District Court Holds That Distributor Relationships Alone Do Not Establish Venue

A federal district court in the Southern District of Texas recently addressed venue issues relating to supplier-distributor relationships. Given the defendant's lack of physical presence in the district, Chief Judge Lee Rosenthal granted defendant's motion to transfer venue.

Plaintiff Wet Sounds Inc. ("Wet Sounds") sued defendants PowerBass, USA, Inc. ("PowerBass"), Dow Electronics, and AV Audio Vision, Inc. for patent infringement in the Southern District of Texas. PowerBass moved to dismiss Wet Sound's complaint or, alternatively, to transfer venue to the Central District of California. PowerBass has no physical presence in the Southern District of Texas. Wet Sounds, however, argued that PowerBass is "inseparably commingled" with its codefendants, who distribute PowerBass products in Houston, and therefore has a regular and established business in the district. Wet Sounds argued that retail dealerships in Houston authorized to sell PowerBass products were distribution centers that satisfied the physical presence requirement established in In re Cray. In addition, Wet Sounds amended its original complaint to include federal and common law claims of trademark infringement.

In its April 17, 2018 order, the Court distinguished between the type of distribution centers discussed in In re Cray and the distribution centers used by PowerBass. In re Cray stated that the physical presence requirement is met if a defendant uses an employee's home "like a distribution center." Here, PowerBass's distributors are not employees of PowerBass. The Court held that, because there is "no record evidence that PowerBass owns, leases, or controls the third-party distributors in...