United States District Court, D. Delaware
REPORT AND RECOMMENDATION
CHRISTOPHER J. BURKE, UNITED STATES MAGISTRATE JUDGE.
patent infringement action filed by Plaintiff International
Business Machines Corporation ("IBM" or
"Plaintiff) against Expedia, Inc. ("Expedia
Group"), Expedia, Inc. ("Expedia-WA"),
Homeaway.com, Inc., Hotels.com L.P.
("Hotels.com"), Hotwire, Inc., Orbitz
Worldwide, Inc., Orbitz, LLC, and Travelscape LLC
"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, Hotels.com 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
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 ¶¶
alleged in the operative Amended Complaint that Defendant
Expedia-WA is a Washington corporation, (id. at
¶ 7), Defendant Hotels.com is a Texas limited
partnership, (id. at ¶ 12), and Defendant
Travelscape is a Nevada limited liability company,
(id. at ¶ 19). Expedia-WA, Hotels.com
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).
filed the initial Complaint in this case on December 29,
2017. (D.I. 1) 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).
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 Hotels.com because these subsidiaries are
alter-egos of Expedia Group. (Id. at ¶ 33)
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) This Report and Recommendation resolves
the remainder of the Motion.
Federal Rule of Civil Procedure 12(b)(3), Patent Venue and 28
U.S.C. § 1400(b)
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)"). 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).
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).
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).
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
alleging that venue is proper in the District of Delaware as
to Expedia-WA, Hotels.com 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)
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.
Is Venue-Related Discovery Appropriate to Determine if
Expedia-WA, Travelscape and Hotels.com are
the Alter-egos of Expedia Group?
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.
Law Relating to Alter-ego Status
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 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
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).
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 . ..
[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.
Analysis of Plaintiffs Showing Regarding Alter-ego
the Court analyzes Plaintiffs showing with regard to the
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 ...