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.
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 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.