Federal Circuit Finds Patent Assertion Letters Sufficient For Personal Jurisdiction In Declaratory Judgment Action
On Friday, December 7, 2018, the Court of Appeals for the Federal Circuit (“CAFC”) issued an opinion reversing and remanding a decision by the United States District Court for the Northern District of Texas, in which the district court dismissed plaintiff’s declaratory judgment action against defendant for lack of personal jurisdiction. Jack Henry & Associates, Inc. v. Plano Encryption Technologies LLC, —F.3d— (Fed. Cir. Dec. 7, 2018). The CAFC ruled that defendant’s patent assertion campaign against multiple banks in the Northern District of Texas was sufficient to establish the minimum contacts necessary to subject PET to personal jurisdiction in that venue.
Defendant (“PET”) is a patent-assertion entity with a registered address in the Eastern District of Texas. PET sent letters alleging patent infringement to several banks that conduct business in the Northern District of Texas. Plaintiff––which provided the allegedly infringing software systems to the banks and indemnified the banks for liability for infringement––and the banks then filed an action for a declaratory judgment of non-infringement in the Northern District of Texas. PET moved for dismissal, arguing that venue is improper.
The district court dismissed the declaratory judgment action for lack of personal jurisdiction and improper venue, finding that PET’s letters were not sufficient to create personal jurisdiction. Relying on Avocent Huntsville Corp. v. Aten Int’l Co., 552 F.3d 1324, 1333 (Fed. Cir. 2008), the district court noted that such letters would, in non-patent cases, be sufficient to establish personal jurisdiction over the defendant, but patent cases raise unique policy considerations.
On appeal, the CAFC applied the three due-process factors to the Texas long-arm statute. The three factors are: (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.”
The CAFC noted that the declaratory judgment claims “arise out of or relate to PET’s patent licensing activities in the Northern District, pursued in letters from PET and its counsel.” At oral arguments, PET was unable to distinguish New World International, Inc. v. Ford Global Technologies, LLC, 859 F.3d 1032 (Fed. Cir. 2017), which held that the “sending of a letter that forms the basis for the claim may be sufficient to establish minimum contacts.” PET then conceded that the first and second minimum-contacts factors were met.
On the third factor, the CAFC rejected PET’s argument that Red Wing Shoe Co. v. Hockerson-Halberstadt,Inc, 148 F.3d 1355 (Fed. Cir. 1998) and Avocent stand for the proposition that sending patent enforcement letters can never provide the basis for jurisdiction in a declaratory judgment action. Instead, the CAFC noted it must “consider a variety of interests” in assessing whether jurisdiction would be fair, citing Bristol-Myers Squibb Co. v. Superior Court of Cal., 137 S. Ct. 1773, 1780 (2017). The CAFC then noted that litigating in the Northern District was not unduly burdensome to PET and that the Northern District has a substantial interest in the
matter, because PET threatened litigation against numerous banks residing in, and conducting business in, the district.
This case signals a shift in CAFC jurisprudence on the issue. In a concurring opinion, Judge Stoll, joined by Judge Wallach, noted that Red Wing Shoe and its progeny of cases should be revisited as they have been interpreted to mean that “a patent owner may, without more, send cease and desist letters to a suspected infringer, or its customers, without being subjected to personal jurisdiction in the suspected infringer’s home state.”