Abstract
An Illinois court ruled that a company may not be sued for patent infringement in a district where its only connection to the district was that it had five work-from-home employees in the district and it was registered to do business in the state in which the district is located.
Companies accused of patent infringement may only be sued
in a judicial district (1) where the defendant resides, or (2)
where the defendant has committed acts of infringement and has a
regular and established place of business.
In its recent TC
Heartland decision, the Supreme Court ruled that a
domestic corporation "resides" only in its state of
incorporation. An Illinois court recently analyzed whether a
defendant registered to do business in Illinois with five
work-from-home employees in Illinois "has a regular and
established place of business" in Illinois.
Background
Billingnetwork filed a lawsuit in an Illinois court on
August 2, 2017, alleging that Modernizing Medicine infringed
Billingnetwork's patent through the marketing and sale of
cloud-based practice and billing services.
Billingnetworks alleged that venue was proper in the Illinois
court because Modernizing Medicine was registered with the Illinois
Secretary of State to do business in Illinois and has a designated
agent in Illinois as required by such registration.
Modernizing Medicine countered with a detailed declaration from a
senior executive, explaining the operations of the company and
clarifying that the company only had five employees in the relevant
district that worked from their homes with no company-owned
property, other than their laptops, and received all administrative
support from the company's California and Florida
locations.
The Billingnetworks Decision
The parties agreed that the 2012 assignment agreement
purported to transfer ownership of the asserted patents from Encap
Technologies to Intellectual Ventures. However, they
disagreed on whether Encap Technologies could convey any rights in
tThe Illinois court cited a Federal Circuit decision noting that
"a regular and established placed of business" in a
judicial district requires: (1) a physical place in the district;
(2) the place must be a regular and established place of business;
and (3) it must be the place of the defendant.
The court found that being registered to do business in a
particular state and having designated an agent to accept process
has no bearing on whether it has the requisite "physical
place" of business in the state, let alone in a particular
judicial district.
The court also found that the homes of the five work-at-home
employees were not "of the defendant" as Modernizing
Medicine did not own or lease the employee's homes or
contribute to their rent or mortgage payments, or require the
employees to reside in the district as a condition of their
employment. Modern Medicine also did not advertise the
employees' homes as places of business or stored company
materials in their premises.
The court also rejected the plaintiff's argument that even if
the defendant did not establish the employees' homes as its own
places of business, it ratified them as such for purposes of
workers' compensations. The court found that listing the
employee's home as the employer's place of business on a
worker's compensation insurance policy does not show the
"possession or control" by the employer over the
employee's home or represent to the public that the
employees' home is the employer's place of
business.
The court concluded that the facts alleged by plaintiff at best
show that there exists within the district a physical location
where employees of the defendant carry on certain work for their
employer. The court clarified, however, that is not the same as the
defendant having a regular and established place of
business.
Strategy and Conclusion
This case shows that a company may not be sued for patent
infringement in a district where its only connection to the
district was that it had five work-from-home employees in the
district and it was registered to do business in the state in which
the district is located unless the company has control over the
physical location in the district, such that it is a place "of
the defendant."
The Billingnetwork opinion can be found here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.