CDx Diagnostic, Inc. v. United States Endoscopy Group, Inc. (S.D.N.Y. 2018)

Storage Units Do Not Satisfy Second Prong of Cray Test for Establishing "Regular and Established Place of Business"

By Donald Zuhn --

Earlier this year, in CDX Diagnostic, Inc. v. United States Endoscopy Group, Inc., District Judge Nelson S. Roman of the U.S. District Court for the Southern District of New York granted a Motion to Dismiss for Improper Venue pursuant to Federal Rule of Civil Procedure 12(b)(3) filed by Defendants United States Endoscopy Group, Inc. ("Defendant") and John Does 1-30.  In its Motion, Defendant argued that the patent infringement action filed by Plaintiffs CDx Diagnostic, Inc.; Shared Medical Resources, LLC; and CDx Medical IP, Inc. against Defendants should be dismissed for improper venue.  In particular, while Defendant conceded sales of allegedly infringing product into the Southern District of New York, it argued that Plaintiffs had failed to demonstrate that Defendant has a regular and established place of business within the Southern District of New York.

The District Court noted that for purposes of patent cases, venue is governed by 28 U.S.C. § 1400(b), which 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" (emphasis in Opinion).  Citing Fourco Glass Co. v. Transmirra Prod. Corp., 353 U.S. 222, 226 (1957), the Court explained that a domestic corporation resides in its "state of incorporation only," pointing out that the Supreme Court in TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S.Ct. 1514, 1517 (2017), had indicated that this definition was not supplanted by amendments to the general venue statute, 28 U.S.C. § 1391(c).  As a result, the Supreme Court in TC Heartland reaffirmed its holding in Fourco Glass that a domestic corporation's residence for purposes of patent venue is only the State in which it was incorporated.

With respect to the instant case, Plaintiffs acknowledged that Defendant is incorporated in Ohio, and therefore that venue would be proper only if Defendant committed acts of infringement in the Southern District of New York and had a regular and established place of business in the District.  In view of Defendant's concession that it sold allegedly infringing products in the Southern District of New York, the only issue for the District Court to resolve was whether Defendant had a regular and established place of business in the District.  Citing In re Cray Inc., 871 F.3d 1355, 1360 (Fed. Cir. 2017), the District Court noted that the test for establishing the existence of a "regular and established place of business" requires a showing that: (1) there is 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.

After applying the Cray test to the instant case, the District Court determined that "Plaintiffs cannot meet this burden because they cannot demonstrate the second prong of the test."  With respect to the first and third prongs of the Cray test, the Court explained that "the storage units identified by Plaintiffs are likely 'physical places in the district' prong, insofar as they are 'building[s] or []part[s] of a building set apart for any purpose,'" adding that "Plaintiffs also demonstrated that Defendant pays for these storage units, . . . leading to a conclusion that the storage units are 'of the defendant.'"  However, with respect to the second prong, the Court noted that "the storage units are not 'regular and established places of business', because Plaintiffs have failed to demonstrate that Defendant 'actually engage[s] in business from [either] location,'" adding that "[w]hile Defendant's customer service reps may 'typically' retrieve materials from the storage units to visit customers within this District, . . . no 'employee or agent of [Defendant actually] conduct[s] business at' the storage units, whatsoever" (emphasis in Opinion).  The Court therefore concluded that venue was improper.

Finding that venue was improper, and in view of Plaintiffs' withdrawal of their opposition and consent to a dismissal without prejudice (Plaintiffs withdrew their opposition in a letter submitted one day before the Court issued its Opinion & Order), the District Court granted Defendant's Motion to Dismiss for Improper Venue.  The Court permitted Plaintiffs to refile in the appropriate venue in compliance with the mandates of 28 U.S.C. § 1400(b).

CDx Diagnostic, Inc. v. United States Endoscopy Group, Inc. (S.D.N.Y. 2018)
Opinion & Order by District Judge Roman

Comments

[Skeptical]

Citing In re Cray Inc., 871 F.3d 1355, 1360 (Fed. Cir. 2017), the District Court noted that the test for establishing the existence of a "regular and established place of business" requires a showing that: (1) there is 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.

- is there not a recent Supreme Court case that could be argued to have overturned the Cray (1) "physical place" element?