Case 6:20-cv-01131-ADA Document 40 Filed 07/05/21 Page 1 of 8
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE WESTERN DISTRICT OF TEXAS
`WACO DIVISION
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`Plaintiff,
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`STRATOSAUDIO INC.,
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`v.
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`HYUNDAI MOTOR AMERICA,
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`Defendant.
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`STRATOSAUDIO, INC.,
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`Plaintiff,
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`Case No. 6:20-CV-01125-ADA
`Case No. 6:20-CV-01131-ADA
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`JURY TRIAL DEMANDED
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`VOLKSWAGEN GROUP OF AMERICA, INC.,
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`Defendant.
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`v.
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`STRATOSAUDIO, INC.’S SUPPLEMENTAL BRIEFING TO
`HYUNDAI MOTOR AMERICA’S and VOLKSWAGEN GROUP OF AMERICA, INC.’S
`MOTIONS TO DISMISS
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`Case 6:20-cv-01131-ADA Document 40 Filed 07/05/21 Page 2 of 8
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`I.
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`INTRODUCTION
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`Pursuant to the Court’s direction by email dated June 28, 2021, plaintiff StratosAudio,
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`Inc. (“StratosAudio”) hereby submits this Supplemental Brief regarding the U.S. Court of
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`Appeals for the Federal Circuit’s holding in In re Google, 949 F.3d 1338 (Fed. Cir. 2020) that “a
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`‘regular and established place of business’ requires the regular, physical presence of an employee
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`or other agent of the defendant conducting the defendant’s business at the alleged ‘place of
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`business.’” Id. at 1345. This Supplemental Brief applies to the Motions to Dismiss filed by
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`Defendant Hyundai Motor America’s (“Hyundai”) (Case No. 6:20-CV-01125-ADA) and
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`Defendant Volkswagen Group of America, Inc.’s (“VW”) (Case No. 6:20-CV-01131-ADA) and
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`incorporates StratosAudio’s Oppositions to those Motions, including the prior arguments related
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`to Hyundai’s and VW’s control over their dealers. D.I. 21 at 6-16 (20-cv-01125); D.I. 22 at 8-16
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`(20-cv-01131).1
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`Both VW and Hyundai dispute whether they have employees with a presence in this
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`District. This fact, even if true, ignores that an agency relationship is sufficient for venue
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`purposes. Google, 949 F.3d at 1345 (discussing the ‘main purpose’ of the patent venue statute to
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`give jurisdiction where a “permanent agency transacting the business is located.”). The Federal
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`Circuit cited three “essential elements” of agency derived from the Restatement and the Supreme
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`Court to determine if an agency relationship exists for venue purposes: (1) “the principal’s ‘right
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`to direct or control’ the agent’s actions;” (2) “the manifestation of consent” by the principal to
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`1 Neither Hyundai nor VW has alleged or argued that the various dealer agreements and
`operating standards StratosAudio cited and attached as exhibits to StratosAudio’s Oppositions do
`not apply to dealerships in this District. Indeed, there are likely other agreements between the
`manufacturers and dealers in this District, as well as other facts relevant to this issue that, if
`necessary, would be obtained through discovery detailing even greater control of the
`manufacturers over the dealers.
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`1
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`Case 6:20-cv-01131-ADA Document 40 Filed 07/05/21 Page 3 of 8
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`the agent that the agent shall act on the principal’s behalf; and (3) consent by the agent to act.
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`Google, 949 F.3d at 1345 (quoting Meyer v. Holley, 537 U.S. 280, 286 (2003) and citing
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`Restatement (Third) of Agency §1.01)(hereinafter “Restatement”).2 StratosAudio alleged, and
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`the Hyundai and VW dealership agreements demonstrate, that each of these elements is satisfied
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`for venue.3
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`II.
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`CONTROL BY DISTRIBUTION OF NEW VEHICLES, PARTS, and SERVICE
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`Both Hyundai and VW direct and control how each dealer carries out the promoting,
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`selling, and servicing of Hyundai’s and VW’s products (i.e., their vehicles and parts), thereby
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`creating an agency relationship. The manufacturers, through the dealer agreements, dictate what
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`the dealers “shall and shall not do” and grant the manufacturers “the right to give interim
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`instructions or directions to [the dealers] once their relationship is established” – which is but
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`one of the factors determining agency. Restatement, §1.01, cmt. f; Google, 949 F.3d at 1345-
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`46.4
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`A.
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`Hyundai Direction
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`Hyundai, through the “Dealer Standard Provisions” (Doc. 21-10 in 20-cv-01125), dictates
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`many requirements for the dealers, including:
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` sales standards (§10.B.1); inventory level (§10.B.2, 10.C.2); disclosures to
`customers (§10.C.3-4); participation in Hyundai training programs (§10.D.1,
`§11.C.1); utilization of Hyundai provided materials (§10.D.2);
`instructions on predelivery vehicle service (§11.A.1); recall requirements
`(§11.A.3); minimum employees, Hyundai approval and training (§11.B.1); how to
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`
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`2 A copy of relevant portions of the Restatement (Third) of Agency are attached as Exhibit A for
`the Court’s convenience.
`3 StatosAudio’s Complaints allege that Hyundai and VW transact business through their dealers
`and other direct means. See, e.g., D.I. 1 at ¶¶ 10-14 (Case 20-cv-01125); D.I. 1 at ¶¶ 10-14
`(Case 20-cv-01131).
`4 The manufacturer requirements herein also satisfy the “control” requirements set forth in
`Cardinal Health Solutions, Inc. v. Valley Baptist Med. Ctr., 643 F.Supp. 883 (S.D. Tex. 2008),
`discussed (and erroneously cited as 5th Circuit law) in Hyundai’s Reply brief.
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`2
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`resolve consumer complaints (§11.B.2); required equipment and tool purchase
`from Hyundai (§11.B.3); inventory requirements for parts (§11.B.4);
` specifications for the dealers facilities (§12.A), signs (which cannot be modified
`by the dealer) (§12.C), and data processing systems (§12.D); and
`the establishment of working capital (§13.A).
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`
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`Many of these directives indicate requirements that Hyundai requires “from time to time”
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`(e.g. §§ 10.D.2, 11.A.3, 11.B.2, 11.B.3). As noted by the Federal Circuit, the right to give
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`directives “from time to time” is “suggestive of an agency relationship.” Google, 949 F.3d at
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`1346. Moreover, Hyundai also evaluates the dealers performance for many key criteria, dictates
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`changes to the dealers, and can terminate the dealer agreement if a dealer does not meet
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`Hyundai’s standards. See, e.g., §10.E.2 (sales), §11.D (service and parts), §12.F (facilities),
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`§16.B.3 (termination). Indeed, section 16.B. of the Dealer Standard Provisions allows Hyundai
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`unilaterally to terminate the agreement if the dealer does not perform any requirement to
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`Hyundai’s standards. Hyundai thus “retains the capacity throughout the relationship to assess the
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`agent’s performance, provide instructions to the agent, and terminate the agency relationship by
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`revoking the agent’s authority.” Restatement, § 1.01, cmt. f.
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`B.
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`Volkswagen Direction
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`VW similarly dictates and controls many aspects of the dealers operations in an agency
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`relationship. VW, through its “Operating Standards,” dictates many dealer requirements related
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`to the dealers sales, personnel, equipment, and the physical facility. See generally Doc. 22-4 in
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`20-cv-01131). VW even creates an entire “Operating Plan” with its dealers that are reviewed
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`periodically to meet certain “performance requirements.” Id. at p. 5.
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`VW’s dealer “Standard Provisions” also establish requirements imposed by VW,
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`including the following (set forth in Doc. 22-3 in 20-cv-01131): “minimum” staff positions (Art.
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`3(1)); “premise” requirements (including hours of operation) (Art. 3(2)-(3)); use of VW
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`3
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`Case 6:20-cv-01131-ADA Document 40 Filed 07/05/21 Page 5 of 8
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`trademarks, and approval of signage and stationery (Art. 4 (1)-(3)); approval of advertising (Art.
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`4(4)); sales requirements (Art. 5(1), (2)); inventory and sale of parts (Art. 6); service (Art. 7),
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`recalls (Art. 7(5), prices and inventory levels (Art. 8(1),(3)); and the use of specific forms and
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`equipment (Art. 10(1)). Indeed, most of the obligations imposed on the dealers by the Standard
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`Provisions are “in accordance with” or “set forth” in the Operating Standards, the Operating
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`Plan, or other “Recommendations.” See, e.g., Arts. 3(1)(b), 3(2), 5(1), 6(2), 7(1) and (2), and
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`8(3). Similar to Hyundai, VW has the ability to change these requirements “from time to time”
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`See, e.g., Arts. 3(2), 4(1), 5(1), 6(1). In addition, VW can evaluate the dealer’s performance,
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`dictate changes, and terminate the dealer if performance does not meet VW’s requirements. See
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`Art. 3(1), Art. 11 (evaluation), 14(2)-(3) (termination).
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`C.
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`CONDUCT OF MANUFACTURER’S BUSINESS
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`The dealers are clearly conducting the manufacturer’s business by the distribution of
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`vehicles, parts, and conducting service thereon. Unlike in Google, the Hyundai and VW dealer
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`activities are not “merely connected to” or ancillary to the manufacturer’s business operations.
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`The dealers are how both Hyundai and VW engage in business to the consuming public. Google,
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`949 F.3d at 1346-47. The dealers’ activities “themselves constitute” Hyundai’s and VW’s
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`“conduct of business,” and they “furnish to customers...what the business offers.” Id. As noted
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`in Google, the dealer’s activities – sales, direct customer services, storage, transport, and the
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`exchange of goods and services – are directly in line with types of activities conducted by agents
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`that meet Congress’ expectations for the patent venue statute at the time it was enacted. Id.5 The
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`5 In addition to the agency operations, both Hyundai and VW directly conduct business in this
`District by having dealers perform warranty repair services. Blitzsafe Tex., LLC v. Bayerische
`Motoren Werke AG (Blitzsafe I), 2018 U.S. Dist. LEXIS 173065 at *11 (E.D. Tex. Sep. 5, 2018)
`(citing Tex. Occ. Code §2301.251(c)). Furthermore, the sale of “certified” vehicles by the
`dealers is a separate basis for finding the direct conduct of business by Hyundai and VW.
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`4
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`dealer’s activities are also far different, and more comprehensive, than the types of activities
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`(network access, one-time installation, and equipment maintenance) noted by Google that would
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`not create an agency relationship. Id.
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`III. CONSENT
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`An agency relationship also requires “the manifestation of consent” by the principal to
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`the agent that the agent shall act on the principal’s behalf; and consent by the agent to act.
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`Google, 949 F.3d at 1345. The various agreements cited in StratosAudio’s Oppositions
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`demonstrate these elements, as they are replete with requirements and obligations demonstrating
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`that the dealers are acting on behalf of Hyundai or VW, with the dealers consenting to such
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`actions. In addition, the dealers are authorized representatives to sell automobiles and products
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`on the authority of the manufacturers. Doc 21-10 in 20-cv-01125 at §20 (“Authorized Hyundai
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`Dealer”); Doc. 22-3 in 20-cv-01131 at Art. 16 (VW).6
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`Neither Hyundai nor VW disputed this allegation, and both provide “standards” for “certified”
`pre-owned vehicles. Blitzsafe I, supra at *11-12; see also the relevant websites at
`www.cpo.hyundaiusa.com/us/en/certified-pre-owned/ and www.vwcpo.com/cpo/vw-program/.
`6 The fact that Hyundai’s and VW’s relationship with its agents (the dealers) is contractual, that
`the dealers and manufacturers are separate corporate entities, or that the Hyundai and VW
`agreements disavow or prohibit an agency relationship does not negate a finding that the dealers
`are agents of the manufacturer or that the requisite consent for agency exists. Restatement,
`§8.13, cmt. b; §1.01, cmt. c; § 1.02 (“Whether a relationship is characterized as agency in an
`agreement...is not controlling.”). Indeed, “agency” with respect to the determination of venue as
`opposed to the imposition of corporate or tortious liability are different concepts. Ruiz v.
`Conoco, Inc., 868 S.W.2d 752, 759 (Tex. 1993)(“It cannot be doubted that these words [agency
`or representative] considered alone have several different legal meanings, and there is no
`indication in [the Texas venue statute] that agency in the sense of responsibility of the principal
`for tortious conduct of the agent was intended.”)(quoting Milligan v. Southern Express, Inc., 250
`S.W.2d 194, 199 (Tex. 1952)). As noted by Judge Gilstrap, while the “mere fact” that a dealer is
`an authorized dealer does not make it an agent of the manufacturer, the dealer “may under
`certain circumstances be an agent of a manufacturer.” Blitzsafe Tex., LLC v. Bayerische Motoren
`Werke AG, 2018 U.S. Dist. LEXIS 173065 at *11 (E.D. Tex. Sep. 5, 2018)(citing and quoting
`Kent v. Celozzi-Ettleson Chevrolet, Inc., No. 99-cv-2868, 1999 WL 1021044 at *4 (N.D. Ill.
`Nov. 3, 1999)). Those “certain circumstances,” enunciated by the Federal Circuit in In re
`Google, exist for Hyundai and VW with respect to the determination of venue for patent
`purposes.
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`5
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`Case 6:20-cv-01131-ADA Document 40 Filed 07/05/21 Page 7 of 8
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`Dated: July 5, 2021
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`Respectfully submitted,
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`/s/ Jonathan Lamberson
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`WHITE & CASE LLP
`Jonathan Lamberson (pro hac vice)
`CA Bar. No. 239107
`3000 El Camino Real, #900
`2 Palo Alto Square
`Palo Alto, CA 94306
`Tel.
`650-213-0300
`Fax:
`650-213-8158
`Email: lamberson@whitecase.com
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`WHITE & CASE LLP
`Michael Songer (pro hac vice)
`DC Bar No. 24031621
`701 Thirteenth Street, NW
`Washington DC, 20005
`Tel:
`202-626-3600
`Fax:
`202-639 9355
`Email: songer@whitecase.com
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`WHITE & CASE LLP
`Charles Larsen (pro hac vice)
`MA Bar No. 652355
`75 State Street
`Boston, MA 02109
`Tel:
`617-979-9300
`Fax:
`617-979 9301
`Email: charles.larsen@whitecase.com
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`FRIEDMAN, SUDER & COOKE
`Corby R. Vowell
`TX Bar No. 24031621
`604 East 4th Street, Suite 200
`Fort Worth, TX 76102
`Tel:
`817-334-0400
`Fax:
`817-334-0401
`Email: vowell@fsclaw.com
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`ATTORNEYS FOR PLAINTIFF
`STRATOSAUDIO, INC.
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`CERTIFICATE OF SERVICE
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`I hereby certify that on the 5th day of July 2021, I electronically filed the foregoing with
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`the Clerk of Court using the CM/ECF system, which will send notification of such filing via
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`electronic mail to all counsel of record. Any other counsel of record will be served by first class
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`U.S. mail.
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`/s/ Jonathan Lamberson
`Jonathan Lamberson
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`7
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