OMEGA PATENTS LLC v. BAYERISCHE MOTOREN WEKE AG BMW LLC (2020)

OPINION AND ORDER

This matter is before the Court on Defendant BMW of North America, LLC's (BMWNA) motion to dismiss [ECF 43]. For the following reasons, the motion is GRANTED.

I. BACKGROUND

Plaintiff Omega Patents, LLC (Omega) is the owner of U.S. Patent No. 9,458,814 B2 (the '814 Patent).¹ The subject matter claimed in the '814 Patent relates to a remote engine start control system for automobiles.² According to Omega, Defendants BMWNA and Bayerische Motoren Weke AG (BMWAG) manufacture, import, offer, or sell vehicles that infringe on the '814 Patent.³ Specifically, Omega points to the X5 and X7 vehicle models.⁴ Omega has not granted Defendants permission to use any portion of the subject matter claimed in the '814 Patent.⁵

Omega initiated this suit on May 1, 2020, asserting three claims against BMWAG and BMWNA for direct infringement (Count I), induced infringement (Count II), and contributory infringement (Count III) of the '814 Patent.⁶ BMWNA, only on behalf of itself, filed the instant motion to dismiss on August 3, 2020.⁷ Omega filed a response in opposition to that motion on August 24.⁸ BMWNA filed its reply on September 14, 2020.⁹ The Court heard oral argument on the motion to dismiss on November 17, 2020. To date, Omega has not filed proof of service as to BMWAG, which has not otherwise appeared in this action or responded to Omega's Complaint.¹⁰

II. DISCUSSION

BMWNA argues Omega's patent infringement claims must be dismissed for improper venue pursuant to Federal Rule of Civil Procedure 12(b)(3). The patent venue statute, 28 U.S.C. § 1400(b), states that “[a]ny civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.”¹¹ Omega shoulders the “burden of establishing proper venue.” In re ZTE (USA) Inc., 890 F.3d 1008, 1013 (Fed. Cir. 2018). In recent years, the Federal Circuit has repeatedly cautioned that the patent venue statute should not be afforded a broad or liberal interpretation. E.g., In re Google LLC, 949 F.3d 1338, 1346 (Fed. Cir. 2020) (“We reach our conclusion bearing in mind that ․ the Supreme Court has cautioned against a broad reading of the venue statute. We also bear in mind the importance of relatively clear rules, where the statutory text allows, so as to minimize expenditure of resources on threshold, non-merits issues, of which venue is one.”) (citations omitted); In re Cray Inc., 871 F.3d 1355, 1361 (Fed. Cir. 2017) (“[T]he requirement of venue is specific and unambiguous; it is not one of those vague principles which, in the interests of some overriding policy, is to be given a liberal construction.”).

For the first prong of § 1400(b), the Supreme Court has held that “a domestic corporation ‘resides’ only in its State of incorporation for purposes of the patent venue statute.” TC Heartland LLC v. Kraft Foods Gr. Brands LLC, ––– U.S. ––––, 137 S. Ct. 1514, 1517, 197 L.Ed.2d 816 (2017). In so doing, the Supreme Court found that amendments to the general venue statute—28 U.S.C. 1391(c)—did not modify the meaning of § 1400(b). Id. at 1520–21. The parties agree BMWNA is a Delaware corporation.¹² Thus, pursuant to TC Heartland, BMWNA does not “reside” in Georgia and Omega may not rely on the first prong of § 1400(b) to establish venue.

BMWNA's motion to dismiss turns on the second prong—i.e., whether Omega has alleged sufficient facts showing BMWNA has “committed acts of infringement and has a regular and established place of business” in the Northern District of Georgia. BMWNA argues Omega has not satisfied either element of this prong. The Court addresses each in turn.

a. Omega Has Plausibly Alleged BMWNA Committed Acts of Infringement in this District.

In a footnote, BMWNA argues that, “[w]hile Omega's Complaint accuses BMWNA of infringement of the '814 patent ․ BMWNA expressly denies that it infringes the '814 patent, which is yet another reason why venue is improper.”¹³ To the extent BMWNA contends Omega has not alleged sufficient facts showing acts of infringement in this District, the Court disagrees. An act of infringement occurs when a person or entity “without authority makes, uses, offers to sell, or sells any patented invention” or “actively induces” such conduct. 35 U.S.C. § 271(a)–(b). Well-pled allegations that infringement occurred in this District are sufficient to meet this standard. Tour Tech. Software, Inc. v. RTV, Inc., 377 F. Supp. 3d 195, 201 (E.D.N.Y. 2019) (citing Funnelcap, Inc. v. Orion Indus., Inc., 392 F. Supp. 938, 943 (D. Del. 1975)). See also In re Cordis Corp., 769 F.2d 733, 737 (Fed. Cir. 1985) (“The issue of infringement is not reached on the merits in considering venue requirements.”) (punctuation omitted).

In the Complaint, Omega alleges BMWNA uses, offers to sell, and sells infringing products in this District.¹⁴ BMWNA may disagree with the merits of these allegations, but the Court must treat them as true at this stage. E.g., Wai v. Rainbow Holdings, 315 F. Supp. 2d 1261, 1268 (S.D. Fla. 2004) (“On a motion to dismiss based on improper venue ․ [t]he court must accept all allegations of the complaint as true, unless contradicted by the defendants' affidavits, and when an allegation is so challenged the court may examine facts outside of the complaint to determine whether venue is proper.”) (collecting cases). BMWNA's reliance on Southern Visions, LLP v. Red Diamond, Inc., No. 1:18-cv-04566-ELR, 2018 WL 8221528, at *4 (N.D.Ga), is inapposite. That case is distinguishable because Omega's allegations here are well-pled and specifically connect BMWNA's allegedly infringing actions to this District, not just to the State of Georgia generally. In sum, Omega has sufficiently alleged BMWNA committed acts of infringement in this District.

b. Omega Has Not Plausibly Alleged BMWNA Maintains a Regular and Established Place of Business in this District.

The crux of BMWNA's motion is that Omega has not sufficiently alleged that it maintains a regular and established place of business in this District. This inquiry is not controlled by a bright-line rule. Cray, 871 F.3d at 1362 (“In deciding whether a defendant has a regular and established place of business in a district, no precise rule has been laid down and each case depends on its own facts.”). In Cray, the Federal Circuit articulated three basic requirements: “(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.” Id. at 1360. Absent a showing of each of these factors, there is no venue under § 1400(b). Id.

BMWNA focuses exclusively on the third Cray factor. According to Cray, to be a “place of the defendant ․ the defendant must establish or ratify the place of business.” Cray, 871 F.3d at 1363. Cray articulated an array of non-exclusive considerations relevant to this inquiry:

Relevant considerations include whether the defendant owns or leases the place, or exercises other attributes of possession or control over the place․ Another consideration might be ․ the storing of materials at a place in the district so that they can be distributed or sold from that place․ Marketing or advertisements also may be relevant, but only to the extent they indicate that the defendant itself holds out a place for its business․ [A] defendant's representations that it has a place of business in the district are relevant to the inquiry. Potentially relevant inquiries include whether the defendant lists the alleged place of business on a website, or in a telephone or other directory; or places its name on a sign associated with or on the building itself. But the mere fact that a defendant has advertised that it has a place of business or has even set up an office is not sufficient; the defendant must actually engage in business from that location.

Id. at 1362–63 (citations omitted). No one factor is dispositive. E.g., RegenLab USA LLC v. Estar Techs. Ltd., 335 F. Supp. 3d 526, 552 (S.D.N.Y. 2018).

To show BMWNA maintains a “regular and established place of business” in this District, Omega points to the presence of five dealerships that sell and service BMW-branded vehicles across the metro-Atlanta area.¹⁵ BMWNA, conversely, argues these dealerships are not “places of BMWNA,” but rather “independent dealers of BMW vehicles” and “non-parties who are separate and distinct entities from BMWNA.”¹⁶

As stated, the ownership of a physical business location is a relevant factor the Court should consider. Cray, 871 F.3d at 1362. Omega does not allege BMWNA owns, leases, or rents any of the dealerships. It also does not contest that BMWNA and the dealerships are entirely separate corporate entities.¹⁷ Indeed, as noted by BMWNA, Georgia law prohibits it from owning dealerships in many instances. O.C.G.A. § 10-1-664.1. Further, Omega does not allege BMWNA and the dealerships are subsidiaries, bound by an agency or alter ego relationship, or that the entities fail to maintain and preserve the formalities of corporate separateness.

Absent such allegations, numerous decisions from other federal courts stand for the proposition that “independent distributors, such as authorized retailers ․ do not suffice to establish venue under § 1400(b).” Vaxcel Int'l Co. v. Minka Lighting, Inc., No. 18 CV 0607, 2018 WL 6930772, at *3 (N.D. Ill. July 11, 2018) (collecting cases). See also Bd. of Regents v. Medtronic PLC, No. A-17-cv-0942-LY, 2018 WL 4179080, at *2 (W.D. Tex. July 19, 2018) (“Except where corporate formalities are ignored and an alter ego relationship exists, the presence of a corporate relative in the district does not establish venue over another separate and distinct corporate relative.”); EMED Techs. Corp. v. Repro-Med Sys., Inc., No. 2:17-cv-728-WCB-RSP, 2018 WL 2544564, at *2 (E.D. Tex. June 4, 2018) (“For purposes of venue, so long as a formal separation of closely related entities is preserved, the courts ordinarily will not treat the place of business of one corporation as the place of business of the other.”) (punctuation omitted); W. View Research, LLC v. BMW of N. Am., LLC, No. 16-cv-2590 JLS, 2018 WL 4367378, at *8 (S.D. Cal. Feb. 5, 2018) (“Here, Defendants and the dealerships are separate corporate entities․ The Court finds no facts to support collapsing the corporate forms; the dealerships' physical locations are not places of Defendants.”). This is a persuasive consideration militating in BMWNA's favor.

However, that may not be the end of the inquiry; a literal reading of Cray seems to suggest that, in some scenarios, a defendant may “ratify the place of business,” even if it does not own, lease, or rent it. Cray, 871 F.3d at 1363 (emphasis added). See also Javelin Pharm., Inc. v. Mylan Labs. Ltd., No. CV 16-224-LPS, 2017 WL 5953296, at *4 (D. Del. Dec. 1, 2017) (“In the Court's view, it follows from Cray that the ‘place’ of a corporate affiliate or subsidiary of a named defendant may, in at least some circumstances, and similar to the place of a defendant's employee, be treated as a ‘place of the defendant.’ ”).

The Court acknowledges that two district courts have previously answered this precise question involving BMWNA but came to entirely opposite conclusions. In West View Research, LLC v. BMW of North America, LLC, the Southern District of California found venue improper in that district as to BMWNA based on the presence of five dealerships. 2018 WL 4367378, at *6–*8. The plaintiff argued that: (1) BMWNA executed operating agreements with the dealerships that afforded it a certain degree of control over their businesses; (2) BMWNA prominently advertised the BMW brand at the dealerships; and (3) the dealership's employees served BMWNA's customers in the district. Id. at *6–*7. The court rejected these arguments, remarking that they “ignore[ ] the separate corporate forms of [BMWNA] and the dealerships” and finding “no facts to support collapsing the corporate forms.” Id. at *8.

Conversely, in Blitzsafe Texas, LLC v. Bayerische Motoren Werke AG, the Eastern District of Texas concluded it was a proper venue as to BMWNA based on the presence of four dealerships. No. 2:17-cv-00418-JRG, 2018 WL 4849345, at *12 (E.D. Tex. Sept. 6, 2018).¹⁸ The court held that “BMWNA has undoubtably adopted and ratified the dealerships within this District as its places of business” because:

First, BMWNA does not permit sales of any new BMW vehicle from any location except authorized dealers, such as the BMW Centers found within this district. The authorization by BMWNA of the BMW dealerships as its exclusive new-vehicle sales locations is, in this Court's opinion, sufficient ratification to meet the statutory requirement. Second, the dealerships are named “BMW” (for example, BMW of Tyler, BMW of Beaumont, Classic BMW (located in Plano)) and referred to by BMWNA as “BMW Centers.” Third, the dealerships prominently display the singular logo of BMW with no reservations such as “authorized dealer” or “exclusive distributor.” The dealerships are held out to the consuming public as places of BMW where BMW, through its franchised dealers, sells BMW cars to said consuming public. Fourth, BMWNA, whose website is www.bmwusa.com, represents the dealerships within this District are places of BMWNA with respect to the purchase of new BMWs. This is made clear by BMWNA on its website.

Id. at *8.

As a “separate and independent basis for this [venue] holding,” the Blitzsafe court pointed to the “additional business undertaken by BMWNA in this District and at the dealerships,” such as the provisioning of warranty service to new customers. Id. at *9. Although agreeing with West View that “there is not sufficient rationale to collapse the corporate forms of BMWNA and the dealerships,” the Blitzsafe court nonetheless found ratification appropriate because “BMWNA and its authorized dealers function as an integrated, two-part seller of BMWNA's automobiles.” Id.

Relying on Blitzsafe, Omega argues BMWNA ratified the dealerships as its places of business based on the coordination of business and marketing activities funneled through the dealerships. Omega alleges BMWNA is the exclusive importer of BMW branded vehicles, which it distributes through the dealerships.¹⁹ BMWNA “promotes each of these locations as its place of business ․ and on the BMWNA website.”²⁰ BMWNA also engages in marketing efforts to promote the sale of BMW products in the district and maintains an interactive website listing each of the local dealerships as a “BMW Center.”²¹ Similar to West View and Blitzsafe, Omega points to “dealer agreements” between BMWNA and the dealerships that “set forth standards and requirements ․ that dealers are required to comply with for both sales and services.”²² Finally, Omega alleges BMWNA provides new car warranty services at these dealerships.²³

Treating these allegations as true, the Court finds that Omega has not carried its burden of establishing that venue is proper in this District as to BMWNA. At the outset, although the plain language of Cray indicates that ratification may be a permissible avenue for finding patent venue in some circumstances, the Court respectfully disagrees with Blitzsafe that the Federal Circuit intended its Cray holding to be interpreted so broadly as to encompass independent entities in the absence of an alter-ego relationship. The Federal Circuit decided Cray in the context of a residential home office, which bears little resemblance to the relationship between BMWNA and the independent dealerships. And the court expressly instructed subsequent courts to “be careful not to conflate showings that may be sufficient for other purposes, e.g., personal jurisdiction or the general venue statute, with the necessary showing to establish proper venue in patent cases.” Cray, 871 F.3d at 1361.

To be sure, BMWNA's business and marketing efforts are intertwined with the dealerships. Common insignia and logos are displayed, website links are created, marketing strategies are dispatched, and agreements are executed all to ultimately facilitate the sale of BMW-branded vehicles to customers. But Omega's allegations are not enough to overcome the persuasive authority holding that “distributors and even subsidiaries, that are independently owned and operated, that are located in the forum and work with the accused infringer, [are] not sufficient to show that the accused infringer has a regular and established business under § 1400(b).” Reflection, LLC v. Spire Collective LLC, No. 17-cv-1603-GPC(BGS), 2018 WL 310184, at *2 (S.D. Cal. Jan. 5, 2018). See also ECF 43, at 20 n.9 (collecting cases). The Court finds it inappropriate to apply a ratification theory under the facts here.²⁴

At best, Omega's allegations show BMWNA maintains a mutually beneficial, coordinated business relationship with the dealerships to sell its products to customers in this District. But facilitating business and services through an independent entity is not enough for ratification. E.g., Uni-Sys., LLC v. U.S. Tennis Ass'n Nat'l Tennis Ctr. Inc., No. 17-cv-147(KAM)(CLP), 2020 WL 1694490, at *15 (E.D.N.Y. Apr. 7, 2020) (holding that “contract[s] to do business ․ are just that—agreements to do business, not to maintain a place of business. One can engage in business at a place that is not its own ․ Ratifying a place of business as one's own requires more than simply agreeing to do business at the place”) (emphasis in original); Zaxcom, Inc. v. Lectrosonics, Inc., No. 17-cv-3408-NGG-SJB, 2019 WL 418860, at *9 (E.D.N.Y. Feb. 1, 2019) (“[T]he facts here demonstrate that Defendant has contracted with Jaycee over a period of years to provide non-exclusive repair and maintenance services on certain of Defendant's products, which have been purchased by customers through third-party dealers, and which may or may not be under warranty. This does not, without more, render Jaycee's location a place of business of Defendant.”). Further, the Court does not find that common marketing strategies and some modicum of control over the dealerships' macro-level operations by BMWNA transforms them into its own places of business.

A finding that venue is proper in this District as to BMWNA under the facts alleged would, in this Court's view, significantly expand the scope of § 1400(b)—a result it does not believe the Federal Circuit intended with its decision in Cray, 871 F.3d at 1361. See also Uni-Sys., 2020 WL 1694490, at *15 (“Reading the statute as [plaintiff] suggests would read out any distinction between the ‘doing business’ inquiry of the general venue statute, 28 U.S.C. § 1391, and the ‘regular and established place of business’ inquiry of the patent venue statute, 28 U.S.C. § 1400(b).”); Tour Tech., 377 F. Supp. 3d at 209 (distinguishing Blitzsafe and holding “[a]lthough RTV's actions and contacts within the district would likely be sufficient to satisfy the general venue statute, the Court is mindful that the patent venue statute is narrower .”). In sum, the Court finds that venue is not proper in this District against BMWNA under § 1400(b).

A final issue remains. Since venue is improper in this District, the Court must decide whether to “dismiss, or if it be in the interest of justice, transfer [the] case to any district or division in which it could have been brought.” 28 U.S.C. § 1406. The parties did not address this question in their briefs. During oral argument, Omega expressed its preference for a transfer, but did not specify a particular district. Although venue is proper in the District of Delaware based on BMWNA's residency—TC Heartland, 137 S. Ct. at 1517—the Court believes Omega should have an opportunity to address the matter and shall withhold a ruling on transfer until the conclusion of the timeline articulated below.

III. CONCLUSION

BMWNA's motion to dismiss [ECF 43] is GRANTED.²⁵ Within 14 days after the entry of this Order, Omega is DIRECTED to file a notice on the docket indicating its preference for a dismissal or transfer, and if the latter, the proper judicial forum. BMWNA may file a response within 7 days after service of that notice. No reply is necessary.

SO ORDERED this the 21st day of December 2020.

FOOTNOTES

1.   ECF 1, ¶ 12.

2.   Id. ¶ 18.

3.   Id. ¶ 15.

4.   Id. ¶ 17.

5.   Id. 20–41.

6.   Id.

7.   ECF 43.

8.   ECF 49.

9.   ECF 52.

10.   On June 9, 2020, the Court granted Omega's request to appoint a special process server to serve BMWAG in Germany [ECF 40].

11.   Federal Circuit law governs the resolution of this motion. In re ZTE (USA) Inc., 890 F.3d 1008, 1012 (Fed. Cir. 2018) (“Whether venue is proper under § 1400(b) is an issue unique to patent law and is governed by Federal Circuit law.”).

12.   ECF 1, ¶ 3; ECF 43-1, at 10 (“In Paragraph 3 of the Complaint, Omega correctly states that BMWNA is a Delaware company.”).

13.   ECF 43-1, at 9 n.7.

14.   ECF 1, ¶¶ 4-6.

15.   ECF 1, ¶ 4. The five dealerships referenced by Omega are: BMW of South Atlanta, Nalley BMW of Decatur, BMW of Gwinnett Place, Global Imports BMW, and United BMW.

16.   ECF 43, at 8.

17.   E.g., ECF 49, at 15 (“Predictably, BMWNA's motion argues (as it did in Blitzsafe) that its exclusive dealerships are ‘independent and distinct,’ but this does not preclude a finding that the dealership is a regular and established place of business for BMWNA.”) (citation omitted).

18.   As noted by BMWNA, the Blitzsafe court later vacated its order pursuant to a joint agreement between the parties. But this vacatur does not necessarily demand a negative inference here. There is no indication that the Blitzsafe court—or any other court—found the principles of law underlying the decision incorrect. And the opinion would not have been binding or controlling on this Court in any event. The Court concludes it may consider the analysis discussed in the Blitzsafe opinion as persuasive authority.

19.   ECF 1, ¶ 3.

20.   Id. ¶ 4.

21.   Id. ¶¶ 4–6.

22.   Id. ¶ 7.

23.   Id. ¶ 8.

24.   To reiterate: (1) BMWNA does not own, operate, or rent the dealerships; (2) the dealerships' employees are not BMWNA's employees—the latter has no employees residing or working in this District; (3) Omega does not allege an agency or alter ego relationship between BMWNA and the dealerships; and (4) Omega does not allege BMWNA has failed to treat the dealerships as separate corporate entities.

25.   BMWNA requests the attorneys' fees and costs it expended in filing and litigating this motion to dismiss. That request is denied.

Steven D. Grimberg, United States District Court Judge