Federal Circuit Reverses District Court’s Dismissal Of Declaratory Judgment Action For Lack Of Personal Jurisdiction
On May 12, 2021, the Court of Appeals for the Federal Circuit (CAFC) issued an opinion reversing the decision of the U.S. District Court for the Northern District of California dismissing, for lack of personal jurisdiction, a declaratory judgment noninfringement action. Trimble Inc. v. PerDiemCo LLC, __ F.3d __ (Fed. Cir. May 12, 2021).
PerDiemCo, Defendant-Appellee, is the assignee of eleven patents that relate to electronic logging devices for trucking and/or geofencing. PerDiemCo is a non-practicing entity with a rented office-space in Marshall, Texas. Its sole owner, officer, and employee is one Robert Babayi (who has never visited the company’s Texas office). Plaintiffs-Appellants, Trimble and its wholly-owned subsidiary, Innovative Software Engineering (ISE), manufacture and sell positioning and navigation products and services, including electronic logging and geofencing products. Trimble is a Delaware corporation with headquarters in Sunnyvale, California; its subsidiary operates out of Iowa.
In an October 2018 letter, Mr. Babayi accused ISE of patent infringement, attaching a draft complaint, which listed the Northern District of Iowa as the threatened venue. ISE forwarded the correspondence to Trimble’s chief IP counsel, located in Colorado, who indicated that Trimble would be the point of contact for further negotiation. Over the next several months, the parties negotiated telephonically and through written correspondence, until PerDiemCo threatened to sue Trimble in the Eastern District of Texas.
In January 2019, Trimble and ISE filed a declaratory judgment complaint in the Northern District of California, the locale of Trimble’s headquarters, and asserted that PerDiemCo was subject to personal jurisdiction under a theory of specific personal jurisdiction. The district court subsequently granted PerDiemCo’s motion to dismiss for lack of personal jurisdiction, concluding that—while Trimble had established (i) that PerDiemCo’s correspondence met the requisite minimum contacts test, and (ii) that the declaratory judgment claim arose out of PerDiemCo’s activities—exercising personal jurisdiction would be constitutionally unreasonable under Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355 (Fed. Cir. 1998), which stated that “[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,” id. at 1361. Trimble and ISE then appealed to the CAFC.
The CAFC explained that the primary issue on appeal is whether the district court erred in holding that there is not specific personal jurisdiction over PerDiemCo in the Northern District of California because the exercise thereof would not comport with constitutional due process, and reiterated five considerations, set forth by the Supreme Court, relevant to whether the exercise of jurisdiction comports with fair play and substantial justice: (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 further fundamental substantive social policies. Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985); World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980).
Before addressing the five factors, the CAFC distinguished Red Wing Shoe, the case on which the district court relied, based on the isolated/sporadic contacts in that case as compared to the far more extensive contacts at issue in this one. The CAFC also referred to three subsequent developments that clarified the scope of Red Wing Shoe: (1) Supreme Court precedent has made clear that the analysis of personal jurisdiction cannot rest on special patent policies; (2) the Supreme Court has held that communications sent into a state may create specific personal jurisdiction, depending on the nature and scope of the communications—which the CAFC has applied to patent-specific threats or settlement proposals; and (3) the Supreme Court’s decision in Ford Motor Co. v. Mont. Eighth Jud. Dist. Ct. has established that a broad set of defendant’s contacts with a forum are relevant to the minimum contacts analysis. 141 S. Ct. 1017 (2021). As evidence of the distinguishable differences between Red Wing Shoe and this case, the CAFC pointed to twenty-two communications that PerDiemCo exchanged with Trimble over the course of three months, the addition of multiple patent infringement assertions after the first reach-out, the threatened suit of Trimble in the Eastern District of Texas, and the identification of counsel retained to prosecute that threatened action.
The CAFC then proceeded through the five factors regarding the reasonableness of an exercise of personal jurisdiction. First, with respect to the burden on the defendant, the CAFC found that there would be essentially no difference to PerDiemCo between litigating in Texas (where it has previously litigated) or Iowa (where it threatened to sue), and California, given that its Texas office is pretextual and that Mr. Babayi’s office is in Washington, DC—a great distance from all of those potential venues. Second, with respect to the forum state’s interest in adjudicating the dispute, the CAFC found that the Northern District of California has a substantial interest in protecting its residents from unwarranted claims of patent infringement. Third, with respect to the plaintiff’s interest in obtaining convenient and effective relief, the CAFC found that Trimble, as a California resident, has an interest in litigating in a nearby forum. Fourth, with respect to the interstate judicial system’s interest in obtaining the most efficient resolution of controversies, the CAFC found this factor essentially neutral. Fifth, with respect to the shared interest of the several states in furthering fundamental substantive social policies, the CAFC found that there does not appear to be any conflict between the interests of California and any other state because the same body of federal patent law would govern.
As a result of the distinguishing facts from Red Wing Shoe, and the five above factors weighing in favor of personal jurisdiction, the CAFC reversed the district court’s order and remanded for further proceedings.