Making DJ Jurisdiction Easier to Maintain
| June 22, 2021
Trimble Inc. v. PerDiemCo LLC
Decided on May 12, 2021
Opinion by: Dyk, Newman, and Hughes
Summary:
How many letters, emails, and/or telephone calls from an out-of-state patent owner to an alleged patent infringer does it take to establish specific personal jurisdiction over that out-of-state patent owner in the alleged infringer’s home state? Somewhere between 3 and 22, depending on the nature of those communications.
Procedural History:
Trimble and Innovative Software Engineering (ISE) filed a lawsuit in its home state (California), seeking declaratory judgment that it doesn’t infringe out-of-state (Texas) PerDiemCo’s patents. The district court dismissed the case for lack of specific personal jurisdiction over PerDiemCo, relying on Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355, 1361 (Fed. Cir. 1998) (“[a] patentee should not subject itself to personal jurisdiction in a forum solely by informing a party who happens to be located there of suspected infringement” because “[g]rounding personal jurisdiction on such contacts alone would not comport with principles of fairness.”). The Federal Circuit reversed, finding specific personal jurisdiction.
Background:
PerDiemCo is a Texas LLC owning eleven geofencing patents monitoring a vehicle’s entry or exit from a preset area, electronically logging hours and activities of the vehicle’s driver. PerDiemCo’s sole owner, officer, and employee is Robert Babayi, a patent attorney living and working in Washington, DC, who rents office space in Marshall, Texas, that had never been visited.
Trimble is incorporated in Delaware and headquartered in Sunnyvale, CA. ISE is a wholly owned subsidiary LLC of Trimble, headquartered in Iowa.
Mr. Babayi sent a letter to ISE in Iowa offering a nonexclusive license and including an unfiled patent infringement complaint for the Northern District of Iowa and a claim chart detailing the alleged infringement. ISE forwarded that letter to Trimble’s Chief IP Counsel in Colorado, who was the point of contact for this matter. Mr. Babayi communicated “at least twenty-two times” by letter, email, and telephone calls with Trimble’s IP Counsel in Colorado, to negotiate and to further substantiate infringement allegations, including Trimble’s products, more patents, and more claim charts. PerDiemCo also threatened to sue in the Eastern District of Texas, identifying local counsel.
Personal Jurisdiction Primers:
- PerDiemCo’s communications with Trimble’s IP Counsel in Colorado are considered, for personal jurisdiction, purposefully directed to the company at its headquarters (in California), not to the location of counsel. See, Maxchief Investments Ltd. v. Wok & Pan, Ind., Inc., 909 F.3d 1134, 1139 (Fed. Cir. 2018).
- “[A] tribunal’s authority [to exercise personal jurisdiction over a defendant] depends on the defendant’s having such ‘contacts’ with the forum State that ‘the maintenance of the suit’ is ‘reasonable, in the context of our federal system of government,’ and ‘does not offend traditional notions of fair play and substantial justice.’” “The contacts needed for [specific] jurisdiction often go by the name ‘purposeful availment.’” Ford Motor Co. v. Mont. Eighth Jud. Dist. Ct., 141 S. Ct. 1017, 1024 (2021) (quoting Int’l Shoe Co. v. Washington, 326 U.S. 310, 316-317 (1945)).
- From Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985) and World-Wide Volkswagon Corp. v. Woodson, 444 U.S. 286 (1980), courts determine whether the exercise of jurisdiction would “comport with fair play and substantial justice” by considering five factors: (1) the burden on the defendant; (2) the forum State’s interest in adjudicating the dispute; (3) the plaintiff’s interest in obtaining convenient and effective relief; (4) the interstate judicial system’s interest in obtaining the most efficient resolution of controversies; and (5) the shared interest of the several States in furthering fundamental substantive social policies.
Decision:
In Red Wing, a cease-and-desist letter was deemed “more closely akin to an offer for settlement of a disputed claim rather than an arms-length negotiation in anticipation of a long-term continuing business relationship.” Accordingly, in Red Wing, this court held that “[p]rinciples of fair play and substantial justice afford a patentee sufficient latitude to inform others of its patent rights without subjecting itself to jurisdiction in a foreign forum.” However, this year’s Supreme Court Ford decision and other post-Red Wing Supreme Court decisions have emphasized that “analysis of personal jurisdiction cannot rest on special patent policies.”
Repeated communications stent into a state may create specific personal jurisdiction, depending on the nature and scope of such communications. Quill Corp. v. North Dakota, 504 U.S 298, 308 (1992). And, the out-of-state defendant’s “negotiation efforts, although accomplished through telephone and mail, can still be considered as activities ‘purposefully directed’ at residents of [the forum].” Inamed Corp. v. Kuzmak, 249 F.3d 1356, 1362 (Fed. Cir. 2001) (applying Quill). Personal jurisdiction was held to be reasonable after the out-of-state defendant sent communications to eleven banks located in the forum state identifying patents, alleging infringement, and offering non-exclusive licenses, rejecting Red Wing and its progeny as having created a rule that “the proposition that patent enforcement letters can never provide the basis for jurisdiction in a declaratory judgment action.” Jack Henry & Associates, Inc. v. Plano Encryption Technologies LLC, 910 F.3d 1199, 1201, 1206 (Fed. Cir. 2018); see also, Genetic Veterinary Sciences, Inc. v. Laboklin, GmbH & Co. KG, 933 F.3d 1302, 1312 (Fed. Cir. 2019).
Beyond the sending of communications into a forum, DJ jurisdiction can also be premised on other contacts, such as “hiring an attorney or patent agent in the forum state to prosecute a patent application that leads to the asserted patent, see Elecs. for Imaging, Inc. v. Coyle, 340 F.3d 1344, 1351 (Fed. Cir. 2003); physically entering the forum to demonstrate the technology underlying the patent to the eventual plaintiff, id., or to discuss infringement contentions with the eventual plaintiff, Xilinx, Inc. v. Papst Licensing GmbH & Co. KG, 848 F.3d 1346, 1357 (Fed. Cir. 2017); the presence of ‘an exclusive licensee … doing business in the forum state,’ Brekenridge Pharm., Inc. v. Metabolite Labs., Inc., 444 F.3d 1356, 1366-67 (Fed. Cir. 2006); and ‘extra-judicial patent enforcement’ targeting business activities in the forum state, Campbell Pet Co. v. Miale, 542 F.3d 879, 886 (Fed. Cir. 2008).”
The Supreme Court’s recent Ford decision reinforces “that a broad set of a defendant’s contacts with a forum are relevant to the minimum contacts analysis.” In Ford, personal jurisdiction could be exercised over Ford even though the two types of vehicles involved in the accident were not sold in the forum states. Specific personal jurisdiction simply “demands that the suit ‘arise out of or relate to the defendant’s contacts with the forum.’” So, the broader efforts by Ford in selling similar vehicles and having dealerships in the forum states established specific personal jurisdiction.
Unlike Red Wing, which involved a total of three letters (asserting patent infringement and offering a nonexclusive license), this case involved twenty-two communications, “an extensive number of contacts with the forum in a short period of time [three months].” And unlike Red Wing “solely…informing a party who happens to be located [in the forum state] of suspected infringement,” this case’s communications continually amplified threats of infringement, including continually adding more patents, more products, suggesting mediation to reach a settlement on infringement allegations, and threat of suit in EDTx, identifying counsel that PerDiemCo planned to use. As such, “PerDiemCo’s attempts to extract a license in this case are much more akin to ‘an arms-length negotiation in anticipation of a long-term continuing business relationship’ over which a district court may exercise jurisdiction.”
As for whether specific personal jurisdiction would comport with fair play and substantial justice, the court found no fairness concerns as follows:
- Burden on the defendant: PerDiemCo’s office in Texas is “pretextual” (not an operating company, but merely an IP portfolio owner, with no employees in Texas) and is far from Washington, DC where Mr. Babayi lives and works. So, if Texas is ok, so is California.
- Forum state’s interest in adjudicating the dispute: ND Cal. has significant interest since Trimble is a resident there.
- Plaintiff’s interest in obtaining convenient and effective relief: Trimble is near the federal district court.
- Interstate judicial system’s interest in obtaining the most efficient resolution of controversies: no favor either way.
- The shared interest of the several states in furthering fundamental substantive social polices: not applicable.
Takeaways:
- This case is a good refresher for specific personal jurisdiction in the DJ action arena for patent owners and accused infringers.
- Red Wing is NOT overturned. Quite the contrary, the court quotes from the Supreme Court’s recent Ford decision that treats “isolated or sporadic [contacts] differently from continuous ones,” and confirms that “Red Wing remains correctly decided with respect to the limited number of communications involved in that case.” The court only emphasizes that “there is no general rule that demand letters can never create specific personal jurisdiction.”
- In Red Wing, the patentee’s first letter asserted patent infringement and offered a nonexclusive license. The second letter granted an extension of time for a response and asserted more products as infringing the patent. The third letter rebutted Red Wing’s noninfringement analysis and continued to offer to negotiate a nonexclusive license. So, there was some “amplification” in the second letter, just like in this case. But, the continued back and forth negotiations in Red Wing was much more limited than in this case. Where do we cross the Red Wing threshold and enter into specific personal jurisdiction for a DJ action? It is not as simple as somewhere between 3 and 22. It is the nature of the communications – the continuing of negotiations “to extract a license” that likens the behavior/communications to “an arms-length negotiation in anticipation of a long-term continuing business relationship.”
- From this case, patent owners must be careful to avoid continued communications, whether by letter, email, or telephone, that as a whole can be construed to be a continuation of negotiations to extract a license or “an arms-length negotiation in anticipation of a long-term continuing business relationship.” If the desired nonexclusive license doesn’t look promising after just a handful of contacts, this case suggests that it is safer for the patent owner to hold off further back and forth negotiations and file a complaint in the patent owner’s preferred forum state, otherwise risk a DJ action in the accused infringer’s home court. For the accused infringer, this case suggests that stringing the patent owner out and creating more back and forth communications would help secure specific personal jurisdiction for a DJ action in the accused infringer’s home court.
The Court Gives Roadmap to Patent Trolls on How to Obtain Lucrative Settlements from Customers without Declaratory Judgment Recourse from Manufacturers.
| April 11, 2014
Microsoft v. DataTern, Inc. and SAP v. DataTern, Inc. (Precedential Opinion).
April 4, 2014
Before Chief Judge Rader, Prost and Moore. Opinion by Moore. Opinion dissenting-in-part by Rader.
Summary
DataTern, Inc., a company established to exploit IP opportunities (aka patent troll), sued hundreds of customers of Microsoft and SAP alleging infringement of its’ patents for a software product that facilitates interfacing of object-oriented applications with relational databases, seeking lucrative settlements from consumers disinterested in combating a full patent lawsuit without suing Microsoft and SAP. Despite DataTern’s effort to avoid litigation with Microsoft and SAP, who as manufacturers of the products were well equipped and interested to seek legal recourse, Microsoft and SAP successfully filed declaratory judgment actions in New York district court and were awarded summary judgments for non-infringement. DataTern appealed to the CAFC. Although the CAFC affirmed the district court’s decision, as explained in the dissenting-in-part opinion of Chief Judge Rader, the CAFC’s opinion “creates a roadmap [for patent troll’s] to avoid declaratory judgment” actions by taking steps to ensure that their claim charts presented to allegedly infringing customers reference only customer activity and not activity of the product manufacturers.
Tags: claim charts > claim construction > contributory infringement > Declaratory judgment > inducement > subject matter jurisdiction
Burden of persuasion in the post-MedImmune world
| September 27, 2012
Medtronic v. Boston Scientific Corporation, Guidant Corporation and Mirowski Family Ventures
September 18, 2012
Panel: Lourie, Linn, Prost. Opinion by Linn.
Summary
This decision discusses who carries the burden of persuasion in the post-MedImmune world. This question arises as a consequence of the Supreme Court’s decision in MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007). In MedImmune, the Supreme Court found declaratory judgment jurisdiction even though the declaratory judgment plaintiff-licensee continued to make royalty payments pursuant to a license. The Court reasoned that a licensee should not be forced to cease royalty payments and risk infringement liability before the licensee can challenge the extent of coverage of the license.
The district court entered judgment of non-infringement in favor of Medtronic and judgment of validity and enforceability in favor of Mirowski Family Ventures (MFV). MFV appeals the judgment of non-infringement and Medtronic cross appeals the district court’s claim construction. The CAFC vacates the district court ruling and remands.
