Case 6:20-cv-01131-ADA Document 58 Filed 09/20/21 Page 1 of 11
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`STRATOSAUDIO, INC.,
` Plaintiff
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`-vs-
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`VOLKSWAGEN GROUP OF AMERICA,
`INC.,
` Defendant
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE WESTERN DISTRICT OF TEXAS
`WACO DIVISION
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`6:20-CV-01131-ADA
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`MEMORANDUM OPINION AND ORDER
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`Before the Court is Defendant Volkswagen Group of America, Inc.’s (“Volkswagen”) Rule
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`12(b)(3) Motion to dismiss or transfer for improper venue pursuant to 28 U.S.C. §§ 1400(b) and
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`1406(a). Dkt. 16. After careful consideration of the relevant facts, applicable law, and the parties’
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`briefs and oral arguments, the Court DENIES Volkwagen’s Motion.
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`I. BACKGROUND
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`Plaintiff StratosAudio, Inc. (“StratosAudio”) filed this action against Volkswagen on
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`December 11, 2020, asserting infringement of seven patents by Volkswagen’s vehicles with
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`certain infotainment systems. Dkt. 1. On February 19, 2021, Volkswagen moved to dismiss or
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`transfer the action for improper venue under Rule 12(b)(3). Dkt. 16.
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`StratosAudio is a Delaware corporation headquartered in Kirkland, Washington. Dkt. 1 at
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`1, ¶ 2. Volkswagen is a New Jersey corporation with its principal place of business in Herndon,
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`Virginia. Id. at 2, ¶ 7. Volkswagen may be served through its registered agent for service in Austin,
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`Texas, within this District, and has been registered to do business in the State of Texas since at
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`least June 7, 1973. Id.
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`For propriety of venue, Plaintiff alleges that Volkswagen conducts its business of the
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`exclusive distribution of new Volkswagen and Audi automobiles to consumers in this District
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`1
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`StratosAudio Exhibit 2017
`Volkswagen v StratosAudio
`IPR2021-00721
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`through its authorized dealers in Austin and Waco and exercises control over those dealerships.
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`Id. at 3–5, ¶¶ 10–14.
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`II. LEGAL STANDRD
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`Federal Rule of Civil Procedure 12(b)(3) allows a party to move to dismiss an action for
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`“improper venue.” FED. R. CIV. P. 12(b)(3). 12 U.S.C. § 1440(b) is the “sole and exclusive
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`provision controlling venue in patent infringement actions.” TC Heartland LLC v. Kraft Foods
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`Group Brands LLC, 137 S. Ct. 1514, 1519 (2017). “Whether venue is proper under § 1400(b) is
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`an issue unique to patent law and is governed by Federal Circuit law,” rather than regional circuit
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`law. In re ZTE (USA) Inc., 890 F.3d 1008, 1012 (Fed. Cir. 2018). “[U]pon motion by the Defendant
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`challenging venue in a patent case, the Plaintiff bears the burden of establishing proper venue.” Id.
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`at 1013–14. Plaintiff may carry this burden by establishing facts that, if taken to be true, establish
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`proper venue. Castaneda v. Bradzoil, Inc., No. 1:20-CV-1039-RP, 2021 WL 1390423, at *1 (W.D.
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`Tex. Apr. 13, 2021). “On a Rule 12(b)(3) motion to dismiss for improper venue, the court must
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`accept as true all allegations in the complaint and resolve all conflicts in favor of the plaintiff.” Id.
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`(citing Braspetro Oil Servs. Co. v. Modec (USA), Inc., 240 F.App’x 612, 615 (5th Cir. 2007) (per
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`curiam)). In determining whether venue is proper, “the Court may look beyond the complaint to
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`evidence submitted by the parties.” Ambraco, Inc. v. Bossclib, B.V., 570 F.3d 233, 237–38 (5th
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`Cir. 2009).
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`Section 1400(b) provides that venue in patent cases is proper “[1] where the defendant
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`resides, or [2] where the defendant [a] has committed acts of infringement and [b] has a regular
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`and established place of business.” 28 U.S.C. § 1400(b). Under the first prong, the Supreme Court
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`has held that “a domestic corporation ‘resides’ only in its State of incorporation for purposes of
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`the patent venue statute.” TC Heartland, 137 S. Ct. at 1517. Under the second prong, the Federal
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`Circuit interpreted, in In re Cray Inc., 871 F.3d 1355 (Fed. Cir. 2017), “regular and established
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`place of business” to impose three general requirements: “(1) there must be a physical place in the
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`district; (2) it must be a regular and established place of business; and (3) it must be the place of
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`the defendant.” Id. at 1360. Regarding the first requirement, a “place” refers to a “‘building or a
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`part of a building set apart for any purpose’ or ‘quarters of any kind’ from which business is
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`conducted.” Id. at 1362 (citations omitted). Regarding the second requirement, “regular” means
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`that the business must operate in a “‘steady, uniform, orderly, and methodical’ manner,” and
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`“sporadic activity cannot create venue.” Id. (citations omitted). And the third requirement means
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`that the place cannot be solely a place of the defendant’s employee – “the defendant must establish
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`or ratify the place of business.” Id. at 1363.
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`Subsequently, in In re Google LLC, 949 F.3d 1338 (Fed. Cir. 2020), the Federal Circuit
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`added a fourth requirement: “a ‘regular and established place of business’ requires the regular,
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`physical presence of an employee or other agent of the defendant conducting the defendant’s
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`business at the alleged ‘place of business.’”1 Id. at 1345.
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`III. DISCUSSIION
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`The main dispute before the Court is whether Volkswagen has “a regular and established
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`place of business” in this District. The parties do not dispute that Volkswagen does not “reside” in
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`this District and therefore the first prong of Section 1400(b) does not apply. Under the second
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`prong, the parties do not dispute that Plaintiff has plausibly pled that “defendant has committed
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`acts of infringement” and the parties also do not dispute that the dealerships are “physical places”
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`1 In Google, Federal Circuit considered this requirement as part of the second Cray factor. In re Google
`LLC, 949 F.3d 1338, 1344 (Fed. Cir. 2020) (“We agree . . . that under the second Cray factor, a ‘place of
`business’ generally requires an employee or agent of the defendant to be conducting business at that
`place.”). However, this Google requirement is essentially a different requirement than the original second
`Cray requirement, which places more focus on the phrase “regular and established.” Therefore, this Court
`treats the Google requirement as a fourth requirement in addition to the three Cray requirements.
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`3
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`in this District and are “regular and established” under the first and second Cray requirements.
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`Therefore, the Court discusses below whether the third and fourth requirements are met in this
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`case to establish proper venue in this District.
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`A.
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`Ratification
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`Under the third Cray requirement, a plaintiff must show that the place of business at issue
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`is “the place of the defendant.” In re Cray, 871 F.3d at 1360. To meet this requirement, “the
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`defendant must establish or ratify the place of business.” Id. at 1363. There is no bright-line rule
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`for this inquiry. Id. at 1362 (“In deciding whether a defendant has a regular and established place
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`of business in a district, no precise rule has been laid down and each case depends on its own
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`facts.”). The Federal Circuit set forth a number of considerations to determine whether the
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`defendant has ratified the place of business, including: (1) “whether the defendant owns or leases
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`the place, or exercises other attributes of possession or control over the place”; (2) “whether the
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`defendant conditioned employment on an employee’s continued residence in the district or the
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`storing of materials at a place in the district so that they can be distributed or sold from that place”;
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`(3) whether the defendant has made “representations that it has a place of business in the district”;
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`and (4) “the nature and activity of the alleged place of business of the defendant in the district in
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`comparison with that of other places of business of the defendant in other venues.” Id. at 1363-64.
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`These considerations are not exhaustive but are more illustrative in nature. Blitzsafe Texas, LLC v.
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`Bayerische Motoren Werke AG, No. 2:17-CV-00418-JRG, 2018 WL 4849345, at *6 (E.D. Tex.
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`Sept. 6, 2018).
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`More recently, the Federal Circuit found additional factors relevant to this analysis,
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`including: “the nature of [the defendant’s] relationship with [its] representatives [in the District],
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`or whether it has any other form of control over any of them”; “whether [the defendant] possesses,
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`owns, leases, or rents the [facility] . . . or owns any of the equipment located there”; “whether any
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`signage on, about, or relating to the [facility] associates the space as belonging to [the defendant]”;
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`and “whether the location of the [facility] was specified by the defendant or whether [a third party]
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`would need permission from the defendant to move [the facility] outside of the . . . District or to
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`stop working for [the defendant].” In re ZTE (USA) Inc., 890 F.3d 1008, 1015–16 (Fed. Cir. 2018).
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`1. Defendant exercises control over the dealerships’ places in this District.
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`For this factor, Volkswagen’s main argument is a one-sentence statement in its Reply,
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`stating that it is “forbidden to ‘operate or control’ the dealerships” under Texas law. Dkt. 16 at 3–
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`4; Tex. Occ. Code § 2301.476(c) (“[A] manufacturer or distributor may not directly or indirectly .
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`. . operate or control . . . a franchised dealer or dealership.”). However, this does not mean that
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`Volkswagen does not exercise de facto control over the dealerships to some degree, nor does it
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`mean that the dealerships are not places of Volkswagen as a matter of law. See, e.g., Blitzsafe,
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`2018 WL 4849345, at *7.
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`As Plaintiff points out, Volkswagen controls numerous aspects of its dealerships’
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`operations through a number of agreements with its dealerships. Dkt. 22 at 8-15. Volkswagen’s
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`alleged control over its dealers include: (1) the dealers’ premises and facilities and their use and
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`maintenance; (2) the dealers’ use of Volkswagen trademarks and trade names in advertising and
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`marketing; (3) the price and terms upon which its dealers purchase its vehicles; (4) the dealers’
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`inventory of vehicles and parts; (5) the terms and scope of warranties to be included in its vehicle
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`sales, the manner in which its dealers provide notice and advertise such warranties, and the rate or
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`price at which a Volkswagen or Audi dealer will be reimbursed for services; (6) monthly reporting
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`from the dealers of their finances and operations; (7) the IT equipment such as computers that its
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`dealers must use and maintain; (8) the number of personnel that its dealers must have on site and
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`their certifications and training; (9) performance reviews on the dealers’ sales, service, and parts,
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`customer satisfaction, and even the dealer’s maintenance of its premises and facilities; and (10)
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`restricting whether and to whom a dealer may sell or transfer its business. Id. As the list goes on,
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`it is not hard to find that Volkswagen boasts a broad scope of de facto control over its dealerships.
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`Therefore, the Court is not persuaded by Volkswagen’s argument that Texas law deters it from
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`exercising control over its dealerships.
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`2. Defendant’s relationship with the dealerships is conditioned on the dealerships’
`continued presence in this District.
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`Under Texas law, Volkswagen is not permitted to directly sell vehicles to consumers in
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`this District. Tex. Occ. Code § 2301.476(c) (“[A] manufacturer or distributor may not directly or
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`indirectly . . . act in the capacity of a franchised or nonfranchised dealer.”). Therefore, the only
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`way that Volkswagen can sell its vehicles to consumers in this District is through authorized
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`dealerships that it currently has in the District. As Plaintiff alleges, new Volkswagen vehicles are
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`available for purchase exclusively through these authorized dealers. Dkt. 22 at 3. Thus, it is not
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`surprising that Volkswagen imposed stringent restrictions on the locations and ownership transfer
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`of its authorized dealership in this District: “If Dealer chooses to transfer its principal assets or
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`change owners, VWoA has the right to approve the proposed transferees . . . and . . . their premises.
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`. . . VWoA will notify Dealer in writing of the approval or disapproval of a proposal by Dealer for
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`transfer of principal assets or change of owners.” Id. at 15.
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`3. Defendant represents to the public that it has a place of business in this District.
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`Under this factor, “[p]otentially relevant inquiries include whether the defendant lists the
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`alleged place of business on a website, or in a telephone or other directory; or places its name on
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`a sign associated with or on the building itself.” In re Cray, 871 F.3d at 1363–64. “But the mere
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`fact that a defendant has advertised that it has a place of business or has even set up an office is
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`not sufficient; the defendant must actually engage in business from that location.” Id. at 1364.
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`“Marketing or advertisements also may be relevant, but only to the extent they indicate that the
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`defendant itself holds out a place for its business.” Id. at 1363.
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`Volkswagen represents to the public that it has a place of business in the Western District
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`of Texas. When a user searches for Volkwagen dealerships in the District, Volkswagen’s website
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`displays a list of its authorized dealerships, allows the user to search for these dealerships’
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`inventory, and gives the user an opportunity to schedule a test drive. Dkt. 22 at 3–4. Volkswagen
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`also allows all its dealerships in this District to display the “Volkswagen” or “Audi” logo and use
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`Volkswagen’s and Audi’s trademarks and tradenames. Id. at 3.
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`In fact, Volkswagen actually engages in business from the locations of its dealerships in
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`this District. First, Volkswagen conducts business in this District by distributing Volkswagen
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`vehicles to its authorized dealers. Second, and more importantly, Volkswagen provides new
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`purchase warranties to consumers at the dealerships in this District. Dkt. 1 at 5, ¶ 13; Dkt. 22 at
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`12-13. Particularly, Plaintiff alleges, and Volkswagen does not deny, that Volkswagen “establishes
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`the procedures for processing warranty claims and returning and disposing of defective parts” and
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`“determines the rate or price at which a Volkswagen or Audi dealer will be reimbursed for
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`services.” Dkt. 22 at 12–13. Under Texas law, that means Volkswagen engages business in the
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`state. Tex. Occ. Code § 2301.251(c) (“A manufacturer or distributor that directly or indirectly
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`reimburses another person to perform warranty repair services on a vehicle is engaged in business
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`in this state regardless of whether the manufacturer sells or offers for sale new motor vehicles in
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`this state.”).
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`IPR2021-00721
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`In its five-page Motion, Volkswagen does not present any persuasive argument on why it
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`does not ratify its dealerships in this District, other than its conclusory statements that two other
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`district courts’ rulings are right (because they are in its favor) and a third court’s ruling is wrong
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`(because it is not in its favor). Dkt. 16 (discussing Blitzsafe; Omega Patents, LLC v. BMW of North
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`America et al., 1:20-cv-01907-SDG, 2020 WL 8184342 (N.D. Ga. December 21, 2020); West View
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`Research, LLC v. BMW of North America, LLC et al, 16-cv-2590 JLS (AGS), 2018 WL 4367378
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`(S.D. Cal. February 5, 2018)). Similarly, in its seven pages of rambling in the Reply, cobbled
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`together with block citations from the West View and Omega cases, Volkswagen does not
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`effectively refute that Plaintiff’s allegations are insufficient to establish that Volkswagen ratifies
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`its dealerships in this District.
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`In view of the above, the Court finds that Volkswagen ratifies the places of business of its
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`authorized dealerships in this District and those dealerships are therefore “place[s] of the
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`defendant” under the third Cray requirements.
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`B.
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`Agents Conducting Defendant’s Business in this District
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`In In re Google, the Federal Circuit also ruled that “a ‘regular and established place of
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`business’ requires the regular, physical presence of an employee or other agent of the defendant
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`conducting the defendant’s business at the alleged ‘place of business.’” In re Google, 949 F.3d at
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`1345.
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`1.
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`The authorized dealers are Volkswagen’s agents.
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`“An agency relationship is a ‘fiduciary relationship that arises when one person (a
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`‘principal’) manifests assent to another person (an ‘agent’) that the agent shall act on the principal’s
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`behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents
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`to act.’” Id. at 1345 (citing Restatement (Third) of Agency § 1.01). “The essential elements of
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`agency are (1) the principal’s right to direct or control the agent’s actions, (2) the manifestation of
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`consent by the principal to the agent that the agent shall act on his behalf, and (3) the consent by
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`the agent to act.” Id. (citing Meyer v. Holley, 537 U.S. 280, 286 (2003)) (internal quotation marks
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`omitted). Agency is a fact-dependent relationship. In re MyFord Touch Consumer Litig., 46 F.
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`Supp. 3d 936, 956 (N.D. Cal. 2014). “While cases generally find that dealership agreements do
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`not create general principal-agent relationships, it is not—as a matter of law—impossible to find
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`a specific agency relationship as to matters subject to manufacturer control.” Stevens v. Ford Motor
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`Co., 2020 U.S. Dist. LEXIS 256298, *17 (S.D. Tex. Nov. 2, 2020).
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`Volkswagen argues that the dealerships are not Volkswagen’s agents because “[t]hey don’t
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`act ‘on the alleged principal’s behalf.’” Dkt. 41 at 2. However, as discussed above, Volkswagen
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`exercises a broad scope of control over its authorized dealerships in this District through their
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`agreements. Among others, Volkswagen requires monthly reports from the dealerships, restricts
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`the locations and ownership transfers of the dealerships, and provides warranty services to
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`consumers through the dealers. Indeed, Volkswagen does not deny that it exercises control over
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`its dealerships; instead, it argues that “control is only one aspects of the test” and the remaining
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`two elements are not met. Id. at 2. However, the agreements between Volkswagen and its
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`dealerships clearly show that there is manifestation of consent by Volkswagen to the dealerships
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`that the dealerships shall act on Volkswagen’s behalf, and the consent by the dealerships to act.
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`Therefore, the Court finds that Volkswagen’s authorized dealerships in this District are agents of
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`Volkswagen at least for venue purposes.
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`In fact, it is not uncommon for a district court to find a principal-agency relationship
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`between an auto manufacturer and its dealers. For example, the District of New Jersey found that
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`“the dealer acted as BMWNA’s agent, or at least that the two acted together.” Morano v. BMW of
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`N. Am., LLC, 928 F. Supp. 2d 826, 837-38 (D.N.J. 2013); see also Kent v. Celozzi-Ettleson
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`Chevrolet, Inc., No. 99 C 2868, 1999 WL 1021044, at *4 (N.D. Ill. Nov. 3, 1999) (“While it is
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`certainly true that the mere fact that Celozzi–Ettleson is an authorized General Motors dealer does
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`not make it General Motors’ agent, it is equally true that an automobile dealership may under
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`certain circumstances be an agent of the manufacturer.”). Particularly, the Morano court found that
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`“BMWNA and the dealer function as an integrated, two-part seller” because BMWNA makes all
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`of its consumer sales or leases through its authorized dealers and services the vehicles through
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`BMWNA’s Warranty or Maintenance Program, while the dealers handle the mechanics of the sale
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`or lease and the warranty services. Morano, 928 F. Supp. 2d at 837-38.
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`2.
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`The authorized dealers conduct Volkswagen’s business.
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`The authorized dealerships are also conducting Volkswagen’s business in this District.
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`Volkswagen is in the business of manufacturing and distributing vehicles to consumers. As
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`explained above, the only way that Volkswagen can distribute its vehicles to consumers in this
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`District is through its authorized dealerships in this District. Further, Volkswagen provides new
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`purchase warranties and services to the consumers through its dealerships. It establishes the
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`procedures for processing warranty claims and returning and disposing of defective parts and
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`requires its dealers to comply with such procedures. Dkt. 22 at 12. It also determines the rate or
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`price at which a Volkswagen or Audi dealer will be reimbursed for services. Id. at 13. These are
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`sufficient to establish that Volkswagen conducts business at the dealerships under Texas law. Tex.
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`Occ. Code § 2301.251(c).
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`Therefore, the Court finds that the authorized Volkwagen dealerships in this District are
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`agents of Volkswagen conducting Volkswagen’s business in this District.
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`IV. CONCLUSION
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`For the reasons above, the Court finds that Defendant has a “regular and established place
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`of business” in the Western District of Texas and venue is proper in this District under Section
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`1400(b). The Court therefore DENIES Defendant’s Motion to Dismiss or Transfer.
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`SIGNED this 20th day of September, 2021.
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`ALAN D ALBRIGHT
`UNITED STATES DISTRICT JUDGE
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`StratosAudio Exhibit 2017
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`IPR2021-00721
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