On May 14, 2018, the Federal Circuit (Judge Linn, with Judges Reyna and Hughes) ruled on mandamus to address two important issues related to proper venue in a patent infringement case: 1) whether regional or Federal Circuit law governs the analysis of proper venue under 28 U.S.C. § 1400(b), and 2) which party bears the burden of persuasion on the issue when a defendant challenges proper venue. The court held that Federal Circuit law applies, and the plaintiff bears the burden of persuasion. In re: ZTE (USA) Inc., No. 2018-113 (Fed. Cir. May 14, 2018).
American GNC filed a patent infringement complaint against ZTE USA (“ZTE”) and ZTE (TX) Inc. in the Eastern District of Texas. Id. at *2. ZTE moved to dismiss for improper venue under 28 U.S.C. §§ 1406 and 1400(b), and, later, to transfer (with ZTE (TX)) under 28 U.S.C. § 1404(a).
The magistrate judge concluded that venue was proper in the Eastern District of Texas under § 1404(a) (convenience), but did not rule on the challenge under § 1406(a) (improper venue). Id. After further briefing, the magistrate judge denied ZTE’s motion to dismiss. The court held that ZTE failed to show, under § 1400(b), it did not have a regular and established place of business in the Eastern District. Id. at *3 (citing Am. GNC Corp. v. ZTE Corp., No. 4:17-cv-00620, 2017 WL 5163605 (E.D. Tex. Oct. 4, 2017) [PACER version]). The magistrate judge placed the burden of persuasion on ZTE to show improper venue, under Fifth Circuit law, but noted that “courts are not uniform” in applying this burden, even within the Fifth Circuit. Id. at *3 (citing Am. GNC Corp., 2017 WL 5163605 at *2).
In the magistrate’s view, ZTE had a regular and established place of business in Plano, Texas, because it contracted for ZTE-dedicated call center services with First Contact LLC. Id. at *3–4. The magistrate judge held that “ZTE USA has failed to meet its burden to show it does not have a regular and established place of business in the District.” Id. at *3 (emphasis added). ZTE objected, arguing that the magistrate’s analysis 1) was contrary to In re Cray Inc., 871 F.3d 1355 (Fed. Cir. 2017), and 2) “erred by placing the burden of proof on ZTE USA to establish that venue was not proper.” Id. After the district judge agreed with the magistrate, ZTE petitioned for mandamus. Id. at *3 (citing Am. GNC Corp. v. ZTE Corp., No. 4:17-cv-00620, 2017 WL 5157700 (E.D. Tex. Nov. 7, 2017)).
After concluding that it could resolve the disputed issues on mandamus, Id. at *4-5, the Federal Circuit sided with ZTE.
First, the court held that “Federal Circuit law governs the placement of the burden of persuasion on the propriety of venue under § 1400(b).” Id. at *8. The court stated that “[w]hether venue is proper under § 1400(b) is an issue unique to patent law and is governed by Federal Circuit law.” Id. at *5 (citing Cray, 871 F.3d at 1360). As such, the burden of persuasion should also follow Federal Circuit law because the burden is considered a part of the legal rule. Id. at *5-6. The court noted that such a rule would achieve uniformity in this area of law, and remove uncertainty in the district courts, as happened earlier with personal jurisdiction. Id. at *6 (citing Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558 (Fed. Cir. 1994)). Currently, the Circuits vary in placing the burden of persuasion, despite it being “critical to determining in what forum a patentee can seek redress for infringement of its patent rights.” Id. at *7. The court disagreed with American GNC that regional circuit law should apply, as in the Rule 12(b)(6) and summary judgment contexts, because those issues have no similar patent-specific aspects, and there is no lack of uniformity among (or in) the Circuits. Id. at *7-8. The court also declined to follow rulings related to § 1404(a) (convenience) challenges, because that statute, too, does not involve patent-specific issues. Id. at *8.
Second, the court held that the plaintiff should bear the burden. Finding in its history no ruling on this issue, the court turned to guidance from its sister Circuits. Those courts “uniformly placed the burden to show proper venue in patent cases on the Plaintiff” upon a challenge by the defendant. Id. at *8-9 (citing the First, Seventh, and Ninth Circuits). The court also found it sensible to place the burden on plaintiff because § 1400(b) is deliberately restrictive of venue. Id. at *9. The court found unpersuasive American GNC’s arguments on this point, noting that a plaintiff bears a similar burden when a defendant challenges personal jurisdiction. Id. at *10 (citing Celgard, LLC v. SK Innovation Co., 792 F.3d 1373, 1378 (Fed. Cir. 2015)).
Third, turning to the merits of ZTE’s venue challenge, the Federal Circuit vacated the district court’s denial of the motion to dismiss, and remanded. Id. at *13. The court first noted that Cray requires a “place of business…of the defendant.” Id. at *11. Here, the district court first improperly placed the burden on ZTE to show that the call center was not its place of business. Id. The district court also summarily concluded that ZTE and the call center’s contract made their relationship a “partnership,” establishing ZTE’s place of business. Id. On remand, the Federal Circuit required the district court “to give reasoned consideration to all relevant factors or attributes of the relationship in determining whether those attributes warrant [the] call center being deemed a regular and established place of business of ZTE USA.” Id. The panel noted that because the call-center contract “ended the [principal place of business] analysis” for the district court, it never considered several additional factors that could be relevant to the question of whether the call center was “of the defendant” ZTE. Id. at *12.