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BillingNetwork Patent, Inc. v. Modernizing Medicine, Inc.

United States District Court, N.D. Illinois, Eastern Division

November 6, 2017

BILLINGNETWORK PATENT, INC., Plaintiff,
v.
MODERNIZING MEDICINE, INC., Defendant.

          MEMORANDUM OPINION AND ORDER

          Ruben Castillo Chief Judge United States District Court.

         BillingNetwork Patent, Inc. ("Plaintiff) filed this suit against Modernizing Medicine, Inc. ("Defendant") for alleged patent infringement. (R, 1.) Defendant moves to dismiss for improper venue pursuant to Federal Rule of Civil Procedure 12(b)(3). (R. 19.) For the reasons set forth below, the Court grants Defendant's motion.[1]

         BACKGROUND

         Plaintiff filed this suit on August 2, 2017, alleging that Defendant infringes U.S Patent No. 6, 374, 229, entitled "Integrated Internet Facilitated Billing, Data Processing and Communication System, " through the marketing and sale of various online, cloud-based practice management and billing services. (R. 1, Compl. ¶¶ 1, 3, 6, 23.) Plaintiff alleges that Defendant "owns, operates and conducts business through its [allegedly infringing] practice management system .. . throughout the United States including Illinois and this judicial district." (Id. ¶ 8.) As it pertains to venue, Plaintiff alleges that Defendant is a Delaware corporation and that it "has registered itself with the Illinois Secretary of State to do business in Illinois and has a designated agent incident to such registration whereby [Defendant] has [a] regular and established place of business in Illinois." (Id. ¶¶ 5, 9-10.) On September 13, 2017, Defendant filed the present motion to dismiss, arguing that Plaintiff has not carried its burden of showing that venue is proper in this District. (R. 19, Mot.; R. 20, Mem.)

         In response to Defendant's motion, Plaintiff offers a declaration from its counsel purporting to establish the following, additional venue-related facts: (1) Defendant is "only registered to do business in select U.S. States"; (2) Defendant maintains two employees in Illinois, "presumably in the Northern District, " who "train end-users how to operate the same systems accused of infringement" in this case; and (3) "[a]n online search identifies at least four (other) recently hired employees that perform numerous tasks for Defendant in Illinois." (R. 29, Resp. at 2; see also R. 29-1, Opatken Decl. ¶¶ 4-6.)

         In reply, Defendant submits its own declaration from its Chief Operating Officer and Chief Financial Officer, Karen O'Byrne. According to the declaration, Defendant has five employees who work in this District, three of whom were hired this year. (R. 30-2, O'Byrne Decl. ¶ 4.) All five work out of their own homes, which Defendant does not own, lease, or subsidize. (Id. ¶¶ 4, 7.) Defendant does not list these employees' homes on any website, telephone book, or other directory as a place where it conducts business. (Id. ¶ 14.) Defendant also does not require these employees to reside at a particular location, nor does it require them to reside in this District. (Id. ¶¶ 6, 11.) None of the employees have staff or secretarial help located in their residences; they receive administrative support solely from Defendant's principal places of business in California and Florida. (Id. ¶¶ 8-9.) Other than company-issued laptops and like equipment that these employees use to perform their job duties, Defendant does not store materials or inventory in the employees' homes, nor does it maintain any real or personal property, or any storage, distribution, or manufacturing facilities, in this District. (Id. ¶¶ 5, 12.)

         LEGAL STANDARD

         "In deciding a motion to dismiss for improper venue under Federal Rule of Civil Procedure 12(b)(3), all allegations are taken as true, unless contradicted by the defendant's affidavits[, ] and the court may consider facts outside the pleadings." Allstate Life Ins. Co. v. Stanley W. Burns, Inc., 80 F.Supp.3d 870, 875 (N.D. 111. 2015); see also Berkshire Invs., LLC v. Aircraft Hinge, Inc., No. 14 C 5020, 2015 WL 556348, at *1 (N.D. 111. Feb. 9, 2015) ("On a Rule 12(b)(3) motion to dismiss, the Court may examine facts outside the complaint to determine whether venue is proper[.]"). Plaintiff bears the burden of establishing that venue is proper. Allstate, 80 F.Supp.3d at 875; Berkshire Invs., LLC, 2015 WL 556348, at *1. If venue is not proper, the Court may either dismiss the suit or transfer it to "any district... in which it could have been brought." 28 U.S.C. § 1406(a).

         ANALYSIS

         The statute governing venue in patent cases, 28 U.S.C. § 1400(b), provides that "[a]ny 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." 28 U.S.C. § 1400(b). Defendant argues that venue is not proper in this District under either prong of the statute. (R. 20, Mem. at 1-4.) As to the first prong, Defendant contends that it does not "reside" in this District because it is incorporated in Delaware. (Id. at 6.) Defendant points out that following the U.S. Supreme Court's recent decision in TC Heartland LLC v. Kraft Foods Group Brands LLC, 137 S.Ct. 1514 (2017), it is deemed to "reside" for purposes of Section 1400(b) only in its state of incorporation-Delaware. (Id.) Defendant argues that the second prong is not satisfied either because it has no "regular and established place of business" in this District.[2] (Id., at 8.) In response, Plaintiff concedes that it is attempting to establish venue based only the second prong of the statute. (R. 29, Resp. at 1.) The parties' dispute thus turns on whether Defendant has a "regular and established place of business" in this District.

         The U.S. Court of Appeals for the Federal Circuit has recently clarified that three conditions must be satisfied for a defendant to have a "regular and established place of business" in a judicial district: "(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."[3] In re Cray Inc., 871 F.3d 1355, 1360 (Fed. Cir. 2017). If any requirement is not met, there is no "regular and established place of business" under Section 1400(b). Id.

         Plaintiff argues that Defendant has a regular and established place of business in this District based on the facts that it is registered to do business in Illinois as a foreign corporation, has a corresponding registered agent in Chicago for service of process, and maintains several work-at-home employees in this District. (R. 29, Resp. at 5-6.) The Court concludes that these facts do not establish a "regular and established place of business" under Section 1400(b). That a defendant is registered to do business in a particular state has no bearing on whether it has the requisite "physical place" of business in the state, let alone in a particular judicial district. See Symbology Innovations, LLC v. Lego Sys., Inc., No. 2:17-CV-86, 2017 WL 4324841, at *9 (E.D. Va. Sept. 28, 2017) (rejecting argument that since defendant "is registered as a foreign corporation with the Commonwealth of Virginia, and has appointed a registered agent to accept service of process in Virginia, " it had a regular and established place of business there, because "[n] either fact has any bearing on whether [the defendant] maintains a physical place within the District"); Bristol-Myers Squibb Co. v. Mylan Pharm. Inc., No. CV 17-379, 2017 WL 3980155, at *16 (D. Del. Sept. 11, 2017) ("[S]imply ... being registered to do business in a district is insufficient... to make that district a regular and established place of business[.]"); Neonatal Prod. Grp., Inc. v. Shields, No. 13-2601, 2017 WL 3116686, at *2 (D. Kan. July 20, 2017) (rejecting argument that because defendant was "registered to do business in Kansas, " it had a regular and established place of business there). It is likewise irrelevant that, incident to Defendant's registration to do business in Illinois, it has appointed an agent for service of process in this state; that also has no bearing on whether Defendant maintains a physical place of business in this District.[4] See Symbology Innovations, 2017 WL 4324841, at *9.

         Defendant's five work-at-home employees located in this District also do not establish that Defendant has a "regular and established place of business" here. While these employees' homes are certainly physical places in this District and are in some sense connected to Defendant's business, none of them are a place "of the defendant." Cray, 871 F.3d at 1360. In resolving whether a physical place is "of the defendant" for purposes of Section 1400(b), relevant considerations include "whether the defendant owns or leases the place, or exercises other attributes of possession or control" and whether "the defendant condition[s] employment on an employee's continued residence in the district or the storing of materials at a place in the district so that they can be distributed or sold from that place." Id. at 1363. "Marketing or advertisements also may be relevant... to the extent they indicate that the defendant itself holds out [the] place for its business." Id., It would be relevant, for example, that a defendant "lists the alleged place of business on a website, or in a telephone or other directory" as its own or "places its name on a sign associated with or on the building itself." Id. at 1363-64.

         None of these factors are present here. Defendant does not own or lease these five employees' homes or contribute to their rent or mortgage payments. (R. 30-2, O'Byme Decl. ¶ 7, ) Nor does it require them to reside at particular locations or even to reside in this District. (Id. ΒΆΒΆ 6, 11.) Defendant also does not publicly ...


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