District Court Refuses to Limit Application of In re Cray to Factual Circumstances Where Physical Products Are Involved
Last month, in VoIP-Pal.com, Inc. v. Twitter, Inc., District Judge Richard F. Boulware, II of the U.S. District Court for the District of Nevada issued an Order granting a Motion to Change Venue filed by Defendant Twitter, Inc. The dispute between the parties began when Plaintiff VoIP-Pal.com, Inc. filed suit against Twitter, asserting infringement of U.S. Patent Nos. 8,542,815 and 9,179,005. Following a stay of the case due to pending proceedings before the Patent Trial and Appeal Board, Twitter filed its Motion to Change Venue, VoIP-Pal.com filed a response to Twitter's Motion, and Twitter filed a Reply to VoIP-Pal.com's response. Prior to issuing its Order, the District Court held a hearing on the matter and ordered Twitter to file a Supplemental Declaration to address whether it had any physical equipment or leased any space in Nevada, including space for data storage, or other support equipment or hardware.
The District Court began by noting that for the purposes of determining venue under the patent venue statute, the location where a defendant corporation "resides" is limited to the corporation's State of incorporation, citing TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S. Ct. 1514, 1517 (2017). The District Court also noted that in view of TC Heartland, the Federal Circuit addressed the question of where a defendant corporation has a "regular and established place of business" under the patent venue statute in In re Cray Inc., 871 F.3d 1355 (Fed. Cir. 2017). In Cray, the Federal Circuit set forth three requirements to establish the second prong of the § 1400(b) venue test: "(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" (In re Cray, 871 F.3d at 1360), all three of which must be satisfied for venue to be proper.
With respect to the instant case, the District Court found that VoIP-Pal.com is a Nevada corporation, with its principal place of business being located in Bellevue, Washington. The Court also found that VoIP-Pal.com does not have any officers, directors, or employees based in Nevada; has no office, land, facilities, or sales in Nevada; and that all of its inventors reside outside of the U.S. The Court further found that Twitter is a Delaware corporation with its principal place of business and headquarters in San Francisco, California. In addition, the Court found that Twitter's product design, development, implementation, and financial activities are centered in San Francisco, and that:
The accused technology is largely designed and built in San Francisco, and the bulk, if not all, of any relevant technical documentation, manuals, and product specifications, as well as all financial data relevant to revenue derived from Defendant's products, are located in San Francisco. Defendant does not own or lease any offices, buildings, or other facilities in Nevada, and does not directly or indirectly store any data in Nevada. It has no Nevada telephone number or local address listed on its website or in any directory. Defendant is a software company that has no physical product inventory, and its advertising and marketing are primarily conducted online. It does not store inventory or product literature in Nevada.
The Court further found that Twitter had a single employee, a software engineer, living in Nevada, and that:
[T]his particular engineer chose to live in Nevada for personal reasons and works from home. He reports to a manager in San Francisco and uses San Francisco support staff. Defendant does not own his home or pay his rent. The decision to live in Nevada was the employee's alone; Defendant does not condition his employment on his location.
In its Motion to Change Venue, Twitter argued that under In re Cray, the District of Nevada is not one where Twitter has a regular and established place of business. VoIP-Pal.com countered that although Twitter does not reside in Nevada, the second prong of the § 1400(b) test is satisfied. In particular, VoIP-Pal.com asked the District Court to recognize the nature of Twitter's business -- facilitating communication over the web, in every state including Nevada -- and limit the application of In re Cray to factual circumstances where physical products are involved.
The District Court refused VoIP-Pal.com's invitation to limit the application of In re Cray, determining instead that "the In re Cray factors weigh in favor of transferring venue." Looking at the first Cray factor, the Court found that:
[T]he undisputed facts show that Defendant does not have a physical location in this district where its business is carried out. Nor does Defendant store any of its data on servers located in Nevada. The fact that one software engineer resides in this district is insufficient to establish such location. The employee works remotely and reports to a team in San Francisco. This employee is not required to live in Nevada.
As for the second Cray factor, the Court explained that "[t]here are no facts to suggest that any of the business conducted out of the software engineer's home meets this requirement." Finally, with respect to the third Cray factor, the Court stated that "[t]here is no dispute that Defendant neither owns nor leases the software engineer's residence," and "[t]here is no dispute that Defendant does not condition the engineer's employment upon his location in this district."
In response to VoIP-Pal.com's request that the District Court distinguish In re Cray from the instant case because there are no physical or tangible products to be distributed or sold, and given the web-based nature of Twitter's business, the District Court stated that "the key inquiry is not whether physical objects are involved, but rather whether the public has access to the defendant corporation through an employee or office located in the district where a suit is brought or if the public directly accesses the services of defendant through a location in the respective forum." Finding, however, that "the bulk of the defendant's employees, product development, and overall operations are located in San Francisco, and that it does not own or lease any buildings in this district, it has no Nevada phone numbers or addresses listed for its operations, and it stores no inventory or data in Nevada," the Court determined that "[t]hese facts demonstrate that Defendant maintains no place of business in Nevada, much less one that is both regular and established."
In granting Twitter's Motion to Change Venue, the District Court also determined that "convenience and fairness to the parties requires transfer of this action." In particular, the Court found that "[t]he litigation will . . . likely be more efficient and easier for both parties in the district of transfer," explaining that "[t]here is no dispute that the Northern District of California is closer in proximity to Plaintiff's center of operations in Bellevue, Washington," and finding that "the burden on the inventors of the technology in question will likely be the same regardless of whether the action proceeds in Northern California or in Nevada."
VoIP-Pal.com, Inc. v. Twitter, Inc. (D. Nev. 2018)
Order by District Judge Boulware, II
