C&D Letters Sufficient to Establish Personal Jurisdiction

In Jack Henry & Associates, Inc. v. Plano Encryption Technologies LLC,  [2016-2700] (December 7, 2018), the Federal Circuit reversed the dismissal of the action for lack of personal jurisdiction, and remanded for further proceedings.

PET is a Limited Liability Company established in the State of Texas, and is registered to do business throughout Texas, with its registered address in Plano, Texas, in the Eastern District of Texas.  PET’s sole business is to enforce its intellectual property.  After receiving letters alleging infringement, Jack Henry and its customers brought the declaratory judgment action in the Northern District of Texas.  

The district court granted PET’s motion for dismissal, stating that PET’s actions do not subject it to personal jurisdiction in the Northern District of Texas, noting that while such letters might be expected to support an assertion of specific jurisdiction over the patentee because the letters are purposefully directed at the forum and the declaratory judgment action arises out of the letters, the Federal Circuit has held that, based on policy considerations unique to the patent context, letters threatening suit for patent infringement sent to the alleged infringer by themselves do not suffice to create personal jurisdiction.

The Federal Circuit identified three relevant factors: (1) whether the defendant “purposefully directed” its activities at residents of the forum; (2) whether the claim “arises out of or relates to” the defendant’s activities within the forum; and (3) whether assertion of personal jurisdiction is “reasonable and fair.”  It said that the first two factors comprise the “minimum contacts” portion of the jurisdictional framework, and that it has held that the sending of a letter that forms the basis for the claim may be sufficient to establish minimum contacts, and PET’s counsel conceded as much at oral argument.

The analysis then turned to whether assertion of personal jurisdiction is “reasonable and fair.”  The Federal Circuit noted that PET is subject to general jurisdiction in the state of Texas and is registered to do business throughout the state, and that it has not asserted that jurisdiction in the Northern District is inconvenient or unreasonable or unfair. 

The Federal Circuit said that the burden befalls PET, as the source of the minimum contacts, to make a “compelling case” that the exercise of jurisdiction in the Northern District would be unreasonable and unfair.  However, PET did not argue that litigating in the Northern District would be unduly burdensome, or that any of the other factors supports a finding that jurisdiction would be unfair.  The Federal Circuit concluded that PET has met the minimum contacts requirement without offense to due process.

Personal Jurisdiction in a DJ Action Must be based on Intentional Conduct Directed at the Forum

In Maxchief Investments Ltd. v. Wok & Pan, Ind., Inc., [2018-1121](November 29, 2018), the Federal Circuit affirmed the district court’s dismissal of Maxchief’s declaratory judgment tortious interference claims, because of lack of personal jurisdiction over Wok.

Wok sued Staples in California for infringement of Wok’s U.S. Patent Nos. 5,957,061, 8,881,661, 8,931,421, and 9,089,204 on folding tables,  Staples demanded the distributor Meco defend the action pursuant to an indemnity, and Meco demanded that Maxchief defend the action pursuant to an indemnity.  Maxchief brought a declaratory judgment action against Wok in the Eastern District of Tennessee, alleging specific personal jurisdiction.

The district court held that Maxchief failed to allege that Wok had sufficient minimum contacts with Tennessee, because although Wok sought to enforce the patents against other parties in other courts, Wok did not seek to enforce its patents in the forum state of Tennessee.

The minimum contacts inquiry involves two related requirements: (1) the defendant must have purposefully directed its conduct at the forum state; and (2) the claim must arise out of or relate to the defendant’s contacts with the forum.  A declaratory judgment claim arises out of the patentee’s
contacts with the forum state only if those contacts relate in some material way to the enforcement or the defense of the patent, and thus the minimum contacts prong requires some enforcement activity in the forum state by the patentee.  It is not enough that Wok’s lawsuit might have “effects” in Tennessee, rather, jurisdiction “must be based on intentional conduct by the defendant” directed at the forum.

The Federal Circuit concluded that Maxchief had not established that personal jurisdiction over Wok is proper in Tennessee, and affirmed the district court’s dismissal of Maxchief’s complaint.

Walker Process Monopolization Claim Does not Depend upon Resolution of a Substantial Question of Federal Patent Law

In Xitronix Corp. v. Kla-Tehcor Corp., [2016-2746] (February 9, 2018), the Federal Circuit transferred an appeal of a Walker Process claim to the United States Court of Appeals for the Fifth Circuit, which has appellate jurisdiction over cases from the District Court for the Western District of Texas.

Xitronix raised a Walker Process monopolization claim under § 2 of the Sherman Act and §§ 4 and 6 of the Clayton Act based on the alleged fraudulent prosecution of a patent.

Xitronix asserted that the Federal Circuit had jurisdiction over the appeal pursuant to 28 U.S.C. § 1295(a)(1), and KLA-Tencor did not dispute this assertion, but the Federal did.  The Federal Circuit said the question is whether the monopolization allegation necessarily depends on resolution of a substantial question of federal patent law, in that patent law is a necessary element of one of the well-pleaded claims.  Applying the well-pleaded complaint rule, in light of the Supreme Court’s guidance and rationale in Gunn, the Federal Circuit held that monopolization does not depend upon resolution of a substantial question of federal patent law.

The Federal Circuit said that there is nothing unique to patent law about allegations of false statements.  While a determination of the alleged misrepresentations to the PTO will almost certainly require some application of patent law, but consistency with the federal question jurisdiction statute requires more than mere resolution of a patent issue in a “case within a case.”  Something more is required to raise a substantial issue of patent law sufficient to invoke our jurisdiction under 28 U.S.C. § 1295(a)(1).

The underlying patent issue in this case, while important to the parties and necessary for resolution of the claims, does not present a substantial issue of patent law.  The Federal Circuit noted that patent claims will not be invalidated or revived based on the result of this case. Because Federal Circuit law applies to substantive questions involving its exclusive jurisdiction, the fact that at least some Walker Process claims may be appealed to the regional circuits will not undermine its uniform body of patent law.  The Federal Circuit noted that the fact that its law applies to Walker Process claims does not mean that it has exclusive jurisdiction over appeals of such claims.

 

Foreign Suits Involving Foreign Patents Do Not Create a Case or Controversy in the U.S.

In Allied Mineral Products, Inc. v. OSMI, Inc., [2016-2641] (September 13, 2017), the Federal Circuit affirmed the dismissal of Allied’s declaratory judgment action seeking a declaration that Stellar’s U.S. Patent No. 7,503,974 is invalid, and that Stellar committed inequitable conduct, for lack of subject matter jurisdiction.

This dispute centered on a Mexican infringement suit between Stellar and two of Allied’s Mexican distributors.  Allied manufactured the accused product in the United States, which are then sold in Mexico by Allied’s Mexican distributors.  The district court held that Stellar’s decision to enforce its Mexican patent under Mexican law against separate entities cannot, without further affirmative action by Stellar, create an
actual controversy with Allied with regard to its U.S. patent.

The Federal Circuit reasoned that the totality of the circumstances in this case does not rise to the level of a case of actual controversy. Declaratory judgment jurisdiction requires some affirmative act by
the patentee, and Stellar has not directed any actions towards Allied, nor has it litigated or threatened litigation in the United States or on its U.S.
patent.

Allied argued that it has been forced into an unwinnable business position; it can either continue to sell products in the United States knowing it may be the target of an infringement suit, or it can cease selling products it believes it has a right to sell. The Federal Circuit said that the fear of a future infringement suit is insufficient to confer
jurisdiction.  The Federal Circuit concluded that Allied has failed to establish a case or controversy regarding Stellar’s U.S. patent in the United States under Article III.

Oh, No, Toto An Interactive Website Won’t Bring You to Kansas

In Nexlearn, LLC v. Allen Interactions, Inc., [2016-2170, 2016-2221](June 19, 2017), the Federal Circuit affirmed the dismissal of a complaint for patent infringement for lack of personal jurisdiction.

NexLearn sued Allen Interactions in the District of Kansas alleging infringement of U.S. Patent No. 8,798,522 and breach of contract.  Allen Interactions, a Minnesota corporation, moved to dismiss NexLearn’s complaint for lack of personal jurisdiction.  Allen Interactions argued it was not subject to specific or general jurisdiction in Kansas due to its limited contacts with the forum, which it argued amounted to a single sale unrelated to the accused product that represented less than 1% of its revenue over the past five years.

NexLearn did not argue general jurisdiction in its briefing, and drawing all reasonable inferences in favor of NexLearn, the district court held that NexLearn failed to allege that Allen Interactions had sufficient contacts with Kansas to permit the exercise of specific jurisdiction.

On appeal the Federal Circuit applied a three-part test, in which it determines whether: (1) the defendant purposefully directed its activities to the forum State; (2) the claims arise out of or relate to those activities (collectively, the minimum contacts prong); and (3) the assertion of jurisdiction is reasonable and fair.

The Federal Circuit discounted Allen Interactions’ activities prior to the patent issuance as irrelevant to patent infringement.  The Federal Circuit also agreed that forum selection provisions in an expired NDA and EULA agreement unrelated to the infringement, likewise did not subject Allen Interactions to specific jurisdiction in Kansas.

The Federal Circuit then considered Allen Interaction’s website. NexLearn argued that the fact that “Kansas” was in a drop down menu for billing address showed that Allen Interaction was targeting Kansas.  However the Federal Circuit found that Allen Interaction’s address selector may indicate its amenability to selling the accused product to Kansas residents, but it does not establish minimum contacts
arising out of or related to the infringement claim. The Federal Circuit said that while a Kansas resident could purchase the accused product from the Allen’s website, what was missing was any evidence that such
a sale has taken place, or that any Kansas resident ever even accessed the website.  The Federal Circuit explained that the website:

is conceptually no different than operating an out-of-state store. That a store would accept payment from a hypothetical out-of-state resident and ship its product there does not create a substantial connection for an infringement claim between the store and the hypothetical resident’s forum State. The store’s willingness to enter future transactions with out-of-state residents does not, without more, show purposeful availment of each State in which it would, but has not yet, provided or even offered a sale.

The Federal Circuit said that something more is needed—whether it be actual sales, targeted advertising, or contractual relationships—to
connect the defendant’s infringing acts of making, using, offering, or selling its product with the forum State. While what is sufficient may vary from case to case, the Federal Circuit said that it cannot be that the mere existence of an interactive website, like the existence of an out-of-state store, is suit-related conduct creating a substantial connection with the forum state.

The Federal Circuit also found that Allen Interaction’s email to a NexLearn employee regarding new features of the accused software product, and an offer to a NexLearn employees of a free trial of the accused software product were insufficient.  However the Federal Circuit rejected the district court’s rationale that this was because it was unilateral conduct on NexLearn’s part.  Instead, the Federal Circuit found that the email was a mass-email advertisement that did not show that that Kansas was a target market.  The mailing of one advertisement to
all of its nationwide subscribers did not create a substantial connection with Kansas.

Similarly with respect to the offer of a free trial, the Federal Circuit disagreed that this was irrelevant, but simply that single offer of a
free trial is too attenuated to establish minimum contacts with Kansas.

The Federal Circuit affirmed the dismissal of the patent infringement claim, and the supplemental claim for breach of contract as well.

 

 

A Cease and Desist Letter Alone Does not Establish Personal Jurisdiction

In New World International, Inc. v. Ford Global Technologies, LLC, [2016-2097](June 8, 2017), the Federal Circuit affirmed the dismissal of New World’s declaratory judgment complaint for lack of personal jurisdiction over Ford Global Technologies (FGTL).

FGTL sent New World a cease and desist letter accusing New World of infringing its design patents by selling various parts meant for use on Ford vehicles.  New World filed suit in the Northern District of Texas seeking a declaratory judgment of noninfringement and invalidity with regard to the design patents.  The district court found that FGTL’s cease and desist letters sent to New World in Texas were not sufficient to establish jurisdiction over FGTL. The court further found that FGTL’s license agreement with third party LKQ did not provide the court with specific personal jurisdiction over FGTL in the declaratory judgment suit, and the court accordingly dismissed the complaint.

The Federal Circuit applied its three part test, which considers: (1) whether the defendant purposefully directed its activities at residents of the forum; (2) whether the claim arises out of or relates to the defendant’s activities with the forum; and (3) whether assertion of personal jurisdiction is reasonable and fair.  The Federal Circuit has acknowledged that the defendant purposefully directs his activities at residents of the forum when the defendant sends a cease and desist letter to a potential plaintiff in that particular forum. And a subsequent declaratory judgment action by that potential plaintiff arises out of or relates to the defendant’s activity—namely, the cease and desist letter. However, under the third part of the test, however,
this court has held that it is improper to predicate personal jurisdiction on the act of sending ordinary cease and desist letters into a forum, without more.

The Federal Circuit noted that while the act of sending cease and desist letters is insufficient by itself to trigger a finding of personal jurisdiction, other activities by the defendant, in conjunction with cease and desist letters, may be sufficient. However, the Federal Circuit found no other activities of FGTL sufficient to establish jurisdiction.

A Patent Case is Not Final and Appealable Until It’s All Over but the Counting

In Halo Electronics, Inc. v. Pulse Elecctronics, Inc., [2016-2006](May 26, 2017), the Federal Circuit dismissed Pulse’s appeal from the district court’s decision awarding prejudgment interest because it lacked jurisdiction.

The Federal Circuit said that the Order that Pulse appealed from could not be a final order because the district court never resolved the parties’ dispute regarding the date from which to begin calculating prejudgment
interest or set the amount of prejudgment interest to be awarded to Halo.  As a result, there is no final decision because the district court has not “determine[d], or specif[ied] the means for determining the amount” of prejudgment interest.

Failure to Provide an Unconditional Covenant Not to Sue Kept Case and Controversy Alive

In ArcelorMittal v. AK Steel Corp., [2016-1357] (May 16, 2017), the Federal Circuit affirmed the summary judgment invalidating claims 24 and 25 of U.S. Patent No. RE44153.

On appeal, ArcelorMittal argued it never asserted claim 24 and 25, noting that ArcelorMittal never contested defendant’s statements that the validity of claims 24 and 25 was at issue.  The Federal Circuit found this tacit acceptance of Defendants’ representations about the litigation status of claims 24 and 25 reflected ArcelorMittal’s continued attempt to assert those claims.

ArcelorMittal also argued that the dispute became moot when ArcelorMittal conditionally tendered its covenant not to sue to Defendants.  The Federal Circuit said that although a patentee’s grant of a covenant not to sue a potential infringer can sometimes deprive a court of subject matter jurisdiction,the patentee “bears the formidable burden of showing” “that it ‘could not reasonably be expected’ to resume its enforcement efforts against” the covenanted, accused infringer.  The Federal Circuit said that this that requires ArcelorMittal to show that it
actually granted a covenant not to sue to Defendants, and that the covenant enforceably extinguished any real controversy between the parties related to infringement of the RE’153 patent.  The Federal Circuit found that at no time before the court entered summary judgment did ArcelorMittal unconditionally assure Defendants and their customers that it would never assert RE’153 claims 24 and 25 against them.  The Federal Circuit noted that this result was entirely within ArcelorMittal’s control — it could have, but never did delivered an unconditional, executed covenant not to sue.

Turning to the merits of the case, the Federal Circuit found that the district court correctly implemented its mandate by limiting the analysis to noninfringement and commercial success of RE’153 claims 24 and 25.

 

Applicant Cannot Bypass the PTAB to get to Federal Circuit

In In re Arunachalam, [2016-1560] (May 27, 2016), the Federal Circuit dismissed  Arunachalam direct appeal to the Federal Circuit from the final rejection of his claims in prosecution following a new ground of rejection entered by the PTAB.

Under 28 U.S.C. § 1295(a)(4)(A), the Federal Circuit has exclusive jurisdiction over an appeal from a “decision” of the Board.  The Federal Circuit has held that § 1295(a)(4) should be read to incorporate a finality requirement.  Thus the Federal Circuit concluded that it lacked jurisdiction to hear a non-final appeal from the Patent Office.  Pursuant to § 134(b), Dr. Arunachalam may appeal the Examiner’s decision to the Board, and only after the Board issues a final decision can the Federal Circuit exercise jurisdiction to review the Board’s decision.

If You Want to Contest Jurisdiction, Don’t File a Counterclaim

In Microsoft Corporation v, GeoTag, Inc., [2015-1140] (April 1, 2016), the Federal Circuit affirmed the district court’s exercise of jurisdiction (although on different grounds) and affirmed summary judgment of non-infringement.

In response to suits against their customers in the Eastern District of Texas, Microsoft and Google brought a declaratory judgment action against GeoTag for a declaration that U.S. Patent No. 5,930,474 is invalid and not infringed.  GeoTag filed a motion to dismiss and an answer and counterclaim for infringement of the ‘474 patent, arguing that the infringement action was a compulsory counterclaim which could not confer jurisdiction on the original declaratory judgment action. The district court, applying Third Circuit law, found jurisdiction because the counterclaim was not a compulsory counterclaim.  The Federal Circuit agreed that there was jurisdiction, but applying Federal Circuit, rather than Third Circuit law, and finding jurisdiction based upon GeoTag’s counterclaim, regardless of whether or not it was compulsory.  The Federal Circuit found that the district court retained subject matter jurisdiction over GeoTag’s patent infringement counterclaims pursuant to § 1338(a), such that it need not determine whether the District Court properly found that it had jurisdiction over Google’s First Amended Complaint.