Opinion
Case No. CV 18-3883 PSG (KSx)
09-05-2018
Inhale, Inc. v. Gravitron, LLC
CIVIL MINUTES - GENERAL
Present: The Honorable Philip S. Gutierrez, United States District Judge Wendy Hernandez
Deputy Clerk Not Reported
Court Reporter Attorneys Present for Plaintiff(s): Not Present Attorneys Present for Defendant(s): Not Present
Proceedings (In Chambers): The Court GRANTS Defendant's Motion to Dismiss
Before the Court is a motion to dismiss filed by Defendant Gravitron, LLC ("Defendant" or "Gravitron"), see Dkt. # 16 ("Mot."). Plaintiff Inhale, Inc. ("Plaintiff" or "Inhale") opposes this motion, see Dkt. # 17 ("Opp."), and Defendant replied, see Dkt. # 18. The Court finds the matter appropriate for decision without oral argument. See Fed. R. Civ. P. 78; L.R. 7-15. Having considered the moving papers, the Court GRANTS Defendant's motion to dismiss.
I. Background
Defendant is a Texas limited liability company ("LLC") with its principal place of business in Austin, Texas. Mot. 1:18-19; Declaration of David Daily, Dkt. # 16-1 ("Daily Decl."), ¶¶ 2, 5, 6. Defendant sells herbal and tobacco-related products through its website and through distribution channels across the country. Daily Decl. ¶ 13. Defendant asserts that it is not licensed to do business in California; that it lacks sales representatives, agents, or employees within California; and that it does not own or control and is not affiliated with any stores or facilities in California. Mot. 2:17-20; Daily Decl., ¶¶ 7, 9-11.
Plaintiff is a California corporation that designs and sells products in the smoking products and novelties industry. See First Amended Complaint, Dkt. # 13 ("FAC"), ¶ 5. Plaintiff alleges that Defendant's product called the "GRAV Grinder" infringes on Plaintiff's U.S. Patent No. 8,393,563 titled "Handheld tobacco grinder with windows." Id. ¶¶ 1, 8, 10. On May 9, 2018, Plaintiff brought this action, seeking damages, injunctive relief, and fees and costs for infringement of Plaintiff's patent. Dkt. # 1. On July 13, 2018, Plaintiff filed an amended complaint. See generally FAC. Defendant now moves to dismiss this action under Federal Rule of Civil Procedure 12(b)(2) for lack of personal jurisdiction and Rule 12(b)(3) for improper venue. See generally Mot.
II. Legal Standard
"A federal court has leeway 'to choose among threshold grounds for denying audience to a case on the merits.'" Sinochem Int'l Co. v. Malay. Int'l Shipping Corp., 549 U.S. 422, 431 (2007) (quoting Rurhgas AG v. Marathon Oil Co., 526 U.S. 574, 585 (1999)). Venue is among those threshold grounds. See id. at 425 ("[A] court need not resolve whether it has [subject matter jurisdiction] or personal jurisdiction over the defendant if it determines that, in any event, a foreign tribunal is plainly the more suitable arbiter of the merits of the case."); see also Fine v. Cambridge Int'l Sys., 584 F. App'x 695, 696 (9th Cir. 2014) (district court only required to address personal jurisdiction if it declines to transfer for improper venue). Here, the Court need not reach the issue of personal jurisdiction because it finds that venue is improper.
Venue in federal court is governed by statute. See Atl. Marine Const. Co. v. U.S. Dist. Court for W. Dist. of Texas, 134 S. Ct. 568, 577-78 (2013). If a case has been filed in the wrong judicial district or division, the court must "dismiss [the complaint], or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought." 28 U.S.C. § 1406(a). If venue is improper and the defendant makes a timely objection, transfer or dismissal is mandatory. See id.; Abrams Shell v. Shell Oil Co., 165 F. Supp. 2d 1096, 1102 (C.D. Cal. 2001) ("Where venue is improper, a court must dismiss or transfer under 28 U.S.C. § 1406.").
The plaintiff bears the burden of demonstrating the propriety of venue in the chosen judicial district. See Piedmont Label Co. v. Sun Garden Packing Co., 598 F.2d 491, 496 (9th Cir. 1979); Murphy v. Schneider Nat'l, Inc., 362 F.3d 1133, 1138 (9th Cir. 2004). All well-pleaded allegations in the complaint are accepted as true, unless they are contradicted by defendant's evidence. Mainstay Bus. Sols. v. Indus. Staffing Servs., Inc., No. CIV S-10-3344 KJM GGH, 2012 WL 44643, at *2 (E.D. Cal. Jan. 9, 2012). A court may examine facts outside the complaint to determine whether venue is proper. Murphy, 362 F.3d at 1137. Further, a court must draw all reasonable inferences and resolve all factual conflicts in favor of the plaintiff. Id. at 1138.
III. Discussion
A. Application of TC Heartland
Venue in civil actions is generally governed by 28 U.S.C. § 1391. Patent cases, however, have their own specific venue statute—28 U.S.C. § 1400(b). Pursuant to this section, "[a]ny civil action for patent infringement may be brought 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).
Defendant argues that the case should be dismissed under Rule 12(b)(3) because venue is improper in the Central District of California. Mot. 6:4-8. Defendant points to the recent Supreme Court decision in TC Heartland LLC v. Kraft Foods Groups Brands LLC and asserts that the holding should apply to unincorporated associations like itself. See 137 S. Ct. 1514 (2017).
The Supreme Court has traditionally taken a restrictive view of venue in patent cases, holding that the meaning of the terms used in § 1400(b) was not to be supplemented by other provisions found in the general venue statutes. Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222 (1957); Stonite Prods. Co. v. Melvin Lloyd Co., 315 U.S. 561 (1942). In that vein, the Court held that, for purposes of § 1400(b), a domestic corporation "resides" only in the state of incorporation. Fourco Glass, 353 U.S. at 226. However, following amendments to the general venue statute, § 1391(c), first in 1988 and again in 2011, the Federal Circuit announced that the term "residence" in § 1400(b) should be defined broadly to mirror the meaning in § 1391, which equates "residence" with personal jurisdiction. VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1578 (Fed. Cir. 1990).
In TC Heartland, the Supreme Court reversed the Federal Circuit and reaffirmed that the "amendments to § 1391 did not modify the meaning of § 1400(b) as interpreted by Fourco." 137 S.Ct. at 1517. However, the Court confined its holding to corporations and left the issue for unincorporated entities open. Id. at 1517 n.1.
A judge in the District Court for the Eastern District of Tennessee recently decided that the holding in TC Heartland applies to unincorporated entities. See Maxchief Invest. Ltd. v. Plastic Dev. Group, LLC, No. 3:16-cv-63, 2017 WL 3479504 (E.D. Tenn. Aug. 14, 2017). The court reasoned that the language of § 1400(b) refers to a "defendant" and is not limited only to "corporate defendants." Id. at *2. Further, given that TC Heartland rejected a broad view of venue for corporate defendants in patent cases, the court decided it would be inconsistent to adopt a broad view of venue for unincorporated defendants. Id. This Court agrees.
Pointing out that this Court is not bound by Maxchief, Plaintiff urges the Court to define the term "reside" broadly under § 1391(c)(2) to include "any judicial district in which [a] defendant is subject to the court's personal jurisdiction." Opp. 5:12-10:23; 28 U.S.C. § 1391(c)(2). However, Plaintiff does not present any convincing rationale for departing from Maxchief. For instance, Plaintiff asserts that "[t]he differences between incorporated and unincorporated entities are vast." Opp. 6:6-7. Yet Plaintiff fails to elaborate on what those differences are, let alone how those alleged differences justify treating them differently from corporations for venue purposes. To the contrary, LLCs have been generally treated like corporations for purposes of venue even before TC Heartland. See, e.g., Roberts v. Paulin, No. 07-CV-13207, 2007 WL 3203969, at *2 (E.D. Mich. Oct. 31, 2007) (citing Denver & R.G.W.R. Co. v. Bhd. of R.R. Trainmen, 387 U.S. 556, 559 (1967)); Thermolife Int'l LLC v. F3 Nutrition, LLC, No. CV13-6883-RGK (PLAx), 2013 WL 12149682, at *2 (C.D. Cal. Dec. 9, 2013). Moreover, applying a different standard to unincorporated entities would create an anomalous result: Suits against corporations would be allowed only in their states of incorporation, while suits against analogous economic entities doing business as LLCs would be permitted wherever they could be found.
Thus, the Court concludes that the holding from TC Heartland that defines a corporation's "residence" for purposes of § 1400(b) as the place of incorporation also extends to unincorporated entities including LLCs.
B. Whether Venue is Proper
The Court now turns to answer whether venue is proper in this district under § 1400(b). Section 1400(b) states that "[a]ny civil action for patent infringement may be brought 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."
i. Residence of Gravitron
The first prong for determining patent venue is "where the defendant resides." § 1400(b). Here, Defendant is a Texas LLC, with its principal place of business in Austin, Texas. Mot. 8:25-26; Daily Decl. ¶¶ 2, 5, 6. Because Defendant does not reside in this judicial district, venue is improper under the first prong.
ii. Regular and Established Place of Business
The second prong for determining patent venue is "where the defendant has committed acts of infringement and has a regular and established place of business." § 1400(b).
At this early stage of the case, allegations that a defendant has committed acts of infringement within the judicial district are sufficient for venue purposes. Plexxicon Inc. v. Novartis Pharm. Corp., No. 17-cv-04405-HSG, 2017 WL 6389674, at *1 (N.D. Cal. Dec. 7, 2017). As to whether Defendant has a regular and established place of business in this judicial district, Plaintiff does not squarely address it in its brief. Arguments that are not addressed by the opponent is normally deemed conceded. See, e.g., Tapia v. Wells Fargo Bank, N.A., No. CV 15-03922 DDP (AJWx), 2015 WL 4650066, at *2 (C.D. Cal. Aug. 4, 2015); Silva v. U.S. Bancorp, No. 5:10-cv-01854-JHN-PJWx, 2011 WL 7096576, at *3 (C.D. Cal. Oct. 6, 2011).
Nonetheless, because Plaintiff contends that the Court has personal jurisdiction over Defendant, and some of that analysis may address whether Defendant has a regular and established place of business, the Court will review this issue. However, in applying § 1400(b), it is important "not to conflate showings that may be sufficient for other purposes, e.g., personal jurisdiction or the general venue statute, with the necessary showing to establish proper venue in patent cases." In re Cray Inc., 871 F.3d 1355, 1360 (Fed. Cir. 2017).
Whether venue is proper under § 1400(b) is an issue unique to patent law and is governed by Federal Circuit law. Id. at 1360. --------
The Federal Circuit has adopted a three-factor test to determine whether a defendant has a "regular and established place of business:"
(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.Id. The Court addresses each factor in turn.
a. Physical Place
Under the first factor, while Defendant need not have a "fixed physical presence in the sense of a formal office or store," there must be a "physical, geographical location in the district from which the business of the defendant is carried out." Id. at 1362. Here, Defendant submits a declaration by David Daily, the founder and Chief Executive Officer of Gravitron, stating that it does not own, lease, or exercise control over any real estate in California; that it lacks any agents or employees within California; and that it is not affiliated with any retailer stores or wholesale stores within California. Daily Decl. ¶¶ 2, 6, 9-11; Mot. 10:15-23. Plaintiff, on the other hand, contends that Defendant sells or offers to sell the product-at-issue through "partner" stores physically located in California. Opp. 14:13-14; Declaration of Louis F. Teran, Dkt. # 17-1 ("Teran Decl."), ¶¶ 5-7, Exs. D-F. Specifically, Plaintiff points to Defendant's website, which identifies twelve locations within this judicial district that allegedly carry Defendant's products. FAC ¶ 15; Teran Decl., Ex. C.
Even if the Court resolves this factual conflict in Plaintiff's favor, it is not sufficient to demonstrate a regular and established place of business. Numerous courts have held that selling defendant's products through an independent distributor is not sufficient to satisfy the patent venue statute. See Fox Factory, Inc. v. SRAM, LLC, No. 3:16-cv-00506-WHO, 2018 WL 317839 (N.D. Cal. Jan. 8, 2018) (Independent dealers in a district do not qualify as a "regular and established place of business"); Reflection, LLC v. Spire Collective LLC, No. 17CV1603-GPC(BGS), 2018 WL 310184, at *2-3 (S.D. Cal. Jan. 5, 2018) (storing products in an independent distributor's warehouse and selling products in the state through a third party are not sufficient to show venue under § 1400(b)); Symbology Innovations, LLC v. Lego Sys., Inc., 282 F. Supp. 3d 916, 931 (E.D. Va. 2017) (a subsidiary's three locations cannot be imputed to the parent company for purposes of venue because the subsidiary is a distinct corporate entity). Plaintiff places great importance on Defendant's colloquial use of the term "partner stores" on its website, but it still misses the mark. See Opp. 15:1-13. Plaintiff alleges no facts that might indicate that Defendant has any control over those twelve stores. See CAO Lighting Inc. v. Light Efficient Design, No. 4:16-CV-00482-DCN, 2017 WL 4556717, at *3 (D. Idaho Oct. 11, 2017) (physical locations with regular and established business belonging to "preferred partner" distributors do not establish venue).
Therefore, Defendant does not have a "physical place" in this judicial district.
b. Regular and established place of business
A business may be "regular," if it operates in a "steady[,] uniform[,] orderly[, and] methodical" manner. In re Cray, 871 F.3d at 1362. An "established" business is one that is not transient but must be "settled certainly, or fixed permanently." Id. at 1363. "Sporadic activity cannot create venue." Id.
Even if the Court were to accept the twelve locations identified on Defendant's website as physical places of business, Plaintiff has not presented evidence to suggest that Defendant steadily conducts business through these stores. Defendant asserts that the twelve locations "have in the past and may still carry any one of the hundreds of smoking related products that Gravitron sells" but that they cannot be "guarantee[d]" that they currently sell or have sold any products. Daily Decl. ¶ 20.
c. Place of the defendant
Relevant considerations as to whether a venue is a "place of the defendant" is "whether the defendant owns or leases the place, or exercises other attributes of possession or control over the place." In re Cray, 871 F.3d at 1363. Another relevant consideration is "the storing of materials at a place in the district so that they can be distributed or sold from that place." Id.
Plaintiff alleges in its complaint that Defendant manufactures the product-at-issue in China and imports it in bulk into the United States through a port in this judicial district. Opp. 18:24-25; Teran Decl., ¶¶ 12-13. Moreover, Plaintiff alleges that Defendant retains its imported products in a location within the district from which it distributes to stores owned, affiliated, or controlled by Defendant. Teran Decl. ¶ 14. However, Defendant denies these allegations, Mot. 15:14-17; Daily Decl., ¶¶ 16-17, and Plaintiff cannot point to any evidence to support its allegations.
Thus, the Court concludes that Defendant does not have a "regular and established place of business" in this judicial district.
IV. Whether to Transfer
"The court has some discretion in choosing between [dismissal and transfer], though generally it is preferred to transfer the case rather than dismissing it altogether." Abrams Shell, 165 F. Supp. 2d at 1103; see also In re Hall, Bayoutree Assocs., Ltd., 939 F.3d 802, 806 (9th Cir. 1991) (noting that "dismissal of an action for improper venue is a harsh penalty"); Gamboa v. USA Cycling, Inc., No. CV 12-10051 ODW (MRWx), 2013 WL 1700951, at *2 (C.D. Cal. Apr. 18, 2013) (citing Johnson v. Payless Drug Stores Nw., Inc., 950 F.2d 586, 588 (9th Cir. 1991) (per curiam) (noting that courts have "significant discretion" in choosing)). In deciding which option to choose, courts should consider the basic equities of the case, including any statute of limitations, the harshness of dismissal, and the relative injustice imposed on the parties. See S. Cal. Fleet Servs., Inc. v. ADP Dealer Servs., Inc., No. EDCV 13-0238 JGB (DTBx), 2013 WL 1400950, at *4 (C.D. Cal. Apr. 1, 2013) (citing King v. Russell, 963 F.2d 1301, 1304-05 (9th Cir. 1992) ). Additionally, important considerations are whether the suit was filed in bad faith or for harassment, whether the plaintiff has requested or shown an interest in a transfer, and whether transfer would be to a jurisdiction that the plaintiff purposefully sought to avoid through blatant forum shopping. See King, 963 F.2d at 1304-05 (citing Wood v. Santa Barbara Chamber of Commerce, Inc., 705 F.2d 1515, 1523 (9th Cir. 1983)); In re Hall, 939 F.3d at 806 ("[D]ismissal is proper where filing in an improper forum evidences bad faith.").
Having concluded that venue is not proper in this district, the Court finds that it is in the interests of justice to transfer the case, rather than dismiss it. See 28 U.S.C. § 1406(a). Defendant urges that this Court dismiss the case outright because Plaintiff "had multiple opportunities to file this lawsuit in a proper forum." Mot. 11:24-25. However, because how the patent venue statute applies to unincorporated entities had not been settled when Plaintiff filed the complaint in this district, the Court is unwilling to conclude that this case warrants dismissal.
Defendant is a Texas limited liability company and its principal place of business is in Austin, Texas. Mot. 8:25-26. Thus, it is proper for this case to be transferred to the U.S. District Court for the Western District of Texas.
V. Conclusion
For the foregoing reasons, the Court GRANTS Defendant's motion to dismiss for improper venue. This action is hereby TRANSFERRED to the U.S. District Court for the Western District of Texas.
IT IS SO ORDERED.