Magistrate Judge Gilliland Finds Improper Venue in Ice Rover v. Brumate, and Recommends a Transfer to Colorado in the Interest of Justice

On July 18, 2022, Ice Rover, Inc. (Plaintiff) filed a patent infringement lawsuit against Brumate, Inc. (Defendant) in the Western District of Texas, Waco Division. Defendant filed a 12(b)(3) motion to dismiss the lawsuit for improper venue or, in the alternative, to transfer venue pursuant to 28 U.S.C. § 1406 “in the interest of justice” to Colorado because it is a “district or division in which it could have been brought.”

On August 28, 2023, Magistrate Judge Gilliland filed a report and recommendation finding that venue was not proper. Rather than recommending an outright dismissal, however, Judge Gilliland found that the interest of justice supported a transfer of this case rather than a dismissal, given the stage of the case. Judge Gilliland’s recommendation that venue was improper formed the crux of the opinion, as he reasoned that a requisite level of control was not shown to transform the third-party locations of Defendant’s “authorized dealers” into a regular and established place of business for purposes of venue.

Judge Gilliland explained that venue hinges on whether Defendant has a “regular and established place of business in the district.” In the present action, Defendant had no offices or employees in the state of Texas. Defendant operated no physical retail locations, and all of its sales were either online or through third-party retailers. However, Plaintiff argued that because Plaintiff had contracts with two sales agencies in Texas to handle the promotion and sale of Defendant’s products to retailers (“authorized dealers” on Defendant’s website) in the Western District of Texas, that venue was proper. Plaintiff also argued that Defendant had sufficient control over these authorized retailers to qualify as Defendant’s regular and established place of business because the authorized dealers were prohibited from advertising below a minimum price, selling Defendant’s products to other third-party sellers, and warehousing Defendant’s products at third-party locations.

Judge Gilliland disagreed, finding that these imposed requirements by Defendant do not rise to the level of control necessary to make the authorized dealers or sales agencies agents of Defendant, creating a regular and established place of business. He noted that Defendant and authorized dealers are entirely distinct entities, that Defendant leaves great discretion to third-party retailers as to how to sell Defendant’s products, that Defendant does not possess or control the physical locations of these third parties, and that Defendant does not promote the locations of the third-party stores or advertise the locations as belonging to Defendant, among other things.

After a factual analysis, Judge Gilliland found that venue was improper. Judge Gilliland also found that “the interest of justice” supported transferring the case to Colorado, given both Plaintiff and Defendant had their principal places of business in Colorado and Plaintiff was a Colorado entity.