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From Intellectual Property Law Daily, May 14, 2018

District court improperly placed burden of proof on defendant challenging patent venue

By Thomas Long, J.D.

In a patent dispute over technologies related to mobile devices, the U.S. Court of Appeals for the Federal Circuit has determined that a federal district court incorrectly assigned the burden of proof on venue to defendant ZTE (USA) Inc., which had sought to transfer the case from the Eastern District of Texas to the Northern District of Texas or the Northern District of California. In addition, the district court failed to fully consider the relevant factors in deciding whether a call center in the Eastern District was run by ZTE. Because the patent venue statute raised questions unique to patent law, the court applied the procedural law of the Federal Circuit, rather than that of the Fifth Circuit. In a case of first impression, the court held that, under Federal Circuit law, the burden of persuasion to establish that venue was proper was on the plaintiff. Because the district court had placed the burden of proof on ZTE and failed to properly consider whether the plaintiff had met its burden of showing that ZTE had a place of business in the district, the district court’s decision was vacated and remanded (In re ZTE (USA) Inc., May 14, 2018, Linn, R.).

In February 2017, American GNC Corp. filed a patent infringement suit against ZTE in the Eastern District of Texas. ZTE moved to dismiss for improper venue or to transfer the case. A magistrate judge concluded that venue was proper in the Eastern District of Texas for purposes of the convenience provision of 28 U.S.C. §1404(a) but did not rule on the motion for improper venue under Section 1406(a). After briefing, another magistrate judge denied the Section 1406(a) motion, finding that ZTE failed to show that it lacked a regular and established place of business in the district, based on a certain call center in Plano, Texas. Although the call center was operated by First Contact LLC (a subsidiary of iQor US Inc.), employees there were dedicated to handling ZTE calls. ZTE petitioned the Federal Circuit for a writ of mandamus, asserting that the district court’s analysis regarding venue was improper.

In the Federal Circuit’s view, granting mandamus review was appropriate because the case presented "basic" and "undecided" issues relating to proper judicial administration in the wake of TC Heartland; namely, whether Federal Circuit or regional circuit law governed the burden of proof for determining the propriety of venue under Section 1400(b), and on which party that burden rested.

Noting that it generally deferred to regional circuit procedural law on questions not unique to patent law, the appellate court stated that whether venue was proper under Section 1400(b) was an issue unique to patent law and therefore was governed by Federal Circuit law. Which party bore the burden of persuasion was intimately related to the substantive venue determination. Therefore, the burden of persuasion question was a substantive aspect of Section 1400(b), not of Section 1406, the general improper-venue statute, the court said.

The Federal Circuit held that, upon motion by the defendant challenging venue in a patent case, the plaintiff bore the burden of establishing proper venue. According to the court, this holding best aligned with the weight of historical authority among the circuits and best furthered public policy. Prior to the formation of the Federal Circuit, regional circuits uniformly placed the burden to show proper venue in patent cases on the plaintiff following a motion by the defendant challenging venue. Section 1400(b) was intended to be restrictive of venue in patent cases, compared to the broad general venue provision, the court said. The intentional narrowness of the statute supported placing the burden of proof on the plaintiff.

On the merits of this case, the court explained that there were three general requirements for establishing venue in a patent case: (1) a physical place in the district; (2) that constituted a regular and established place of business; and (3) that was the place of the defendant. Factors to be considered in determining whether a "place of business" was "of the defendant" included whether the defendant owned or leased the place, whether the defendant listed the place on its website, and whether the defendant listed its name on a sign associated with the building itself. The district court incorrectly placed the burden of proof on ZTE and erroneously rendered a summary characterization of the iQor-ZTE relationship as a "partnership." To be complete, the district court must consider all relevant factors or attributes of the relationship in determining whether iQor’s call center could be deemed a regular and established place of business of ZTE, the court said. The court also noted that the mere existence of a contractual relationship between iQor and ZTE under which iQor provided call center services to ZTE’s customers did not necessarily make the call center a regular and established place of business of ZTE.

ZTE’s petition was granted to the extent that the district court’s order denying ZTE USA’s motion to dismiss for improper venue was vacated, and the district court was instructed to reconsider ZTE USA’s motion to dismiss consistent with this order, placing the burden of persuasion on the propriety of venue on American GNC.

The case is No. 2018-113.

Attorneys: Charles M. McMahon (McDermott Will & Emery LLP) for ZTE [USA] INC. Alison Aubrey Richards (Global IP Law Group) for American GNC Corp.

Companies: ZTE [USA] INC.; American GNC Corp.

MainStory: TopStory Patent FedCirNews

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