KOSS Corporation v. Skullcandy, Inc.

Filing 38

ORDER GRANTING 16 Motion to Dismiss. Signed by Judge Alan D Albright. (bw)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
WACO DIVISION
KOSS CORPORATION,
Plaintiff,

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v.
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6-20-CV-00664-ADA
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SKULLCANDY, INC.,
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Defendant.
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ORDER GRANTING SKULLCANDY, INC.’S
MOTION TO DISMISS FOR IMPROPER VENUE UNDER RULE 12(b)(3)
Came on for consideration this date the Motion of Defendant Skullcandy Inc. to Dismiss
for Improper Venue under Rule 12(b)(3). Def.’s Mot. to Dismiss, ECF No. 16. The Court has
considered the Motion, all relevant filings, oral argument, and the applicable law. For the reasons
set forth below, the Court finds that Defendant’s Motion should be GRANTED for the following
reasons.
I.

BACKGROUND

Plaintiff Koss Corporations filed its Complaint in this Court on July 22, 2020 against
Skullcandy Inc. alleging direct and indirect infringement of certain Patents owned by Koss. Pl.’s
Compl. ECF No. 1. Koss’s Complaint states that venue is proper in the Western District of Texas
because Skullcandy has transacted business in this District. Id. at ¶ 9–10.
Skullcandy filed a Motion to Dismiss for Improper Venue under Rule 12(b)(3) on
September 8, 2020 alleging that Skullcandy neither resides in the Western District of Texas nor
does it have a “regular and established place of business” in Texas. Def.’s Mot. at 1. Koss filed a
response opposing the motion on September 22, 2020 stating that Skullcandy does have a
“regular and established place of business” in this District. Pl.’s Resp., ECF No. 18. Skullcandy
filed a reply on September 28, 2020. Def.’s Reply. ECF No. 19. On January 27, 2021, the Court

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held a hearing on the Motion and granted limited discovery. ECF No. 24. Koss filed a sur-reply
on February 8, 2021. Pl.’s Sur-Reply, ECF No. 25-2. Skullcandy filed a sur-sur-reply on
February 12, 2021. Def.’s Sur-Sur-Reply, ECF No. 27-1. On March 17, 2021, the Court held a
second hearing to hear oral argument on the motion and supplemental briefings. ECF No. 32.
II.

LEGAL STANDARD

Under Federal Rules of Civil Procedure 12(b)(3), a court may dismiss a case when venue
is “wrong” or “improper” in the forum where the case was filed. Fed. R. Civ. P. 12(b)(3). The
plaintiff bears the burden of establishing proper venue. Slyce Acquisitions Inc. v. Syte – Visual
Conceptions Ltd., 422 F. Supp. 3d 1191, 1198 (W.D. Tex. 2019). The plaintiff need only make a
prima facie showing to establish venue if the court does not hold an evidentiary hearing.
Johnston v. Multidata Sys. Int’l Corp., 523 F.3d 602, 609 (5th Cir. 2008). The Court must accept
all allegations in the plaintiff’s complaint as true and resolve all conflicts in favor of the plaintiff.
Braspetro Oil Servs. Co. v. Modec (USA), Inc., 240 F. App’x 612, 615 (5th Cir). The Court may
consider evidence in the record beyond the facts alleged in the complaint and its admissible
attachments. Ambraco, Inc. v. Bossclip B.V., 570 F.3d 233, 238 (5th Cir. 2009). If venue is
improper and timely challenged, the court has discretion to dismiss or transfer the case. Caldwell
v. Palmetto State Savs. Bank of S.C., 811 F.2d 916, 919 (5th Cir.).
Patent Venue Statute 12 U.S.C. § 1440(b) is the “sole and exclusive provisions
controlling venue in patent infringement actions.” TC Heartland LLC v. Kraft Food Grp. Brands
LLC, 137 S. Ct. 1514, 1519 (2017). Under the Patent Venue State, a plaintiff may establish
venue in the district “where the defendant resides, or where the defendant has committed acts of
infringement and has a regular and established place of business.” 28 U.S.C. § 1440(b). A
defendant has a “regular and established place of business” in any district where (1) a defendant

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has a physical place, (2) the physical place is a regular and established place of business, and
(3) the physical place is the place of the defendant. In re Cray Inc., 871 F.3d 1355, 1360 (Fed.
Cir. 2017). Koss points out that Skullcandy does not dispute that it is subject to personal
jurisdiction in this Court. Pl.’s Resp. at 2. But the standard for regular and established place of
business requires more than the minimum contacts standard necessary under personal
jurisdiction. In re Cray Inc., 871 F.3d at 1360.
A “place” requires a “building or part of a building set apart for any purpose” or “quarters
of any kind” where business is conducted. Id. at 1362. “Regular” indicates a steady, uniform,
orderly, and methodical manner of business operations. Id. “Established” denotes that the place
of business is settled certainly or fixed permanently. Id. Courts should consider whether the
defendant lists the place of business on its website or other directory, or whether the defendant’s
name appears on the building’s sign. Id. at 1363–64. The fact that the defendant advertised the
place as its place of business or has an office in that place is not sufficient to establish venue. Id.
at 1364. “The defendant must actually engage in business from that location.” Id.
A defendant need not own real property in the district to fulfill the venue requirement. In
re Google LLC, 949 F.3d 1338, 1343 (Fed. Cir. 2020). Rather, the defendant can meet the
statutory requirement by possessing or controlling any physical place in the district. Id.
III.

ANALYSIS

Skullcandy asserts that Koss cannot establish proper venue in the Western District of
Texas because Skullcandy does not reside in or have a “regular and established place of business
in this District.” Def.’s Mot. at 1. Koss believes Skullcandy leases and has control over shelfspace in certain retail stores in the Western District of Texas and, thus, has a regular and

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established place of business in this District. Pl.’s Resp. at 3–5. Skullcandy contends that it does
not have control over any shelf-space in Texas. Def.’s Reply at 4–5.
Koss failed to establish that venue is proper in this District because it cannot show that
Skullcandy resides in Texas or that Skullcandy has a regular and established place of business in
Texas.
A.

Skullcandy Does Not Reside in the Western District of Texas.
There is no question, and Koss does not contend, that Skullcandy does not reside in

Texas. Def.’s Mot. at 2; Pl.’s Resp. at 2. Rather, Skullcandy is a Delaware corporation. Def.’s
Mot. at 2; Pl.’s Resp. at 2. All parties agree that venue is not proper under the first prong of the
Patent Venue Statute. TC Heartland, 137 S. Ct. at 1517; Def.’s Mot. at 2; Pl.’s Resp. at 2.
B.

Skullcandy Does Not Have a Regular and Established Place of Business in the
Western District of Texas.
The Court finds that Koss failed to prove that Skullcandy has a regular and established

place of business in this District because Skullcandy (1) does not lease or own any real property
in Texas; (2) does not possess or control any shelf-space in Texas; and (3) does not employ any
persons in Texas.
i.

Skullcandy Does Not Lease or Own Any Real Property in Texas.
Skullcandy stopped using its last physical store in Texas in 2014 and filed a Certificate of

Withdrawal of Registration with the Texas Secretary of State in 2017. Def.’s Mot. at 3. Koss also
does not contend that Skullcandy owns any real property in Texas. See generally Def.’s Mot.
Therefore, the Court finds that Skullcandy does not lease or own any real property in Texas.
ii.

Skullcandy Does Not Possess or Control Any Shelf-Space in Texas.
Leased shelf or rack-space can serve as a “regular and established place of business”

under the Patent Venue Statute if the defendant also has an employee or agent conducting

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business in that district. In re Google LLC, 949 F.3d at 1343–44 (holding that shelf-space did not
constitute a regular and established place of business for the defendant within the district because
the defendant had no employee or agent regularly conducting its business at the alleged place);
Tinnus Enterprises, LLC v. Telebrands Corp., No. 6:17-CV-00170-RWS, 2018 WL 4524119, at
*1 (E.D. Tex. May 2, 2018) (holding that shelf-space constituted a regular and established place
of business for the defendant because the defendant employed third-parties to facilitate
movement of its products, manage the merchandisers, help procure the best available space, and
monitory the sales within the retail stores).
Koss contends that Skullcandy has a “regular and established place of business” in this
District because Skullcandy leases and controls shelf-space in various retail stores in this
District. Pl.’s Resp. at 3–5. Specifically, Koss alleges that Skullcandy pays Best Buy for
advertisement and product placements in Best Buy’s stores. Id. at 3–4. Koss also alleges that
Skullcandy provides its products to Office Depot in Waco or Austin on consignment. Id. at 4.
Thus, Koss contends that since Skullcandy retains ownership over its products while they are on
display in Office Depot’s shelf-space, Skullcandy has possession and control over such shelfspace. Id. Furthermore, since Office Depot sells Skullcandy’s products on consignment, Koss
alleges that Office Depot is effectively Skullcandy’s agent. Id. at 4–5 (citing United States v.
Menier Hardware No. 1, Inc., 219 F. Supp. 448, 460 (W.D. Tex. 1963) (“consignment of goods
for sale is bailment and does not imply a sale, but imports an agency with title in the
consignor”)).
In its Reply, Skullcandy counters that it does not pay Best Buy for product advertising
and placement in its stores. Pl.’s Reply at 3. Skullcandy points out that Koss’s alleged evidence
of such arrangement is that Best Buy receives “funds from certain vendors” but Koss does not

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prove specifically that Skullcandy is one of those vendors. Id.; Def.’s Resp. Ex. B at 53, ECF No.
18-3. Skullcandy alleges that the mere fact that its products are sold on “endcaps” in Best Buy
stores does not prove Skullcandy has possession or control over such shelf-space. Pl.’s Reply at
3–4. Although Skullcandy pays Best Buy “marketing development funds,” Skullcandy states that
Best Buy retains sole control and discretion over the manner in which Skullcandy’s products are
sold. Id. at 4. Skullcandy evidences its lack of control over the “endcaps” by stating that that if it
did have control, Skullcandy would not permit Best Buy “to leave so many empty pegs and
shelves without Skullcandy products.” Id. (citing Def.’s Resp. Ex. A, ECF No. 18-2, at 4-6, 8,
10, 12).
Skullcandy also contends that it does not sell its products to Office Depot on
consignment; rather, Office Depot purchases Skullcandy’s products directly from Skullcandy
and controls its own shelves. Id. at 4–5. Moreover, Skullcandy alleges that this is the agreement
it has with every one of the retail stores mentioned in Koss’s Complaint. Id. at 5. Skullcandy
points out that the agreement Koss cites to in alleging consignment is between Office Depot and
SupportSoft, Inc., a party unrelated to Skullcandy. Id. at 4; Ex. C (18-4). Skullcandy has filed a
supporting affidavit by Ms. Hindman, Skullcandy’s Chief Financial Officer, that states the
former. Hindman Supp. Decl. ECF No. 19-1.
Koss argues that the Court should disregard Ms. Hindman’s declarations, asserting that
such statements regarding Skullcandy’s arrangements with its Texas retailers are not within the
purview of her position and cannot be relied on. Pl.’s Sur-Reply at 2. The Court disagrees. Ms.
Hindman, as Chief Financial Officer, is in an appropriate position to testify about such issues. It
is clear from Ms. Hindman’s declaration that she is sufficiently familiar with Skullcandy’s
arrangements with its Texas retailers. Ms. Hindman stated that Skullcandy does not consign

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products for sale by Office Depot and that Skullcandy does not have control over how Office
Depot stocks and places Skullcandy’s products in Office Depot stores. See Hindman Supp., Decl.
ECF No. 19-1 at ¶ 7. Ms. Hindman also made similar statements addressing Skullcandy’s
arrangements with Target, Kohl’s, Office Max, and Wal-Mart. See id. at ¶ 8. Koss failed to rebut
these statements with any evidence to the contrary. As such, this Court finds that Skullcandy
does not have possession or control over any shelf-space in Texas to give it a regular and
established place of business in this District.
iii.

Skullcandy Does Not Employ Any Persons in Texas.
A defendant has a “regular and established placed of business” in districts where their

employees work, even if those employees are working from home. In re Cordis Corp., 769 F.2d
733, 735, 737 (Fed. Cir. 1985); In re Cray, 871 F.3d at 1362. Therefore, the Court examines
whether any of Skullcandy’s employees worked in this District, even if working from home, on
July 22, 2020, the day Koss’s Complaint was filed.
Skullcandy states it has not had a Texas employee since November 2016. Def.’s Mot. at
3. Due to the pandemic, Skullcandy did have employees who worked from home for a period of
time. Pl.’s Resp. at 5–6. Koss contends that Skullcandy may have employees working from home
in Texas, or employees who worked from home on July 22, 2020. Id. at 6. Skullcandy rebutted
this statement, unequivocally asserting that none of its employees that work from home live in
the state of Texas. Pl.’s Resp. at 6; Hindman Supp. Decl. at ¶ 5. Thus, the Court finds that Koss
cannot establish that Skullcandy has a regular and established place of business in this District
through employees working from home in this District.

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IV.

CONCLUSION

For the reasons stated above, it is ORDERED that Skullcandy’s Motion to Dismiss for
Improper Venue is GRANTED.
SIGNED this 31st day of March, 2021.

ALAN D ALBRIGHT
UNITED STATES DISTRICT JUDGE

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