Case 6:20-cv-01131-ADA Document 23 Filed 03/12/21 Page 1 of 8
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`UNITED STATES DISTRICT COURT
`FOR THE WESTERN DISTRICT OF TEXAS
`WACO DIVISION
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`Case No. 6:20-CV-1131
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`STRATOSAUDIO, INC.,
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`Plaintiff,
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`v.
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`VOLKSWAGEN GROUP OF AMERICA,
`INC.,
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`Defendant.
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`VOLKSWAGEN GROUP OF AMERICA, INC.’S REPLY BRIEF
`IN SUPPORT OF ITS
`MOTION TO DISMISS OR TRANSFER FOR IMPROPER VENUE
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`Plaintiff relies heavily on Judge Gilstrap’s decision in the Blitzsafe case, Blitzsafe Texas,
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`LLC v. BMW of North America, LLC, et al., 2:17-CV-00418-JRG, 2018 WL 4849345 (E.D. Tex.
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`Sept. 6, 2018). However, the persuasiveness of this decision is undermined by its procedural
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`history—Judge Gilstrap initially found venue to be proper, but after that initial decision, BMW
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`moved for reconsideration, Blitzsafe was given venue discovery, and the parties ultimately asked
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`Judge Gilstrap to vacate the decision, which he did. The reconsideration motion was never
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`decided.1 See United States v. Munsingwear, Inc., 340 U.S. 36, 40–41 (1950) (explaining that
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`See Blitzsafe, 2:17-CV-00418-JRG (D.I. 95) (motion for reconsideration); Blitzsafe Texas
`LLC v. Mitsubishi Elec. Corp., No. 2:17-CV-00418-JRG, 2019 WL 2210686 (E.D. Tex.
`May 22, 2019) (order granting Blitzsafe’s venue discovery requests); Blitzsafe Texas LLC
`v. Mitsubishi Elec. Corp., No. 2:17-CV-00418-JRG, 2019 WL 3494359 (E.D. Tex. Aug.
`1, 2019) (order vacating venue decision). BMW had also applied for a writ of mandamus,
`but that application was denied because of the pendency of the reconsideration motion
`before Judge Gilstrap. In re Bayerische Motoren Werke AG, 744 F. App'x 703 (Fed. Cir.
`2018).
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`Case 6:20-cv-01131-ADA Document 23 Filed 03/12/21 Page 2 of 8
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`vacatur “is commonly utilized … to prevent a judgment, unreviewable because of mootness,
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`from spawning any legal consequences.”); see also Los Angeles Cnty. v. Davis, 440 U.S. 625,
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`634 n.6 (1979) (“Of necessity our decision vacating the judgment of the Court of Appeals
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`deprives that court’s opinion of precedential effect.”) (internal citations and quotations omitted).
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`And Judge Gilstrap’s initial decision was fundamentally flawed as a matter of law. As
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`argued in VWGoA’s opening brief, the proper analysis is contained in two other district-court
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`decisions that both concluded that an independent automotive dealership is the dealer’s place of
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`business, not the manufacturer’s. See Omega Patents, LLC v. BMW of North America et al.,
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`1:20-CV-01907-SDG, 2020 WL 8184342 (N.D. Ga. Dec. 21, 2020); West View Research, LLC
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`v. BMW of North America, LLC, et al., 16-CV-2590 JLS (AGS), 2018 WL 4367378 (S.D. Cal.
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`Feb. 5, 2018).
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`In an attempt to distinguish these cases, Plaintiff argues that In re Cray, 871 F.3d 1355
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`(Fed. Cir. 2017), sets forth two separate legal tests—“ratification” and “control”—and that
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`neither West View Research nor Omega Patents “supports a finding that Volkswagen has not
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`‘ratified’ the activities of its dealerships.” Opp. Br. at 3, 5. But all the Cray opinion says is, “[t]he
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`defendant must establish or ratify the place of business,” 871 F.3d at 1363, and both West View
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`Research and Omega Patents considered this Cray holding. See West View Research, 2018 WL
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`4367378, at *5–9;2 Omega Patents, 2020 WL 8184342, at *2–6.3
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`The West View Research opinion states: “The third element [of Cray] requires that the
`place of business must be the defendant’s and not solely the place of the defendant’s
`employee. ‘[T]he defendant must establish or ratify the place of business.’” West View
`Research, 2018 WL 4367378, at *5.
`The Omega Patents opinion states: “The Court finds it inappropriate to apply a
`ratification theory under the facts here.24” Omega Patents, 2020 WL 8184342, at *5.
`Omega’s footnote 24 reads: “To reiterate: (1) BMWNA does not own, operate, or rent the
`dealerships; (2) the dealerships’ employees are not BMWNA’s employees—the latter has
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`Case 6:20-cv-01131-ADA Document 23 Filed 03/12/21 Page 3 of 8
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`With respect to “ratification,” Plaintiff never explains what its proposed test is, other than
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`to argue that VWGoA’s trademark licenses, and website references, to the dealerships, and the
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`warranty relationships with those dealerships, amount to ratification. Cray does not support that
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`argument; it was addressing the question of whether an employee’s home office was the
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`employer’s place of business, not whether one company’s place of business (a dealership) is
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`actually another company’s (the manufacturer’s) place of business. See generally 871 F.3d 1355.
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`Trademark licensors across the country would be shocked to learn that by licensing their
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`distributors to use their name, by seeking a uniform look-and-feel of the facilities, and by
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`referring business to the distributors, they have converted the distributors’ places of business into
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`their own places of business. Cf., e.g., Board of Regents v. Medtronic PLC, A-17-CV-942-LY,
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`2018 WL 4179080, at *1–*3 (W.D. Tex. July 19, 2018) (holding that the presence of a
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`subsidiary in a San Antonio building that “bears the generic Medtronic company sign” does not
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`make venue in this Court proper as to parent company Medtronic).4
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`With respect to “control,” what Cray says is, “Relevant considerations include whether
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`the defendant owns or leases the place, or exercises other attributes of possession or control over
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`the place.” 871 F.3d at 1363. Here, both sides agree that VWGoA does not own or lease the
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`dealerships. Plaintiff instead argues that VWGoA exercises such tight control over the dealers as
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`to make the dealerships into VWGoA places of business. See Opp. Br. at section B. But Plaintiff
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`ignores that, by Texas statute, VWGoA is forbidden to “operate or control” the dealerships. Tex.
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`no employees residing or working in this District; (3) Omega does not allege an agency
`or alter ego relationship between BMWNA and the dealerships; and (4) Omega does not
`allege BMWNA has failed to treat the dealerships as separate corporate entities.” Id. at
`n.24.
`In this case, Plaintiff “is not alleging any parent-subsidiary relationship” between
`VWGoA and the dealers. Opp. Br. at 6 n.4.
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`Case 6:20-cv-01131-ADA Document 23 Filed 03/12/21 Page 4 of 8
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`Occ. Code § 2301.476(c); see also Ford Motor Co. v. Texas Dep’t of Transp., 264 F.3d 493, 507
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`(5th Cir. 2001) (the statute “provides that a manufacturer may not directly or indirectly, operate
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`or control a dealer or act in the capacity of a dealer”).
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`Plaintiff’s argument, like the arguments in West View Research and Omega Patents, is
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`that an operating agreement between an automaker and a dealer in which the dealer agrees to
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`operate the dealership according to certain standards is enough to subject the automaker to the
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`patent venue statute. That exact argument was rejected in both cases. West View Research, 2018
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`WL 4367378, at *7–*9; Omega Patents, 2020 WL 8184342, at *5–*6.
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`In West View Research, the “parties conducted limited venue-related discovery and
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`produced an operating agreement between BMWNA and a dealership … which the parties
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`stipulated is representative of similar agreements with BMW and MINI dealerships across the
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`district.” West View Research, 2018 WL 4367378, at *6. The West View court explained:
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`Plaintiff zeroes in on the language in Cray that “[r]elevant
`considerations include whether the defendant owns or leases the
`place, or exercises other attributes of possession or control over
`the place.”
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`Plaintiff then rigorously examines the operating agreement, which
`consists of the agreement itself, and the requirements addendum.
`Plaintiff lists at least thirty examples of BMWNA’s control in the
`operating agreement. A non-exhaustive list of examples of
`BMWNA’s control over the dealerships includes: [Redacted] In
`sum, Plaintiff argues that the thirty separate provisions from the
`operating agreement are illustrative of BMWNA’s control over the
`dealerships.
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`Id. (citations omitted; emphasis in original). The court rejected this approach:
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`The third Cray element requires the physical location to be the
`place of Defendants, not solely a place of Defendants’ employees.
`Plaintiff would have the Court find Defendants’ control over the
`dealerships, evidenced by the operating agreement, to meet the
`third requirement. The Court disagrees. Plaintiff’s argument
`ignores the difference between separate and distinct corporate
`entities.
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`Case 6:20-cv-01131-ADA Document 23 Filed 03/12/21 Page 5 of 8
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`Id. at *7.
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`Similarly, in Omega Patents, the district court explained:
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`To be sure, BMWNA’s business and marketing efforts are
`intertwined with the dealerships. Common insignia and logos are
`displayed, website links are created, marketing strategies are
`dispatched, and agreements are executed all to ultimately facilitate
`the sale of BMW-branded vehicles to customers. But Omega’s
`allegations are not enough to overcome the persuasive authority
`holding that “distributors and even subsidiaries, that are
`independently owned and operated, that are located in the forum
`and work with the accused infringer, [are] not sufficient to show
`that the accused infringer has a regular and established business
`under § 1400(b).” Reflection, LLC v. Spire Collective LLC, No. 17-
`cv-1603-GPC(BGS), 2018 WL 310184, at *2 (S.D. Cal. Jan. 5,
`2018). … The Court finds it inappropriate to apply a ratification
`theory under the facts here.
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`At best, Omega’s allegations show BMWNA maintains a mutually
`beneficial, coordinated business relationship with the dealerships
`to sell its products to customers in this District. But facilitating
`business and services through an independent entity is not enough
`for ratification. E.g., Uni-Sys., LLC v. U.S. Tennis Ass’n Nat’l
`Tennis Ctr. Inc., No. 17-cv-147(KAM)(CLP), 2020 WL 1694490,
`at *15 (E.D.N.Y. Apr. 7, 2020) (holding that “contract[s] to do
`business ... are just that—agreements to do business, not to
`maintain a place of business. One can engage in business at a place
`that is not its own .... Ratifying a place of business as one’s own
`requires more than simply agreeing to do business at the place”)
`(emphasis in original); Zaxcom, Inc. v. Lectrosonics, Inc., No. 17-
`cv-3408-NGG-SJB, 2019 WL 418860, at *9 (E.D.N.Y. Feb. 1,
`2019) (“[T]he facts here demonstrate that Defendant has contracted
`with Jaycee over a period of years to provide non-exclusive repair
`and maintenance services on certain of Defendant’s products,
`which have been purchased by customers through third-party
`dealers, and which may or may not be under warranty. This does
`not, without more, render Jaycee’s location a place of business of
`Defendant.”). Further, the Court does not find that common
`marketing strategies and some modicum of control over the
`dealerships’ macro-level operations by BMWNA transforms them
`into its own places of business.
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`A finding that venue is proper in this District as to BMWNA under
`the facts alleged would, in this Court’s view, significantly expand
`the scope of § 1400(b)—a result it does not believe the Federal
`Circuit intended with its decision in Cray, 871 F.3d at 1361. See
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`Case 6:20-cv-01131-ADA Document 23 Filed 03/12/21 Page 6 of 8
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`also Uni-Sys., 2020 WL 1694490, at *15 (“Reading the statute as
`[plaintiff] suggests would read out any distinction between the
`‘doing business’ inquiry of the general venue statute, 28 U.S.C. §
`1391, and the ‘regular and established place of business’ inquiry of
`the patent venue statute, 28 U.S.C. § 1400(b).”); Tour Tech., 377
`F. Supp. 3d at 209 (distinguishing Blitzsafe and holding
`“[a]lthough RTV’s actions and contacts within the district would
`likely be sufficient to satisfy the general venue statute, the Court is
`mindful that the patent venue statute is narrower .”). In sum, the
`Court finds that venue is not proper in this District against
`BMWNA under § 1400(b).
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`Omega Patents, 2020 WL 8184342, at *5–6.
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`One of Plaintiff’s arguments is particularly misleading. On page 8 of its opposition brief,
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`Plaintiff appears to be arguing that VWGoA owns the dealers’ inventory. This argument is
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`wrong, and a close reading of Plaintiff’s brief reveals that on this point, Plaintiff is relying on
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`conjecture, and perhaps misdirection, not evidence. For example, Plaintiff is correct that
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`VWGoA retains title to its automobiles until the dealers have paid for them, but neglects to
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`explain that VWGoA receives payment in full before the cars even arrive at the dealer’s
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`premises. Plaintiff posits that lenders “will likely retain title to the vehicles until the loans are
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`paid off,” but neglects to explain that those lenders never receive title to the vehicles at all, only
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`security interests in them. Plaintiff argues that “a dealer effectively provides its premises to
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`Volkswagen” for storing automobiles, “except where a dealer always purchases all of its
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`inventory using its own funds”—which is always the case. VWGoA never owns any of a dealer’s
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`inventory. See Hahn Decl. submitted in support of VWGoA’s opening brief, at ¶ 6 (“VWGoA
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`does not have ownership of an inventory of vehicles or parts at warehouses or other facilities in
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`the Western District of Texas.”)
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`As the West View and Omega courts found, none of Plaintiff’s other factual contentions
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`are indications of control or ratification as those terms are used in venue analysis.
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`Case 6:20-cv-01131-ADA Document 23 Filed 03/12/21 Page 7 of 8
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`Plaintiff also completely fails to address the Federal Circuit’s In re Google decision, 949
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`F.3d 1338 (2020). As explained in VWGoA’s opening brief, that case holds that “a ‘place of
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`business’ generally requires an employee or agent of the defendant to be conducting business at
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`that pace.” 949 F.3d at 1344. But Plaintiff makes no allegation that VWGoA employees or
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`agents work at the dealerships.
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`“The purpose of the statutory limits on venue in a patent venue statute are to protect
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`defendants from suit in forums distant from their place of incorporation or residence.” Optic153
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`LLC v. Thorlabs Inc., 6:19-CV-667-ADA, 2020 WL 3403076, at *2 (W.D. Tex. June 19, 2020).
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`This is exactly such a suit. VWGoA has no place of business in this District, and venue therefore
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`is not properly laid here.
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`Dated: March 12, 2021
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`Respectfully submitted,
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`By:
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`SHEARMAN & STERLING LLP
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` /s/ David P. Whittlesey
`David P. Whittlesey
`300 W. 6th Street, Suite 2250
`Austin, Texas 78701
`Telephone: 512.647.1907
`Facsimile: 512.857.6602
`David.Whittlesey@shearman.com
`
`Mark Hannemann
`Thomas R. Makin
`Eric Lucas
`599 Lexington Avenue
`New York, NY 10022
`Telephone: 212.848.4000
`Facsimile: 646.848.7696
`Mark.Hannemann@shearman.com
`Thomas.Makin@shearman.com
`Eric.Lucas@Shearman.com
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`Attorneys for Defendant Volkswagen Group of
`America, Inc.
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`Case 6:20-cv-01131-ADA Document 23 Filed 03/12/21 Page 8 of 8
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`CERTIFICATE OF SERVICE
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`The undersigned certifies that on March 12, 2021 all counsel of record who are deemed to
`have consented to electronic service are being served with a copy of this document via the Court’s
`CM/ECF system.
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`/s/ David P. Whittlesey
`David P. Whittlesey
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