Western District Of Texas Relies On Relaxed Alter Ego Theory To Deny Motion To Dismiss For Improper Venue
On February 25, 2022, the United States District Court for the Western District of Texas (WDTX) filed a redacted copy of its February 11, 2022 order denying a motion to dismiss for improper venue. WSOU Investments LLC d/b/a Brazos Licensing & Dev. v. Canon Inc., No. 6:20-cv-00980-ADA, Dkt. No. 137 (W.D. Tex. Feb. 25, 2022). The WDTX, applying a more relaxed burden for purposes of establishing venue through an alter ego theory, found that defendant had a regular and established place of business in the District through the office of its wholly-owned subsidiary.
Under 28 U.S.C. 1400(b), venue over a U.S. corporation in patent infringement proceedings is proper only where (1) the corporation’s state of incorporation or (2) the corporation has committed acts of infringement and has a regular and established place of business. A regular and established place of business must be (1) a physical place in the district; (2) a regular and established place of business; and (3) established or ratified by defendant.
In October 2020, WSOU Investments, LLC d/b/a Brazos Licensing and Development (Plaintiff) filed suit against Canon U.S.A., Inc. and Canon, Inc. alleging infringement of its patent. Canon U.S.A., Inc. (Defendant) moved to dismiss for improper venue. Plaintiff opposed, arguing, inter alia, that the Austin and San Antonio offices of Defendant’s wholly owned subsidiary Canon Solutions America (Subsidiary) establish venue for Defendant—in effect relying on an alter ego theory. Defendant disputed that Subsidiary’s offices were its places of business.
Under Fifth Circuit case law, where a parent and subsidiary observe corporate formalities, plaintiff has a heavy burden to establish a degree of control sufficient to impute the subsidiary’s jurisdictional contacts to the parent. The presumption of institutional independence may be rebutted only by clear evidence.
The WDTX—relying on case law from the United States District Court for the Southern District of New York that provides for a more relaxed standard because the alter ego theory was not used to impose liability—found that Subsidiary’s presence in Austin and San Antonio may be imputed to Defendant because: (1) Defendant and Subsidiary share some common officers; (2) Defendant’s and Subsidiary’s headquarters are in the same office; (3) there was evidence suggesting that Defendant controlled the lease of Subsidiary’s San Antonio office; (4) Defendant’s employees in Texas who did not work from home worked in Subsidiary’s offices in Irving; (5) Defendant and Subsidiary sold the same products and stored them in the same place in Texas; and (6) the common parent of Defendant and Subsidiary report their revenues on a consolidated basis.
The WDTX also found that Defendant and Subsidiary blurred corporate lines to the public because (1) an employee of Subsidiary identified his employer as Defendant on LinkedIn and (2) Defendant published an article detailing the contributions of Subsidiary to Defendant’s financial stability, thus implying that Subsidiary was integral to the success of Defendant’s business.