General Denial of Venue Alone is Insufficient to Preserve Venue Challenge

By R. David Donoghue on November 22, 2017

CAO Lighting, Inc. v. Light Efficient Design, No. 16 C 482, Slip Op. (D. Idaho Oct. 11, 2017) (Nye, J.).*

Judge Nye granted defendants’ motion to sever the claims against Light Efficient Design for manufacturing LED retrofit lighting devices and Electrical Wholesale Supply (“EWS”) for distributing those devices, to transfer the claims against Light Efficient Design to the Northern District of Illinois for improper venue and to stay the claims against EWS pending resolution of plaintiff CAO’s Northern District case against Light Efficient Design.

The Court held that defendants’ general denial of CAO’s claim that venue was proper in Idaho was insufficient to preserve its venue challenge after defendants had already filed an answer. To sufficiently preserve a venue challenge, defendants would have had to provide a more specific denial of why venue was improper. But defendants were free to bring their venue challenge because TC Heartland represented a “sea change” in the venue law. Acknowledging that some courts have concluded that TC Heartland was not a change in law because the Supreme Court did not formally overrule its 1957 Fourco decision, the Court held that the better reasoning was that TC Heartland was a change in law because for the first time in nearly thirty years a defendant could credibly challenge venue in a jurisdiction that had personal jurisdiction over the defendant.

Having allowed defendants’ venue challenge as to Light Efficient Design to proceed, the Court held as follows:

Because Light Efficient Design was an Illinois corporation, it did not reside in Idaho;
Light Efficient Design did not have a regular and established place of business in Idaho. Its sales force were not direct employees, traveled to Idaho only occasionally and did not themselves reside in Idaho. Light Efficient Design’s preferred distributors came closer because they had physical locations in Idaho, but Light Efficient Design did not own, rent, lease or otherwise control those properties or any others in Idaho. So, there was no physical location in Idaho;
Light Efficient Design’s website listing Idaho contacts and its Idaho-based revenue had “little significance” based upon the Federal Circuit’s In re Cray

Having held that venue was not proper as to Light Efficient Design, the Court considered whether to dismiss the claims as to Light Efficient Design, transfer the claims as to both defendants, or sever and transfer only the case as to Light Efficient Design:

Because defendants sought to sever and transfer as opposed to dismissal, the Court chose not to dismiss;
Because there did not appear to be any district court that had jurisdiction or proper venue for both defendants, the Court chose not to transfer the claims as to both defendants; and
That left severing and transferring the claims against Light Efficient Design to the Northern District of Illinois as the only available remedy.

Having transferred the claims against Light Efficient Design, the Court exercised its discretion to stay the claims against Light Efficient Design’s distributor EWS. Those claims would rise and fall with the claims against Light Efficient Design. So, there was no point in separately adjudicating the claims against EWS.

* This case is unique on the Chicago IP Litigation blog in that it was not decided in the Northern District. But it is relevant to Northern District IP practice in that it interprets the Supreme Court’s TC Heartland venue standard and the Federal Circuit’s further venue clarification in In re Cray. Additionally, the result of the opinion is shifting the substantive patent case to the Northern District.