Infringers Cannot Be Sued in a Venue Where They Have an Insufficient Connection, Even if They Have a Corporate Relationship and Collaborate with a Co-Defendant Who Can Be Sued in That Venue

Abstract

When suing multiple defendants for patent infringement and venue is challenged, a patent owner must establish that all of the defendants have a sufficient connection with that venue. In particular, the patent owner cannot rely solely on the contacts of one defendant in the venue and impute them to another defendant, even if the defendants are related and collaborate with each other, unless they are so related and integrated such that one company exercises "an unusually high degree of control" or "the other company’s corporate existence is simply a formality" so that it is appropriate to pierce the corporate veil between the companies and treat them as effectively the same entity.

Background

Defendants Lowe’s and LG Sourcing argued that a Wisconsin court was an improper venue for a patent infringement case filed against them by Unity Opto, and the court transferred the case to another district.

In reviewing the connections Lowe’s and LG Sourcing had with Wisconsin, defendants conceded Lowe’s had a place of business in the Wisconsin district, but denied LG Sourcing did. Instead, they argued the case should be transferred to the Western District of North Carolina, where venue was proper as to both defendants.

The Unity Opto Decision

The Court relied on the framework established by the Federal Circuit in In re Cray Inc. to determine whether LG Sourcing had a regular and established place of business in the Western District of Wisconsin, namely,

1. whether there was a physical place in the district;
2. whether it was a regular and established place of business; and
3. whether it is the place of business of the defendant.

Unity Opto did not dispute that LG Sourcing did not own, lease, or maintain any facilities in the district, or have any employees who resided there. Instead, Unity Opto argued that the retail store for Lowe’s should qualify as LG Sourcing’s place of business because of the relationship between the two parties. To do so, Unity Opto relied on several facts, including,

1. both defendants are subsidiaries of Lowe’s Companies,
2. LG Sourcing sources products for Lowe’s stores,
3. LG Sourcing’s VP had a position with the defendants’ parent company,
4. LG Sourcing’s website includes the same logo as Lowe’s and shows Lowe’s retail stores are part of LG Sourcing’s network of businesses, and many others

Even assuming the allegations were true, the Court found they only show defendants are subsidiaries of the same parent company and they collaborate with each other, which was not sufficient to treat them as interchangeable.

For purposes of establishing venue, the contacts of one corporation cannot be attributed to another, even if the two have a parent and subsidiary relationship, unless the parent exercises "an unusually high degree of control" or "the subsidiary’s corporate existence is simply a formality" so that it is appropriate to pierce the corporate veil.

Finding that Unity Opto ignored those principles and did not even attempt to show piercing the corporate veil was appropriate, the Court held Unity Opto failed to meet its burden of showing venue for its patent infringement lawsuit against Lowe’s and LG Sourcing was proper in the Western District of Wisconsin. The Court also denied Unity Opto’s request for discovery on venue, explaining that discovery is not appropriate unless a party first makes a prima facie showing that venue is proper.

The Court also explained that an alternative ground for transfer existed as well. Unity Opto was a Taiwanese company, both defendants were in North Carolina, and the only connection to Wisconsin was the sale of the accused products. Further, the only reason Unity Opto identified for litigating in Wisconsin was that cases there were generally resolved faster than in the Western District of North Carolina. Unpersuaded, the Court found that the relative speed of the courts would not be a sufficient justification for keeping the case in the Western District of Wisconsin.

Strategy and Conclusion

To determine whether an infringer can be sued for patent infringement in a particular district, courts will analyze the corporate status and relationship between defendants as well as the contacts of each defendant in the particular district. Contacts of only one defendant with the forum may not be sufficient to establish venue as to related defendants unless a party can show that the relationship between the companies is such that piercing the corporate veil is proper.

Further Information
The Unity Opto opinion can be found here.