JUDGE THOMAS M. DURKIN

MEMORANDUM OPINION AND ORDER

Defendant has filed a Motion To Transfer, Or In The Alternative, To Dismiss For Improper Venue [Doc. 42]. Defendant's motion is based on an intervening change in law regarding venue in patent cases, namely, the Supreme Court's decision in TC Heartland LLC v. Kraft Foods Group Brands, LLC, 137 S. Ct. 1514 (2017), decided on May 22, 2017. For the reasons that follow, Defendant's motion is granted.

A. THE COMPLAINT

Plaintiff filed the complaint on February 12, 2016, followed by an amended complaint on March 10, 2016, followed by a second amended complaint on September 16, 2016. In the second amended complaint, Plaintiff alleges the following. Plaintiff's founder and the inventor of the methods described in the patent at issue (the '097 Patent), Srikrishna Talluri, contacted Defendant's chief operations officer, Ken Gullicksen, to inquire whether Defendant would be interested in Plaintiff's product, "JotLingo," a software program that "lets users take notes and save web-clips on the fly and access them from anywhere." R. 24 (¶¶ 13-14). The two met in June 2012 for a demonstration of the JotLingo product, at which time Gullicksen made a video recording without Plaintiff's permission of a portion of Talluri's presentation. Id. (¶¶ 15-18). Six months later, Defendant "made technical changes to the Evernote product and introduced Evernote Business." Id. (¶ 20). "Evernote's technical changes to its product" allegedly "copied the patented components of the JotLingo system and infringe claims of the '097 Patent." Id. (¶ 21). As a result, Plaintiff claims that Defendant "has directly infringed and continues to directly infringe, literally, and under the doctrine of equivalents, one or more claims of the '097 Patent by making, using, offering for sale, selling, or importing the Evernote platform, including Evernote Web Clipper." Id. (¶ 24).

B. TC HEARTLAND

Venue in a patent infringement case is governed by 28 U.S.C. § 1400(b), which provides that "[a]ny civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business." The Supreme Court's opinion in TC Heartland clarified the first prong of that statute (place of residence).

Prior to TC Heartland (and at the time the complaint was filed in this action), controlling authority from the Court of Appeals for the Federal Circuit held that a corporate patent defendant was deemed to reside anywhere it was subject to personal jurisdiction. See VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1584 (Fed. Cir. 1990). Not long after this case was filed, the Federal Circuit rejected a challenge to VE Holding Corp. in the very case the Supreme Court eventually overturned, stating that the defendant's argument against the result in VE Holding was "utterly without merit and logic" and inconsistent with "settled precedent of over 25 years." In re TC Heartland LLC, 821 F.3d 1338, 1341, 1342 (Fed. Cir. 2016). A year later, the Supreme Court reversed the Federal Circuit's decision in TC Heartland and overruled VE Holding, finding that residency for purposes of the patent venue statute actually had been decided long before VE Holding in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1956). See T.C. Heartland, 137 S. Ct. at 1520-21. Consistent with Fourco, the Supreme Court held in TC Heartland that a domestic corporation "resides" only in its state of incorporation. Id.

The Supreme Court's ruling in TC Heartland is entitled to full retroactive effect. See Harper v. Va. Dep't of Taxation, 509 U.S. 86, 97 (1993) ("When this Court applies a rule of federal law to the parties before it, that rule is the controlling interpretation of federal law and must be given full retroactive effect in all cases still open on direct review and as to all events, regardless of whether such events predate or postdate our announcement of the rule."). Thus, while venue in this case in the Northern District of Illinois originally appeared proper pursuant to the Federal Circuit's prevailing view in VE Holding of the meaning of the place of residence prong of the patent venue statute, the Supreme Court's intervening decision has now made clear that venue in fact is improper in this District at least insofar as the residence prong of the venue statute is concerned. As a result, on July 20, 2017, Defendant filed the improper venue motion presently under consideration by this Court [Doc. 42].

C. DEFENDANT'S MOTION TO DISMISS

A party may waive the defense of improper venue by "omitting it from a motion" under Rule 12(b) if it was "available to the party" at the time the motion was made. Fed. R. Civ. P. 12(h)(1)(A) & 12(g)(2). Defendant filed a motion to dismiss the second amended complaint [Doc. 24] prior to the Supreme Court's T.C. Heartland decision in which it argued that Plaintiff had not pled a viable theory of infringement but did not raise any venue issue. That motion was fully briefed on December 28, 2016, but was not yet ruled on by this Court when T.C. Heartland was decided.

On August 3, 2017, this Court issued an order in another patent case, Lit v. Zazzle Inc., where the defendant also had filed a motion based on improper venue after the Supreme Court's ruling in TC Heartland. In Lit, like in this case, the defendant had filed a motion to dismiss before the Supreme Court's decision in TC Heartland was issued, and that motion had not raised an improper venue defense. Also like this case, the motion to dismiss was still pending before this Court when the defendant filed its improper venue motion. The defendant in Lit argued that the plaintiff had waived its objection to improper venue by not raising it in its motion to dismiss. This Court ruled that because the motion to dismiss was still pending, the defendant could amend it to raise the improper venue defense based on the Supreme Court's intervening decision in TC Heartland. See Lit v. Zazzle Inc., No. 16-cv-7054 (N.D. Ill. Aug. 3, 2017) (Durkin, J.) (order granting in part and denying in part motion to dismiss for improper venue). On August 8, 2017, this Court issued an order in the present matter alerting the parties to the Court's decision in Lit, and setting a status hearing to address the effect of that decision on Defendant's improper venue motion in this case, [Doc. 45].

D. THE SECOND PRONG OF THE PATENT VENUE STATUTE

At the status hearing held on August 16, 2017, Plaintiff requested the opportunity for limited discovery and briefing to address whether venue was proper in the Northern District of Illinois based on the second prong of the patent venue statute, which was not at issue in either TC Heartland or the Lit case. The Court allowed Plaintiff to proceed as requested, and Plaintiff filed its response in opposition to Defendant's motion to dismiss or transfer for improper venue [Doc. 48] on August 30, 2017. In that response, Plaintiff did not argue the waiver issue but instead focused on the second prong of the patent venue statute. The second prong states that venue in a patent case is proper wherever "the defendant has committed acts of infringement and has a regular and established place of business." 28 U.S.C. § 1400(b).

The Court is not persuaded by Plaintiff's arguments that Defendant has a "regular and established place of business" within this District. Defendant offers its software products over the Internet through virtual "stores," such as Google Play or the Apple App store. R. 42-1 (Lau Decl. ¶¶ 3-4). It does not sell its products using any physical retail stores in this District. Id. (¶ 6). It has no offices, warehouse, retail locations, or other facilities in Illinois, and it does not own, lease, or control any land in Illinois. Id. Nor does Defendant have any full-time employees living in this District who are paid a salary and work exclusively for it, see id. (¶¶ 7-8), as was the case in In re Cordis Corp., 769 F.2d 733, 737 (Fed. Cir. 1985), one of the two cases on which Plaintiff relies. For these reasons, it would appear that venue is not proper here based on the regular and established place of business prong of the patent venue statute.

Nevertheless, Plaintiff argues that Defendant has a regular and established place of business in this District based primarily on the activities of seven residents who have signed up to participate in the "Evernote Community Program." The individuals in question received "Community Member" status after a short online training course. They are not Evernote employees:

12. Relationship of the Parties. It is the parties' express intention that you are an independent contractor and not an employee, agent, joint venturer, franchisee or partner of Evernote. You have no authority, legal or otherwise, to bind Evernote or to assume or create any obligation or responsibility, express or implied, written or oral, on behalf of Evernote or in Evernote's name. You are solely responsible for payment of any income taxes, social security taxes, unemployment or disability insurance charges or similar items in connection with your performance of any consulting services for your clients and that you receive while acting as an EC Program participant. The rights granted by Evernote to you and the services to be provided by you under or in connection with these Program Terms are nonexclusive; except as expressly provided in these Program Terms, nothing herein shall limit or otherwise impair each party's freedom to conduct their business within the Territory. Except as may be expressly agreed by you and Evernote pursuant to a Supplemental Program, you acknowledge and agree that Evernote shall not have any obligation to you for compensation or expense reimbursements on account of these Program Terms or your actions in the Programs.

Plaintiff's argument that Defendant has a regular and established place of business in this District because of the presence of the seven Community Members is a non-starter. None of the seven residents were Community Members when this case was filed. See Welch Scientific Co. v. Human Eng'g Inst., Inc., 416 F.2d 32, 35 (7th Cir. 1969) ("under the patent venue statute, venue is properly lodged in the district if the defendant had a regular and established place of business at the time the cause of action accrued and suit is filed within a reasonable time thereafter").

In any event, Plaintiff's argument that the Community Members' activities are sufficient to establish venue in this District relies entirely on the four-factor test set forth in Ratheon Co. v. Cray, Inc., 2017 WL 2813896 (E.D. Tex. June 29, 2017). On September 21, 2017, however, the Federal Circuit vacated that decision when it granted a petition for mandamus filed by the defendant, holding that the four-factor test adopted by the district court was "not sufficiently tethered to [the] statutory language and thus [ ] fails to inform each of the necessary requirements of the statute." In re Cray Inc., 2017 WL 4201535, at *5 (Fed. Cir. Sept. 21, 2017). The Federal Circuit noted that § 1400(b) requires that "a defendant has" a "place of business" that is "regular" and "established," and stated that "[a]ll of these requirements must be present." Id. (emphasis added). That is, (1) there must be a physical place in the district, (2) it must be a regular and established place of business, and (3) it must be the place of business of the defendant. Id. at *5, 6.

With respect to the first requirement, "[t]he statute requires a 'place,' i.e., '[a] building or part of a building set apart for any purpose' or 'quarters of any kind' from which business is conducted." Id. at *5. "The statute [ ] cannot be read to refer merely to a virtual space or to electronic communications from one person to another." Id. "While the 'place' need not be a 'fixed physical presence in the sense of a formal office or store,' Cordis, 769 F.2d at 737, there must still be a physical, geographical location in the district from which the business of the defendant is carried out." In re Cray, 2017 WL 4201535, at *5.

With respect to the second requirement, regularity means that the business "operates in a 'steady[,] uniform[,] orderly[, and] methodical' manner. In other words, sporadic activity cannot create venue." Id. (citation omitted). The "established" limitation means "that the place of business is not transient. It directs that the place in question must be 'settle[d] certainly, or fix[ed] permanently.'" Id. at *6 (citation omitted). "Accordingly, while a business can certainly move its location, it must for a meaningful time period be stable, established. On the other hand, if an employee can move his or her home out of the district at his or her own instigation, without the approval of the defendant, that would cut against the employee's home being considered a place of business of the defendant." Id.

Finally, the third requirement—that "the regular and established place of business" must be "the place of the defendant"—means that it cannot be solely a place of the defendant's employee. Id. "Employees change jobs. Thus, the defendant must establish or ratify the place of business. It is not enough that the employee does so on his or her own." Id. "Relevant considerations include whether the defendant owns or leases the place, or exercises other attributes of possession or control over the place. . . Another consideration might be whether the defendant conditioned employment on an employee's continued residence in the district or the storing of materials at a place in the district so that they can be distributed or sold from that place. . . . Marketing or advertisements also may be relevant, but only to the extent they indicate that the defendant itself holds out a place for its business." Id.

Ultimately, the Federal Circuit found that the two employees in that case, who lived in the Eastern District of Texas and worked for the defendant, were insufficient as a matter of law to establish venue in the Eastern District of Texas under § 1400(b). Id. at *7-8. The Federal Circuit's decision in Cray leaves no room for Plaintiff to argue that the handful of non-employee, independent contractors present in this District constitute a "regular and established place of business" for Defendant within the meaning of § 1400(b). Defendant has no fixed physical presence in this District, and relying on customer use of Defendant's software within the district as a substitute for a fixed physical location would not be proper. See Bristol-Myers Squibb v. Mylan Pharms. Inc., 2017 WL 3980155, at * 16 (D. Del. Sept. 11, 2017) ("maintaining a website that allows consumers to purchase a defendant's goods or products within the district does not, by itself, demonstrate that the defendant has a regular and established place of business in the district"; a contrary rule would "turn any cell phone . . . or computer into a regular and established place of business for any company with a website").

Nor does Defendant have the necessary control over its Community Members for the Court to consider their physical presence in the District the equivalent of Defendant's presence. And their activities on Defendant's behalf, in any event, have not been shown to be sufficiently stable or established to be seen as the operation of Defendant's business in this District. Finally, there is no indication in the record of the physical location out of which each Community member operates that would establish those physical locations were not solely the location of the Community Members. In short, even if the Court were to overlook the fact that these independent Community Members were not in existence at the time this case was filed, the Court must hold that their activities do not establish that Defendant has a "regular and established place of business" in the Northern District of Illinois.

E. DISMISSAL VERSUS TRANSFER

Under 28 U.S.C. § 1406(a), "[t]he district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought." Section 1406(a) "is a curative statute which provides the mechanism by which a federal court may transfer an action to another district when venue is wrong." CAT Aircraft Leasing, Inc. v. Cessna Aircraft Co., 650 F. Supp. 57, 60 (D.V.I. 1986). "The decision whether a transfer or a dismissal is in the interest of justice [ ] rests within the sound discretion of the district court." Naartex Consulting Corp. v. Watt, 722 F.2d 779, 789 (D.C. Cir. 1983). But, generally, transfer is "more in the interest of justice than dismissal." CAT Aircraft Leasing, Inc., 650 F. Supp. at 60; see also United States v. Miller-Stauch Constr. Co., 904 F. Supp. 1209, 1214 (D. Kan. 1995) ("Transfer should be the usual course rather than dismissal.") (citing 15 Charles A. Wright, Arthur R. Miller & Edward H. Cooper, FEDERAL PRACTICE AND PROCEDURE § 3827 at 274 (1986)).

In the typical case, it is the defendant who seeks dismissal and the plaintiff who seeks a transfer. Here, however, it is the opposite: Plaintiff seeks dismissal without prejudice and Defendant seeks a transfer to the Northern District of California.

Plaintiff seeks dismissal without prejudice because, at the same time it filed its response to Defendant's improper venue motion, Plaintiff also filed a second "protective" action against Defendant in the District of Delaware. Plaintiff states that if this Court finds venue is improper in the Northern District of Illinois, it intends to pursue its Delaware lawsuit. In pursuit of this strategy, Plaintiff states that if this Court were to transfer the case to the Northern District of California, it will exercise its rights under Fed. R. Civ. P. 41(a)(1)(A) to dismiss the action without a court order in favor of the Delaware action. According to Plaintiff, Defendant's pending Rule 12(b)(6) motion to dismiss in this matter does not prevent it from following this course. See R. 52 at 17 (citing Swedberg v. Marotzke, 339 F.3d 1139, 1145 (9th Cir. 2003) ("However, because Rule 41(a)(1) specifically allows a plaintiff to dismiss a complaint without prejudice in the face of a 12(b)(6) motion, such a dismissal is not regarded as forum-shopping.")). Therefore, Plaintiff argues, "a simple dismissal without prejudice, rather than a transfer, will avoid unnecessary court filings and wasted judicial resources in California." R. 52 at 17.

Defendant, on the other hand, argues that the interests of justice favor a transfer of this action to the Northern District of California. The equitable considerations on which Defendant relies include the fact that Defendant's pending motion to dismiss the operative complaint—the third that Plaintiff has filed in this case—seeks dismissal with prejudice on the ground that, among other things, Plaintiff has had multiple opportunities to correct the deficiencies in its infringement allegations. See Nalco Co. v. Chem-Mod, LLC, 2016 WL 1594966, at *4 (N.D. Ill. Apr. 20, 2016) (dismissing fourth amended complaint with prejudice where the plaintiff was "provided several opportunities to re-plead its allegations but has failed to plead a plausible case of patent infringement"). According to Defendant, Plaintiff's Delaware complaint would effectively end run that pending motion by giving Plaintiff a fourth bite of the apple. Moreover, Defendant contends the Delaware complaint includes new substantive allegations that Plaintiff could have but did not make when it filed its previous amendments in this case. Finally, Defendant argues that the Federal Rules provide Defendant with some relief if Plaintiff exercises its rights under Rule 41(a) to dismiss this action once it is transferred to the Northern District of California. "Specifically, under Rule 41(d), '[i]f a plaintiff who previously dismissed an action in any court files an action based on or including the same claim against the same defendant, the court: (1) may order the plaintiff to pay all or part of the costs of that previous action.' 'Costs awarded under Rule 41(d) . . . are intended to serve as a deterrent to forum shopping and vexatious litigation.' Dismissal without prejudice under § 1406, however, would grant [Plaintiff] a free pass in contravention of the spirit, if not letter, of Rule 41." R. 55 at 14 (quoting Rule 41(d) and Simeone v. First Bank Nat'l Assn, 971 F.2d 103, 108 (8th Cir. 1992)). For all of these reasons, Defendant argues, dismissal of this case without prejudice, rather than a transfer to the Northern District of California, would be unfairly prejudicial to Defendant.

Defendant also argues that dismissal without prejudice under 28 U.S.C. § 1406 is not in the "interests of justice" because it will create judicial inefficiencies and delay the resolution of this case. Defendant argues it will seek a transfer of Plaintiff's newly filed lawsuit under 28 U.S.C. § 1404 from the District of Delaware to the Northern District of California because the Northern District of California is the center of gravity for this case:

As a general rule, the preferred forum is that which is the center of the accused activity. As the Court noted in AMP Incorporated v. Burndy of Midwest, Inc., 340 F. Supp. 21, 24-25 (N.D. Ill. 1971), "The trier of fact ought to be as close as possible to the milieu of the infringing device and the hub of activity centered around its production." In this case, all development, testing, research, and production of the subject product occurred in Massachusetts. Additionally, virtually all marketing and sales decisions

were made there. By contrast, only some very limited sales activity occurred in this district.

According to Defendant, the district court in Delaware is likely to grant such a transfer request for two reasons. First, Defendant cites Papst Licensing GmbH & Co. KG v. Lattice Semiconductor Corp., 126 F. Supp. 3d 430 (D. Del. 2015), in which a Delaware district court transferred a case to the Northern District of California, even though the defendants were incorporated in Delaware, because the only factor that weighed against transfer was the plaintiff's choice of forum. Id. at 446-47 (granting transfer because of "the far more significant connections that the Northern District of California has with the case (as compared to this District)," and because there was "little to counter-balance those many connections, other than the fact that Plaintiff chose this forum for suit") (citing numerous other cases applying the same analysis and reaching a similar conclusion).

Second, Defendant cites MEC Resources, LLC v. Apple, Inc., 2017 WL 4102450 (D. Del. Sept. 15, 2017), in which a Delaware district court recently granted a motion to transfer a pending patent case to the Northern District of California under 28 U.S.C. § 1404. In deciding to transfer the case to California, the MEC court sua sponte raised the issue of the current congestion faced by the District of Delaware:

This District is now reduced to two active judges, only increasing the number of cases on each judge's docket here. While visiting judges can assist, we also must manage our busy urban dockets and, as much as we may try, cannot fully mitigate the loss of experienced judges in this District while we await commission for new district court judges.

The parties have each presented the Court with their litigation strategies for this case. But the Court's decision is not based on either of those strategies; its choice is and must be based on the interests of justice. On the one hand, venue is proper in both the District of Delaware and the Northern District of California. Thus, even though the Northern District of California might be the more appropriate or convenient venue of the two, it is beyond dispute that Plaintiff could have filed its lawsuit in the District of Delaware. And a "plaintiff's choice of venue must be respected" unless the relevant factors justify a transfer of venue. Adaptix, Inc., 937 F. Supp. 2d at 871. In this case, the Court finds that the relevant factors do justify overriding Plaintiff's choice of Delaware as venue for its lawsuit, for the following reasons.

To begin with, the fact that Defendant is incorporated in Delaware carries little weight. Other than being it state of incorporation, Defendant does not have any ties to or physical presence in Delaware. See R. 42 at 12. Moreover, the fact that Delaware is also Plaintiff's state of incorporation does not add anything to the analysis unless Plaintiff were to make an argument that being incorporated in Delaware affects the "center of gravity" test, which it does not do. Plaintiff cites to Delaware's interest in adjudicating litigation that involves two companies incorporated in that state, but in MEC Resources the district court stated that "[t]his factor is typically neutral in the context of patent litigation, as patent issues do not give rise to a local controversy or implicate local interests." 2017 WL 4102450, at *6 (internal quotation marks and citations omitted).

In addition, Plaintiff does not dispute that the most appropriate district under the "center of gravity" test is the Northern District of California. Plaintiff could have but did not seek to transfer this case to Delaware, and instead filed a separate action there. Perhaps it took this course on the belief that a Delaware district court would be more inclined than this Court to honor Plaintiff's choice of forum in the face of a transfer motion under 28 U.S.C. § 1404, notwithstanding that the center of gravity for the case clearly is elsewhere. But if that is the case, Plaintiff appears to be mistaken. The case law discussed above indicates that a Delaware district court would grant a motion to transfer under 28 U.S.C. § 1404 if one were to be filed by Defendant in Plaintiff's newly filed action in that district. Plaintiff does not cite a single case that convinces the Court there is any possibility of a contrary result.

This Court could honor Plaintiff's choice of forum and allow the district court in Delaware to transfer the case. But this Court has the power under § 1406 to also transfer this case to the most appropriate forum, and, indeed, the duty to do so where the interests of justice are best served by that course. It serves no purpose, and certainly not the interests of justice, for this Court to dismiss this case in deference to a lawsuit the District of Delaware will transfer anyway to the District of Northern California, particularly in light of the potential for unfair prejudice such a ruling would impose on Defendant because of the procedural posture of this case. Nor should Plaintiff receive a free pass on the Rule 41(a) dismissal it says it intends to take in this matter if the case is transferred. To the extent Plaintiff's intent to file a Rule 41(a) dismissal has any bearing on this Court's decision, it weighs in favor of a transfer to allow Defendant the opportunity to seek the relief to which it deems it is entitled upon such dismissal, something Defendant would not be able to do were this Court to dismiss this action for Plaintiff. While it may be true, as Plaintiff contends (R. 48 at 16 n. 4), that there is nothing inappropriate in a party filing a protective action in another district court in the event the first filed action is dismissed on procedural grounds, the court in the first filed action is not required to take that second filing into consideration in deciding on the appropriate resolution of the first filed case. And a plaintiff who chooses to pursue a strategy of filing a successive "protective" lawsuit and forcing a defendant to defend two identical or similar lawsuits must be prepared to deal with the consequences.

CONCLUSION

For the foregoing reasons, Defendant's Motion To Transfer, Or In The Alternative, To Dismiss For Improper Venue [Doc. 42] is GRANTED, and this case is transferred to the Northern District of California.

/s/_________

Thomas M. Durkin

United States District Judge Dated: September 26, 2017