Presence of Servers Alone Does Not Establish Venue

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The US Court of Appeals for the Federal Circuit has now held that a “place of business” for purposes of the patent venue statute requires an employee or agent of the defendant to be conducting business at that place.

In Depth

The US Court of Appeals for the Federal Circuit has now held that a “place of business” for purposes of the patent venue statute requires an employee or agent of the defendant to be conducting business at that place. In light of this finding, the Court found that the physical presence of the accused infringer’s servers in the district did not establish venue because the accused infringer did not have an employee or agent in the district. In re. Google LLC, Case No. 19-126 (Fed. Cir. Feb. 13, 2020) (Dyk, J.) (Wallach, J., concurring).

Super Interconnect Technologies (SIT) sued Google for patent infringement, alleging venue was proper in the Eastern District of Texas because Google had several Google Global Cache (GGC) servers in the district. The GGC servers are not hosted within datacenters owned by Google, but instead are located at datacenters owned by internet service providers (ISPs) with which Google contracts. When a user requests Google’s content, the ISP routes the user’s request to a GGC server (within the district) before routing the request to Google’s central data storage servers (outside the district). The GGC servers cache only a small portion of content that is popular with nearby users so that content can be provided quicker than if it were provided from Google’s central server infrastructure. This performance benefit is due in part to the physical proximity of the GGC servers to the ISP’s users. After being sued, Google moved to dismiss the complaint for improper venue. The district court denied Google’s motion, finding that venue was proper because the GGC servers within the district qualified as Google’s “regular and established place of business.” Google petitioned for a writ of mandamus, directing the district court to dismiss the case for lack of venue.

The Federal Circuit first addressed whether mandamus was appropriate to resolve the venue issue presented by Google. The Court noted that in October 2018 it had previously denied mandamus in In re. Google (IP Update Vol. 22, No. 3) on similar facts because it was not known at the time if the district court ruling involved a broad and fundamental legal question relevant to venue and because there was no disagreement between a large number of district courts. However, the Court found that mandamus was now appropriate because three developments had occurred in the interim. First, there were a number of district court decisions adopting conflicting views on the basic legal issue presented in the case. Second, it was unlikely that the venue issue would be presented through the normal appellate process and parties would bear substantial expense from an erroneous district court decision. Third, district court decisions have crystalized that the issues, namely whether a server rack qualifies as a place of business and whether a regular and established place of business requires the regular presence of an employee or agent of the defendant conducting the business.

Having determined that mandamus is appropriate, the Federal Circuit turned to the substantive issue of the circumstance in which venue is appropriate. Under In re. Cray (IP Update Vol. 20, No. 9), the three general requirements to establish that a defendant has a regular and established place of business are:

  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.

Google’s petition addressed the first two Cray factors, arguing that a “place” must have characteristics of a real property of lease hold and that “a place of business” requires a place where an employee or agent of the defendant is conducting the defendant’s business.

Addressing the first argument, the Federal Circuit rejected the notion that the “physical place of business” Cray factor requires that the defendant has a real property interest or a leasehold in real property. The Court reiterated its holding from Cray that the venue statute may be satisfied by any physical place that the defendant “possess[es] or control[s],” such as leased shelf space or rack space. As to the second argument, the Court agreed with Google that under the second Cray factor, a “place of business” generally requires an employee or agent of the defendant to be conducting business at that place. The Court, however, noted that a “regular and established place of business” may not always require a human agent and it is possible that a machine could act as an agent.

Turning to Google’s situation, the Federal Circuit framed the question presented as whether Google had an employee or agent with a regular, physical presence at its “place of business” and whether that employee or agent was conducting business for Google. The Court noted that while there is no Google employee conducting business in the Eastern District of Texas, there is a question of whether the ISPs are acting as Google’s agent. Under its contract with the ISPs, Google provides the ISP with GGC server equipment, which the ISPs install and host in server racks within the ISP datacenter. In return, the ISPs:

  1. Connect the GGC servers to the ISP’s customers and the internet;
  2. Perform installation of the GGC servers; and
  3. Perform basic maintenance activities on the servers, but only with specific and direct step-by-step instructions from Google.

The Court found that none of these ISPs’ activities created an agency relationship between Google and the ISP. Focusing on the maintenance activities, the Court noted that maintaining equipment is meaningfully different than the actual producing, storing and furnishing to customers of what the business offers. Accordingly, the Court concluded that Google did not have a regular and established place of business in the Eastern District of Texas and venue was thus not proper.

Judge Wallach joined the Court’s opinion, but wrote a concurring opinion to raise a question about Google’s business model. He indicated that it remains to be seen whether Google’s end users are agents of Google by virtue of voluntarily or involuntarily sharing information generated on Google’s servers. Giving an example, Wallach noted that by entering searches and selecting results, a Google consumer is continuously providing data that Google monetizes as the core aspect of its business model. In such a case, it might be possible that Google is doing business at the computer of each of its users. He indicated that such issues should, in the first instance, be entertained by district courts.

Practice Note: Judge Wallach’s concurring opinion raises the possibility of broad discovery into a company’s relationship and activities with its customers over the internet. The question of how a company uses or monetizes information provided by a user now appears to be relevant to venue and may lead to burdensome discovery on the issue of venue.