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Law360 (June 15, 2020, 3:45 PM EDT) --
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| Matt Rizzolo |
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| David Serati |
Many employees for large tech companies such as Microsoft Corp. and Amazon.com Inc. are working from home at least through October, and Twitter Inc. CEO Jack Dorsey has already offered to let its employees work from home permanently.[1]
For these and other companies that are the frequently the target of patent infringement lawsuits, this may impact the places where they may be sued for patent infringement.
Companies considering widespread permanent and long-term use of remote working would be wise to consider the consequences of these remote working arrangements and tailor these programs to avoid inadvertently exposing themselves to patent infringement lawsuits in unfavorable, unfamiliar or inconvenient fora.
The Importance of Venue in Patent Cases
In theory, the place where a patent infringement complaint is brought — the venue — should matter very little: Federal district courts have exclusive jurisdiction over patent infringement cases, and the centralization of patent appeals with the U.S. Court of Appeals for the Federal Circuit aims to promote uniformity in the law.
The reality, however, is that district courts across the country may vary widely in their familiarity with (or affinity for) patent cases, specialized local rules, jury pools and time to trial. Key differences in venues have led patent owners seek out districts believed to be faster or plaintiff-friendly, such as the U.S. District Courts for the Eastern and Western Districts of Texas, as well as the U.S. District Court for the Eastern District of Virginia.
In the same vein, accused infringers often attempt to have their cases heard in venues thought to proceed more slowly or be more defendant-friendly, such as the U.S. District Court for the Northern District of California.
And since the creation of Patent Trial and Appeal Board inter partes review proceedings, plaintiffs commonly favor venues that will hinder a defendant's ability to bring such PTAB challenges to the validity of asserted patents. Because some district courts will often stay a patent infringement action pending a PTAB's decision on a parallel invalidity challenge, plaintiffs seek venues that rarely grant such motions to stay.
The U.S. District Court for the Eastern District of Texas, for example, has developed an established practice of denying motions to stay pending inter partes review proceedings that have not been instituted as inherently premature[2] and tends to grant post-institution motions to stay at a lower rate than other districts.
By contrast, the Northern District of California follows a much more liberal practice of granting these motions to stay.[3]
The venue where a patent infringement case is pending may even be a deciding factor in whether the PTAB decides to institute a post-grant validity challenge — the PTAB has explained that in determining whether to institute, its considerations include "whether the court granted a stay or evidence exists that one may be granted if a proceeding is instituted" and the "proximity of the court's trial date to the Board's projected statutory deadline for a final written decision."[4]
Patent challengers facing infringement claims in districts where stays are rarely granted and cases go to trial more quickly are likely to face more of these so-called discretionary denials.
As for time to trial, the Eastern District of Virginia, infamously known as the rocket docket, is consistently among the fastest venues to reach trial, averaging approximately one year to trial after filing through its utilization of a so-called patent wheel system that distributes the cases throughout the district.[5]
In the U.S. District Court for the Western District of Texas, U.S. District Judge Alan Albright has issued a default order governing patent case proceedings where a Markman hearing occurs less than six months after the initial case management conference, and trial is scheduled within one year after that, or 18 months total.[6]
The Northern District of California, though faster than average, does not reach trial for patent cases until roughly 28 months.[7]
Not only does a fast trial date help stave off PTAB litigation, it can also reduce costs and attorney fees for a plaintiff, while driving settlement negotiations on a faster timeline.
Current Law on Patent Venue and Remote Work
Venue for patent infringement litigation is governed by Title 28 of the U.S. Code, Section 1400(b). Under this statute, plaintiffs can establish venue in two ways. First, venue is proper where the defendant resides.[8] Three years ago, the Supreme Court clarified in TC Heartland LLC v. Kraft Foods Group Brands LLC that, for the purposes of Section 1400(b), a defendant corporation only resides in the forum where it is incorporated.[9]
If a plaintiff tries to bring suit elsewhere, it must establish venue through the second method: proving that the defendant has committed acts of infringement and has a regular and established place of business in the chosen venue. Because the question of where a company is incorporation is often straightforward, disputes over whether venue is proper almost exclusively focus on this second test.[10]
Shortly following TC Heartland, the Federal Circuit in In re: Cray provided guidance on what constitutes a company's regular and established place of business under the law:
[O]ur analysis of the case law and statute reveal three general requirements relevant to the inquiry: (1) there must be a physical place in the district; (2) it must be a regular and established place of business; and (3) it must be the place of the defendant. If any statutory requirement is not satisfied, venue is improper under § 1400(b).[11]
For the first requirement — a physical place — the Federal Circuit explained this only necessitates a "physical, geographical location in the [venue]."[12] For the second requirement, the court explained that the place of business must be both regular and established. To be regular, the place of business must be steady — temporary or sporadic activity is not sufficient.
And to be established, the place must be "settled certainly, or fixed permanently" for a "meaningful time period."[13] Importantly, "if an employee can move his or her home out of the district at his or her own instigation, without the approval of the defendant, that would cut against the employee's home being considered a place of business of the defendant."[14]
The third requirement — whether the place of business is a place of the defendant — is often the key inquiry cases where work-from-home arrangements are at issue.
Cray enumerated five factors to consider for this requirement:
1. Whether the defendant owns, leases or exercises other attributes of possession or control over the place;
2. Whether the defendant conditions employment on continued residence in the venue;
3. Whether the defendant markets or advertises the employee's as one of its places of business;
4. Whether the defendant makes other representations that it has a place of business in a district, such as telephone directory, website or a sign on the building itself; and
5. Whether the nature and activity of the place of business is similar in comparison with the defendant's other places of business in other venues.[15]
At issue in Cray was whether a Cray employee working from his home in the Eastern District of Texas was enough to trigger venue — essentially, was this employee's home a regular and established place of business of Cray?
Applying its test, the Federal Circuit held that the answer was no. Focusing primarily on the third part of the test, the court determined that the employee's home was not a place of the defendant.[16] Cray did not own, lease or rent any portion of the home; it did not store inventory or conduct product demonstrations there; it played no part in selecting the home for the employee; and there was no evidence that the home's location was important to the activities the employee performed.[17]
On the last point, the court contrasted the facts with those of a previous decision, In re: Cordis Corp.,[18] where the work being performed in the home offices of the sales employees in there specifically depended on the employees living in the district. Accordingly, because these facts in Cray did not support a finding that the employee's home was the "place of the defendant," venue was improper.
Companies may take heart that in the three years since, the vast majority of post-Cray district courts decisions involving an employee's home office have likewise found venue improper for failing to satisfy the third requirement.[19]
The single patent case since Cray finding venue to be proper based on an employee's home office is RegenLab USA LLC v. Estar Techs. Ltd.[20] In RegenLab, the defendant Eclipse MedCorp LLC had two employees who worked out of their respective homes in the Southern District of New York. The employees were salesmen whose sales territory covered New York, possessed a sales kit of Eclipse products and performed demonstrations — and one employee had a registered New York telephone number.
Additionally, Eclipse "solicit[ed] sales people in public advertisements to cover the New York area and prefer[red] that those employees live in their assigned sales area."[21]
The district court contrasted these home offices with those in Cray in two ways. First, because Eclipse specifically sought salespeople who lived within their assigned sales territory, there was a business reason for the home offices here to be in the disputed venue.
Second, unlike the employee at issue in Cray, the Eclipse sales employees were performing product demonstrations within New York. Indeed, use and demonstration of Eclipse products specifically in New York was part of each employee's job description.
The court found the employees' homes satisfied the physical place requirement. Further, the sales solicitations and order intakes from the homes, combined with Eclipse's stated preference for sales people to live in their assigned sales territory, satisfied the regular and established place of business requirement. With the other two Cray requirements satisfied, the U.S. District Court for the Southern District of New York concluded that venue was proper under Section 1400(b).
Best Practices Recommendations in the COVID-19 Era and Beyond
With this legal framework, companies considering implementing more widespread long-term or permanent work-from-home arrangements should utilize certain best practices in order to minimize the chances of subjecting themselves to suit in venues where employees may be working from home, but where the companies would not like to face patent infringement claims. Such steps may include:
- Do not own, lease, rent out or otherwise exert any possessory control over your employees' home workplaces.
- Do not advertise or otherwise hold out your employee's homes as places where your business is conducted.
- Do not list employees' home addresses or home telephone numbers on any website. To the extent an employee is publicly advertised, hold him or her out to the public as working from the office for which he or she perform remote work — not his or her home.
- Do not store large quantities of product inventory used for sales, repairs, and/or demonstrations in an employee's home.
- On job postings, do not state a preference for workers in a certain area when there is no overriding business purpose.
- Keep accurate records of exact dates when employees begin and end work-from-home or remote working arrangements.
Certainly, companies may decide to make trade-offs — depending on the organization, some of these recommendations may not be feasible, or the risk of a patent infringement suit in a given jurisdiction may be outweighed by business considerations.
But in this time of increased remote working as well as going forward, companies should be aware that remote working arrangements may expose them to patent lawsuits in jurisdictions in which these employees reside and minimize this risk to the extent possible.
Matt Rizzolo is a partner and David Serati is an associate at Ropes & Gray LLP.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] Rachel Lerman & Jay Greene, Big Tech was the first to send workers home. Now it's in no rush to bring them back, Wash. Post (May 18, 2020), https://www.washingtonpost.com/technology/2020/05/18/facebook-google-work-from-home/.
[2] Ramot at Tel Aviv Univ. Ltd. v. Cisco Sys., Inc., No. 2:19-CV-00225-JRG, Dkt. 54 at 1 (Feb. 4, 2020).
[3] Forrest McClellen et al., How Increased Stays Pending IPR May Affect Venue Choice, Law360 (Nov. 15, 2020), https://www.law360.com/articles/1220066/how-increased-stays-pending-ipr-may-affect-venue-choice.
[4] Apple Inc. v. Fintiv, Inc.
, IPR2020-00019, Paper 11 at 6 (P.T.A.B. Mar. 20, 2020).[5] Robert M. Tata, Still The Fastest Justice Anywhere, Law360 (Jun. 17, 2014), https://www.law360.com/articles/548462/still-the-fastest-justice-anywhere.
[6] Standing Orders, Order Governing Proceedings – Patent Case, (W.D. Tex.) (Albright, J.), https://www.txwd.uscourts.gov/wp-content/uploads/Standing%20Orders/Waco/Albright/Order%20Governing%20Proceedings%20-%20Patent%20Cases%20022620.pdf (last accessed Jun. 8, 2020).
[7] Robert M. Tata, 'Rocket Docket' Justifies Its Name For 11th Straight Year, Law360 (Jun. 10, 2019), https://www.law360.com/articles/1167066.
[8] 28 U.S.C. § 1400(b).
[9] TC Heartland LLC v. Kraft Foods Group Brands LLC
, 137 S. Ct. 1514, 1517 (2017),[10] The "acts of infringement" requirement is satisfied merely by e this required is easily met by merely alleging infringing acts in the venue. See, e.g., Symbology Innovations, LLC v. Lego Sys., Inc.
, 282 F. Supp. 3d 916, 936 (E.D. Va. 2017) ("[A] complaint's well-pled factual allegation of infringement may satisfy this requirement regardless of this type of factual dispute.") (citing Funnelcap, Inc. v. Orion Indus., Inc. , 392 F. Supp. 938, 943 (D. Del. 1975)). Relatedly, no court has ever required a causal nexus between the alleged acts of infringement and the regular and established place of business. E.g., Plexxikon Inc. v. Novartis Pharm. Corp. , No. 17-CV-04405-HSG, 2017 WL 6389674, at *2 (N.D. Cal. Dec. 7, 2017) ("[T]he plain language of the statute does not include a nexus requirement.").[11] In re Cray, Inc.
, 871 F.3d 1355, 1360 (2017).[12] Id. at 1362.
[13] Id.
[14] Id. at 1363.
[15] For the fifth factor, the Federal Circuit clarified in a foot note that "we do not suggest that district courts must scrutinize the "nature and activity" of the alleged place of business to make relative value judgments on the different types of business activity conducted therein. Rather, a relative comparison of the nature and activity may reveal, for example, that a defendant has a business model whereby many employees' homes are used by the business as a place of business of the defendant." Id. at 1364.
[16] Id.
[17] Id. at 1365.
[18] 769 F.2d 733 (Fed. Cir. 1985).
[19] E.g., BillingNetwork Patent, Inc. v. Modernizing Med., Inc.
, No. 17-CV-5636, 2017 WL 5146008 (N.D. Ill. Nov. 6, 2017); Zaxcom, Inc. v. Lectrosonics, Inc. , No. 17-CV-3408-NGG-SJB, 2019 WL 418860 (E.D.N.Y. Feb. 1, 2019); Uni-Sys., LLC v. United States Tennis Ass'n Nat'l Tennis Ctr. Inc. , No. 17-CV-147(KAM)(CLP), 2020 WL 1694490 (E.D.N.Y. Apr. 7, 2020); VoIP-Pal.com, Inc. v. Twitter, Inc. , No. 2:16-CV-02338-RFB-CWH, 2018 WL 3543031 (D. Nev. July 23, 2018).[20] 335 F. Supp. 3d 526 (S.D.N.Y. 2018).
[21] Id. at 552.
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