Despite His Rigidity on Convenience Transfers, Judge Albright Appears to Be More Open to Improper Venue Claims

May 28, 2021

As the Western District of Texas remains atop the venue charts, an issue of ongoing interest for patent litigants has been how District Judge Alan D. Albright has handled motions to transfer. Most of this narrative has thus far focused on his restrictive approach to convenience transfers, a posture that may be shifting in response to a series of recent reversals by the Federal Circuit. However, less attention has been paid to his treatment of motions alleging improper venue, since—unlike former NPE hotspots like the Eastern District of Texas—many companies have active operations in West Texas, and may therefore “reside” in that venue as established under the Supreme Court’s 2017 TC Heartland decision. While such a venue challenge may not be an option for some defendants, recent orders by Judge Albright suggest that improper venue challenges may succeed in his court for companies with a sufficiently minimal presence there.


TC Heartland Paves the Way for The Rise of West Texas

To briefly recap, the patent venue statute (28 USC Section 1400(b)) provides that venue is proper in the district where 1) a defendant “resides” or 2) where it has “committed acts of infringement and has a regular and established place of business”. While the first prong was once interpreted expansively to find that a corporate defendant “resides” in any district where it would be subject to personal jurisdiction, TC Heartland returned to an earlier interpretation of that prong: that a company “resides” only in its state of incorporation. Later that year, the Federal Circuit established a series of criteria for determining if a defendant has a “regular and established place of business” in a district under the statute’s second prong. In its In re: Cray decision, the court held that a defendant must have “a physical place in the district” there; that place of business must be “regular”, meaning “transient activity” is not enough; “established”, meaning that the business location must have been stable and established for a “reasonable period of time”; and “of the defendant”, meaning a place not solely controlled by an employee.

TC Heartland caused a sea change in the distribution of NPE litigation: while such plaintiffs once favored the Eastern District of Texas by an overwhelming margin, most companies no longer “reside” in that venue under the decision’s rationale, forcing NPEs to turn elsewhere. In the short term, this led to a rush to Delaware, where many frequent patent defendants are incorporated. However, by Q1 2020, Delaware was overtaken by the Western District of Texas, where many such defendants have extensive operations thanks to the rise of Austin as a tech hub. The district has since remained the most popular overall patent venue thanks to the efforts of Judge Albright—who took the bench in late 2018—to attract more patent cases to his district.

Judge Albright’s courtroom has become a popular destination for a variety of reasons, including his unwillingness to stay cases pending the resolution of Patent Trial and Appeal Board validity challenges or grant early Alice challenges. But it has been his approach to transfer motions—in particular, on convenience grounds—that has been among the most controversial, as he has imposed an especially “heavy burden” on defendants seeking such a transfer.

As covered extensively by RPX, this has led to a rift between Judge Albright and the Federal Circuit over his handling of such transfer requests. This divide has drawn attention to both how he weighs the various factors in any convenience analysis and, increasingly, his tendency to let those motions sit undecided for months while proceeding with other issues, particularly claim construction. The latter trend finally came to a boil in March 2021, following a series of rulings in which the Federal Circuit highlighted those delays with increasing firmness—leading Judge Albright to announce that he will now rule on interdistrict transfer motions before holding a Markman hearing.


Improper Venue Challenges Under Judge Albright

With all of the controversy that has erupted over convenience transfers, Judge Albright’s handling of improper venue challenges has fallen somewhat below the radar—even though he has granted all but one such motion. However, Judge Albright has also issued just a handful of decisions on this issue since taking the bench. Since TC Heartland renders the first prong a simple inquiry—whether or not a company is incorporated in a district—each of these rulings has, unsurprisingly, turned on the second prong.

Correct Transmission v. ADTRAN:

Judge Albright’s most recent improper venue decision, issued on May 17 in Correct Transmission v. ADTRAN (6:20-cv-00669), involved a straightforward application of the Cray factors described above.

In Correct Transmission, Judge Albright rejected the plaintiff’s attempt to establish venue through defendant ADTRAN’s relationship with two third parties based in the Western District. With respect to one of those third parties, telemarking firm Harte-Hank, Judge Albright conceded that the firm’s Austin office is a “physical place” and possibly “regular and established”, but found that it is not “of the defendant”—“nor has it ever been”. Further supporting such a conclusion was the fact that ADTRAN had only engaged Harte-Hank as an independent contractor, and that the relationship ended four years before the plaintiff filed its suit, as courts have held that venue is assessed at the time suit is held. Similarly, Judge Albright declined to find venue through a third-party distribution center located in El Paso, which he found similarly fails under Cray because that company was also an independent contractor.

Additionally, Judge Albright addressed whether the presence of several remote employees working in Austin was sufficient to establish venue—a similar set of facts as in Cray itself. Here Judge Albright found that the circumstances for one exemplary employee fell short of the applicable Cray criteria: the defendant “did not ‘establish or ratify’ Guerra’s home as his place of work”; the employee “works from his Austin-area home of his own accord, not because of any requirement by ADTRAN”; and “[a]s in Cray, ADTRAN does not ‘own, rent, or lease any portion’ of [the employee’s] home, nor does it store inventory there”.

Koss Corporation v. Skullcandy:

In contrast, the venue challenge that Judge Albright granted in Koss Corporation v. Skullcandy (6:20-cv-00664), on March 31, focused primarily on whether third-party retail shelf space displaying the defendant’s products constituted a “regular and established place of business”. Here the applicable precedent was the Federal Circuit’s February 2020 decision from In re: Google, in which the appellate court held that shelf space cannot establish venue under the patent venue statute’s second prong without the “regular, physical presence of an employee or other agent of the defendant conducting the defendant’s business” at the alleged place of business. Plaintiff Koss had argued that defendant Skullcandy effectively leases and controls shelf space at certain retail stores in the district, including Best Buy stores in which the defendant allegedly pays for product advertising and shelf space and Office Depot stores in which the defendant allegedly sells products on consignment, making Office Depot its agent. However, Judge Albright rejected these assertions, persuaded by Skullcandy’s rebuttal that Koss has not shown that it pays Best Buy for space, merely “marketing development funds” that do not give Skullcandy the requisite level of control; and that it does not sell products to Office Depot on consignment.

Quartz Auto Technologies v. Lyft:

The venue challenge that Judge Albright granted in Quartz Auto Technologies v. Lyft (1:20-cv-00719) on March 29, meanwhile, turned not on the venue statute directly but instead on the pendent venue doctrine, under which a court may “hear ‘pendent claims’ which arise out of the same nucleus of operative fact as a properly venued federal claim, even if the venue of the pendent claim otherwise would not lie”. In this case, the plaintiff essentially conceded in its complaint that defendant Lyft had not committed acts of infringement as to one of the asserted patents, asserting proper venue as to that patent solely under pendent venue. However, Judge Albright agreed with the defendants that this argument is precluded by TC Heartland, under which the pendent venue doctrine “cannot be used to circumvent” the patent venue statute—thereby dismissing claims as to that patent due to improper venue.

Akurate Dynamics v. Carlisle Fuel Technologies:

Pendent venue was also at issue in Judge Albright’s March 8 decision in Akurate Dynamics v. Carlisle Fuel Technologies (6:20-cv-00606). In that multi-issue case, the plaintiff’s only patent-related claim attempted to establish venue solely on the basis of an attempted sale within the Western District—meaning, based only on an act of infringement, whereas the second prong of the patent venue also requires that the defendant have a “regular and established place of business” there. (Judge Albright tackled a similar argument in his prior decision in Optic153 v. Thorlabs, described below.) Having dispensed with that argument, Judge Albright further cited TC Heartland in rejecting the plaintiff’s assertion that pendent venue extended from the case’s non-patent claims.

National Steel Car v. Greenbrier Companies:

Judge Albright has also twice addressed whether venue can be established through the business activities of an entity related to a defendant but not named in litigation in question. In National Steel Car v. Greenbrier Companies (6:19-cv-00721), a motion to dismiss or transfer alleged that venue was improper against defendant Greenbrier Companies, a holding company, because only a subsidiary not named in the suit owned property in the district. While Judge Albright primarily addressed whether the subsidiary was an alter ego of the defendant (concluding that it was not, due to the entities’ observation of corporate formalities and the subsidiary’s sufficient capitalization) in his July 2020 decision, he also found that the subsidiary’s owned property in the district could not have established venue under Federal Circuit precedent. In particular, he held that since no employees of the defendant or its subsidiary conducted any business at the latter’s property, venue was improper under Google and Cray. Furthermore, he found that the record did not show that any activity at the place of business was “regular and established” as also required under Cray.

Optic153 v. Thorlabs:

Judge Albright addressed a similar set of circumstances in June 2020 in Optic153 v. Thorlabs (6:19-cv-00667), in what appears to be his first decision on an improper venue motion. In that case, plaintiff Optic153 LLC, a subsidiary of Equitable IP Corporation, alleged that venue was proper as to New Jersey-based defendant Thorlabs because a Texas subsidiary, again not named in the suit, maintains an office there. However, Judge Albright agreed with the defendant that Optic153 had failed to show that the subsidiary’s office was the parent’s “regular and established place of business”, citing the fact that the Thorlabs website shows that the company is distinct from its subsidiary and that defendant and its subsidiary have separate corporate registrations in Texas. Judge Albright further found that the subsidiary’s presence in the Western District could not be imputed to Thorlabs—concluding, similar to his decision in National Steel Car, that the plaintiff had failed to show that the defendant and its subsidiary “lack formal corporate separateness”. Additionally, Judge Albright rejected the plaintiff’s argument that acts of infringement alone were sufficient to establish venue, pointing out that the patent venue statute requires “acts of infringement and . . . a regular and established place of business” (emphasis in decision).

Precis Group v. Tracfone Wireless:

The only instance in which Judge Albright has denied an improper venue challenge came amidst a broader convenience transfer dispute between NPE Precis Group LLC and Tracfone Wireless, litigation that resulted in two of the aforementioned Federal Circuit reversals on the latter issue.

On March 11, Judge Albright denied both the defendant’s convenience transfer motion and its motion to dismiss due to improper venue. For the latter issue, he found persuasive the plaintiff’s allegations that that a San Antonio retail store constituted a “regular and established place of business” because it was owned by Tracfone and operated under the company’s “Total Wireless” brand. Tracfone, in contrast, had argued that it did not own the store and had submitted evidence showing that the store had been closed before the suit was filed, evidence not addressed by Judge Albright. Tracfone subsequently challenged both aspects of the ruling in a petition for writ of mandamus that the Federal Circuit granted in April, solely addressing the convenience transfer issue.


Judge Albright’s Shifting Approach to Convenience Transfers

Though Judge Albright has largely granted improper venue motions, he has been far less hospitable for motions to transfer for convenience—though, as noted above, he may now be adjusting his handling of those motions in response to recent Federal Circuit reversals. For more on those developments, including a recent ruling granting transfer that reflects that shift, see “Judge Albright Grants Google Convenience Transfer Motion as Federal Circuit Rulings Move the Needle” (May 2021).