Last week, the U.S. Court of Appeals for the Federal Circuit issued opinions in In Re: Volkswagen Group of N.A., Inc., 2022-108 (Mar. 9, 2022), and In Re: Hyundai Motor America, 2022-109 (Mar. 9, 2022), vacating the denial of motions to dismiss or transfer litigations against the two automobile distributors for improper venue.
In 2020, StratosAudio, Inc. filed patent infringement Complaints against Volkswagen and Hyundai in the U.S. District Court for the Western District of Texas. The distributors moved to dismiss or transfer the litigations because they do not “reside” in the Western District for patent venue purposes. The district court denied both motions, finding venue proper because the distributors have agreements with automobile dealerships in the Western District that sell cars (and provide warranties) purchased from the distributors. The district court found the dealerships were agents of the distributors for venue purposes. The distributors filed a writ of mandamus to vacate that ruling.
The Federal Circuit, noting a disagreement among district courts on the distributor-dealer relationship, explained that “[t]he dispute … boils down to three issues: (1) whether the dealerships are the agents of Petitioners; (2) whether the dealerships conduct Petitioners’ business; and (3) whether Petitioners have ratified the dealerships as Petitioners’ place of business.” The Court held “the dealerships located in the Western District do not constitute regular and established places of business of Volkswagen and Hyundai under [35 U.S.C.] § 1400(b) because Stratos has failed to carry its burden to show that the dealerships are agents of Volkswagen or Hyundai under a proper application of agency law.”
The Court rejected Stratos’ argument that the franchise agreements between the distributors and the dealerships gave the distributors the right to “direct or control” the sales of cars or provision of warranties. The Court examined the agreements and found that “Stratos has not cited any evidence that Volkswagen or Hyundai maintain influence over the sales process once they have sold a car to a dealership.” Rather, the Court noted, the franchise agreements give the dealerships “full control over their day-to-day operations, such as sales” and “disclaim an agency relationship.” The Court also noted that “Stratos fail[ed] to cite any language giving the Petitioners control over how the dealerships perform warranty services once [initial] parameters are set.” Accordingly, the Court granted the mandamus petitions, vacated the orders denying transfer, and remanded the cases for further proceedings.