Judge: Chicago courts wrong place to try patent dispute over medical billing software

By Scott Holland | Nov 10, 2017

Invoking a recent Supreme Court decision addressing some of the litigation behaviors of so-called “patent trolls,” a federal judge in Chicago has dismissed a patent infringement lawsuit, saying plaintiffs’ assertions some people employed by a company accused of infringing a patent work from home in Illinois isn’t enough for him to allow the case to be tried in Chicago.

BillingNetwork Patent Inc. had filed a complaint Aug. 2 against Modernizing Medicine Inc., asserting Modernizing Medicine had violated its patents on cloud-based practice management and billing software. On Sept. 13, Modernizing Medicine countered with a motion to dismiss, saying BillingNetwork did not adequately prove it has enough business ties to Illinois to justify allowing the case to be tried in Chicago.

Responding to the motion to dismiss, BillingNetwork drew attention to several workers Modernizing Medicine employs in Illinois, including two employees whose job entails training end users on using the software that gave rise to the infringement complaint. BillingNetwork said a recent internet search also revealed at least four other recently hired Illinois-based employees.

Modernizing Medical Chief Operating and Financial Officer Karen O’Byrne reported five home-based employees in the judicial district,  including three who started in 2017. None of them are required to live in Illinois, she said, and they receive administrative support only from the company’s principal places of business in California and Florida.

In an opinion issued Nov. 6, Judge Ruben Castillo, chief judge of the U.S. District Court for the Northern District of Illinois, agreed to dismiss the complaint. In support of his decision, Castillo cited the recent U.S. Supreme Court decision in TC Heartland v Kraft Food Group Brands.

In May, the Supreme Court issued an opinion in the case involving Indiana-based TC Heartland LLC, a maker of water flavorings, and Kraft, which had tried to sue Heartland in a Delaware court. Heartland’s attorneys argued Delaware, where Kraft is incorporated, was not the proper venue for the suit and that it should have been filed in the state where Heartland is incorporated. The Supreme Court backed Heartland’s reading of the law, upending precedent which had allowed businesses to be sued nearly anywhere they sold products.

At the time, attorneys and other observers predicted the ruling, forcing patent disputes to be heard in corporations’ home states, would make it significantly harder for “patent trolls” – individuals and entities who buy patents from others and then attempt to enforce those rights and win money through litigation – to secure settlements from businesses in what had been formerly considered court venues more welcoming to their tactics.

Modernizing Medicine asserted the Supreme Court’s May opinion means it also now can only be sued in Delaware, its state of incorporation. It further said it has no “regular and established place of business” in the Chicago district, which was the crux of BillingNetwork’s argument. That reasoning was based on Modernizing Medical’s registration with the Illinois Secretary of State, and a corresponding agent registered in Chicago, and the work-at-home employees.

“While these employees’ homes are certainly physical places in this district and are in some sense connected to defendant’s business,” Castillo wrote, “none of them are a place ‘of the defendant.’ ”

The company, the judge said, does not own those homes or exercise any control of the properties, nor does it list those homes as part of its business.

BillingNetwork also asked if Castillo would allow further discovery instead of granting the dismissal, but doubted that would be productive. He said the parties had already shared information and BillingNetwork didn’t identify what type of information it would seek to support its claim.

Castillo noted he has the authority to transfer the case to an appropriate venue, but BillingNetwork did not request such a transfer or offer a compelling reason why a transfer would be superior to dismissal. He dismissed the complaint without prejudice and said BillingNetwork is “free to re-file their complaint in another district where venue may be proper.”

BillingNetwork is represented in the action by attorneys with the firms of Haller Law PLLC and Noble IP LLC, each of Chicago.

Modernizing Medicine is represented by the firms of Fish & Richardson P.C., of Dallas, and Goldberg Kohn, of Chicago.

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Fish & Richardson Goldberg Kohn Illinois Secretary of State U.S. District Court for the Northern District of Illinois

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