Opinion
RELATED CASE NO. 3:16-cv-00506-WHO RELATED CASE NO. 3:16-cv-03716-WHO
07-18-2017
FOX FACTORY, INC., Plaintiff, v. SRAM, LLC, Defendant.
ORDER DENYING MOTION TO DISMISS OR TRANSFER FOR IMPROPER VENUE
Re: Dkt. Nos. 45 (16-3716), 59 (16-0506)
INTRODUCTION
This matter involves two related patent cases filed by Plaintiff Fox Factory, Inc. ("FOX") against defendant SRAM, LLC ("SRAM") (FOX Factory, Inc. v. SRAM, LLC, Case No. 3:16-cv-00506-WHO ("FOX I") and FOX Factory, Inc. v. SRAM, LLC, Case No. 3:16-cv-03716-WHO ("FOX II")). FOX claims that SRAM is infringing four of its patents related to bicycle shock absorbers and suspension forks. In its answers, SRAM did not object to venue, nor did it timely move to dismiss for improper venue. Then, in light of the United States Supreme Court's decision in TC Heartland LLC v. Kraft Foods Grp. Brands LLC, No. 16-341, 2017 WL 2216934 (U.S. May 22, 2017), regarding patent venue under 28 U.S.C. § 1400(b), SRAM filed a 12(b)(3) motion to dismiss, or in the alternative, transfer for improper venue. FOX insists that SRAM waived its challenge to venue by failing to object in its answer or timely moving to transfer. SRAM argues that the intervening law exception to waiver should apply. Because the Court's ruling in TC Heartland only reaffirmed patent venue law, and did not alter it, an exception to waiver does not apply. SRAM waived its argument and its motion is DENIED.
BACKGROUND
Plaintiff FOX Factory ("FOX") was incorporated in California and its principal place of business is in Scotts Valley, California. FAC ¶ 2. Defendant SRAM LLC ("SRAM") is incorporated in Delaware, and its principle place of business is Chicago, IL. FAC ¶ 3; Answer ¶ 3. On January 29, 2016, FOX filed suit against SRAM, asserting two patents. FOX Factory, Inc. v. SRAM, LLC, Case No. 3:16-cv-00506-WHO ("FOX I"). It filed a second suit on July 1, 2016, asserting two different patents. FOX Factory, Inc. v. SRAM, LLC, Case No. 3:16-cv-03716-WHO ("FOX II"). The cases were related on July 18, 2016. Dkt. No. 35 (FOX I); Dkt. No. 11 (FOX II). SRAM answered in FOX I on March 25, 2016 (Dkt. No. 13). It answered FOX II on August 1, 2016 (Dkt. No. 14); FOX filed an amended complaint on August 11, 2016 (FAC, Dkt. No. 22), which SRAM answered on August 25, 2016 (Dkt. No. 25). None of SRAM's answers objected to venue.
The parties have quietly litigated these related cases. SRAM filed statements of non-opposition (FOX I, Dkt. Nos. 45, 46; FOX II, Dkt. No. 33) to FOX's motions to amend/correct its disclosure of asserted claims and infringement contentions (FOX I, Dkt. No. 44; FOX II, Dkt. No. 32). The parties have otherwise proceeded through claim construction briefing without any substantive motions.
However, two weeks after the Supreme Court issued its May 22, 2017 decision in TC Heartland LLC v. Kraft Foods Grp. Brands LLC, No. 16-341, ___ U.S. ___, 137 S. Ct. 1514 (U.S. May 22, 2017), SRAM decided to challenge venue. On May 31, 2017, it filed a motion to dismiss, or in the alternative, transfer for improper venue. Mot. to Dismiss or Transfer ("MTD")(FOX I, Dkt. No. 45; FOX II, Dkt. No. 59).
LEGAL STANDARD
A motion to dismiss for improper venue is governed by Federal Civil Procedure Rule 12(b)(3). If the propriety of venue is challenged under Rule 12(b)(3), the plaintiff bears the burden of proving that venue is proper. See Piedmont Label Co. v. Sun Garden Packing Co., 598 F.2d 491, 496 (9th Cir. 1979). When considering a motion to dismiss for improper venue, a court need not accept the pleadings as true and may consider facts outside of the pleadings. See Doe 1 v. AOL, LLC, 552 F.3d 1077, 1081 (9th Cir. 2009). The decision to dismiss for improper venue, or alternatively to transfer venue to a proper court, is a matter within the sound discretion of the district court. See King v. Russell, 963 F.2d 1301, 1304 (9th Cir. 1992).
A 12(b)(3) motion to dismiss for improper venue must be raised either in a motion made before responsive pleading or as part of a responsive pleading. Fed. R. Civ. P. 12(b), 12(h)(1). Otherwise, this defense is waived. Fed. R. Civ. P. 12(h)(1). A defendant may also waive an objection to venue "by actively litigating [a] suit." United States v. Ziegler Bolt & Parts Co., 111 F.3d 878, 882 (Fed. Cir. 1997); accord Peterson v. Highland Music, Inc., 140 F.3d 1313, 1318 (9th Cir. 1998)(finding defenses "may be waived as a result of the course of conduct pursued by a party during litigation").
The court in Navico, Inc. v. Garmin International, Inc. recognized the issue of determining the appropriate precedent applicable to the procedural question of waiver, when the question is specific to patent cases. 2017 WL 2957882, at *2 (E.D. Tex. July 11, 2017). Generally, "[r]egional circuit law governs the question of waiver of a defense." Ultra-Precision Mfg., Ltd. v. Ford Motor Co., 411 F.3d 1369, 1376 (Fed. Cir. 2005). But "the Federal Circuit has applied its own law in certain cases where the underlying argument found to have been waived was unique to patent law." Navico, 2017 WL 2957882, at *1 (citing Rates Tech. Inc. v. Nortel Networks Corp., 399 F.3d 1302, 1307 (Fed. Cir. 2005)). The Navico court concluded that Federal Circuit law should control because "[a]ny determination of venue in light of § 1400(b) is necessarily unique to patent law because the statute itself is unique to patent law." I agree. Nonetheless, I include Ninth Circuit precedent to demonstrate that the issue has no bearing on the outcome.
The patent venue statute states that venue is proper "in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business." 28 U.S.C. § 1400(b).
DISCUSSION
I. VENUE IN PATENT CASES
In Fourco Glass Company v. Transmirra Products Corporation, 353 U.S. 222 (1957), the Court concluded that a domestic corporation resides only in its state of incorporation for purposes of venue in a patent case, as opposed to the broader definition of residence provided in the general venue statute, 28 U.S.C. § 1391(c). Id. at 226. The general venue statute has since been amended twice, and now reads that a corporation "shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court's personal jurisdiction with respect to the civil action in question." 28 U.S.C. § 1391(c). TC Heartland resolved the issue of whether this change to the general venue statute also applied to the patent venue statute. See generally TC Heartland, 137 S. Ct. 1514. The Supreme Court concluded that Fourco "definitively and unambiguously held that the word 'residence' in 1400(b), as applied to domestic corporations, refers only to the [s]tate of incorporation." Id. at 1520.
Based on TC Heartland, SRAM moves to dismiss, or in the alternative, transfer for improper venue because it does not reside in, nor does it have a regular and established place of business in the Northern District of California. MTD at 2-3.
II. SRAM WAIVED ITS OBJECTION TO VENUE
Under the Federal Rules, a defendant waives a defense if it was available but the defendant omitted it from its answer or pre-answer motion. Fed. R. Civ. P. 12(g)(2). "A defense is 'available' unless its legal basis did not exist at the time of the answer or pre-answer motion[.]" Gilmore v. Palestinian Interim Self-Gov't Auth., 843 F.3d 958, 964 (D.C. Cir. 2016)(internal quotation marks omitted). FOX contends that SRAM waived the improper venue argument because it failed to object in its answer, its motion is untimely, and it has actively litigated in this venue. Opp'n at 2-3 (FOX I, Dkt. No. 61; FOX II, Dkt. No. 47).
SRAM contends that its motion is timely because it could not have waived this argument as it was not "available" to it until TC Heartland. MTD at 5. It relies on Weber v. Saladworks, LLC, 2014 WL 12581768 (C.D. Cal. Jan. 27, 2014) to support its position. The Weber court determined that the defendant had not waived an argument based on a Supreme Court case that was issued subsequent to its motion to dismiss because the argument was not "then available to the party." Id. at *1. SRAM analogizes Weber to the matter at hand, and argues that TC Heartland changed 27 years of binding precedent under which defendants had "no good faith basis to argue that venue was improper[,]" MTD at 6, "in any judicial district in which such defendant is subject to the court's personal jurisdiction." MTD at 5.
FOX responds that SRAM cannot assert an exception to waiver because TC Heartland did not change the law of venue in patent infringement cases at all. Opp'n at 4. To answer the question of whether SRAM waived its objection to venue, I must decide whether this argument was previously "available" to SRAM. See Fed. R. Civ. P. 12(g)(2).
The court in Cobalt Boats, LLC v. Sea Ray Boats, Inc., 2017 WL 2556679 (E.D. Va. June 7, 2017) was the first to address this issue after TC Heartland. 2017 WL 2556679. It recited TC Heartland's finding that the 1957 decision in Fourco "definitively and unambiguously held that the word 'residence' in 1400(b), as applied to domestic corporations, refers only to the [s]tate of incorporation." Id. at *2 (quoting TC Heartland, 137 U.S. at 1520). According to TC Heartland, Fourco has always been the controlling law of patent venue. 137 U.S. at 1520.
It should be noted that the parties in Cobalt Boats were at the final pretrial conference when defendants indicated they wanted to challenge venue based on TC Heartland, which was issued three days prior. 2017 WL 2556679, at *1-2. The court ordered expedited briefing and denied the motion a week before trial. Id. Two days later, the defendants petitioned for a writ of mandamus in the Federal Circuit, which was denied, with a dissenting opinion by Judge Newman. See In re Sea Ray Boats, Inc., No. 2017-124, 2017 WL 2577399, at *1 (Fed. Cir. June 9, 2017). Judge Newman stated, "[t]here is little doubt that the Court's decision in TC Heartland LLC v. Kraft Foods Grp. Brands LLC, — U.S. —, 137 S.Ct. 1514 (2017), was a change in the law of venue, and the district court states that under Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222 (1957), venue is proper in Virginia. The issue of proper forum following the return to Fourco requires our resolution." Id. at *1. --------
The confusion arose because the Federal Circuit decided that Congress's amendments to the general venue statute applied equally to the patent venue statute, so that "residence" included the broader personal jurisdiction definition, rather than just the corporation's state of incorporation. See VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1580 (Fed. Cir. 1990), abrogated by TC Heartland, 137 S. Ct. 1514 (2017). The Supreme Court denied certiorari in VE Holding and several subsequent cases raising the issue of venue in patent cases, and VE Holding guided defendants in patent cases for 27 years, until the Supreme Court decided TC Heartland.
In light of this history, the Cobalt Boats court found that the Court "has never overruled Fourco, and the Federal Circuit cannot overrule binding Supreme Court precedent." Cobalt Boats, 2017 WL 2556679 at *3 (citation omitted). Accordingly, Cobalt Boats concluded that a challenge to venue based on Fourco has always been available to defendants in patent infringement cases, and TC Heartland is "no excuse" for a waiver because "defendant's assumption that Fourco was no longer good law was reasonable but wrong." Id. at *2-3; see also Navico, 2017 WL 2957882, at *2 (listing cases aligning with Cobalt Boat's reasoning).
In contrast, the court in Westech Aerosol Corp. v. 3M Co., 2017 WL 2671297 (W.D. Wash. June 21, 2017) found that "TC Heartland abrogated approximately 27 years of patent law precedent." 2017 WL 2671297, at *2. It noted that because the Supreme Court denied certiorari in VE Holdings, district courts have had to adhere to that decision. Id. The court also mentioned that "[d]efendants could not have reasonably anticipated this sea change" so they did not waive their improper venue defense by not initially including it in their pleading and motions. Id.
There is some force to the reasoning in Westech, but it is the only court to take find that there was no waiver. See Cobalt Boats, LLC v. Sea Ray Boats, Inc., 2017 WL 2556679, at *3 (E.D. Va. June 7, 2017) ("TC Heartland does not qualify for the intervening law exception to waiver because it merely affirms the viability of Fourco."); Elbit Sys. Land & C4I Ltd. v. Hughes Network Sys., LLC, 2017 WL 2651618, at *20 (E.D. Tex. June 20, 2017) ("[T]he Supreme Court's decision in TC Heartland does not qualify [as a change in law]."); iLife Techs. Inc. v. Nintendo of America, Inc., 2017 WL 2778006, at *7 (N.D. Tex. June 27, 2017) ("TC Heartland does not qualify as an intervening change in law."); Chamberlain Group, Inc. v. Techtronic Industries Co. et al., at 3 (N.D. Ill. June 28, 2017) ("[T]he Court follows Elbit and Cobalt Boats ... in finding that TC Heartland did not represent a change in the law that would excuse waiver under these circumstances."); Amax, Inc. v. ACCO Brands Corp., 2017 WL 2818986, at *3 (D. Mass. June 29, 2017) (same); Infogation v. HTC Corp., 2017 WL 2869717, at *4 (S.D. Cal. July 5, 2017) (same); Navico, Inc. v. Garmin Int'l, Inc., 2017 WL 2957882, at *2 (E.D. Tex. July 11, 2017) (same). The reason for this near unanimity is that "the Supreme Court itself expressly rejected the notion that venue law in patent cases changed after Fourco." Navico, 2017 WL 2957882, at *2 (citing TC Heartland, 137 S. Ct. at 1520).
As evidenced by the disparity in decisions addressing the issue, FOX has the stronger argument because TC Heartland did not actually change the law. See TC Heartland, 137 S. Ct. at 1520. The cases to which SRAM cites are not helpful because they relate to an actual change in the law. See Weber v. Saladworks, LLC, No. SA CV 13-01049-MWF (PJWx), 2014 WL 12581768 at *1 (C.D. Cal. Jan. 27, 2014; Weiss v. Nat'l Westminster Bank PLC, 176 F. Supp. 3d 264 (E.D.N.Y. 2016); Crawford v. U.S. Dep't of Justice, No. CIV. A. No. 05-1424 (RMU), 2008 WL 2511345 at *1 (D.D.C. June 19, 2008). TC Heartland undoubtedly clarified the law, and without doubt litigants' understanding of it is now altered. But the defense to venue in this District was available to SRAM because Fourco was never overruled. TC Heartland made this conclusion clear, and I am bound to apply it.
I recognize that this case does not have the extensive litigation history that some of the other courts deciding the issue have experienced; SRAM has not filed any substantive motions, and we are just on the verge of claim construction. But lack of litigation history is not dispositive. Because TC Heartland explicitly held that it did not change patent law, I cannot conclude otherwise. SRAM's waiver cannot be excused by a purported intervening change of law.
CONCLUSION
For the foregoing reasons, I DENY the defendant's motion to dismiss, or in the alternative, transfer venue.
IT IS SO ORDERED. Dated: July 18, 2017
/s/_________
William H. Orrick
United States District Judge