Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

International Business Machines Corp. v. Expedia, Inc.

United States District Court, D. Delaware

July 24, 2019




         In this patent infringement action filed by Plaintiff International Business Machines Corporation ("IBM" or "Plaintiff) against Expedia, Inc. ("Expedia Group"), Expedia, Inc. ("Expedia-WA"),, Inc., L.P. (""), Hotwire, Inc., Orbitz Worldwide, Inc., Orbitz, LLC, and Travelscape LLC ("Travelscape") (collectively, "Defendants"), presently before the Court is Defendants' motion to dismiss, filed pursuant to Federal Rules of Civil Procedure 12(b)(3) and 12(b)(6) ("Motion"). (D.I. 31) In a previously-issued April 11, 2019 Report and Recommendation ("April 11, 2019 R&R"), the Court addressed the portion of that Motion relating to whether, pursuant to Rule 12(b)(6), Plaintiff had sufficiently pleaded facts alleging that Expedia Group infringes the patents-in-suit. (D.I. 104) Now, in this Report and Recommendation, the Court will address the remaining portion of the Motion, which relates to Defendants' assertions that pursuant to Rule 12(b)(3), venue is improper as to Expedia Group subsidiaries Expedia-WA, and Travelscape. For the reasons that follow, the Court recommends that this portion of the Motion be GRANTED-IN-PART and be DENIED-IN-PART without prejudice.

         I. BACKGROUND

         A. Factual Background

         Plaintiff IBM is a New York corporation engaged in the business of science and technology. (D.I. 27 at ¶¶ 3, 41) It is the owner of the five patents-in-suit in this case, which bear on certain Internet-related technologies: United States Patent Nos. 5, 796, 967, 7, 072, 849, 5, 961, 601, 7, 631, 346 and 6, 374, 359 (collectively, the "patents-in-suit"). (Id. at ¶¶ 2, 47-55)

         It is alleged in the operative Amended Complaint that Defendant Expedia-WA is a Washington corporation, (id. at ¶ 7), Defendant is a Texas limited partnership, (id. at ¶ 12), and Defendant Travelscape is a Nevada limited liability company, (id. at ¶ 19). Expedia-WA, and Travelscape are subsidiaries of Defendant Expedia Group, a Delaware corporation. (Id. at ¶¶ 4-5) It is alleged that all Defendants offer travel and reservation services through their respective websites and mobile applications, (id. at ¶¶ 8, 10-20), which are alleged to infringe the patents-in-suit, (see, e.g., Id. at ¶¶ 65-177).[1]

         B. Procedural Background

         Plaintiff filed the initial Complaint in this case on December 29, 2017. (D.I. 1)[2] After Defendants filed certain motions to dismiss the Complaint, (D.I. 20; D.I. 23), Plaintiff then filed the Amended Complaint on July 12, 2018, (D.I. 27).

         The Amended Complaint alleges, inter alia, that: (1) Expedia Group infringes the five patents-in-suit through its control of the technological platforms used in the other Defendants' websites and mobile applications, which in turn provide travel and reservation services to users; or that (2) to the extent that Expedia Group does not provide such infringing services, the other Defendants do through their respective websites and mobile applications. (Id. at ¶¶ 65-177) It is further alleged that venue in Delaware is proper for Expedia-WA, Travelscape and because these subsidiaries are alter-egos of Expedia Group. (Id. at ¶ 33)

         Defendants filed the instant Motion on August 27, 2018. (D.I. 31) Briefing on the Motion was completed on October 9, 2018, (D.I. 46), and thereafter each side submitted notices of supplemental authority, the most recent of which was filed on March 18, 2019, (D.I. 78; D.I. 80; D.I. 97). The Court then heard argument on the Motion (and on another pending motion to dismiss) on March 29, 2019. (D.I. 101 (hereinafter, "Tr.")) As was previously noted above, the Court's April 11, 2019 R&R resolved a portion of the Motion. (D.I. 104)[3] This Report and Recommendation resolves the remainder of the Motion.


         A. Federal Rule of Civil Procedure 12(b)(3), Patent Venue and 28 U.S.C. § 1400(b)

         A party may file a motion to dismiss for improper venue pursuant to Federal Rule of Civil Procedure 12(b)(3). In patent infringement actions, venue is proper for domestic corporations: (1) in the judicial district where the defendant resides, or (2) where the defendant has committed acts of infringement and has a regular and established place of business. 28 U.S.C. § 1400(b) ("Section 1400(b)").[4] In 1957, the Supreme Court of the United States held in Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222 (1957), that Section 1400(b) "is the sole and exclusive provision controlling venue in patent infringement actions, and that it is not to be supplemented by the provisions [of the general corporation venue statute, ] 28 U.S.C. § l39l(c)[.]" 353 U.S. at 229. In 2017, the Supreme Court reaffirmed the Fourco Glass decision. See TC Heartland LLC v. Kraft Food Grp. Brands LLC, 137 S.Ct. 1514 (2017).

         For purposes of the first prong of Section 1400(b), a domestic corporation "resides" only in its state of incorporation. TC Heartland LLC, 137 S.Ct. at 1517-21; see also Brunette Mack Works, Ltd. v. Kockum Indus., Inc., 406 U.S. 706, 707 n.2 (1972). For purposes of the second prong of Section 1400(b), there are two requirements: (1) the defendant must have committed acts of infringement in the relevant district; and (2) the defendant must have a regular and established place of business in the district. Bristol-Myers Squibb Co. v. Mylan Pharms. Inc., C.A. No. CV 17-379-LPS, 2017 WL 3980155, at *6 (D. Del. Sept. 11, 2017).

         Upon a motion by a defendant challenging venue in a patent case, the plaintiff bears the burden to show that venue is proper. In re ZTE (USA) Inc., 890 F.3d 1008, 1013 (Fed. Cir. 2018); Bristol-Myers Squibb Co. v. Aurobindo Pharma USA Inc., No. CV 17-374-LPS, 2018 WL 5109836, at *1 (D. Del. Oct. 18, 2018). "[W]hen confronted with a motion to dismiss for improper venue, the Court may consider both the complaint and evidence outside the complaint." Bristol-Myers Squibb Co., 2018 WL 5109836, at *2. "The Court will accept any venue-related allegations in the complaint as true, unless those allegations are contradicted by the defendant's affidavits [, ]" and the Court may also consider any affidavits submitted by the plaintiff. Bristol-Myers Squibb Co., 2018 WL 5109836, at *2 (citations omitted).

         B. Venue-related Discovery

         The Court may also grant venue-related discovery before determining whether venue is appropriate in order "to ascertain the facts bearing on such issues." Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 n.13 (1978). Venue-related discovery is appropriate "unless a plaintiffs claim is 'clearly frivolous [.]'" Bristol-Myers Squibb Co., 2017 WL 3980155, at *21 (quoting Rocke v. Pebble Beach Co., 541 Fed. App'x. 208, 212 (3d Cir. 2013) (certain quotation marks omitted). "The law is equally clear, however, that a plaintiff may not 'undertake a fishing expedition based only upon bare allegations, under the guise of [venue] discovery.'" Id. (quoting Eurofins Pharma U.S. Holdings v. VioAlliane Pharma SA, 623 F.3d 147, 157 (3d Cir. 2010)). That is, a court should not just permit venue discovery as a matter of course; before allowing the discovery to proceed, the court must be satisfied that there is some indication that venue in the form is appropriate as to the defendant. Cf. Fidelity Nat. Info. Servs., Inc. v. Piano Encryption Techs., LLC, Civil Action No. 15-777-LPS-CJB, 2016 WL 1650763, at *3 (D. Del. Apr. 25, . 2016) (discussing the similar standard for jurisdictional discovery). "To show that discovery is warranted, a party must, at a minimum, state a non-frivolous basis for venue and do so with reasonable particularity." Bristol-Myers Squibb Co., 2017 WL 3980155, at *21 (internal quotation marks and citation omitted).


         In alleging that venue is proper in the District of Delaware as to Expedia-WA, and Travelscape ("the venue Defendants"), Plaintiff is not asserting (with regard to the first prong of the venue test) that those entities themselves reside in Delaware, since the three entities are not Delaware corporations and are registered or incorporated in other states. Instead, Plaintiff is arguing that: (1) Defendants' parent, Expedia Group, resides in Delaware (because it is a Delaware corporation); and (2) Defendants are the alter-egos of Expedia Group, such that Expedia Group's corporate residency in Delaware should be imputed to the venue Defendants for venue purposes. Additionally, Plaintiff claims that venue is appropriate for Expedia-WA for a different reason: that (with regard to the second prong of the venue test), Expedia-WA has committed acts of infringement in Delaware and has a regular and established place of business in Delaware-in light of the Bear, Delaware location of a franchisee of Expedia-WA's wholly-owned subsidiary. (D.I. 27 at ¶¶ 33-39) With the Motion, Defendants argue that both of Plaintiffs arguments are without merit and that the venue Defendants should be dismissed from this case for lack of venue. (D.I. 32 at 1, 3, 6)

         At oral argument on the Motion, Plaintiff further clarified its position. It repeatedly explained that, at this stage, it is not asking the Court to rule definitively that Plaintiff has established venue under the first or second prongs of the relevant test. Instead, Plaintiffs request is that the Court simply now find that Plaintiff has made a sufficient record on these issues to warrant venue-related discovery. (Tr. at 30, 43, 54) In light of this, below the Court will analyze Plaintiffs respective arguments (and Defendants' responses thereto) under the "clearly frivolous" standard for venue-related discovery.

         A. Is Venue-Related Discovery Appropriate to Determine if Expedia-WA, Travelscape and are the Alter-egos of Expedia Group?

         With regard to Plaintiffs first venue-related argument, the Court will begin by setting out the relevant legal standards for establishing that a subsidiary is the alter-ego of its corporate parent. Thereafter, the Court will assess whether Plaintiff has made a sufficient record to demonstrate an entitlement to venue-related discovery as to this issue.

         1. Law Relating to Alter-ego Status

         For venue purposes in patent infringement cases, the residency of one entity may be imputed to another in order to satisfy the first prong of Section 1400(b), including in circumstances where one corporation acts as the alter-ego of another. Bristol-Myers Squibb Co., 2018 WL 5109836, at *3 (noting that a finding that a corporate entity is the alter-ego of another is not a holding that the entity at issue is a resident of two places, but instead that the law allows a court to treat that entity "as if it were a resident in a second district") (certain emphasis omitted); see also Minn. Mining & Mfg. v. Eco Chem, Inc., 757 F.2d 1256, 1265 (Fed. Cir. 1985). The United States Court of Appeals for the Third Circuit[5] has held that a legally distinct entity can be the alter-ego of another entity (and thus subject to the court "piercing the corporate veil"): (1) when a court finds that there is a fundamental lack of corporate separateness between the entities; and (2) where this situation also presents an element of either fraud, injustice, or unfairness in the use of the corporate form. See Trustees of Nat. Elevator Indus. Pension, Health Benefit & Educ. Funds v. Lutyk, 332 F.3d 188, 194 (3d Cir. 2003); Bristol-Myers Squibb Co.; 2018 WL 5109836, at *4.[6] In the end, in order to succeed on an alter-ego theory of liability, a plaintiff must establish that in all aspects of the business, the corporate entities "actually functioned as a single entity and should be treated as such." Pearson v. Component Tech. Corp., 247 F.3d 471, 485 (3d Cir. 2001).

         To determine whether there is a lack of corporate separateness (i.e., whether, here, the subsidiary corporations are little more than a "legal fiction"), "[t]he Third Circuit considers multiple non-exclusive factors . .. including":

[G]ross undercapitalization, failure to observe corporate formalities, nonpayment of dividends, insolvency of [subsidiary] corporation, siphoning of funds from the [subsidiary] corporation by the dominant stockholder, nonfunctioning of officers and directors, absence of corporate records, and whether the corporation is merely a facade for the operations of the dominant stockholder.

Bristol-Myers Squibb Co., 2018 WL 5109836, at *4 (quoting Pearson, 247 F.3d at 485). The presence of a number of these factors can also be sufficient to establish that an element of injustice or fundamental unfairness is at play. See Trustees, 332 F.3d at 194.[7]

         2. Analysis of Plaintiffs Showing Regarding Alter-ego Status

         Next, the Court analyzes Plaintiffs showing with regard to the alter-ego issue.

         In that regard, the Court first addresses the relevant factors that the Third Circuit typically uses to analyze corporate separateness. On this front, Plaintiff acknowledges that it has not put forward evidence regarding all (or even most) of those factors. (D.I. 40 at 13) But it argues that in its Amended Complaint and otherwise, it has pointed to evidence relevant to at least three of them: (1) "failure to observe corporate formalities," (2) "nonfunctioning of officers and directors," and (3) "whether the corporation is merely a facade for the operations of the dominant stockholder[.]" (Id. ("At least those three factors are also present here and support a finding that Expedia Group is ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.