helmets made by Riddell. Specifically, the accused products include: SpeedFlex, Revolution Speed, Revolution Speed Classic, 360, Revolution IQ, Foundation, Revolution Edge, Revolution Attack, Revolution Attack-I, Attack, Victor-I, and Victor. (Am. Compl. ¶ 73.) These products are marketed, sold, and used throughout the United States. (Decl. of Thad M. Ide, Dkt. No. 7-1, ¶ 4 (“Ide Decl.”).)

         Riddell is an Illinois corporation, with its principal place of business located in Des Plaines, Illinois. (Suppl. Decl. of Thad M. Ide, Dkt. No. 20-1 ¶ 3 (“Suppl. Ide Decl.”).) Although Riddell recently moved its headquarters from Rosemont, Illinois, to Des Plaines, Illinois, both cities are within the Northern District of Illinois. (Suppl. Ide Decl. ¶ 3.) According to Plaintiffs' Amended Complaint, Riddell is the leading supplier of football helmets in the United States. (Am. Compl. ¶¶ 20, 23.)

         Each Schutt Plaintiff is a Delaware corporation with its principal place of business in Litchfield, Illinois. (Am. Compl. ¶¶ 3-5.) Schutt is a leading supplier of protective and sports equipment, including football helmets. (Am. Compl. ¶ 6.)

         Riddell's Motion seeks dismissal or transfer based on improper venue under § 1406 and, in the alternative, transfer based on convenience under § 1404(a). The Court is aware some courts have held that § 1404(a) applies only upon a finding that venue is proper in the transferor district. See, e.g., Nizami v. Woods, 263 F.Supp. 124, 125 (S.D.N.Y. 1967) (“Since venue in this District is improper, § 1404(a) quite clearly does not apply.”); Wright & Miller, 15 Fed. Prac. & Proc. Juris. § 3845 (4th ed.) (“Section 1404(a) applies when the transferor is a proper venue. Section 1406(a) applies when the transferor is an improper venue.”). Without necessarily agreeing with this position, the Court will nonetheless address the portion of Riddell's Motion based on improper venue before addressing Riddell's arguments regarding convenience.[1]

         II. IMPROPER VENUE

         a. Rule 12(b)(3) Standard

         The evidentiary framework surrounding a Rule 12(b)(3) motion combines aspects of a Rule 12(b)(6) analysis with elements of a summary judgment analysis. At the outset, it is clear that a district court may look beyond the complaint when deciding a motion to dismiss based on improper venue. Ambraco, Inc. v. Bossclip B.V., 570 F.3d 233, 238 (5th Cir. 2009) (stating that under Rule 12(b)(3) a court may look at evidence beyond the facts alleged in the complaint and its attachments).[2] With this in mind, two potential sources of factual information come into play in the improper venue analysis: (1) the well-pleaded facts in a plaintiff's complaint; and (2) affidavits or evidence submitted by a defendant in support of its motion to dismiss (or by a plaintiff in response thereto).

         With respect to the well-pleaded facts in a plaintiff's complaint, in the 12(b)(3) context, the majority of circuit courts, including the Fifth Circuit, accept these facts as true, at least initially. Braspetro Oil Servs. Co. v. Modec (USA), Inc., 240 F. App'x 612, 615 (5th Cir. 2007); Deb v. SIRVA, Inc., 832 F.3d 800, 809 (7th Cir. 2016); Estate of Myhra v. Royal Caribbean Cruises, Ltd., 695 F.3d 1233, 1239 (11th Cir. 2012); Bockman v. First Am. Mktg. Corp., 459 F. App'x 157, 158 n.1 (3d Cir. 2012); Pierce v. Shorty Small's of Branson Inc., 137 F.3d 1190, 1192 (10th Cir. 1998).[3] However, the well-pleaded facts are accepted as true “only to the extent that such facts are uncontroverted by [a] defendant's affidavit.” Pierce, 137 F.3d at 1192 (citing Home Ins. Co. v. Thomas Indus., Inc., 896 F.2d 1352, 1355 (11th Cir. 1990)). See also Deb, 832 F.3d at 809 (“Under Rule 12(b)(3), which allows for dismissal for improper venue, the district court assumes the truth of the allegations in the plaintiff's complaint, unless contradicted by the defendant's affidavits.”); Myhra, 695 F.3d at 1239; Bockman, 459 F. App'x at 158 n.1.

         In Pierce, for example, the plaintiff did not submit affidavits or evidence in response to the defendant's improper venue motion, but instead doubled-down on its complaint, arguing that it was entitled to rely on the well-pleaded facts in its complaint even after the defendant had submitted affidavits controverting those alleged facts. Pierce, 137 F.3d. at 1192. The Tenth Circuit agreed that, generally, a plaintiff could rely on the allegations in its complaint, but explained that this was true only to the extent that those allegations remained uncontroverted. Id. The Circuit then found that, in that particular case, the defendant's affidavit defeated the plaintiff's venue allegations. Id. Accordingly, when a defendant submits affidavits or evidence controverting specific facts alleged in a plaintiff's complaint, a court is no longer required to accept those controverted facts as true. See Deb, 832 F.3d at 809; Bockman, 459 F. App'x at 158 n.1; Pierce, 137 F.3d at 1192.

         b. Improper Venue Standard

         “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). As to domestic corporations, this statute is “the sole and exclusive provision controlling venue in patent infringement actions.” TC Heartland, 137 S.Ct. at 1519 (quoting Fourco Glass Co. v. Transmirra Prods. 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).

         While § 1400(b) does not define the word “resides, ” the Supreme Court in Fourco 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 that defendant has committed acts of infringement in the district and has a regular and established place of business within the district. 28 U.S.C. § 1400(b).

         c. Analysis

         Defendant Riddell is incorporated in Illinois. (Am. Compl. ¶ 7.) Under TC Heartland, Riddell's residency cannot serve as the basis for proper venue. As such, Schutt relies on the second prong of the patent venue statute to establish venue: where the defendant has committed acts of infringement and has a regular and established place of business. 28 U.S.C. § 1400(b).

         The Parties in this case spend much of their briefing addressing which party bears the burden of establishing proper venue, with both sides citing case law in support of their respective positions. As this Court has previously noted, a deep divide exists with respect to which party bears the burden in improper venue disputes. Raytheon Co. v. Cray, Inc., --- F.Supp.3d ---, No. 2:15-cv-1554, 2017 WL 2813896, at *2 (E.D. Tex. June 29, 2017). Recent case law from this District, however, has found that the burden lies with the defendant who seeks to protect the privilege of having its case heard in a convenient forum. See, e.g., Soverain IP, LLC v. Apple, Inc., 2:17-cv-207-RWS-RSP (E.D. Tex. July 25, 2017) (“Because an objection to venue is a personal privilege that offers protection from inconvenience, the burden of establishing improper venue lies with the defendant.”). See also Neirbo Co. v. Bethlehem Shipbuilding Corp., 308 U.S. 165, 168 (1939) (referring to venue as a “personal privilege” that may be waived). While this Court sees no apparent error in the Soverain decision, in this case, the Court declines to address this question, as the result would be the same regardless.

         i. Acts of Infringement

         With respect to acts of infringement in this District, Plaintiffs allege that Riddell sells the infringing football helmets in this District. For example, Schutt alleges that Riddell's local representative sells directly to schools, counties, municipalities, and school districts in this District, including to the Marshall Independent School District and specifically to the Marshall Mavericks High School football team. (Am. Compl. ¶¶ 31, 36-38, 52-53.) Riddell does not appear to dispute these allegations for purposes of the venue analysis. (See Dkt. No. 7.) As such, the Court will not address this aspect of the venue inquiry further. Based on the uncontroverted[4] facts, for venue purposes, Riddell has committed acts of infringement in this District within the meaning of § 1400(b).[5] See Raytheon, No. 2:15-cv-1554, 2017 WL 2813896, at *4 (noting that courts have consistently held that an allegation of infringement is sufficient to establish this aspect of the venue analysis).

         ii. Regular and Established Place of Business

         The crux of the Parties' dispute as to improper venue turns on whether Riddell has a regular and established place of business in this District. Riddell contends that it does not have a regular and established place of business in this District because it has no “place of business, ” facilities, property, or offices located in the District. (Dkt. No. 7 at 16; Ide Decl. ¶ 10.) Schutt's Response provides a lengthy statement of facts to the contrary. (Dkt. No. 15 at 9-11.) For example, as Riddell admits in its declarations, Riddell employs two sales representatives in this District-one in Plano, Texas, and one in White Oak, Texas. (Ide Decl. ¶ 11.) These two sales representatives work out of their personal residences and submit purchase orders to Riddell's manufacturing and distribution facility in Ohio. (Ide Decl. ¶ 11.)

         In Raytheon, this Court highlighted the four factors which this Court views as the most significant guideposts for analyzing whether a defendant has a regular and established place of business in a particular judicial district. Raytheon, No. 2:15-cv-1554, 2017 WL 2813896, at *1. In this Court's view, these four factors are useful in discerning the type of place that should be considered a “regular and established place of business” under the statute.

         The four factors identified in Raytheon include: (1) the extent to which a defendant has a physical presence in the district, including but not limited to property, inventory, infrastructure, or people; (2) the extent to which a defendant represents, internally or externally, that it has a presence in the district; (3) the extent to which a defendant derives benefits from its presence in the district, including but not limited to sales revenue; and (4) the extent to which a defendant interacts in a targeted way with existing or potential customers, consumers, users, or entities within a district, including but not limited to through localized customer support, ongoing contractual relationships, or targeted marketing efforts. Raytheon, 2017 WL 2813896, at *11-13.

         With these factors in mind, the Court addresses the facts of this case. The Court also considers facts presented that fall outside of these four factors because, as this Court has previously emphasized, the purpose of the four factors is merely to provide a “tailored ‘totality of the circumstances' approach to venue, guided by the important goal of administrative simplicity.” Raytheon, No. 2:15-cv-1554, 2017 WL 2813896, at *11. These four factors, of course, are not exhaustive and do not circumvent other relevant considerations.

         1. Physical Presence in the District

         Under the first Raytheon factor, the Court considers “the extent to which a defendant has a physical presence in the district, including but not limited to property, inventory, infrastructure, or people.” Raytheon, No. 2:15-cv-1554, 2017 WL 2813896, at *11. Riddell employs at least[6] twofull-time direct sales representatives who are based in this District and who work exclusively for Riddell. (Am. Compl. ¶¶ 24-28, 31-33; Ide Decl. ¶ 11.) These two representatives work from their personal residences. (Ide Decl. ¶ 11.) One of these direct sales representatives is Mr. Rokky Mullikin. (Am. Compl. ¶ 31.) Mr. Mullikin's LinkedIn page states that he is a “NorthEast Texas Sales Rep at Riddell” and lists his location as Longview, Texas. (Am. Compl. ¶ 31.) His contact information includes a phone number with a local (903) area code. (Am. Compl. ¶ 31.)

         Riddell's direct sales representatives receive the infringing helmets in this District, keep samples in this District, and display and show these samples in this District. (Am. Compl. ¶ 29.) They also give sales presentations for Riddell in this District and provide promotional materials about the infringing products. (Am. Compl. ¶ 29.) Schutt further alleges that Riddell has sales showrooms in this District for the purpose of displaying samples of the infringing helmets. (Am. Compl. ¶ 30.)

         These facts tend to show that Riddell has a substantial physical presence in this district. This factor therefore weighs in favor of finding that Defendant's place of business in this District is a regular and established place of business.[7]

         2. Defendant's Representations Regarding its Presence in the District

         The second Raytheon factor focuses on “the extent to which a defendant represents, internally or externally, that it has a presence in the district.” Raytheon, No. 2:15-cv-1554, 2017 WL 2813896, at *12. This inquiry stems from an equitable concern that a defendant should not be permitted to portray itself as a local provider or local business, then deny such representations when they become inconvenient. See Chadeloid Chem. Co. v. Chicago Wood Finishing Co., 180 F. 770, 771 (C.C.S.D.N.Y. 1910) (Hand, J.) (placing emphasis on a defendant's representations in the regular and established place of business inquiry and stating that the defendant could not “with a good grace” deny its presence in a region where the local agent's office was advertised as a place of business for defendant and where the defendant expected inquiries to be directed to the local agent).

         The well-pleaded facts presented by Schutt show that Riddell holds out its direct sales representatives in this District as local contact persons for Riddell. Schutt's Complaint indicates that Riddell's preferred method of accepting orders is through its direct sales force representatives. (See Am. Compl. ¶ 26 (explaining that customers other than individuals should fill out a form to be contacted by a direct sales representative).) In fact, Riddell takes pride in its vast direct sales force. Specifically, Riddell has advertised that “Riddell/All American manufactures and distributes all of their products through its own direct sales force and a select number of dealers. Riddell/All American has ten company centers and over 230 full-time salesmen / saleswomen.” (Am. Compl. ¶ 24.) Riddell has also proclaimed that it has the “only national sporting goods direct sales force calling on junior high schools, high schools, and colleges.” (Am. Compl. ¶ 25.) ...


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