Earlier this year, the US Supreme Court sharply limited where patent cases can be filed. For many tech companies that are regularly sued by the type of patent-licensing shops known as "patent trolls," the TC Heartland decision was welcome news. By limiting venue to places where defendants are incorporated or do business, TC Heartland was seen as an opportunity to shut down many lawsuits being brought in the Eastern District of Texas, a venue that has been historically attractive to so-called trolls and has a huge concentration of patent lawsuits.

Not long after TC Heartland, though, the East Texas judge who hears more patent cases than any other turned down a motion to transfer by supercomputer maker Cray Inc., which was sued for patent infringement by Raytheon in 2015. Lawyers for Cray argued that, under the provisions of TC Heartland, their client was entitled to have its case in a home venue. But US District Judge Rodney Gilstrap disagreed and said that Cray's ties to the district—a single salesperson, working out of his home—was enough to keep the case in the Eastern District.

Today, Gilstrap's decision was reversed by the US Court of Appeals for the Federal Circuit, which hears all patent appeals. In a 20-page decision (PDF), the three-judge panel directed the case against the Seattle-based tech company to be transferred.

Gilstrap's decision to keep Raytheon v. Cray in his court turned the normally wonky area of patent venue into a scorching political issue. At a Capitol Hill hearing about patent reform, the judge was denounced by both Rep. Bob Goodlatte (R-Va.) and Rep. Darrell Issa (R-Calif.), with Issa calling Gilstrap's decision "reprehensible."

“Regular and established”

For a court to have jurisdiction over a patent defendant, the defendant must either "reside" in the district—in other words, must be incorporated there—or have a "regular and established place of business" in the area.

There was no suggestion that Cray "resides" in East Texas, so the argument was over the phrase "regular and established place of business." Raytheon argued that the house of Cray's local salesperson, Doug Harless, qualified as such a place of business.

The appeals panel disagreed, however. The statute requires a "place," which in the view of the appeals court means "a building or a part of a building... from which business is conducted." Things like "virtual space" or "electronic communications" don't qualify.

The place must be "regular," meaning it operates in a "steady, uniform, orderly, and methodical" manner. "Sporadic activity cannot create venue," wrote Circuit Judge Alan Lourie, for a unanimous panel. Businesses can move around, of course, but "it must for a meaningful time be stable, established." In the case of Cray's salesman Harless, the employee sold all over a large sales territory and simply happened to live in the Eastern District of Texas. Because he could have moved out of the district without Cray's approval, "that would cut against the employee's home being considered a place of business of the defendant."

Harless's home was not listed in any business directory or website, and his home had no products or literature. Cray didn't own or rent any portion of the house. Cray had no role in selecting the home's location, and it didn't require Harless to live in the district.

Finally, the judges note that their decision comports with other non-patent cases in which a remote worker's home did not qualify as a permanent, established place of business.

The decision will surely be a relief for Cray, which won't have to face a fast-approaching series of trials in the Eastern District. It will also be a relief for many other patent defendants seeking to change their venue. Today's decision suggests that the venue rule changes of TC Heartland can't easily worked around, or ignored.