EMED Technologies Corporation v. Repro-Med Systems, Inc. d/b/a RMS Medical Products

Filing 46

MEMORANDUM OPINION AND ORDER. Signed by Judge William C. Bryson on 6/4/2018. (nkl, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
MARSHALL DIVISION

EMED TECHNOLOGIES CORPORATION, §
§
Plaintiff,
§
§
v.
§
§
REPRO-MED SYSTEMS, INC. d/b/a RMS
§
MEDICAL PRODUCTS,
§
§
Defendant.
§

Case No. 2:17-CV-728-WCB-RSP

MEMORANDUM OPINION AND ORDER
Before the Court is Defendant RMS’s Motion to Dismiss or Transfer Venue under Rule
12(b)(3). Dkt. No. 7. The motion is GRANTED, and this action is TRANSFERRED to the
United States District Court for the Southern District of New York.
BACKGROUND
Plaintiff EMED Technologies Corp. (“EMED”) is a Nevada corporation with its principal
place of business in El Dorado Hills, California. EMED owns U.S. Patent No. 9,808,576 (“the
’576 patent”), which is entitled “Devices and Methods for Protecting a User from a Sharp Tip of
a Medical Needle.” On November 7, 2017, EMED filed this action alleging that defendant
RMS’s HIgH-Flo subcutaneous safety needle sets infringe the ’576 patent.
Defendant Repro-Med Systems, Inc. (“RMS”), a New York corporation with its principal
place of business in Chester, New York, moves to dismiss this action due to improper venue or,
in the alternative, to transfer it to the Southern District of New York. 1 EMED responded that

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Chester is in Orange County, New York, which is within the Southern District of New
York. 28 U.S.C. § 112(b).

venue is proper, but also requested the right to conduct discovery related to venue. Dkt. No. 15.
Judge Payne granted EMED’s request for limited venue discovery, Dkt. No. 30, and allowed the
parties to file supplemental briefs following discovery, which they did, Dkt. Nos. 36, 41, 42.
DISCUSSION
RMS moves to dismiss under Federal Rule of Civil Procedure 12(b)(3), or to transfer
under 28 U.S.C. § 1404(a) or § 1406(a). 2 Venue in patent cases is governed by 28 U.S.C.
§ 1400(b), which provides that an action for patent infringement may be brought in the judicial
district where the defendant either “resides” or “where the defendant has committed acts of
infringement and has a regular and established place of business.” For domestic corporations,
“‘reside[nce]’ in § 1400(b) refers only to the State of incorporation.” TC Heartland LLC v. Kraft
Foods Grp. Brands LLC, 137 S. Ct. 1514, 1521 (2017). Because RMS is incorporated in New
York, that is the State in which it resides. Therefore, venue is proper in this judicial district only
if RMS has a regular and established place of business in this district.
As the Federal Circuit explained in In re Cray Inc., 871 F.3d 1355 (Fed. Cir. 2017), there
are “three general requirements” to determine if a defendant has a regular and established place
of business in a particular district: “(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. The court explained that the “place” must be “a physical, geographical location in the
district from which the business of the defendant is carried out.” Id. at 1362. That place of
business must be “regular”—i.e., “steady, uniform, orderly, and methodical,”—and
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Although RMS’s motion does not cite section 1406, RMS argues that venue is not
proper and asks the court to “dismiss the case or transfer it to the Southern District of New
York.” Dkt. No. 7, at 4. If venue is improper, transfer is appropriate under section 1406 and not
under section 1404, which concerns transfer for the convenience of the parties and in the
interests of justice. See In re ZTE (USA) Inc., No. 2018-113, 2018 WL 2187782, at *4 (Fed.
Cir. May 14, 2018).

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“established”—i.e., “settled certainly, or fixed permanently.”

Id. at 1362–63 (alterations

omitted). Finally, it must be “the place of the defendant,” which the defendant “establish[ed] or
ratif[ied],” and not, for example, “solely a place of the defendant’s employee.” Id. at 1363.
Relevant considerations include “whether the defendant owns or leases the place, or exercises
other attributes of possession or control over the place,” and whether “the defendant conditioned
employment on an employee’s continued residence in the district or the storing of materials at a
place in the district so that they can be distributed or sold from that place.” Id.
In this case, in an effort to show that RMS has a “regular and established place of
business” in this district, EMED relies on evidence that a distributor that RMS uses has a regular
and established place of business here. Dkt. No. 36, at 2. The distributor is RightWay Medical
Technologies, which has an office in McKinney, Texas, within this district. RightWay sells
RMS’s products, including RMS’s allegedly infringing needle sets. Id. EMED further notes that
RMS’s website directs potential customers in this district to RightWay and to a second
distributor, Owens & Minor, which according to EMED is located in Flower Mound, Texas, also
within this district. Dkt. No. 19, at 2.
For purposes of venue, “[s]o 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.” 14D Charles A. Wright & Arthur R. Miller, Federal Practice and
Procedure § 3823 (4th ed. 2018). For example, Judge Payne recently rejected an argument that
the presence in the district of a subsidiary, AT&T Services, Inc., could be imputed to that
corporation’s parent company, AT&T, Inc. Soverain IP, LLC v. AT&T, Inc., No. 2:17-cv-293,
2017 WL 5126158, at *1 (E.D. Tex. Oct. 31, 2017), report and recommendation adopted 2017
WL 6452802 (E.D. Tex. Dec. 18, 2017). Judge Payne explained that to impute the presence of

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one based on the presence of the other, the entities “must lack formal corporate separateness,
which is a difficult standard to meet”; that standard, he explained, would not be met “even if a
parent corporation controls a subsidiary’s operations and the companies share a unitary business
purpose.” Id. (citing Cannon Mfg. Co. v. Cudahy Packing Co., 267 U.S. 333, 334–35 (1925));
see also, e.g., Symbology Innovations, LLC v. Lego Sys., Inc., 282 F. Supp. 3d 916 (E.D. Va.
2017) (stores operated by Lego Brand Retail, Inc., insufficient to establish a place of business for
Lego Systems, Inc.).
As RMS points out, there is abundant case law from other district courts holding that a
distributor’s place of business cannot establish venue for its supplier. See Wet Sounds, Inc. v.
PowerBass USA, Inc., No. CV H-17-3258, 2018 WL 1811354, at *2 (S.D. Tex. Apr. 17, 2018)
(third-party distribution centers insufficient); Hildebrand v. Wilmar Corp., No. 17-cv-2821, 2018
WL 1535505, at *3 (D. Colo. Mar. 29, 2018) (no venue where “the places of business on which
Mr. Hildebrand bases venue are the physical locations of Wilmar’s distributors, not those of
Wilmar”); Automated Packaging Sys., Inc. v. Free-Flow Packaging Int’l, Inc., No. 5:14-cv-2022,
2018 WL 400326, at *9 n.8 (N.D. Ohio Jan. 12, 2018) (“While APS maintains that FPI has a
close relationship with its distributors, this is still insufficient to establish that FPI has a regular
and established business in the district, as any such physical presence of the distributor belongs
to the distributor and not FPI.”); Reflection, LLC v. Spire Collective LLC, No. 17-cv-1603, 2018
WL 310184, at *3 (S.D. Cal. Jan. 5, 2018) (“[A] distributor or subsidiary of a parent corporation
selling the infringer’s product does not demonstrate that a defendant has a regular and
established business in this district.”); Galderma Labs., L.P. v. Teva Pharm. USA, Inc., 290 F.
Supp. 3d 599, 611 (N.D. Tex. 2017) (presence of third-party sales representatives insufficient);
Patent Holder LLC v. Lone Wolf Distributors, Inc., No. 17-223060-civ, 2017 WL 5032989, at *6

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(S.D. Fla. Nov. 1, 2017) (physical locations of defendant’s dealers in the district “are irrelevant
to the Court’s analysis under § 1400(b)”); CAO Lighting, Inc. v. Light Efficient Design, No.
4:16-cv-482, 2017 WL 4556717, at *3 (D. Idaho Oct. 11, 2017) (holding that physical location
of distributors does not establish venue because the defendant “does not own, rent, lease, or
occupy these locations or any other property or equipment in the state”); JPW Indus., Inc. v.
Olympia Tools Int’l, Inc., No. 3:16-cv-03153, 2017 WL 4512501, at *3 (M.D. Tenn. Oct. 10,
2017) (holding that “connections with distributors, retailers, and consumers in this district”
insufficient); Talak Res. Inc. v. Evernote Corp., No. 16-cv-2167., 2017 WL 4269004, at *4 (N.D.
Ill. Sept. 26, 2017) (“The Federal Circuit’s decision in Cray leaves no room for Plaintiff to argue
that the handful of non-employee, independent contractors present in this District constitute a
‘regular and established place of business’ for Defendant within the meaning of § 1400(b).”);
Boston Sci. Corp. v. Cook Grp. Inc., 269 F. Supp. 3d 229, 248 (D. Del. 2017) (“[A] regular and
established place of business does not arise solely from a defendant simply shipping goods into a
district—whether to an individual or for distribution by third parties.”); Bristol-Myers Squibb
Co. v. Mylan Pharms. Inc., No. 17-cv-379, 2017 WL 3980155, at *17 (D. Del. Sept. 11, 2017)
(“[A] regular and established place of business does not arise solely from a defendant simply
shipping goods into a district—whether to an individual or for distribution by third parties.”);
Free-Flow Packaging Int’l, Inc. v. Automated Packaging Sys., Inc., Case No. 17-cv-1803, 2017
WL 4155347, at *7 (N.D. Cal. Aug. 29, 2017) (using third-party company to sell products is
insufficient); OptoLum, Inc. v. Cree, Inc., No. 16-cv-3828, 2017 WL 3130642, at *6 (D. Ariz.
July 24, 2017) (selling infringing products at Home Depot stores in the district does not establish
a place of business for the manufacturer); LoganTree LP v. Garmin Int’l, Inc., No. SA-17-CA0098, 2017 WL 2842870, at *2 (W.D. Tex. June 22, 2017) (“It is well settled that the mere

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presence of independent sales representatives does not constitute a ‘regular and established place
of business’ for purposes of Section 1400(b).” (quoting Kabb, Inc. v. Sutera, No. 91-cv-3551,
1992 WL 245546, at *2 (N.D. Tex. Sept. 4, 1992))); see also Dual Mfg. & Eng’g, Inc. v. Burris
Indus., Inc., 531 F.2d 1382, 1387 (7th Cir. 1976) (“In these cases we found venue improper in
the subject district even though defendant’s activities in the district included one or more of the
following: maintaining an exclusive distributorship; establishing and maintaining some control
over a chain of exclusive, independent distributors; maintaining an independent business man as
a sales representative on a commission basis . . . .” (quoting Grantham v. Challenge-Cook Bros.,
420 F.2d 1182, 1184–85 (7th Cir. 1969))).
Citing no case law, EMED responds that this uniform line of cases is distinguishable
because “none of them involve the case where the use of a distributor is necessary to conduct the
business of the defendant.” 3 Dkt. No. 42, at 1. However, business necessity is insufficient to
impute RightWay’s place of business to RMS. EMED does not argue that RMS and RightWay
(or Owens & Minor) are a single corporate entity or act as a single corporate entity. To the
contrary, all of the testimony elicited from executives of both RightWay and RMS indicates that
the two companies have an arms-length supplier-distributor relationship. See Dkt. No. 36-2, at
4–5 (RightWay’s chief operating officer, testifying that RightWay does not have a distributor
agreement with RMS, but merely “purchase[s] products from RMS and resell[s] them”); Dkt.
No. 36-3, at 5–6, 9 (RMS’s chief accounting officer, testifying that RMS sells directly to

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EMED’s argument is based on the comment of RMS’s chief financial officer, that
RMS’s customers “require RMS to conduct its business through a distributor” because it is more
convenient for the customers. See Dkt. No. 42, at 1–2. For purposes of this motion, the Court
assumes as true EMED’s assertion regarding the necessity for RMS to rely on distributors to sell
its products.

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customers as well as through about a dozen distributors, and that it has a distribution agreement
with only one).
Moreover, EMED’s “necessary distributor” theory makes no sense in light of the
language and purpose underlying the patent venue statute, 28 U.S.C. § 1400(b). Manufacturers
frequently sell their products through wholesalers and retailers, rather than selling directly to
customers. Except for firms with vertically integrated sales forces, wholesalers and retailers are
typically independent entities. That is particularly true in the case of smaller manufacturers.
EMED’s theory that the physical presence of “necessary distributors” is sufficient to lay
venue for an action against a defendant in a district in which the defendant’s distributors are
located would largely overturn the decisions in TC Heartland and Cray, converting the test for
venue in patent cases into one similar to the test for personal jurisdiction. The Federal Circuit’s
decision in Cray was explicit in rejecting that interpretation of the patent venue statute. See
Cray, 871 F.3d at 1361 (warning 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”).
The purpose of the statutory limits on venue in the patent venue statute was to protect
defendants from being sued in forums distant from their place of incorporation or residence. See
Cray, 871 F.3d at 1361 (“Congress adopted the predecessor to § 1400(b) as a special venue
statute in patent infringement actions to eliminate the ‘abuses engendered’ by previous venue
provisions allowing such suits to be brought in any district in which the defendant could be
served.” (quoting Schnell v. Peter Eckrich & Sons, Inc., 365 U.S. 260, 262 (1961))). EMED’s
proposed “necessary distributor” rule would largely defeat that policy; indeed, given that smaller
manufacturers are more likely to need to rely on distributors than larger ones, EMED’s rule

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would have the perverse effect of subjecting smaller corporations more subject to suit in distant
forums than larger ones. The Court thus sees no justification for deviating from the consistent
and substantial case law authority that the place of business of a corporation’s distributor is not,
without more, an appropriate venue for a patent infringement action.
EMED argues in the alternative that in the event that the Court is inclined to dismiss or
transfer this action, the Court should grant it leave to amend its complaint. Dkt. No. 36, at 7–8.
EMED’s request is denied, for several reasons. First, under this court’s local rules, “[m]otions
for leave to file a document should be filed separately and immediately before the document for
which leave is sought.” Eastern District of Texas Local Rule CV-7(k). Because EMED failed to
attach a proposed amended complaint, the request is deficient. See Fields v. Texas Dep’t of
State Health Servs., No. 4:16-cv-607, 2017 WL 4684003, at *8 (E.D. Tex. Oct. 19, 2017).
Second, the Court has considered all of the information the parties have filed as a result
of the venue discovery that was allowed at EMED’s behest. Even after those proceedings,
EMED has failed to describe, or even allude to, any additional details it would be able assert in
an amended complaint that would affect what appears to be a clearly required outcome.
Finally, and fundamentally, the problem with EMED’s position is not a pleading
inadequacy, but a failure of proof. Even after venue discovery and an opportunity for briefing,
EMED has failed to show that venue is proper in this district. Without any suggestion regarding
what EMED would propose to include in an amended complaint that would alter the analysis of
the venue issue, there is no reason to believe that granting leave for EMED to amend its
complaint would have any effect on the Court’s disposition of RMS’s Rule 12(b)(3) motion. The
Court therefore concludes that EMED’s open-ended request for leave to amend by adding

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undefined new matter to its complaint is futile. See Stripling v. Jordan Prod. Co., LLC, 234 F.3d
863, 872 (5th Cir. 2000). 4
One last matter is to determine whether to dismiss this action without prejudice or to
transfer it under 28 U.S.C. § 1406 to the Southern District of New York. In a case in which the
district court concludes that venue is improper in the district, it has broad discretion either to
dismiss the action (ordinarily without prejudice) or to transfer the case to a district in which
venue is proper, which in this case would be the Southern District of New York. See Caldwell v.
Palmetto State Sav. Bank of S.C., 811 F.2d 916, 919 (5th Cir. 1987); Clasen v. Nat’l Bd. of
Osteopathic Med. Exam’rs, Inc., No. 4:15-cv-625, 2015 WL 9489507, at *3 (E.D. Tex. Dec. 30,
2015); Hamilton v. United Parcel Serv., Inc., No. 1:11-cv-240, 2012 WL 760714, at *6 (E.D.
Tex. Feb. 13, 2012).

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In its sur-reply brief, Dkt. No. 19, at 1–2, EMED complains that RMS’s reply brief
(eight pages in length not counting the conclusion and signature page) was longer than is
permitted by the local rules for a reply brief on a non-dispositive motion. See Eastern District of
Texas Local Rule CV-7(a)(2) (reply brief “to an opposed non-dispositive motion . . . shall not
exceed five pages, excluding attachments”). But RMS’s motion was a motion to dismiss under
Fed. R. Civ. P. 12(b)(3), which is a dispositive motion, and the local rules provide that a reply
brief to an opposed case dispositive motion “shall not exceed ten pages, excluding attachments.”
Eastern District of Texas Local Rule CV-7(a)(1). Local Rule CV-7(a)(2) states that “motions to
transfer venue” are non-dispositive motions, but the motion in this case featured a request to
dismiss and was not limited to a request to transfer venue. Accordingly, RMS was entitled to file
a reply brief of up to ten pages in length without leave of court. In any event, the material in
RMS’s reply brief that EMED asks the Court to strike all pertains to RMS’s motion to transfer
under 28 U.S.C. § 1404, which the Court is not addressing, so EMED’s objection to the length of
the reply brief is moot.
EMED also complains that RMS’s reply brief improperly incorporated 25 pages of other
material by reference. Dkt. No. 19, at 1 & n.5 (complaining of the improper incorporation of
Dkt. Nos. 164, 165, and 176). The Court is unable to discern what EMED is complaining about.
RMS’s reply brief contains no material that is incorporated by reference, and there are no docket
entries numbered 164, 165, and 176 in this case, as the docket entries in this action currently end
with number 45.

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The parties have not briefed this issue in any detail. Courts faced with the choice
between dismissal and transfer frequently consider factors such as any possible statute of
limitations issues, whether the plaintiff’s claim appears to have any significant prospect of
success, and whether transferring the case rather than dismissing it would disserve judicial
economy. The Court has not been provided with any guidance as to any of those considerations.
Thus, the Court has no way of knowing whether dismissal would have any unintended adverse
effect on the plaintiff’s claims. Moreover, at this early stage in the case, the Court has no way of
determining whether the plaintiff’s claim may ultimately be found to have merit.
However, this case has been pending since November 2017, and EMED may be
prejudiced by having to re-file and relinquish seven months of potential damages. See 35 U.S.C.
§ 286; Pers. Audio, LLC v. Google, Inc., 280 F. Supp. 3d 922, 936–37 (E.D. Tex. 2017).
Further, the parties have filed briefs in EMED’s motion for a preliminary injunction, in which
EMED argues that it is suffering irreparable harm by RMS’s continued alleged infringement.
Dkt. No. 29, at 10–13. Under these circumstances, in the interest of avoiding potential prejudice
to either party, the Court regards the preferable course to be to transfer the case rather than to
dismiss it without prejudice.
For the foregoing reasons, RMS’s motion is GRANTED and this action is transferred to
the Southern District of New York.

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IT IS SO ORDERED.
SIGNED this 4th day of June, 2018.

_____________________________
WILLIAM C. BRYSON
UNITED STATES CIRCUIT JUDGE

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