Do Employees Working from Home Impact Venue in Patent Litigation?

In patent infringement cases, venue is proper under 28 U.S.C § 1406(a) where either (1) the company accused of infringement is incorporated or (2) where the company has committed acts of infringement and has a “regular and established place of business.” Given the increase in employees working from home in recent years, the question has arisen as to whether an employee’s home office is considered a “regular and established place of business” for the purposes of patent venue. In most instances, the courts have indicated that an employee’s home office is insufficient to establish venue absent the company ratifying that home office as a “regular and established place of business.” However, the Federal Circuit’s ruling in In re Monolith Power Systems, Inc. may have reopened that question.

Bel Power Solutions Inc. (“Bel Power”) sued Monolithic Power Systems, Inc. (“Monolithic”) in the Western District of Texas, alleging Monolithic infringed Bel Power’s patents by selling power modules for use in electronic devices. Monolithic moved to dismiss the case for lack of venue or in the alternative to transfer the case to the Northern District of California. In support of its motion, Monolithic argued venue is improper in the Western District of Texas because Monolithic is a Delaware corporation; it does not own or lease property in the Western District of Texas, and the homes of the four remote employees in the district do not “constitute a ‘regular and established place of business’ of Monolithic.”

The district court disagreed with Monolithic and denied its motion. Monolithic had a “history of soliciting employment in Austin to support local [] customers, even if none of its Western District employees were required to reside there,” which the district court found indicated “Monolithic viewed maintaining a business presence in the Western District as important.” The district court also relied on the fact that Monolithic provided employees in the district with lab equipment for use in their homes or distribution from their homes, which the court found to be distinguishable from In re Cray Inc., where remote employees working in the district were not found to be sufficient to establish venue.

Monolithic filed a petition for a writ of mandamus in the Court of Appeals for the Federal Circuit, challenging the district court’s venue ruling and asking the Federal Circuit to direct the Western District of Texas to dismiss or transfer the case.

The standard for success on such a writ is very high, and “[o]rdinarily, mandamus relief is not available for rulings on [improper venue] motions … because post-judgment appeal is often an adequate alternative means for attaining relief. However, the Federal Circuit has found mandamus available “where immediate intervention is necessary to assure proper judicial administration.” Therefore, the Federal Circuit reviewed the district court’s analysis to determine whether “the district court’s ruling [] involve[d] the type of broad, fundamental, and recurring legal question or usurpation of judicial power that might warrant immediate mandamus review.”

Specifically, the Federal Circuit recognized that the district court “analyzed Monolithic’s argument under the factors established in Cray for determining whether, for purposes of venue, a defendant has sufficiently ratified a place of business [e.g., an employee’s home] to make it its own.” The district court found that Monolithic had recruited employees in the district to support local customers, and Monolithic provided an employee with equipment, including oscilloscopes, power supplies, electric loads, a logic analyzer, a soldering iron, a multimeter, a function generator, electronic parts, and 50 demonstration boards. That employee used the equipment, which the district court characterized as not typical home-office equipment, for validation tests for at least one Monolithic customer in the district. The district court found these facts to be distinguishable from other cases where venue based on home offices was found to be improper.

The Federal Circuit’s majority stated that “given the nature of [the employee’s] work …, it appears this case may present an idiosyncratic set of facts.” As a result, the Federal Circuit was not persuaded the “venue ruling implicates a ‘basic, unsettled, recurring legal issue [] over which there is considerable litigation producing disparate results,’ or similar circumstances that might warrant mandamus.” In other words, the Federal Circuit found “Monolithic ha[d] not shown a clear and indisputable right to mandamus relief on its venue challenge, so [the Court did] not reach the merits of that challenge.” The majority opinion further stated that “our conclusion should necessarily not be interpreted as a disagreement with the dissent’s analysis of the ultimate merits of the venue issue.”

Judge Lourie dissented, stating it was clear in his view that venue was not proper in the Western District because the four employees’ homes “do not constitute Monolithic’s ‘regular and established place of business.” Judge Lourie explained that “this case relates to the not-infrequent attempt to skirt around the statute to sue out-of-state defendants,” and the Court “should not stand back and let the statute be eroded by the details of what an employee stores in his or her home, even if the legal issue on appeal relates to the demanding requirements of mandamus.”

In his opinion, the fact that venue is reviewable on appeal does not provide an adequate remedy for failure to grant mandamus. If an appeal venue is found to be improper, the case will have to be re-tried in the correct venue, which is a strain on the judicial system. Further, Judge Lourie understood the facts in Monolithic to be very similar, rather than distinguishable, from the cases where home offices were found to be insufficient for establishing venue.

Judge Lourie concluded that “the majority here erred in finding immediate review is unwarranted.” “The district court’s erroneous ruling threatens to bring confusion to the law relating to where a patent infringement suit can properly be brought based on the location of employee homes and to erode the clear statutory requirement of a regular and established place of business.” Recognizing the “prevalence of remote work,” Judge Lourie thought “immediate review by way of mandamus would be important to maintain uniformity of the court’s clear precedent.”

In summary, it is likely that Monolithic will petition the Federal Circuit for review en banc. Regardless, patent owners wishing to bring suits in particular venues are likely to investigate a defendants’ remote employees and the equipment and materials located at their homes. And companies embracing remote employees will need to consider where their remote employees are located and what is supplied to those employees if there are venues they want to avoid in the near future because the question as to whether a particular home office is a “regular and established place of business” is not yet clear.