On March 9, the Federal Circuit issued an order granting petitions for writs of mandamus in In re Volkswagen Group of America, Inc. and In re Hyundai Motor America, patent cases we have been following because they attracted amicus briefs. In the order, the Federal Circuit held that the Western District of Texas committed a clear abuse of discretion “for erroneously interpreting governing law and reaching a patently erroneous result” when that court denied motions to dismiss or transfer. Here is a summary of Federal Circuit’s order.
Volkswagen and Hyundai petitioned the Federal Circuit for writs of mandamus directing the Western District of Texas to dismiss or transfer their cases to another district. The parties disputed whether independently owned and operated Volkswagen and Hyundai car dealerships located within the Western District of Texas constituted regular and established places of business making the Western District of Texas a proper venue.
Judges Dyk, Reyna, and Chen considered the petition. In a per curiam order, these judges described the relevant facts:
In December 2020, StratosAudio, Inc. (Stratos) filed these patent infringement complaints in the United States District Court for the Western District of Texas, Waco Division, against Volkswagen and Hyundai, car distributors that are incorporated in New Jersey and California, respectively, and hence do not “reside” for venue purposes in the Western District. . . . Volkswagen and Hyundai moved to dismiss or transfer the cases under 28 U.S.C. § 1406(a) and Federal Rule of Civil Procedure 12(b)(3).
The district court denied the motions, concluding that venue in the Western District over Volkswagen and Hyundai was proper. It reached that conclusion based on independent car dealerships located in the Western District that sell and service cars after purchasing them from the Petitioners under franchise agreements imposing, inter alia, transfer restrictions, staffing and reporting requirements, minimum inventory levels, employee training, and equipment requirements on the dealerships. The district court concluded those agreements gave the Petitioners sufficient control over the dealership locations to establish a regular and established place of business of the Petitioners despite the fact that Texas law prohibits auto manufacturers and distributors from directly or indirectly “operat[ing] or control[ling] a franchised dealer or dealership.” . . . In so doing, the district court found that the agreements give Petitioners sufficient control over dealership operations such that the dealerships are agents of the distributors. . . .
Volkswagen and Hyundai each petitioned this court for a writ of mandamus. The two cases are now consolidated in this court. Both present similar challenges to the district court’s conclusions that the dealerships are Petitioners’ agents, that Petitioners ratified the dealerships as their own places of business, and that Petitioners’ business is conducted from the dealership locations. Volkswagen asks us to vacate the denial of its motion and instruct the district court to dismiss or transfer the action to the United States District Court for the Eastern District of Michigan. Hyundai asks the court to direct dismissal of its case.
After discussing these facts, the order began its analysis by noting “disagreement among district courts on the recurring issue of whether independent car dealerships are sufficient to establish venue over car distributors.” As a result of this disagreement, the court determined that “these cases involve exceptional circumstances warranting immediate review.”
The order then set forth the law governing venue in patent infringement cases. The court noted that the relevant statutory provision provides, “in relevant part, that ‘[a]ny civil action for patent infringement may be brought in the judicial district where . . . the defendant has committed acts of infringement and has a regular and established place of business.’” According to the court, moreover, a regular and established place of business exists only in the following circumstances: “‘(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 the place of the defendant.’”
The order explained that the dispute here revolved around “three issues: (1) whether the dealerships are the agents of Petitioners; (2) whether the dealerships conduct Petitioners’ business; and (3) whether Petitioners have ratified the dealerships as Petitioners’ places of business.” The order noted that if “‘any [of these] statutory requirement[s] [are] not satisfied, venue is improper.’”
The Federal Circuit found “the dealerships located in the Western District do not constitute regular and established places of business of Volkswagen and Hyundai . . . because Stratos has failed to carry its burden to show that the dealerships are agents of Volkswagen or Hyundai under a proper application of established agency law.” Looking into the agreements between the corporations and the dealerships, the judges found a “near uniform body of case law finding that similar contractual provisions or allegations of control fail to show that independent dealerships are agents of vehicle manufacturers or distributors.”
As a result, the Federal Circuit determined that “the district court’s venue conclusions were a clear abuse of discretion for erroneously interpreting governing law and reaching a patently erroneous result.” The court granted the petitions and remanded the cases “for the district court to now address whether to dismiss or transfer these two cases.”