Reeflection, LLC v. Spire Collective LLC et al
Filing
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ORDER Granting 11 Defendant's Motion to Dismiss for Improper Venue. The hearing set for January 19, 2018 shall be vacated. Signed by Judge Gonzalo P. Curiel on 1/5/18. (dlg)
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UNITED STATES DISTRICT COURT
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SOUTHERN DISTRICT OF CALIFORNIA
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REFLECTION, LLC, a California
Corporation,
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ORDER GRANTING DEFENDANT’S
MOTION TO DISMISS FOR
IMPROPER VENUE
Plaintiff,
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Case No.: 17cv1603-GPC(BGS)
v.
SPIRE COLLECTIVE LLC (d.b.a.,
StoreYourBoard), a Pennsylvania
Corporation; and DOES 1-10,
[Dkt. No. 11.]
Defendant.
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Before the Court is Defendant’s motion to dismiss pursuant to Federal Rule of
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Civil Procedure 12(b)(3) and 28 U.S.C. § 1406(a). (Dkt. No. 11.) Plaintiff filed an
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opposition on December 18, 2017. (Dkt. No. 13.) A reply by Defendant was filed on
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December 29, 2017. (Dkt. No. 14.) Based on the reasoning below, the Court GRANTS
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Defendant’s motion to dismiss.
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Background
Plaintiff Reflection, LLC (“Reflection” or “Plaintiff”) filed a complaint against
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Defendant Spire Collective LLC (“Spire” or “Defendant”) for patent infringement of its
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United States Patent No. 7,213,713 entitled “Storage System for Sport Equipment.”
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(Dkt. No. 1. Compl.) Plaintiff is a California limited liability company with its principal
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17cv1603-GPC(BGS)
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place of business located in Vista, California. (Id. ¶ 2.) Defendant is a Pennsylvania
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corporation with its principal place of business located in Troy, Virginia. (Id. ¶ 3.)
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Defendant maintains a Professional Selling Account with Amazon.com
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(“Amazon”) for which it pays a monthly subscription fee. (Dkt. No. 11-3, Mavraganis
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Decl. ¶ 4.) It enrolls its products in a service called Amazon-Fulfilled. (Id. ¶ 5.)
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Initially, Spire indicates the quantity of products it has available to send to Amazon. (Id.
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¶ 7.) Then Amazon directs Spire to send products to certain Amazon Fulfillment Centers
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(“Amazon FC”) for storage and fulfillment. (Id. ¶ 8.) Amazon may require all products
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be sent to one Amazon FC, or it may require Spire to split the products into multiple
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shipments to be sent to multiple Amazon FCs. (Id.) After its products are shipped to
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and received by the Amazon FCs, Amazon sometimes decides, in its sole discretion, to
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redistribute Spire’s products to different Amazon FCs for storage and fulfillment. (Id.)
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To its knowledge, Spire’s products have been stored by Amazon in 23 states including
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California. (Id.) Spire does not lease or have any rights to any space in Amazon FC in
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California. (Id. ¶ 9.)
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A.
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Motion to Dismiss for Improper Venue
Defendant moves to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(3)
and 28 U.S.C. § 1406(a) for improper venue. Plaintiff opposes.
Federal Rule of Civil Procedure 12(b)(3) provides that a defendant may move to
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dismiss a case for improper venue. Fed. R. Civ. P. 12(b)(3). Under Rule 12(b)(3),
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“pleadings need not be accepted as true, and facts outside the pleadings may be
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considered.” Doe 1 v. AOL LLC, 552 F.3d 1077, 1081 (9th Cir. 2009) (citation omitted);
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see also Argueta v. Banco Mexicano, S.A., 87 F.3d 320, 324 (9th Cir. 1996). Once venue
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is challenged, the plaintiff bears the burden of demonstrating the propriety of venue in the
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chosen judicial district. Piedmont Label Co. v. Sun Garden Packing Co., 598 F.2d 491,
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496 (9th Cir. 1979). Pursuant to 28 U.S.C. § 1406(a), if a case is filed in an improper
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venue, the district court “shall dismiss, or if it be in the interest of justice, transfer such
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17cv1603-GPC(BGS)
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case to any district or division in which it could have been brought.” 28 U.S.C. §
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1406(a).
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A patent infringement case is governed by the patent venue statute which states
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that “[a]ny civil action for patent infringement may be brought in the judicial district
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where the defendant resides, or where the defendant has committed acts of infringement
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and has a regular and established place of business.” 28 U.S.C. § 1400(b). By enacting
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the patent venue statute, “[Congress] ‘placed patent infringement cases in a class by
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themselves, outside the scope of general venue legislation.’” TC Heartland LLC v. Kraft
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Foods Group Brands LLC, 137 S. Ct. 1514, 1518 (2017). The patent venue statute is
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construed as “a restrictive measure, limiting [the] prior, broader venue.” Stonite Prods.
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Co. v. Melvin Lloyd Co., 315 U.S. 561, 566-67 (1942). Therefore, the patent venue
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statute should be strictly construed. Symbology Innovations, LLC v. Lego Sys., Inc., --
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F.Supp.3d --, 2017 WL 4324841, at *7 (E.D. Va. Sept. 28, 2017) (citing Schnell v. Peter
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Eckrich & Sons, Inc., 365 U.S. 260, 264 (1961)); Personal Audio, LLC v. Google, Inc., --
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F.Supp.3d -- 2017 WL 5988868, at *3 (E.D. Texas Dec. 1, 2017) (patent venue statute is
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a statute “that is to be narrowly construed as written.”). Its purpose is to subject a
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defendant to a forum where its presence is permanent and not transitory. Symbology
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Innovations, 2017 WL 4324841, at *8.
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Here, the parties do not dispute the first clause of § 1400(b) that Spire does not
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reside in this district. Instead, the parties dispute an element of the second clause as to
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whether Spire has “a regular and established place of business” in this district.
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Defendant argues that venue is improper because it has no “regular and established
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place of business” in this district. Plaintiff opposes arguing that Spire’s relationship with
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Amazon satisfies this factor.
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In a recent case, the Federal Circuit provided factors courts should consider to
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determine what constitutes a “regular and established place of business” under the patent
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venue statute. In re Cray Inc., 871 F.3d 1355, 1359-60 (Fed. Cir. 2017). The three
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factors are the following: “(1) there must be a physical place in the district; (2) it must be
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a regular and established place of business; and (3) it must be the place of the defendant.”
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Id. at 1360. “If any statutory requirement is not satisfied, venue is improper under §
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1400(b).” Id.
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The first factor requires a physical place in the district such as a “[a] building or a
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part of a building set apart for any purpose” or “quarters of any kind” where the business
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is conducted. Id. at 1362 (citations omitted). A virtual space or electronic
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communication is not sufficient. Id. While a fixed physical presence such as an office or
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store is not required, there must be a “physical, geographical location” from which the
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defendant’s business is carried out. Id.
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Defendant asserts that it does not maintain a physical place in this district nor does
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it have any offices, business address, employees, leaseholds or other fixed physical
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presence where its business is being conducted. (Dkt. No. 11-3, Mavraganis Decl. ¶ 3.)
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Spire also does not lease or have any rights to any space in any of the Amazon FC. (Id. ¶
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9.) Moreover, Amazon controls Spire’s storage fulfillment and shipping by dictating
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where Spire’s products should be sent and once sent, Amazon has discretion to
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redistribute Spire’s products to other Amazon FCs. (Id. ¶¶ 6, 8.) In response, Plaintiff
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argues that the Amazon warehouses in this district where Spire contracts to store and
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fulfill orders of its products are a physical, geographic location in the district from which
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its business is carried out.
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In Symbology, the district court held that the fact that the defendant derives
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revenue from products sold in the district, holds promotional events, is registered as a
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foreign corporation, has an appointed agent to accept service of process, and its
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subsidiary has three stores selling the company’s products were not sufficient to
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demonstrate a regular and established place of business. Symbology Innovations, 2017
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WL 4324841 at *9-11. Courts have held that distributors and even subsidiaries, that are
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independently owned and operated, that are located in the forum and work with the
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accused infringer, is not sufficient to show that the accused infringer has a regular and
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established business under § 1400(b). See Symbology Innovations, 2017 WL 4324841 at
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*10-11 (subsidiary’s three locations in the district were not imputed to the parent
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company as subsidiary was distinct corporate entity with separate finances, assets,
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officers and records); JPW Indus., Inc. v. Olympia Tools Int’l, Inc., No. 16cv3153-JPM,
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2017 WL 4512501, at *3 (M.D. Tenn. Oct. 10, 2017) (venue not proper where
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defendant’s business relationships with distributors, retailers and consumers in the district
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that further its commercial goals did not demonstrate that Defendant maintains a physical
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presence in the district); CAO Lighting, Inc. v. Light Efficient Design and Electrical
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Wholesale Supply Co., Inc., Case No. 16cv482-DCN, 2017 WL 4556717, at *3 (D.
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Idaho Oct. 11, 2017) (defendant’s preferred partner distributors having a physical
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presence in Idaho with regular and established business are locations of the distributors,
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and not of the defendant).
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In CAO Lighting, Inc., the district court concluded the defendant did not have a
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regular and established place of business in Idaho even though its sales representatives
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visited Idaho occasionally and the preferred partner distributors had physical locations in
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Idaho. Id. at 3. The court explained that the distributors’ physical locations in Idaho
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were that of the distributors and not of the defendant. Id. Furthermore, the defendant did
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not own, rent, lease or occupy any property in the state, or employ anyone who owned,
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leased, or occupied any real property in Idaho. Id.
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In this case, Plaintiff does not present any evidence or legal authority to support its
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argument that the Amazon FCs are the physical, geographical location of Spire. While
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Amazon FCs are where Spire’s good are stored and orders are fulfilled, caselaw
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demonstrates that Spire does not have a physical presence in this district. See Symbology
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Innovations, 2017 WL 4324841 at *10-11; JPW Indus., Inc., 2017 WL 4512501, at *3.
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Second, as to a “regular and established place of business”, “regular” means a
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“’steady[,] uniform[,] orderly [, and] and methodical’ manner” of operation, and not
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sporadic activity. In re Cray Inc., 871 F.3d at 1362 (citation omitted). An “established”
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business is one that is not transient but must be “’settle[d] certainly, or fix[ed]
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permanently.’” Id. at 1363. For example, a business that displays its products at a trade
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show in the district semi-annually creates only a temporary presence while a five-year
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continuous presence in the district establishes proper venue. Id.
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Defendant contends that while Amazon may direct Spire to send its products to
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Amazon FCs, from time to time, Amazon may, in its own discretion move Spire’s
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products to different Amazon FCs for storage and fulfillment. (Dkt. No. 11-3, Mavragani
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Decl. ¶ 8.) Therefore, it contends that this district cannot be said to be Spire’s regular and
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established business as it does not have absolute control of the distribution of its
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products. Plaintiff asserts that the fulfillment centers are “permanent” locations intended
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to be accessed by Plaintiff to receive, store, maintain and fulfill the inventory of the
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business for the purpose of advancing sales of its products and provide faster shipping in
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locations far away from its headquarters. Spire pays a “storage fee” to Amazon for
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storing its products there and are “regular” within the meaning of § 1400(b). It also
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summarily asserts, without legal authority or evidentiary support, that Spire maintains an
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agency relationship with Amazon for the benefit of accessing Amazon’s FC services.
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Again, Reflection presents arguments without any evidentiary or legal support. As
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indicated above, a distributor or subsidiary of a parent corporation selling the infringer’s
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product does not demonstrate that a defendant has a regular and established business in
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this district. See Symbology Innovations, 2017 WL 4324841 at *10-11; JPW Indus.,
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Inc., 2017 WL 4512501, at *3. Moreover, as noted by other district courts, merely
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selling products in California through a third party is not sufficient to satisfy the patent
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venue statute. See Symbology Innovations, 2017 WL 4324841 at *10-11 (“Revenue
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derived from the forum has no bearing on whether § 1400(b)'s requirements are met.”;
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JPW Indus., Inc., 2017 WL 4512501, at *3 (commercial sales of defendant’s product in
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the forum not sufficient to demonstrate venue under the patent venue statute); CAO
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Lighting, 2017 WL 4556717, at *3 (revenue sales from the forum state have little
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significance on the three In re Cray factors).
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Lastly, the “regular and established place of business” must the “place of the
defendant.” In re Cray Inc., 871 F.3d at 1363. Courts may consider “whether the
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defendant owns or leases the place, or exercises other attributes of possession or control
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over the place.” Id.
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Defendant argues that the Amazon FCs are not the place of Spire. It does not own
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or lease the space from Amazon FC and there is no indication of possession or control
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over the storage facility. Without evidentiary and legal support, Plaintiff contends that
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Spire leases the place of business since it pays a storage fee to Amazon in exchange for
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storing the product.
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Plaintiff has not conducted a legal analysis demonstrating that a monthly
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subscription fee equates to leasing space in the FCs. On the other hand, Defendant has
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presented evidence that it has no control over which FCs its products will be sent, and
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once stored at one Amazon FC, Amazon has discretion to redistribute Spire’s products to
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another Amazon FC. Since Spire has no control over its products once they are sent to
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Amazon FCs, these storage centers cannot be said to be the “place of Defendant.”
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Accordingly, the Court concludes that Plaintiff has not demonstrated that
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Defendant has a “regular and established place of business” in this district” and thus,
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venue is not proper in this district. See In re Cray, 871 F.3d at 1359-60.
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B.
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Dismissal Versus Transfer
In its motion, Defendant seeks dismissal of the action under 28 U.S.C. § 1406(a).
Plaintiff opposes the dismissal but does not request a transfer of the case.
Under 28 U.S.C. § 1406(a), “[t]he district court of a district in which is filed a case
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laying venue in the wrong division or district shall dismiss, or if it be in the interest of
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justice, transfer such case to any district or division in which it could have been brought.”
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“Whether the interest of justice militates in favor of transfer rather than dismissal is a
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judgment committed to the sound discretion of the district court.” Citizens for a Better
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Environment-California v. Union Oil Co. of California, 861 F. Supp. 889, 898 (N.D. Cal.
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1994). “Normally transfer will be in the interest of justice because normally dismissal of
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an action that could have been brought elsewhere is time-consuming and justice-
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defeating.” Miller v. Hambrick, 905 F.2d 259, 262 (9th Cir. 1990).
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However, in this case, Plaintiff, in its opposition, does not request a transfer1 and
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Defendant only moves for dismissal. Neither party has briefed where venue would be
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proper under current venue law. Defendant is a Pennsylvania limited liability company
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and while a domestic corporation resides only in the state of incorporation under the
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patent venue statute, it is not clear which district court in Pennsylvania is proper. TC
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Heartland, 137 S. Ct. at 1517 (domestic corporation resides only in its state of
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incorporation). Since the case was recently filed, it does not appear that Plaintiff would
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be unfairly prejudiced by a dismissal. Accordingly, the Court exercises its discretion and
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dismisses the complaint and Plaintiff may file its complaint in the proper district court in
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Pennsylvania.
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Conclusion
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Based on the above, the Court GRANTS Defendant’s motion to dismiss the
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complaint for improper venue. The hearing set for January 19, 2018 shall be vacated.
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IT IS SO ORDERED.
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The Court notes that Plaintiff also does not seek any discovery on the venue issue.
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