The Federal Circuit recently resolved a long-simmering district court split over a controversial venue rule in In re: Google, rejecting a prior decision that the presence of certain Google servers in an ISP data center each qualified as a “regular and established place of business”. Rather, the appeals court held that the “regular, physical presence of an employee or other agent of the defendant conducting the defendant’s business” is required “at the alleged ‘place of business’”—though it clarified that it was not deciding whether a machine could serve as an agent, nor the related question of whether a machine can accept service. NPE Personalized Media Communications, LLC (PMC) has since seized on this language, asserting in another campaign that similarly located Google servers qualify as agents under the Federal Circuit’s holding. Now, both Google and campaign codefendant Netflix have argued to the contrary, countering that machines presently lack the capacity to “consent” to act on behalf of a principal.

The Federal Circuit’s Evolution on Servers and Venue

As recently detailed by RPX, the Federal Circuit’s In re: Google decision was not the first time that the court has rebuked District Judge Rodney Gilstrap of the Eastern District of Texas for issuing what it has deemed an overly broad interpretation of the patent venue statute. In 2017, the appeals court rejected Judge Gilstrap’s attempt to establish a four-part, “totality of the circumstances” test for determining whether a defendant has a “regular and established place of business” in a district, holding in In re: Cray that Judge Gilstrap’s test deviated too far from the text of the statute.

The Federal Circuit—both a panel and the full court—initially declined to review the decision that led to In re: Google, issued in July 2018 in litigation filed by Seven Networks LLC (an NPE linked to Fortress Investment Group LLC) against Google. This caused some uncertainty among district courts, several of which issued a series of rulings that came to different conclusions from one another on venue with respect to the same Google Global Cache (GGC) servers at issue in the Seven Networks decision. The rejection of Google’s mandamus petition came over heated dissents from Circuit Judge Jimmie Reyna (one issued alongside the panel’s rejection of that petition, and another when the full court declined to step in), who warned that Judge Gilstrap’s decision could “reestablish nationwide venue” for many companies using computer hardware in their businesses.

The Federal Circuit returned to the issue after Judge Gilstrap denied a Google venue challenge filed in another litigation campaign, this one waged by Acacia Research Corporation’s Super Interconnect Technologies LLC (SIT), once again finding that venue was proper due to the presence of the same GGC servers in the Eastern District. This prompted Google to file another mandamus petition that the appeals court granted in February, acknowledging that Judge Reyna and Circuit Judge Alan D. Lourie (who joined one of Judge Reyna’s dissents) had correctly predicted the district court split and ruling that the defendant’s agents must be regularly present at a place of business (among other factors) for venue to be proper. Applying the facts to Google, the court then held that the servers at issue did not establish venue.

Gilstrap Orders Supplemental Briefing on Impact of In re: Google

On February 13, the same day that the Federal Circuit issued its In re: Google decision, Judge Gilstrap ordered the parties in PMC’s lawsuit against Google and Netflix to brief the impact of that ruling on the defendants’ pending motions to dismiss for improper venue. Judge Gilstrap asked the parties to brief three issues: 1) the source of law that the court should apply in determining the relevant agency relationships; 2) whether Google and Netflix each have a “regular, physical presence of an employee or other agent of the defendant conducting the defendant’s business at the alleged place of business”; and 3) “[u]nder what conditions . . . ‘a machine could be an agent,’ and whether any such agent of Netflix or Google exists within the Eastern District of Texas”. Briefs were filed in sealed form on February 20 and in redacted form on February 24.

PMC filed one brief per defendant, as permitted by Judge Gilstrap’s order. In its brief focusing on Google, the NPE argues that the defendant’s GGC servers qualified as agents under the In re: Google decision, which stated that “[a]n agency relationship is a ‘fiduciary relationship that arises when one person (a ‘principal’) manifests assent to another person (an ‘agent’) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents to act’”. As to the “person” requirement, PMC asserts that “Congress has never distinguished between automated methods of conducting business and business conducted by humans”, citing statutory language in the America Invents Act providing that an automated teller machine (ATM) shall not be considered a “regular and established place of business” as well as the July 2018 Seven Networks decision, in which Judge Gilstrap held that the statute does not, and cannot, include a human-centric activity requirement: “Any reading of the statutory requirements of § 1400(b) that inserts an extra-statutory requirement of human-centric activity at the ‘regular and established place of business’ necessarily renders this express exemption superfluous”. (The Federal Circuit explicitly declined to reach the ATM issue in In re: Google, apart from stating that it did “not see why this amendment, which makes no mention of an employment or agent requirement, should alter our analysis”.)

PMC asserts that the GGC servers are Google’s agents based on several alleged factors. These include the “close association between Google’s business model and the GGCs’ function”, which according to the NPE “reflects the underlying fiduciary purpose of the principal-agent relationship: Google deploys GGCs to act in Google’s interest and on Google’s behalf.” PMC also addresses the patent service statute, 28 U.S.C. Section 1694, though without reference to the text of that provision itself—which establishes that for a district where a defendant does not reside but has a “regular and established place of business”, service of the “defendant may be made upon his agent or agents conducting such business”. “Any such requirement would be satisfied here”, argues PMC, because Rule 4 of the Federal Rules of Civil Procedure permits service according to the law of the state where the district is located. Since Texas law allows service on anyone 16 years or older at the defendant’s place of business, or “in any other manner that the affidavit or other evidence before the court shows will be reasonably effective to give the defendant notice of the suit”, the NPE asserts that “leaving a summons with an employee at an ISP location hosting a GGC server, or following any other method for effecting service that the court considers reasonable, would satisfy the requirement” of the patent service statute (notwithstanding the Federal Circuit’s holding, in In re: Google, that under the facts of that case, GGC servers are not “regular and established place[s] of business”, and that ISP employees were not agents of Google).

Meanwhile, Google’s brief (at least, the portions publicly available) begins with the choice of law question (which is not addressed in the unredacted portions of PMC’s Google brief). The company argues that because Federal Circuit law governs the initial analysis of the requirements of the patent venue statute—and because assessing whether an “agen[cy]” relationship exists within the meaning of the patent service statute . . . is one component of determining whether a ‘regular and established place of business’ exists that can give rise to venue under Section 1400(b)”—it is appropriate to apply Federal Circuit law to the agency question as well. As a result, under the Federal Circuit’s In re: Google opinion, “the meaning of the term ‘agent’ is informed by the ‘essential elements of agency’ derived from the generic principles embodied in the Restatement (Third) of Agency” and can be further clarified through Supreme Court precedent, though Google cautioned the court against applying definitions of the term “agent” as applied in “other statutes and substantive areas of federal law”, given that the term may defined differently based on context. Google also argues that the court “must . . . consider whether the agent has a ‘regular, physical presence’ and is ‘regularly conducting’ the defendant’s business” under the In re: Google test, questions that it asserts are best resolved under Federal Circuit law.

Later in its brief, after addressing the question of whether its GGC servers (as in the other relevant cases against it) each count as a “regular and established place of business”, Google returned to the agency issue and argued that the language cited by PMC—questioning, in part, whether a machine can be an agent—is merely dicta. The reason, it explained, is that the language can be removed without affecting the court’s venue determination, and that it only affects hypothetical future cases.

As for such future cases, Google argues that the core tenets of an agency relationship must still apply under the described circumstances—and to that end, “a machine could only qualify as an ‘agent’ if technology and the law advanced to a place where a machine could ‘consent’ to be controlled by the principal. That technological and legal future has not yet arrived” (emphasis added). In any event, Google observed that the Federal Circuit conditioned the hypothetical, future determination of a machine as an agent on the “recognition that service could be made on a machine pursuant to” the patent service statute, arguing that the Federal Rules of Civil Procedure only contemplate service on an individual in their present form.

PMC’s brief addressing Netflix, in contrast to its Google brief, based its agency arguments primarily on the manner in which employees of the ISP interact with Netflix Open Connect Appliances (OCAs), servers that are also located within ISP facilities in order to localize network traffic. While portions of these arguments are redacted, PMC asserts that the record reflects “a sound basis for holding that ISPs act as Netflix’s agents”. This is based, in part, on the extent to which ISP employees are allegedly designated to perform various tasks related to logistics and network infrastructure for Netflix. Here, PMC distinguished the facts in this case from those in which the court found no agency relationship between ISP employees and Google, arguing that for Netflix, ISP employees perform more than “basic maintenance” and play a more active role in installing and/or operating the OCAs to an extent that is necessary for Netflix content delivery. This, PMC argued, is not “ancillary to” Netflix’s business—that is Netflix’s business”.

Netflix’s own brief, after asserting that the federal common law of agency should govern here, argues that ISP employees are not its agents. The company asserts that the facts pertaining to that issue are sufficiently similar to those found to preclude an agency finding in In re: Google, citing in part how its agreements with ISPs limit its ability to direct and control various activities.

Turning then to the question of whether machines can be agents, Netflix argued that they cannot, as an agent “must have capacity to (1) act on the principal’s behalf and subject to the principal’s control and (2) manifest assent or otherwise consents to act”. While acknowledging that a machine may be controlled, Netflix explained that “it lacks sufficient cognizance to voluntarily consent to act on behalf of a principal and to appreciate the implications of fiduciary responsibilities arising from an agency relationship. Only sentient beings can voluntarily give (or not give) consent. Thus, treating machines as agents would be a significant departure from longstanding agency principles.” (Emphasis added.) Similarly, Netflix asserted that machines cannot accept service of process under the patent service statute in its current form and as applied, noting that the legislative history of that 19^th-century statute does not contemplate service on machines, while observing that no court appears to have ever held that a machine can be an agent.

For a detailed overview of the In re: Google decision, see RPX’s prior coverage: “Google Servers Do Not Establish Venue, Federal Circuit Holds—Rejecting Another Gilstrap Venue Rule”.