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The State of “Regular and Established Place of Business” in the District of Delaware

TC Heartland LLC v. Kraft Food Group Brands LLC has created more questions about venue than it answered (although it obviously answered a very important one), and one significant new question is, what constitutes a “regular and established place of business” under 28 U.S.C. § 1400(b). Chief Judge Stark recently attempted to answer that question in his September 11, 2007 decisions in Boston Scientific Corp. v. Cook Group Inc. and Bristol-Myers Squibb Co. v. Mylan Pharmaceuticals Inc. Only days later, the Federal Circuit issued its decision in In re Cray, restricting the meaning of “regular and established place of business.” This post briefly analyzes the state of Judge Stark’s concept of “regular and established place of business” in the wake of In re Cray.

In Boston Scientific Corp., Judge Stark, among other things, described the application of “regular and established place of business” as a “fact-intensive inquiry focused on whether the defendant does its business in this District through a permanent and continuous presence here.” He explained that a formal office or store is not required to meet this test, but a physical presence is needed. He then identified factors that would not, at least alone, rise to the level of a permanent and continuous presence. They are: (1) doing business in Delaware or being registered to do business in Delaware; (2) maintaining a website accessible in Delaware for online sales; (3) shipping goods to unaffiliated individuals or third-party entities in Delaware; (4) making sales in Delaware; (5) employing a sales representative who occasionally works in Delaware; and (6) previously employing a sales representative who lived in Delaware, but had no responsibility of sales in Delaware.  See Boston Scientific Corp. v. Cook Group Inc.

In his other venue decision of the same date, Bristol-Myers Squibb Co., Judge Stark considered connections between the defendant and Delaware in deciding that he could not conclude without further information that the defendant did not have a regular and established place of business in Delaware. Those factors include: (1) the defendant is part of a family of more than 50 companies, of which more than 40 reside in Delaware; (2) the defendant does business and makes sales in Delaware; (3) the defendant is in the business of provoking patent infringement lawsuits as part of the process of bringing its products to market; (4) the defendant has appeared in more the 100 patent infringement cases in Delaware in the last ten years; (5) the cases are not “run-of-the-mill” litigation and may or may not be of material significance to defendant’s overall business; (6) the defendant has obtained the right to do business in Delaware including for pharmaceutical manufacturing, distribution and sales; (7) the defendant is licensed as a “Pharmacy-Wholesale” and “Distributor/Manufacturer CSR,” allowing it to distribute and manufacture controlled substances within Delaware; and (8) the defendant targets some Delaware physicians.

Judge Stark further explained that the defendant emphasized that several aspects of its business are not in Delaware, including a lack or absence of owned or leased manufacturing facilities, corporate offices, telephone listings, a mailing address, employees in Delaware, any sales in Delaware 2016 or 2017, or any sales to distributors or wholesalers in Delaware. Judge Stark decided that this was not enough, given all the circumstances, to determine that venue was improper. Further, Judge Stark made clear that the business realities of the defendant’s Hatch-Waxman litigation are a pertinent consideration for deciding whether the defendant has a regular and established place of business in Delaware.  See Bristol-Myers Squibb Co. v. Mylan Pharmaceuticals Inc.

Ten days after the Boston Scientific Corp. and Bristol-Myers Squibb Co. decisions, the Federal Circuit issued In re Cray. The Federal Circuit recognized three requirements to be considered 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 a place of the defendant. To be a physical place, the Federal Circuit required that there must be a specific geographic location within the district. It further found that “regular” means a steady, uniform, orderly and methodical manner. Finally, with respect to “a place of the defendant,” the Federal Circuit concluded that the presence of an employee within the district is not sufficient, but conditions that might allow for an employee’s residence in the district to satisfy the test include whether continued employment is conditioned on residence in the district, or whether sale items were stored so they could be distributed within the district. Finally, the Federal Circuit explained that “no one fact is controlling” in making venue decisions.  See In re Cray.

How then does the standard from In re Cray fit with Judge Stark’s concept of “permanent and continuous presence here” and his consideration of the business realities of Hatch-Waxman litigation as a basis for venue? In re Cray is consistent with Judge Stark’s view of a continuous presence in that it does not require a formal office or store, but does require a physical presence. In re Cray does, however, seem to require a more formal physical connection to the district than that contemplated by Judge Stark. There is no indication in Boston Scientific Corp. or Bristol-Myers Squibb Co. that Judge Stark would have required a “physical presence” to be a specific geographic location that must be a place of the defendant, as In re Cray does. And it will be very difficult to maintain that an ANDA defendant’s reliance on Hatch-Waxman litigation to sustain its business, no matter how extensive and longstanding, is enough alone to satisfy the requirement of a specific geographic location of the defendant. It seems unlikely that a party could prevail on an argument that the courthouse or the office of Delaware counsel is a specific geographic location of a defendant.

Ultimately, with its heavy emphasis on a specific geographic location of the defendant, In re Cray narrows and probably simplifies application of the standard set forth in Boston Scientific Corp. and Bristol-Myers Squibb Co. Time will tell.

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