Last Friday, a panel of the Federal Circuit heard oral argument in In re Google, a patent case. As we noted in our argument preview, Google seeks a writ of mandamus ordering the district court (here, Chief Judge Gilstrap of the Eastern District of Texas) to dismiss the case for lack of venue. Chief Judge Gilstrap concluded that Google’s “edge servers” located at Internet Service Provider locations within the district constitute a “regular and established place of business” of Google, subjecting Google to venue in the district court. We are keeping track of the case because it attracted an amicus brief. In that brief, a group of companies lodged their support for Google’s position that these servers do not suffice under the venue statute. Here is our argument recap.
The first thing to highlight about the oral argument is that the parties drew Judges Dyk, Wallach, and Taranto. Notably, Judges Dyk and Taranto heard the previous attempt by Google to obtain a writ of mandamus to order Chief Judge Gilstrap to dismiss or transfer a previous case when he had found venue appropriate on the exact same basis. Judges Dyk and Taranto formed the majority in that case, concluding that mandamus was inappropriate at that time. Judge Reyna dissented both in the order denying mandamus and in the later denial of en banc rehearing. He, however, did not participate in Friday’s oral argument. Instead, Judge Wallach participated.
Thomas P. Schmidt argued for Google. He faced a barrage of questions underscoring apparent concern with Google’s arguments that its servers were not located in a “place” in the Eastern District and did not conduct Google’s business there. The judges also voiced concern with Google’s position that people are required to be present to conduct business.
Judge Dyk started the questions by focusing on whether a place of business requires a person to be there, referring to the patent service statute enacted at the same time as the venue statute. “Is the robotic equivalent of a person within the venue statute?” he wondered. Schmidt responded that it is not, and moreover you need a “regular” employee or agent. He referred to a coin-operated laundromat as an example where a person would regularly service the machines. In response, Judge Dyk asked why ISP employees servicing Google’s machines would not suffice. Schmidt argued that the respondent waived any such argument.
Judge Taranto, however, asked why the ISP’s hosting of the server is not “acting as an agent for Google’s business of supplying content from that server at that space”? In his response, Schmidt focused attention on the people, not the computer, at the location, and said the people were not supplying data. Judge Wallach asked, then, whether Google’s position would change if the location housed a “server farm.” Schmidt agreed that it would, because Google would have employees and real estate at the location. Following up on this point, Judge Dyk then confirmed that Schmidt agreed that “servicing equipment” alone would be enough to meet the statute’s requirement in some circumstances, such as in the laundromat example.
After Schmidt returned to the issue of waiver with respect to the argument that the ISP employees act as Google’s agents, Judge Taranto suggested that one option for the court is to deny mandamus with instructions to the district court to further consider the venue question in light of exploration of facts not already fully explored. Schmidt agreed, but added that the instructions would include consideration of whether there are real people and real property involved in the business at the location.
Judge Taranto seized upon the mention of real property, saying “there is real property; there’s a building.” Schmidt admitted that there is real property, but argued that it is the ISP’s real property. Judge Taranto then asked, “so what?” Schmidt mentioned that the real property must be “of the defendant.” Judge Dyk, however, asked whether Google has leased the relevant buildings. Schmidt resisted the idea that there are leases of “part of a building” here, presumably because the equipment in question sits on a rack at the ISP’s location. Judge Taranto then explored whether a seller of bagels at a stall in a flea market who has an agreement to sell bagels from that location and does so every day for years, but has no lease, still has a regular and established place of business. Schmidt agreed that person probably does, but only because there is a reserved space of real property where a person can stand. Judge Dyk then suggested that a contract to use a specific shelf in a specific room would be enough, and asked whether the problem in this case is that the contract is not specific about the location. Schmidt disagreed because, he said, a shelf is not part of a building. Judge Dyk then asked, incredulously, whether “a shelf is different from a table at a flea market?” Schmidt said yes, because the space at a flea market is an area around which people can congregate and sellers can interact with customers. Judge Taranto suggested, then, that Google wanted to distinguish between fixtures and non-fixtures in determining real property. Schmidt, however, disagreed.
When Schmidt referred to the use of common sense, Judge Taranto asked “why isn’t it common sense?” He went on: “Google stores a massive amount of wares that consumers want, at a particular spot, regularly, and people get it from that spot. The fact that it is extremely small and doesn’t require . . . a physical hand attached to a body with physical feet standing near it to get it, why should that matter?” Schmidt argued that the language of the statute requires more.
Judge Wallach asked about the implications for the government’s trade positions related to non-physical exportations. In response, Schmidt essentially asked for a narrow holding related to the patent venue statute only.
Judge Dyk at one point suggested that Google’s position that a shelf cannot be a regular and established place of business “doesn’t seem to me to be a very satisfactory way of analyzing” the question, and he instead wanted to focus on what Congress meant when it said “conducting business.” He raised the question of whether in 1897 Congress contemplated a railroad track that ran through a district but that did not include any stations or physical offices, and where the railroad’s workers only did track maintenance, as being enough to meet the requirement of a regular and established place of business. Schmidt argued that Congress would not have thought so.
Schmidt then attempted to distinguish between physical space and virtual space, which he argued is where Google’s business is conducted. Judge Taranto, however, indicated he did not understand the term “virtual space” because the computers that act as the servers are located in a physical location where “you can walk on it,” in the sense that there is a “physical space with a physical piece of equipment on it; business is being conducted out of the machine at that physical space and it is there in order to save various costs and time.” Schmidt responded that the physical space is merely the space the equipment takes up, and that is not enough. He referred to a cable company delivering cable boxes to its customers; he argued the cable company does not have places of business at each customer’s home. Judge Taranto, however, did not appear swayed, changing the hypothetical to the situation where the cable company has one cable box that serves the entire community. Schmidt disagreed that there would be a place of business in this situation, comparing this hypothetical to the cell phone tower hypothetical. Judge Taranto, however, said the “problem with the call phone tower” is that “storage incident to transmission” is different and represents a “common sense” distinction from this case. Admitting that “there is a certain intuitive appeal to” the warehouse analogy, Schmidt nonetheless maintained that all that means is that the servers function “like” traditional places of business not that they “are” traditional places of business.
The arguments continued, with Judges Taranto and Wallach in particular continuing to challenge Google’s legal positions and its arguments related to the relevancy of the underlying evidence and facts in various respects.
Following Schmidt, Jeff Bragalone argued for the respondent, Super Interconnect Technologies LLC. During his argument he likewise faced many probing questions, particularly with hypothetical factual situations exploring the impact of the district court’s approach in this case.
Before he could even complete his first sentence, however, Judge Dyk asked, “Let’s assume the shelf here is a place. . . . And let’s assume that . . . . business has to be conducted by persons . . . . Is the maintenance of equipment ‘conducting business’ within the meaning of the statute?” In other words, “is maintaining physical property located within the jurisdiction” enough? Bragalone responded that a person is not required, but if it were required, he argued, servicing equipment that is doing the business of the defendant would be sufficient. “They may not themselves be conducting business,” he went on, “but they are enabling the business that is conducted.” Judge Taranto then referred to the automated laundromat example as fitting within this hypothetical.
Later in the argument, Judge Wallach asked if Google would meet the statutory requirements if an electrical surge brought down its servers located in the district. Bragalone responded that Google would still meet the requirements, because the statute doesn’t require continual operation of the business, but only a regular and established operation of the business. Bragalone stressed that Google’s employees remotely access the servers and interact with them on a weekly basis. When follow up questions asked about what business Google exactly does from the location, he stressed that Google stores and provides data and advertisements using the servers.
Bragalone also explained that Google provided a map on its website highlighting that these edge servers bring data closer to its customers, and Google called the locations its own locations. Bragalone used this evidence to attempt to distinguish the cable box example. He said, “there’s no cable company out there in the United States that’s saying the homes of each one of its subscribers” is the cable company’s location where the cable company does business.
Bragalone then stressed that “machines can and do conduct business.” He pointed to the America Invents Act, Section 18(c), where he said Congress explained that for purposes of venue in patent cases that automated teller machines cannot be a regular and established place of business, but (as emphasized by Judge Dyk) only with respect to assertions of covered business method patents. Bragalone argued that “the implication there is that, if you’re not asserting a covered business method patent, then that can qualify” as a regular and established place of business. Judge Taranto, however, resisted this conclusion, indicating that “this might be just a belt-and-suspenders thing where these sorts of largely unmanned places are uncertain . . . and therefore [Congress just said] ‘we’re just going to make absolutely sure'” they do not qualify as a regular and established place of business.
Judge Taranto then shifted the discussion to the “quite legitimate concern that it is not part of our task to adjust a perhaps outmoded notion from the 1897 statute to changes in the real world, and if there are going to be adjustments that’s for Congress.” Bragalone argued the situation is the opposite, in that Google is trying to impose an additional requirement that virtual business or electronic business cannot be business, and “that is no where in the statute.”
Later in the argument, Judge Dyk asked about electronic transmission lines like telephone or telegraph lines, and whether they would be places of business. Bragalone responded that he would need more information, but if all you have is transmission lines then “it is hard to see that that is sufficient.” Judge Dyk then asked, “what’s the difference between that and this situation?” After some discussion, Bragalone argued that mere telecommunications transmissions are not enough, but Google is storing data at its location in the Eastern District of Texas. “It’s a data warehouse,” Bragalone stressed. “They’re actually storing large volumes of information locally.” Merely acting as a conduit, he argued, is insufficient. “And that’s why it’s dangerous,” he went on, “for this court to establish a one-size-fits-all rule.” In response, Judge Dyk asked, “you don’t agree that providing some clarity in this area would be useful to everyone?” Bragalone responded that he was “not saying that,” but rather that it would be “inappropriate for this court to reach out in a mandamus situation . . . to say there’s been a usurpation of judicial power” when the decision is so dependent on the relevant facts.
Bragalone then stressed that a year ago the Federal Circuit had denied mandamus, indicating that more percolation would be helpful without knowing whether this issue is one of national importance. But “this has affected primarily Google,” he argued, “and primarily only in the Eastern District of Texas.”
Judge Taranto then asked, “assuming we were to deny mandamus,” whether the district court had finally decided the issue of venue or whether the district court could revisit it later in the case. Bragalone responded that the issue could be taken up later, just like the Federal Circuit can analyze the issue in a regular appeal. Judge Taranto explained that he asked this because “one possibly relevant aspect of the issue . . . is whether you have waived an argument that [the ISPs] are agents of Google.” But, he indicated, if the matter is still open to resolution on remand, then perhaps that argument could still be made. Bragalone argued that there is no waiver because, “for that to be one of the check boxes that we have to check off, there has to be some rule of law that says you have to show proof of people there,” and that is “a requirement that has yet to be articulated as such in the law.” But, he said, there is sufficient evidence in the record from which the district court could have found that Google is directing the personnel of the ISPs, and so it was not waived in any event. He added, “Should this court now impose new requirements or [provide] new clarifications to the venue statute, . . . it would be appropriate to remand the case back to the district court.”
Schmidt then retook the podium for his rebuttal argument. In it, Schmidt first emphasized that the transmission lines example highlights how, if venue is appropriate here, then “just about any equipment” may satisfy the venue statute, and that this case has broad implications beyond just Google.
Later, when Schmidt argued that the evidence shows it does not have any agents there, Judge Taranto quickly pointed out that the declaration Google entered did not mention that Google did not have agents in the district.
Schmidt referred to the amicus brief, and argued that there are “tons of cases” raising the same types of arguments raised against Google. Judge Taranto, however, asked whether any of the other cases mentioned in the amicus briefs are “server cases,” and he highlighted just two cases that he knew involved servers. In addition to the two cases Judge Taranto cited, Schmidt cited a case referenced in a footnote in the amicus brief.
Returning to the transmission line hypothetical, Schmidt contended that storing data rather than acting as a mere passthrough for data is not a relevant distinction under the venue statute. “This just goes to the functioning of the equipment, not whether or not it is an established place of business.” He went on, arguing that “[i]t’s hard to see how the storing of data makes something an establishment.” Judge Wallach, then, asked if Google also “gathers information,” because “that’s different” than providing information. Schmidt agreed Google gathers information, but he again argued that this is not relevant to whether there is an established place of business in the district. Judge Taranto, then, asked about the word “temporarily” in the declaration Google relied upon. If data is stored “temporarily” in the district, he asked, what does that mean? He suggested that it’s not incidental storage related to transmission, but “something longer than that, right?” Yes, agreed Schmidt, because this refers, for example, to the fact that a YouTube video that gets cached is not going to be the same video every day. Judge Taranto suggested that, “it’s temporary, then, in the same sense that a large warehouse of goods” would be temporarily storing the goods.
Schmidt argued that a virtual storefront on a website, accessed using a phone, does not cause the place of business to be where the phone is located. Judge Taranto seemed to bristle with the indication that this case is no different than a website storefront. “Except that [Google’s database] is full of terabytes of actual content,” he responded. Moreover, he responded, “That’s not right. A store of stuff is somewhere else at some server farm.” The content is not on your phone, or else “it would take forever to download,” he explained.
Several things stand out about the oral argument. First, typically the Federal Circuit decides petitions for writs of mandamus without holding oral argument. Indeed, last year the panel that denied Google’s previous petition did not hold oral argument. The decision to hold an oral argument this time signals, perhaps, that there is more interest in reaching the merits of the underlying dispute. Second, the oral argument was conducted the second week of the month and on a day when no other cases were being argued, and it extended for about one hour, much longer than the normal thirty minutes. Third, the judges almost exclusively explored the merits of the underlying dispute, whether Google’s servers constitute a regular and established place of business in the Eastern District of Texas. The judges did not ask many questions closely tied to the preliminary question of whether mandamus relief would be appropriate now in the circumstances of the case, and in particular whether the circumstances have changed significantly since the previous panel of the court last denied Google mandamus relief when Google brought to the court the same arguments concerning venue.
Finally, while it is hard to predict how the court will rule in any case based on the oral argument, Judge Dyk did seem to think that it would be helpful for the Federal Circuit to issue an opinion clarifying how the statute should be understood in the circumstances presented in this case. Moreover, Judge Taranto repeatedly returned to the question of whether Google utilized agents within the district to conduct Google’s business, and whether the case could be remanded to the district court with instructions to reconsider the question of venue with added guidance on the proper legal analysis to be conducted. And, more generally, all three of the judges seemed to respond critically to Google’s ultimate position that its edge servers cannot meet the statutory requirement of a regular and established place of business.
We will report on the panel’s decision in the case as soon as the panel acts.