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Related Companies, Different Business Functions, Wherefor No Venue

Posted by Thomas P. Howard | Aug 09, 2021 | 0 Comments

By James Juo.

The Federal Circuit's decision in Andra Grp., LP v. Victoria's Secret Stores, LLC, No. 2020-2009 (Fed. Cir. Aug. 3, 2021), which affirmed a dismissal for improper venue, illustrates how properly maintained corporate structure can allow a parent company to avoid becoming a co-defendant in a patent infringement lawsuit against a subsidiary.

Asserting a patent claiming a virtual showroom method, Andra sued L Brands Inc (“LBI”), the parent company, as well as Victoria Secret Stores LLC (“Stores”) which operates the physical retail stores; Victoria's Secret Direct Brand Management, LLC (“Direct”) which manages the internet activities (including in-store direct online and returns from the stores); and Victoria's Secret Stores Brand Management, Inc. (“Brand”) which creates the apparel, in the Eastern District of Texas.

Ruling on a motion to dismiss for improper venue, the district court dismissed the defendants other than  Stores—which operates physical stores within the district—because those other non-Store defendants did not have a regular and established place of business in the district.

Under 28 U.S.C. 1400(b), the statute for patent venue, venue is proper in a judicial district if either (1) the defendant is incorporated in the district or (2) the defendant infringes within the district and also has a “regular and established places of business” in the district.

Here, Andra argued that the Stores locations are regular and established places of business for the other defendants because employees of Stores acted as their agents. The Federal Circuit, however, held that, notwithstanding the existence of specific discrete tasks (such as accepting returns of website-purchased Direct merchandise at a Stores location)for which separate companies may work together, they were insufficient to establish the degree of control required to find an agency relationship. The non-Stores defendants did not have “the right to direct or control” Stores' processes or employees to create an agency relationship.

Andra alternatively argued that the other defendants ratified the Victoria's Secret Stores, LLC locations as their own place of business.  Specifically, that LBI ratified the Stores locations through its control over store operations and by holding out store locations as its own; (2) that Direct ratified the Stores locations by allowing merchandise purchased online to be returned in Stores and by directing customers to those locations using the “Find a Store” feature; and (3) that Brand ratified store locations by distributing and selling its merchandise from Store locations.

The Federal Circuit also rejected these arguments. The mere fact that a defendant has advertised that it has a particular place of business is not sufficient because the defendant must actually engage in business from that location, and Andra has not shown that the non-Store defendants actually engage in business at Stores locations.  Instead, Stores leases and performs all operations at the retail locations. And the non-Stores defendants “carry out different business functions”  from that of Stores. The fact that separate companies may work together in some aspects is insufficient to show ratification.

The defendants also maintained corporate formalities, and “where related companies have maintained corporate separateness, the place of business of one corporation is not imputed to the other for venue purposes.”

The litigation attorneys at Thomas P. Howard, LLC can evaluate whether there is proper venue for your lawsuit.

About the Author

Thomas P. Howard

Thomas Howard is an experienced trial lawyer that handles intellectual property litigation nationwide, including copyright, trademark, trade secret and patent litigation, as well as complex civil litigation, including breach of contract, interference with contract, breach of fiduciary duty, conspiracy, fraud and fraudulent transfer of assets.


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