Can Computer Equipment Serve as a “Regular and Established Place of Business” in Patent Cases?
On February 5, 2019, the Federal Circuit denied rehearing en banc in In Re Google LLC, 2018-152 (Fed. Cir. Feb. 5, 2019), leaving unsettled the question of whether the presence of computer servers satisfies the “regular and established place of business” requirement for establishing proper venue in patent cases.
The Federal Circuit’s decision stems from patent litigation initiated by SEVEN Networks, LLC against Google in U.S. District Court for the Eastern District of Texas. SEVEN Networks, LLC v. Google LLC, 2:17-cv-442-JRG (E.D. Tex.). In that case, SEVEN accused Google of infringing ten patents through its operation of the Google Play store. Google moved to dismiss or transfer the case for improper venue, arguing that because it did not have a regular and established place of business within the boundaries of the Eastern District of Texas, venue was improper under the patent venue statute, 28 U.S.C. § 1400(b).
Google’s Motion Denied
The district judge, Judge Rodney Gilstrap, denied Google’s motion. In a 43-page opinion, Judge Gilstrap focused on Google’s “Edge Nodes” – the last layer in Google’s Google Global Cache (GGC) network that resides closest to Google’s end users. Google’s Edge Nodes are located throughout the United States, including within the Eastern District of Texas. Specifically, GGC servers in Google’s Edge Nodes are housed in spaces leased by Google from Internet Service Providers (ISPs). Google provides the hardware – the GGC server itself – while the ISP provides the rack space, power, and network interfaces necessary for the mounting and operation of the GGC server. Google retains ownership of the GGC server and maintains significant control over its operation, including the provision of specific instructions to the ISPs regarding manual tasks such as the physical switching of a toggle switch, turning equipment on or off, and tightening screws, cable ties, or securing cables.
Based on the above, Judge Gilstrap found that, even though Google had rented rack space from ISPs in which to mount these GGC servers, it was the GGC servers themselves, not the physical building in which these racks were located, that constituted the “regular and established place of business” sufficient to establish venue under Section 1400(b).
Google promptly filed a petition for a writ of mandamus with the Federal Circuit. The petition was denied on a 2-1 vote on October 29, 2018. In his dissent, Judge Reyna criticized the majority for refusing to undertake mandamus review, noting that Judge Gilstrap’s decision that the computer hardware itself can constitute a “regular and established place of business” appeared to be an expansive departure from the Federal Circuit’s previous holdings in TC Heartland and In re Cray.
Google’s petition for rehearing en banc was denied on a 9-3 vote on February 5, 2019. Judge Reyna again authored a dissenting opinion, which was joined by Judge Newman and Judge Lourie, in which he warned that the court was “leav[ing] unanswered a critical issue that increasingly affects venue in legal actions invoking e-commerce.” Indeed, was Google’s ownership of the computer equipment necessary for a finding of a regular and established place of business, or would renting or leasing the equipment have been sufficient? Can the GGC server itself rightly constitute a “place,” as Judge Gilstrap held in his decision, or was the “place” actually the ISP’s facilities in which the GGC server was housed? How much control over the physical operation of the GGC server was necessary? As many technology companies and other businesses rely on geographically-dispersed computer networks, Judge Gilstrap’s decision, and the Federal Circuit’s reluctance to review it, creates substantial uncertainty regarding where a party may have to defend a patent infringement suit. Parties and their counsel will need to be thoughtful and creative in navigating these emerging issues of venue in patent cases.