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Remote Workers? Why They Matter for Venue in Patent Cases

FIONA BELL, PHILIP A. ECKERT, SHARON A. ISRAEL

Working from home exploded in popularity throughout the pandemic.

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Remote working raised a host of new issues—both business and legal—for companies. However, there is one issue that may not occur to companies when considering their remote working policies: the effect remote workers may have on where a company can be sued for patent infringement.

Venue for patent infringement cases is different from venue in other federal cases, and litigants often spend considerable time and money fighting over venue in such cases, due to differences—real and perceived—between various district courts.1 Companies that may be subject to patent infringement actions should be aware of how the presence of remote workers, in conjunction with a company’s remote work policies, might affect the courts where they can (and cannot) be sued. Companies can use this knowledge to structure remote work policies in a way that helps prevent or minimize the risk of being subject to venue in district courts that the company may consider to be undesirable, and avoid surprise.

What companies may find surprising is that even a single employee working from his or her home may subject them to a patent infringement suit in the district court with jurisdiction over that area (assuming that infringement is alleged to take place in that district). Knowing when and how remote employees can create such a risk is important for companies facing frequent patent litigation. This article explains patent venue law, and then provides considerations for companies with remote workers that wish to minimize risks associated with being sued in venues with which they have limited connection.

A (Very) Brief Primer on the History of Venue in Patent Infringement Cases

Congress made venue in patent infringement actions different from venue in other federal cases over 100 years ago.2 The patent venue statute states that: “any civil action for patent infringement may be brought in the 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.”3 Since the late 1800s, the prevailing interpretation of the patent venue statute has swung like a pendulum, vacillating between extremely broad and quite narrow.4 In 1990, the “residence” prong of this test was interpreted broadly by the Federal Circuit, such that a plaintiff could generally maintain venue in any court that had personal jurisdiction over the defendant.5 As a result, companies were subject to patent infringement suits in district courts all over the nation—generally, wherever they sold or offered the product or service at issue.

However, in 2017, the pendulum swung back again, with the Supreme Court’s decision in TC Heartland. 6 The Court held that a corporation’s “residence” was limited to the state in which it was incorporated. Accordingly, under the “residence” prong of the statute, venue over a defendant was only proper in the district court(s) within the state in which it was incorporated.7

This caused litigants to refocus their attention on the second portion of the venue statute, which states that venue is proper in dis- tricts “where the defendant has committed acts of infringement and has a regular and established place of business.”8 Notably, there is no required nexus between the required “acts of infringement” and the work or operations conducted at the “regular and established place of business.” All that is required is an allegation that infringement has occurred within the district, and that there is a single regular and established place of business of the defendant within that district. For example, if a company had a storefront selling goods in the district, it could be subject to litigation in that district, even though the store may not sell or have anything to do with the infringing product. So the question quickly became: “What, exactly, qualifies as a regular and established place of business”?9

Just four months after the decision in TC Heartland issued, the Federal Circuit provided an analytical framework for answering this question. In In re Cray, the court considered a case where a plaintiff had sued a defendant for patent infringement in the Eastern District of Texas based on the presence of two employees working remotely from their homes in that district.10 The court held that the district was not a proper venue for the case, and defined a three-part test for determining what constitutes a regular and established place of business: “(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.”11 Broadly speaking, these steps require, respectively, a place that (1) is real, rather than “virtual”; (2) is somewhat fixed, or permanent, where business is conducted for the company; and that (3) the company has “ratified” as its own.12

Since In re Cray issued, there has been a large amount of litigation over what, exactly, qualifies as a “regular and established place of business” of a corporation, and district courts have been attempting to apply its analytical framework to a wide variety of scenarios. Often, courts have come to differing results. In response, the Federal Circuit has received many petitions for writs of mandamus on decisions related to venue. And the Court has granted a number of such petitions, helping to clarify what does—and does not—subject a company to venue.

Although litigation on this issue has cooled down somewhat, it is still frequently raised by those who have been accused of patent infringement (particularly in the Eastern and Western Districts of Texas), and the law is still developing with respect to remote workers. Although there were some cases dealing with “remote workers” prior to 1990, in the years just after TC Heartland and In re Cray, they generally pertained to sales people who resided and worked within a district, working at home and/or travelling to different sites within the district to make pitches or service customers there.13 Their presence in a district was often required by the company, as a part of their job, and—as a result—they often stored large amounts of “pitch” materials and/or equipment for display at their homes, and companies often reimbursed them for housing costs and/or equipment.14 As in In re Cray, some courts found that the homes of these workers constituted “regular and established places of business” of the company, and therefore subjected to the company to venue in that district—even if these persons were the only company employees located there.15

Then, in 2020, COVID-19 upended how we work, and the presence of “remote workers” became a much larger (and thornier) issue with respect to venue in patent cases.16 Remote workers are no longer just sales people—they have every type of role, from engineer to accountant, and the company may not need them to reside or work in any particular location, and can allow them to work from a location of their choosing. Accordingly, courts have now been forced to wrestle with the issue of when—and how—the presence of these broader categories of remote workers within a district can subject a company to venue there.

When Does A Remote Worker’s Location Count as a “Regular and Established Place of Business”?

Decisions from district courts (as well as orders on petitions for writs of mandamus from the Federal Circuit) have developed some basic guideposts for interpreting and applying the three part test set forth in In re Cray with respect to remote workers In this article, we refer to those parts as the (1) “physical place” requirement, (2) the “regular and established” or “fixed” place of business requirement, and (3) the “of the defendant” or “ratification” requirement.

In general, remote workers or, rather, the places they work from, are almost always going to meet requirement (1). Remote workers that are required to reside and work in that location (or at least in the district) are likely to meet requirement (2). However, if they are not required to live or work there, and/or do not routinely work from any one location, then their presence may not be deemed sufficiently “fixed,” and thus fail to meet requirement (2). Accordingly, the contents of employment agreements and company policies can be determinative with respect to this requirement. The most contentious (and opaque) part of the test is, at present, requirement (3)— whether the physical place where a worker performs his or her work is deemed to be “of the defendant.” This is a fact specific inquiry, often depending on whether the company pays for the “physical place,” what—and how much—equipment the company supplies or pays for at that place, and the degree to which it exercises control (if any) over that place. We discuss each of these requirements in more depth below.

A Physical Place

Courts have found that a locker,17 a shelf in a retail store,18 and a server on a shelf in a data center qualify as a “physical place.”19 However, a “physical place” is more typically something like an office building, or a home, or a stall at a market. With respect to remote work, any place a worker sits to do their work could be considered a “physical place” sufficient to meet the requirements of In re Cray. This could include a home, a co-working space, or even a coffee shop or park. Accordingly, it is highly likely that just about anywhere a remote worker works would be considered a sufficient “physical space” for venue.20

A “Fixed” Place of Business

Anywhere a remote employee performs work for his or her employer will likely be deemed a place where business is being conducted, and thus a “place of business.” Accordingly, the question with respect to this requirement is whether that location is sufficiently “fixed.” This prong requires analysis of the “permanence of the location, whether the activity at the location is sporadic, and, if the place is an employee’s home, whether the employee can move out of the district without the approval of his employer.”21 In other words, if a remote worker generally works in a single place, or even a collection of nearby places, courts will likely consider it fixed even if it switches between a house, coffee shop, and a park with some regularity.22 What remains unclear is if a remote worker moves around often, for example, using AirBnb, or similar, to work one month in Austin, one month in San Francisco, and another month in Boise. Such a work pattern may indeed be too “sporadic” to constitute a fixed place of business.23

Courts have held that the mere presence of remote employees within in a district is not sufficient to meet this requirement.24 If employees are allowed to move out of a district (or state) without affecting their job—that is, a company does not require or condition their employment upon residing within that general area or state, then the place where they work may not be deemed sufficiently “fixed” for the purposes of venue.25 This fact also weighs against the third prong, making it less likely the company has ratified the home office.26

A Place “Of” or “Ratified By” The Defendant

Even if employees work (that is, “conduct business”) in a “fixed” physical place, the company must be deemed to have ratified that place as its own, in order for that place to subject the company to venue within that district. Courts have found that a company has “ratified” a place as its own when it owns or leases that place, exercises control over it, holds it out as its own, and/or stores (or pays for) company materials there.27 However, courts have varied over the amount of control, the amount and type of equipment, and the type of “reimbursement” that are sufficient to meet this requirement.28 Control is not evidenced by simply employing people at a certain site. Merely paying a few employees that work at a third-party site the defendant does not otherwise control does not make the third-party site ratified by the defendant. Instead, such an arrangement only shows a “traditional arms-length contractual relationship,” not any control strong enough to show ratification.29 Section III, below, discusses further factors that contribute to ratification.30

It remains to be defined exactly how much company property must be stored in the home to count as ratification, but there are guideposts. A single salesperson’s home office was “of the defendant” in RegenLabs due to storage of sales demonstratives there. In other cases, remote salespeople’s home offices were not found to be ratified where they did not store any inventory or demonstratives there. This begs the question of how much company equipment is enough. Presumably, in Greatgigz, and similar cases, where the home offices were found to be not “of the defendant,” the home employees still used some company equipment, such as their work computers. But these regular, everyday tools of modern knowledge work, like computers or printers, do not appear to count as company equipment.31

There may be a “specialized equipment” test developing in this regard; how specific to the job the company equipment is may matter. The Federal Circuit recently denied a petition for writ of mandamus to transfer venue out of a district where the defendant had a remote employee who stored specialized company equipment stored at their home. The quality and quantity of the equipment drove the court’s reasoning. The opinion meticulously listed each item used for testing specialized electronic power supplies, counting “two oscilloscopes, four to five power supplies, two electric loads, a logic analyzer, a soldering iron, a multimeter, a function generator, three to five samples of microcontrollers, MOSFETs, five op-amps ten to fifteen comparators, twenty inductors, and fifty sample demonstration boards.” The court determined this much equipment, when provided by the company, was sufficient to ratify the employee’s house as a place of the defendant, thereby making it a regular and established place of business.

Such a test may limit options for companies in technical fields, or those that sell goods as opposed to services. In fact, on denial of a petition for writ of mandamus, one judge dissented, arguing such an application threatens to turn the ratification requirement into a “leaky sieve” that can “accommodate avoidance of the basic requirements of the statute.”32 The dissent highlighted the developing nature of remote work and patent venue and its increasing relevance in the work-from-home era. Accordingly, at this juncture, companies still do not have clear guidance regarding what type of, and how much, equipment they can provide remote employees before they effectively ratify the employee’s workspace as their own.

Exemplary Cases

A review of some recent district court decisions provides guidance. In RegenLab USA v. Estar Techs. Ltd., 33 a single remote sales representative working from their New York home qualified as a regular and established place of business because the company targeted sales in the region, preferred its sales representatives to live in their covered regions, and stored company sales demonstratives in that home. The home was a physical place, satisfying step one of the Cray test. At step two, the court found the home was fixed because the company targeted these sales jobs for the New York area and preferred their employees to live there.34 Finally, at step three, the defendant ratified that home as their place of business because they specifically solicited New York sales and wanted the employee to live there, and critically, they stored sales demonstratives at the home.35 Thus, the single employee’s house established patent venue for the company in New York.

Greatgigz v. Ziprecruiter typifies a situation many companies probably faced in 2020: The defendant previously leased a coworking space in Austin for 17 of its employees there.36 When the pandemic hit, the company closed its coworking office and ended its lease.37 The employees did not move away but continued to work near Austin in their respective homes.38 The court found these home offices were neither fixed nor “of the defendant.” While there previously was a regular and established place of business in the rented coworking space, the new dispersed employee home offices were not enough. The home offices were not fixed because the employees could freely move without fear of affecting their job: The company committed to not requiring its employees to come back to the office for a specified time.39 And the company did not ratify the home offices as their own because they did not pay for, exercise control over, or store any goods at those homes.40 Simply advertising that some employees worked in Austin and posting Austin-area job listings was not enough to ratify those home offices.41 Greatgigz exemplifies how to avoid venue where a company has an office: Close the office, do not require employees to stay in district, and do not store any inventory at their homes.42

Furthermore, comparing Greatgigiz to RegenLabs illustrates that the number of employee home offices is immaterial—if one house meets the Cray factors, that is enough for venue, but if those home offices do not meet the Cray factors, increasing their number to 17 does not change the outcome. Even if there are many employees in a district, if they do not store any company materials at their homes nor perform “live demonstrations, evaluations, trainings, and/or presentations” from those homes, they probably do not confer venue.

Takeaways

The law regarding the application of the venue statute to remote workers and remote work policies is still developing. However, a few things have become clear. If a company rents a coworking spaces for 50 employees, then that space will be considered a “regular and established place of business” sufficient to confer venue within that district (assuming that there are also alleged acts of infringement within the district). On the other hand, if a company does not provide or rent a workspace for its employees but, rather, lets them work from location(s) of their choosing, and indicates (via employment contract or otherwise) that they are not required to stay in district, and/or that their employment is not conditioned upon staying in the district, and does not provide more than basic everyday teleworking tools to these employees (e.g., a computers, printer, etc.), and does not reimburse these workers for the cost of the places in which they work (if any), then it is unlikely that the company will be deemed subject to venue in that district, based on the presence of these workers alone.

However, it should be noted that corporate sales employees deserve special consideration and focus with respect to this analysis. Due to their public-facing role, often geographically fixed nature, and propensity or need for storing company inventory at their homes, it appears that remote sales employees are more likely to have their workplace location deemed as a “regular and established places of business” of the defendant than other employees.

This leaves companies with a few things to think about in their remote work programs:

• Check employee contracts for requirements that employees remain in district. Conditioning employment on residence within a specific area can potentially make their home offices “regular and established” and “of the defendant.”

• Check if the company is reimbursing employees for any portion of their rent or mortgage or for a co-working space—paying for the place can make it more likely to be “of the defendant.”

• Check what supplies and equipment are provided to employees, or for which employees reimbursed (and at what cost to the company). Further, determine what type of equipment is provided to employees. Is any employee provided with more than just “standard” office computing equipment—e.g., more than a computer and printer? Specialized equipment is more likely to make the home office “of the defendant.”

Remote work is here to stay, and with it comes new legal implications. Companies should be cognizant about where they may be subject to venue for patent infringement, analyze their work-fromhome policies, and plan accordingly.  plaintiff and defendant side and leverages her electrical engineering background to understand the intricacies of her clients’ products and technologies. Phil is an associate in Shook, Hardy & Bacon’s Kansas City office representing clients in intellectual property litigation matters. He has a background in computer science and software development. As a developer himself, he understands the business operations and challenges his clients face.

The views expressed in this article are those of the authors and should not be attributes to Shook, Hardy, & Bacon LLP, or its clients.

Endnotes

1The general venue statue is 28 U.S.C. § 1391, while the patent venue statute is set forth in 28 U.S.C. § 1400(b).

2The modern patent venue statute traces its roots to 1897, when Congress made a special venue statute after accidentally legislating some patent cases entirely out of federal jurisdiction. See TC Heartland v. Kraft Foods, 581 U.S. 258, 264 (2017) (citing In re Hohorst, 150 U.S. 653, 662, (1893); Act of Mar. 3, 1897, ch. 395, 29 Stat. 695).

328 U.S.C. § 1400(b).

4See, e.g., TC Heartland, 581 U.S. 258 at 265-67 (tracing narrow venue requirements of Fourco Glass in 1957, to much broader venue requirements of VE Holdings in 1990) (citing Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 226 (1957); VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (1990)).

5VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (1990)(finding general venue statute definitions applied to patent venue);(TC Heartland v. Kraft Foods, 581 U.S. 258, (2017)).

6(TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 581 U.S. 258, 266-267 (2017))(clarifying that judicial interpretations of words in the general venue statute do not apply to the patent venue statute).

7Id. at 264-265.

828 U.S.C. § 1400.

9See, e.g., FN. 19, infra, collecting cases analyzing whether shelf space or computers qualify as a regular and established place of business.

10In re Cray, 871 F.3d 1355 (Fed. Cir. 2017).

11Id., 1365.

12Id., 1362-63.

13See, e.g., In re Cordis Corp., 769 F.2d 733 (Fed. Cir. 1985) (venue proper in state where two sales representatives worked from home offices there); Johnston v. IVAC Corp., 681 F. Supp. 959 (D. Mass. 1987) (venue improper where only a few sales representative worked from home offices in state); cf. Personal Audio v. Google, Inc., 280 F. Supp. 922 (E.D. Tex., 2017) (venue improper where, inter alia, a few employees worked from home in district but company did not require them to live there, store property there, or otherwise hold it out as their place of business or control those homes).

14See, e.g., In re Cordis Corp., 769 F.2d 733 (Fed. Cir. 1985) (employees kept “sales kits” in their homes containing company property for demonstrations); RegenLab USA LLC v. Estar Techs. Ltd., 335 F. Supp. 3d 526, 552 (S.D.N.Y. 2018) (employees conducted demonstrations in nearby customer offices).

15In re Cordis Corp., 769 F.2d 733; RegenLab USA LLC v. Estar Techs. Ltd., 335 F. Supp. 3d 526.

Sharon Israel is a Chambers-ranked IP litigator, having litigated cases in district courts throughout the country, the Patent Trial and Appeal Board, and before the Federal Circuit. She is a partner in Shook, Hardy & Bacon’s Houston office, has served in leadership roles in numerous organizations, and is a frequent speaker on IP-related topics. Fiona Bell’s practice focuses on complex intellectual property litigation, developing case strategies through trial and appeal. As a senior counsel in Shook, Hardy & Bacon’s Houston office, Fiona represents clients on both the

16McKinsey & Co., Americans are Embracing Flexible Work—and They Want Even More of it (June 2022) (estimating 55 million Americans (35% of workers) can work remote full-time, and these numbers are higher in patent-heavy industries like computer, engineering, or life science jobs); see also, Ben Wigert, Sangeeta Agrawal, Gallup, Returning to the Office: The Current, Preferred, and

Future State of Remote Work (Aug. 2022) (noting increase in hybrid work, but that fully remote work is still expected to triple 2019 figures).

17Tinnus Enters. v Telebrands, 2018 U.S. Dist. LEXIS 79068 (E.D. Tex., 2018).

18Rensselaer Polytechnic v. Amazon, 2019 U.S. Dist. LEXIS 136436 (N.D.N.Y., 2019).

19There is considerable divergence of opinion on whether telecommunications equipment or servers constitute a physical place or confer venue. See, e.g., Seven Networks v. Google, 2018 U.S. Dist. LEXIS 176265 (E.D. Tex. 2018) (servers are a physical place); Peerless Network, Inc. v. Blitz Telecom Consulting, 2018 U.S. Dist. LEXIS 49628 (S.D.N.Y. March 26, 2018) (telecommunication equipment for processing calls were a physical place but did not confer venue); but see BMC Software, Inc. v. Cherwell Software, No. 1:17-cv-1074 (E.D. Va. Dec. 21, 2017) (back-up servers were a physical place); Personal Audio v. Google, 280 F. Supp. 3d 922 (E.D. Tex., 2017) (servers were a physical place).

20While beyond the scope of this article, a laptop is probably not sufficient to satisfy the physical place requirement. “The statute requires a ‘place,’ i.e., ‘[a] building or a part of a building set apart for any purpose’ or ‘quarters of any kind’ from which business is conducted … [not merely] a virtual space or electronic communications from one person to another.” In re Cray Inc., 871 F.3d 1355, 1362 (Fed. Cir. 2017).

21GreatGigz Sols., LLC v. ZipRecruiter, Inc., No. W-21-CV-00172ADA, 2022 WL 432558, at 4 (W.D. Tex., 2022) (citing In re Cray Inc., 871 F.3d, at 1362-63).

22See, e.g., W. View Rsch., LLC v. BMW of N. Am., LLC, 2018 WL 4367378, at 5 (S.D. Cal., 2018).

23In re Cray Inc., 871 F.3d, at 1362.

24See e.g., Personal Audio v. Google, 280 F. Supp. 3d 922; Rosco, Inc. v. Safety Vision LLC, 2020 WL 5603794, at 3 (S.D.N.Y., 2020); C.R. Bard, Inc. v. Smiths Med. ASD, Inc., No. 12-CV-36, 20202 WL 6710425, at 8, 12 (D. Utah, 2020).

25GreatGigz Sols., LLC v. ZipRecruiter, Inc., 2022 WL 432558, at 5 (W.D. Tex., 2022) (“[T]o determine whether the place is “of the defendant” and not solely the place of the defendant’s employee, courts consider: … (3) whether the defendant conditioned the employee’s employment on continued residence in the district.”)

26Id.

27W. View Rsch., v. BMW of N. Am.2018 WL 4367378, at 5 (S.D. Cal. Feb. 5, 2018) (citing In re Cray, 871 F.3d 1362, 1363).

28See, e.g., Uni-Sys. v. U.S. Tennis Ass’n Natn’l Tennis Ctr.I, 2020 WL 1694490, at 45-46 (E.D.N.Y., 2020) (collecting cases)(“Several courts have considered and rejected, explicitly or implicitly, the notion that a customer’s location is equivalent to one of the defendant.”).

29AGIS Software Dev., LLC v. ZTE Corp., 2018 WL 4854023, at 3 (E.D. Tex., 2018).

30As mentioned above, courts have also held that whether or not an employee is required to live in that place may factor into this determination—making it a consideration for more than one prong of the Cray analysis. GreatGigz Sols., LLC v. ZipRecruiter, Inc., 2022 WL 432558, at 5.

31See, e.g., Bel Power Sols. Inc. v. Monolithic Power Sys., Inc., 2022 WL 2161056, at 3 (W.D. Tex., 2022) (typical office tools, like reimbursing for internet service or mobile phone, are not enough to ratify where reimbursement not conditioned on living in district)(citing RegenLab

USA LLC v. Estar Techs. Ltd. 335 F. Supp. 3d 526, 552 (S.D.N.Y. 2018)).

32In re Monolithic Power Sys., Inc., 50 F.4th 157, 162 (Fed. Cir. 2022) 33335 F. Supp. 3d 526, 552 (S.D.N.Y. 2018).

34Id., 550-51.

35Id., 552. 362022 WL 432558, at 5 (W.D. Tex. 2022).

37Id. at 2.

38Id. at 2.

39Id. at 5. See also Green Fitness Equip. Co. v. Precor Inc, 2018 WL 3207967, at 4 (N.D. Cal., 2018) (remote workers not tethered to geographic area weighs heavily against their homes being a regular and established place of business).

40Id. at 5.

41Id. at 5. The job listings specifically allowed candidates to locate anywhere in the United States.

42Employee count relative to company size may matter too: the Greatgigz court noted that while 17 employees work in Austin, it had over 1,000 employees working at other established offices. Id. at 5.

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