CAO Lighting, Inc. v. Light Efficient Design et al

Filing 45

MEMORANDUM DECISION AND ORDER - IT IS ORDERED: 1. Defendants Motion to Sever, Stay, and Transfer (Dkt. 28 ) is GRANTED. The claims against Light Efficient Design are hereby severed. The Clerk is directed to transfer theclaims against Light Efficient Design to the Northern District of Illinois. All proceedings against EWS are stayed until further order of the Court.2. Plaintiffs unopposed Motion to Seal Opposition to Defendants Motion to Sever, Stay, and Transfer and Declaration of Brian E. Laht i (Dkt. 34 ) is GRANTED. 3. The Motion for Protective Order (Dkt. 23 ) is GRANTED. The Court hereby enters the Stipulated Protective Order. Signed by Judge David C. Nye. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (cjs)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
Case No. 4:16-cv-00482-DCN

CAO LIGHTING, INC.,
Plaintiff,

MEMORANDUM DECISION AND
ORDER

v.
LIGHT EFFICIENT DESIGN and
ELECTRICAL WHOLESALE SUPPLY
CO., INC.,
Defendants.
I. INTRODUCTION
Plaintiff CAO Lighting, Inc. (“CAO”) claims that Defendant Light Efficient Design1 is
infringing on one of its patents by “making, using, selling, and/or offering to sell LED retrofit
lighting devices.” Dkt. 1, ¶ 25. CAO also claims that Defendant Electric Wholesale Supply
Company, Inc. (“EWS”) is infringing on one of its patents by distributing Light Efficient
Design’s infringing products. Id. ¶¶ 17, 25. Defendants now ask this Court to sever the claims
against each Defendant, transfer the claim against Light Efficient design to the Northern District
of Illinois, and stay the claim against EWS in this District until the suit against Light Efficient
Design is complete. For the reasons set forth below, the Court GRANTS the Motion.
II. BACKGROUND
CAO is a Utah corporation. Light Efficient Design is a limited liability company that is
organized under the laws of the State of Illinois and has its principal place of business in Cary,

1

According to Defendants, a company called TADD, LCC is the true Defendant. TADD, LCC
does business as Light Efficient Design. This memo refers to this Defendant as Light Efficient
Design.
MEMORANDUM DECISION AND ORDER– PAGE 1

Illinois. EWS is incorporated in Idaho and has its principal place of business in Idaho Falls,
Idaho. EWS distributes, among other things, Light Efficient Design’s products in Idaho.
The United States Patent and Trademark office issued Patent 6,465,961 (“the ‘961
Patent”) to CAO on October 15, 2002. On October 28, 2016, CAO filed this lawsuit in the
District of Idaho, asserting one claim of patent infringement against Defendants. In its
Complaint, CAO included screenshots of products (lightbulbs) that Defendants have displayed or
offered for sale on their respective websites and that CAO claims are infringing on the ‘961
Patent. CAO seeks both an injunction against Defendants and compensatory damages.
Defendants filed an Answer to the Complaint on December 9, 2016. Dkt. 9. On January
19, 2017, Judge B. Lynn Winmill filed a case management order setting the discovery deadline
for October 16, 2017, and the dispositive motion deadline for March 19, 2018. Dkt. 21. The
discovery deadline was contingent upon the Court holding a Markman hearing in August of 2017
and issuing a Markman order by September 14, 2017. Dkts. 19–21. However, on July 14, 2017,
Defendants filed the instant Motion to Sever, Stay, and Transfer. Dkt. 28. Due to extensions of
time this Court granted in the briefing schedule, this Motion became ripe on September 15, 2017.
Moreover, on August 2, 2017, Judge Winmill transferred this case to the undersigned.
Accordingly, in the interest of justice, the Court vacated all case management deadlines and
rescheduled the Markman hearing for November 9, 2017. However, this hearing will not be
necessary in light of the Court’s decision in the instant motion.
III. ANALYSIS
Defendants argue that the Court must transfer the claims against Light Efficient Design
because the District of Idaho is the improper venue as to that Defendant. In response, CAO
asserts that (1) venue is proper and (2) regardless of whether venue is proper, Defendants waived

MEMORANDUM DECISION AND ORDER– PAGE 2

any challenge to venue. This Court first addresses the merits of the request to transfer and then
addresses whether Defendants waived their right to challenge venue.
A. Whether Venue is Proper
Pursuant to 28 U.S.C. § 1406(a), if a case is filed in an improper venue, the district court
“shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in
which it could have been brought.” Venue in this case is governed by 28 U.S.C. § 1400(b), “the
exclusive statutory provision controlling venue in patent infringement proceedings.” TC
Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S. Ct. 1514, 1518 (2017) (citation
omitted). The patent venue statute provides: “Any civil action for patent infringement may be
brought in [(1)] the judicial district where the defendant resides, or [(2)] where the defendant has
committed acts of infringement and has a regular and established place of business.” 28
U.S.C.A. § 1400(b). Thus, there are two different means of establishing proper venue under
§ 1400(b).
The first means does not apply in this case. The Supreme Court recently clarified that “a
domestic corporation ‘resides’ only in its State of incorporation for purposes of the patent venue
statute.” TC Heartland, 137 S. Ct. at 1517. It is undisputed that TADD, doing business as Light
Efficient Design, is incorporated in Illinois. Therefore, TADD does not reside in Idaho for the
purposes of the patent venue statute.
The second method is not as obvious. Under this method, CAO has the burden of
showing: (a) that Light Efficient Design “has a regular and established place of business” in
Idaho; and (b) that Light Efficient Design “has committed acts of infringement” in Idaho. 28
U.S.C.A. § 1400(b). The parties do not dispute that CAO has alleged that Light Efficient Design

MEMORANDUM DECISION AND ORDER– PAGE 3

has committed acts of infringement in Idaho. Therefore, the Court need only address whether
Light Efficient Design has a regular and established place of business in Idaho.
The Federal Circuit recently explained that “the regular and established place of business
standard requires more than the minimum contacts necessary for establishing personal
jurisdiction or for satisfying the doing business standard of the general venue provision.” In re
Cray Inc., __ F.3d __, No. 2017-129, 2017 WL 4201535, at *5 (Fed. Cir. Sept. 21, 2017).
Rather, this standard has three general 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 4.
First, there “must be a physical place in the district.” Id. at 5. “While the ‘place’ need
not be a ‘fixed physical presence in the sense of a formal office or store,’ there must still be a
physical, geographical location in the district from which the business of the defendant is carried
out.” Id. (internal citation omitted).
Second, the place “must be a regular and established place of business.” Id. (emphasis
added). “A business may be ‘regular,’ for example, if it operates in a ‘steady[,] uniform[,]
orderly [, and] methodical’ manner.” Id. (citation omitted). A business may be established if it
is “settle[d] certainly, or fix[ed] permanently.” Id. at 6 (quoting Black’s Law Dictionary (1st ed.
1891)). “[A] business can certainly move its location” and still be considered established, but “it
must for a meaningful time period be stable.” Id.
Third, the place of business must be “the place of the defendant.” Id. In other words, the
place cannot be “a place of the defendant’s employee” or a place of the defendant’s independent
contractor. Id. “Relevant considerations include,” among other things, “whether the defendant

MEMORANDUM DECISION AND ORDER– PAGE 4

owns or leases the place, or exercises other attributes of possession or control over the place.”
Id.
From the briefs and evidence the parties submitted to the Court, the following facts are
clear. Light Efficient Design has seventeen “preferred partner” distributors in Idaho, all of which
have physical locations in Idaho. EWS is one of these preferred partners. Light Efficient Design
is obligated to stock its products at these locations, and, in turn, these preferred partners display
marketing materials for Light Efficient Design products. Light Efficient Design has also agreed
to indemnify three of these preferred partners, include EWS. In addition, Light Efficient Design
has two representatives assigned to Idaho who market, sell, and provide technical support for
Light Efficient Design in Idaho. However, both of these representatives are located outside of
Idaho; Wilson Sales is located in Bountiful, Utah, and Hall Marketing is located in Portland,
Oregon. These representatives routinely visit distributors in Idaho and promote Light Efficient
Design products at trade shows in Idaho. Notably, these sales representatives also sell products
for other manufacturers besides Light Efficient Design. On its website, Light Efficient Design
lists its preferred Idaho partners, its Idaho representatives, and three significant projects in Idaho
that have used Light Efficient Design products. Finally, the revenue from sales in the State of
Idaho accounts for about one-half of one percent of Light Efficient Design’s overall revenue.
Based on these facts, the Court cannot conclude that Light Efficient Design has a regular
and established place of business in Idaho. First, its sales representatives are not based in Idaho,
they visit Idaho only occasionally, and they are not the direct employees of Light Efficient
Design. Thus, the sale representatives’ activities do not establish proper venue in Idaho because
they do not have a “fixed physical presence” here and do not conduct regular business here.
Second, Light Efficient Design’s preferred partner distributors come closer to establishing venue

MEMORANDUM DECISION AND ORDER– PAGE 5

here, but they still miss the mark. These distributors have physical locations in Idaho and appear
to be regular and established businesses. However, these physical locations are the locations of
the distributors, not of Light Efficient Design. Light Efficient Design does not own, rent, lease,
or occupy these locations or any other property or equipment in the state. Light Efficient Design
does not even employ anyone who owns, leases, or occupies any real property in the State of
Idaho. Thus, there is no physical location in Idaho that is “the place of [Light Efficient Design],”
id. at 6, “from which the business of [Light Efficient Design] is carried out,” id. at 5. Finally,
neither Light Efficient Design’s website, which lists its contacts to Idaho, nor its revenue from
Idaho sales, changes this analysis. These factors have little significance in light of the three
general requirements the Federal Circuit laid out in In re Cray Inc.
Because Light Efficient Design does not reside in Idaho and does not have a regular and
established place of business in Idaho, the Court must conclude that the District of Idaho is not
the proper venue in which to adjudicate the patent infringement claims CAO has asserted against
Light Efficient Designed. See 28 U.S.C. § 1400(b).
B. Whether Defendants Waived Venue
CAO argues that even if the District of Idaho is the improper venue, the Court should not
transfer this case because Defendants waived any challenge to venue. Defendants acknowledge
that Federal Rule of Civil Procedure 12 required them to “object to venue by motion or in [their]
answer to the complaint.” Costlow v. Weeks, 790 F.2d 1486, 1488 (9th Cir. 1986); see also 28
U.S.C. § 1406(b) (providing that “[n]othing in this chapter shall impair the jurisdiction of a
district court of any matter involving a party who does not interpose timely and sufficient
objection to the venue”).

MEMORANDUM DECISION AND ORDER– PAGE 6

Nevertheless, Defendants argue that the Court should still transfer this case because (1) in
their Answer, they denied that venue was proper and (2) the Supreme Court’s May 27, 2017,
decision in TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S. Ct. 1514 (2017),
constitutes an intervening change in law that excuses any waiver.
Defendants’ first argument is unsuccessful. It is true that Defendants denied that venue
was proper in their Answer. Specifically, the Answer reads as follows:
6.

The venue is proper in this district pursuant to 28 U.S.C.

§§ 1400(b) and 1391(b) and (c).
ANSWER: Defendants deny the allegations in Paragraph 6.
Dkt. 9, at 3. This general denial, however, without any details as to why venue is not proper, and
without filing a motion to transfer venue, is insufficient to preserve the defense. See Textron,
Inc. v. Maloney-Crawford Tank & Mfg. Co., 252 F. Supp. 362, 364 (S.D. Tex. 1966); see also
Cobalt Boats, LLC v. Sea Ray Boats, Inc., No. 2:15CV21, 2017 WL 2556679, at *4 (E.D. Va.
June 7, 2017) (rejecting defendants argument that it “ha[d] not waived its right to challenge
venue because it raised that defense in its answer”).
Defendants’ second argument is more meritorious. “One ‘exception to the general rule of
waiver’ is ‘when there has been an intervening change in the law recognizing an issue that was
not previously available.’” Columbia Sportswear N. Am., Inc. v. Seirus Innovative Accessories,
Inc., No. 3:15-CV-00064-HZ, 2017 WL 3877858, at *6 (D. Or. Sept. 5, 2017) (quoting Holland
v. Big River Minerals Corp., 181 F.3d 597, 605 (4th Cir. 1999)). The intervening change in law
“exception applies when ‘there was strong precedent prior to the change, such that the failure to
raise the issue was not unreasonable and the opposing party was not prejudiced by the failure to
raise the issue sooner.’” Id. (quoting Holland, 181 F.3d at 605–06).

MEMORANDUM DECISION AND ORDER– PAGE 7

A surprising number of district courts have already taken up the question of whether TC
Heartland constitutes intervening law excusing waiver. These courts are sharply divided. Some
background on the law helps explain the split in opinion.
In 1957, the Supreme Court, in Fourco Glass Co. v. Transmirra Products Corp., 353
U.S. 222, 226 (1957), concluded that for purposes of the patent venue statute, 28 U.S.C.
§ 1400(b), a domestic corporation “resides” only in its State of incorporation. Then, in 1988,
“Congress amended the general venue statute, [28 U.S.C.] § 1391(c), to provide that ‘[f]or
purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside
in any judicial district in which it is subject to personal jurisdiction at the time the action is
commenced.’” TC Heartland, 137 S. Ct. at 1520 (quoting Judicial Improvements and Access to
Justice Act, § 1013(a), 102 Stat. 4669). Two years later, the Federal Circuit took up the question
of whether this amendment altered the patent venue statute (as interpreted in Fourco). VE
Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (1990). The Federal Circuit in VE
Holding concluded that the 1988 amendment established the definition of “reside” for all other
venue statutes, including § 1400(b): “On its face, § 1391(c) clearly applies to § 1400(b), and thus
redefines the meaning of the term ‘resides’ in that section.” VE Holding, 917 F.2d at 1578–80.
In other words, the Federal Circuit held that Fourco was no longer good law because it relied on
an earlier version of § 1391.
Congress did not amend § 1391 again until 2011. TC Heartland, 137 S. Ct. at 1520.
Shortly thereafter, the Federal Circuit took up the question of whether the new amendment
overruled its prior holding in VE Holding. See In re TC Heartland LLC, 821 F.3d 1338, 1341
(Fed. Cir. 2016). The Federal Circuit concluded that it did not and VE Holding was still good
law. Id. at 1343. However, the Supreme Court granted certiorari and reversed the Federal

MEMORANDUM DECISION AND ORDER– PAGE 8

Circuit. TC Heartland, 37 S. Ct. at 1518. Significantly, the Supreme Court held its 1957
decision in Fourco was still good law. It explained that Congress had not amended § 1400(b)
since Fourco and that, in amending § 1391, Congress had not altered the meaning of § 1400(b).
The courts that have concluded that TC Heartland is not intervening law excusing waiver
have focused on the fact that “[t]he Supreme Court . . . never overruled Fourco, and the Federal
Circuit cannot overrule binding Supreme Court precedent.” See, e.g., Cobalt Boats, 2017 WL
2556679 at *3. Accordingly, these courts reason, “the conflict between Fourco and VE Holding
was a defense that was available to Defendants just as easily as it was to the defendant in TC
Heartland, who initially raised the argument before Plaintiff filed this case.” Id.; see also Elbit
Sys. Land & C4I Ltd. v. Hughes Network Sys., LLC, No. 215CV00037RWSRSP, 2017 WL
2651618, at *20 (E.D. Tex. June 20, 2017) (“While such a motion might have been viewed as
meritless in a lower court, that does not change the harsh reality that Hughes would have
ultimately succeeded in convincing the Supreme Court to reaffirm Fourco, just as the petitioner
in TC Heartland did.”).
In contrast, other courts have found “TC Heartland affected a ‘sea change’ in the law of
venue for patent cases.” See OptoLum, Inc. v. Cree, Inc., No. CV-16-03828-PHX-DLR, 2017
WL 3130642, at *2 (D. Ariz. July 24, 2017). One court on this side of the debate explained,
TC Heartland changed the venue landscape. For the first time in 27 years, a
defendant may argue credibly that venue is improper in a judicial district where it
is subject to a court’s personal jurisdiction but where it is not incorporated and has
no regular and established place of business. Defendants could not have reasonably
anticipated this sea change, and so did not waive the defense of improper venue by
omitting it from their initial pleading and motions.
Westech Aerosol Corp. v. 3M Co., No. C17-5067-RBL, 2017 WL 2671297, at *2 (W.D. Wash.
June 21, 2017). This Court agrees with this reasoning. VE Holding was binding on this Court
when Defendants filed their answer. See OptoLum, 2017 WL 3130642, at *4. Defendants’
MEMORANDUM DECISION AND ORDER– PAGE 9

counsel likely relied on VE Holding—as the rest of the patent bar has for the last three decades—
in deciding not to challenge venue at that time. See id. Of course, Defendants “could have
incurred the time and expense of” filing such a motion with this Court, “appealing to the Federal
Circuit and losing, and then filing a petition with the Supreme Court in the hope that it would
grant certiorari and reverse VE Holding.” See id. However, the time and expense of such a
strategy rendered it, for all practical purposes, unavailable. Id.; see also Columbia Sportswear N.
Am., 2017 WL 3877858, at *7–8 (collecting cases); Valspar Corp. v. PPG Indus., Inc., No. 16CV-1429 (SRN/SER), 2017 WL 3382063, at *4 (D. Minn. Aug. 4, 2017) (finding it “illogical
and unfair to argue that [the defendant] erred by not making an argument that both this Court and
the parties knew would have been rejected—just as it had consistently been rejected around the
country for a quarter of a century”). This Court also questions whether the Federal Circuit
actually “overruled” Fourco in VE Holding; rather, it appears the Federal Circuit “instead
determined whether Congress intended to [“overrule” Fourco] when it amended § 1391(c).”
OptoLum, 2017 WL 3130642, at *3.
In sum, the Court finds TC Heartland was an intervening change in law that excused
Defendants’ prior waiver of their challenge to venue.
C. Remedy
The Court now addresses whether the Defendants’ request to sever, stay, and transfer is
the proper remedy.
As an initial matter, as explained above, venue in this District is proper as to EWS but not
as to Light Efficient Design.
[W]hen venue is proper as to one defendant but not to other defendants, the district
court is faced with three options: (1) dismiss the action pursuant to 28 U.S.C. §
1406(a), (2) transfer the entire case to another district where venue is proper for all
defendants pursuant to 28 U.S.C. § 1406(a), or (3) sever the claims in the case,
MEMORANDUM DECISION AND ORDER– PAGE 10

retain jurisdiction over the defendant for whom venue is proper, and transfer or
dismiss the other claims.
Bar T Timber, Inc. v. Pac. Fibre Prod., No. CV-13-30-BLG-CSO, 2013 WL 5209962, at *6 (D.
Mont. Sept. 13, 2013). The second option is not available because there does not appear to be
another district where venue is proper for all Defendants. The first option is available; however,
Defendants have requested that the Court transfer, instead of dismiss, the claims against Light
Efficient Design. Thus, that leaves the third option as the only viable option for the Court.
Federal Rule of Civil Procedure 21 gives the Court “broad discretion to ‘sever any claim
against a party.’” In re EMC Corp., 677 F.3d 1351, 1355 (Fed. Cir. 2012); see also Coleman v.
Quaker Oats Co., 232 F.3d 1271, 1297 (9th Cir. 2000). Courts have interpreted this provision as
“authoriz[ing] the severance of any claim, even without a finding of improper joinder, where
there are sufficient other reasons for ordering a severance,” such as the “administration of
justice.” Wyndham Assocs. v. Bintliff, 398 F.2d 614, 618 (2d Cir. 1968). Specifically, in patent
infringement cases, courts have found that severance and transfer is appropriate if three factors
are met: (1) “the remaining claims are peripheral to the severed claims;” (2) “adjudication of the
severed claims would potentially dispose of the remaining claims;” and (3) transfer of the
severed claims are warranted. Shifferaw v. Emson USA, No. 2:09-CV-54-TJW-CE, 2010 WL
1064380, at *1 (E.D. Tex. Mar. 18, 2010); see also Blue Spike, LLC v. Zeitera, LLC, No. 14-CV01648 YGR, 2014 WL 4310977, at *1 (N.D. Cal. Aug. 28, 2014); Ambrose v. Steelcase, Inc.,
No. 02 C 2753, 2002 WL 1447871, at *6-7 (N.D. Ill. July 3, 2002). The Court finds all three
factors are met here.
First, the Court finds that CAO’s claims against EWS, a distributor, are peripheral to the
claims against Light Efficient Design, the manufacturer of the allegedly infringing goods. See
id. at *3; see also Spread Spectrum Screening LLC v. Eastman Kodak Co., 657 F.3d 1349, 1357
MEMORANDUM DECISION AND ORDER– PAGE 11

(Fed. Cir. 2011); Katz v. Lear Siegler, Inc., 909 F.2d 1459, 1464 (Fed. Cir. 1990); Fleming v.
Escort, Inc., No. 1:12-CV-066-BLW, 2013 WL 3995259, at *5 (D. Idaho Aug. 5, 2013). CAO
does not allege that EWS had any role in the design or manufacture of the infringing products.
Thus, Light Efficient Design has a greater interest in defending its actions against charges of
patent infringement and the claims against EWS are secondary.
Second, the Court also finds that adjudication of the claims against Light Efficient Design
would likely dispose of the claims against EWS. The claims against EWS will be moot whether
CAO or Light Efficient Design prevails on the patent infringement claims. EWS will only be
potentially liable if the claims against Light Efficient Design are resolved in favor of CAO. And,
even if that were to occur, CAO is not entitled to double recovery (against both Light Efficient
Design and EWS) for the sale of infringing products. See Shifferaw, 2010 WL 1064380, at *1.
Third, as the Court has already explained, transfer of the claims against Light Efficient
Design is not only warranted, but necessary. Accordingly, the Court finds it appropriate to sever
the claims against Light Efficient Design and transfer them to the Northern District of Illinois.
Finally, the Court finds it appropriate to stay the claims against EWS remaining in this
District. Again, courts have recognized that “litigation against . . . the manufacturer of infringing
goods takes precedence over a suit by the patent owner against customers of the manufacturer.”
Katz v. Lear Siegler, Inc., 909 F.2d 1459, 1464 (Fed.Cir. 1990). Courts have applied this
principal to stay litigation against a customer or distributor while a “case involving the
manufacturer proceeds in another forum.” Spread Spectrum Screening, 657 F.3d at 1357. As in
those case, this Court finds staying the claims against EWS while the claims against Light
Efficient Design proceed in the Northern District of Illinois would “serve ‘the just, speedy, and

MEMORANDUM DECISION AND ORDER– PAGE 12

inexpensive’ disposition of this litigation.” Ambrose, 2002 WL 1447871, at *7 (quoting Fed. R.
Civ. P. 1).
ORDER
IT IS ORDERED:

1. Defendants’ Motion to Sever, Stay, and Transfer (Dkt. 28) is GRANTED. The claims
against Light Efficient Design are hereby severed. The Clerk is directed to transfer the
claims against Light Efficient Design to the Northern District of Illinois. All proceedings
against EWS are stayed until further order of the Court.

2. Plaintiff’s unopposed Motion to Seal Opposition to Defendants’ Motion to Sever, Stay,
and Transfer and Declaration of Brian E. Lahti (Dkt. 34) is GRANTED.

3. The Motion for Protective Order (Dkt. 23) is GRANTED. The Court hereby enters the
Stipulated Protective Order.
DATED: October 11, 2017
_________________________
Honorable David C. Nye
United States District Court

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