Patent Licensing Activity May Subject Patent Owners to Personal Jurisdiction in Target’s Home Court
Against that background, the Federal Circuit nonetheless emphasized that its precedent had not created a “bright-line rule” but instead “repeatedly rejected the notion that the sending of a notice letter ‘can never provide specific jurisdiction.’”
In Apple Inc. v. Zipit Wireless, Inc., No. 2021-1760 (Fed. Cir. April 18, 2022), the United States Court of Appeals for the Federal Circuit reversed the dismissal of Apple’s declaratory judgment action by the U.S. District Court for the Northern District of California. According to the Federal Circuit, the district court erroneously ruled that the court could not reasonably exercise personal jurisdiction over the South Carolina defendant company based on its patent licensing communications directed to Apple in California.
The crux of that error was the district court’s conclusion that Federal Circuit precedent established “a bright-line rule that patent infringement notice letters and related communications can never form the basis for personal jurisdiction.” Id. at 2. Among other precedent, the district court had relied on the Federal Circuit’s ruling in Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355, 1360-61 (Fed. Cir. 1998) 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 that case, the Federal Circuit rejected the exercise of personal jurisdiction where the patentee had sent a total of three letters to the forum state. Id. at 1359-60.
In the Apple decision, the Federal Circuit recognized that its Red Wing ruling was grounded in judicial policy that favors the promotion of settlement. See Apple, at 13. The Federal Circuit acknowledged further that courts in other non-patent contexts had declined to exercise personal jurisdiction based on the transmission of cease-and-desist letters fearing that “‘[i]f the price of sending [the letter] is that the sender thereby subjects itself to jurisdiction in the [recipient’s forum], the rights holder will be strongly encouraged to file suit in its home forum without attempting first to resolve the dispute informally.’” Id. at 13-14 (quoting Yahoo! Inc. v. La Ligue Contre le Racisme et l’Antisemitisme, 433 F.3d 1199, 1208 (9th Cir. 2006) (en banc) (alleged violation of French law).
Against that background, the Federal Circuit nonetheless emphasized that its precedent had not created a “bright-line rule” but instead “repeatedly rejected the notion that the sending of a notice letter ‘can never provide specific jurisdiction.’” Apple at 14 (quoting Jack Henry & Assocs., Inc. v. Plano Encryption Techs. LLC, 910 F.3d 1199, 1204 (Fed. Cir. 2018)). Moreover, the Federal Circuit has previously permitted the exercise of personal jurisdiction based on certain patent owner licensing activities. See, e.g., Xilinx, Inc. v. Papst Licensing GmbH & Co., 848 F.3d 1346, 1356 (Fed. Cir. 2017) (letters & in-person meetings in forum state); Elecs. for Imaging, Inc. v. Coyle, 340 F.3d 1344, 1350–51 (Fed. Cir. 2003) (telephone calls & in-person meetings); Deprenyl Animal Health, Inc. v. Univ. of Toronto Innovations Found., 297 F.3d 1343, 1352 (Fed. Cir. 2002) (telephone calls & in-person meetings).
The Federal Circuit therefore explained that although the Red Wing policy “must be considered together with the other Burger King factors” in determining if the exercise of personal jurisdiction would be fair, the policy itself “cannot control the inquiry.” Apple at 14. Rather, “‘the facts of each case must [always] be weighed’ in determining whether personal jurisdiction would comport with ‘fair play and substantial justice.’” Apple at 15 (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 485 (1985)). The district court therefore erred by placing too much weight on the Red Wing policy and, in fact, by interpreting Red Wing as a bright-line rule. See Apple at 15. In its defense, the district court entered its ruling without the benefit of and prior to the Federal Circuit’s clarification of Red Wing in Trimble Inc. v. PerDiemCo LLC, 997 F.3d 1147 (Fed. Cir. 2021).
In Trimble, the out-of-state patentee, PerDiemCo, sent twenty-two communications to Trimble in California during a three-month period. Id. at 1157. The communications threatened litigation and made licensing overtures for multiple patents. Id. The Federal Circuit concluded that “PerDiemCo’s actions went far beyond ‘solely . . . informing a party who happens to be located [in California] of suspected infringement’” and ruled that the minimum contacts and purposeful availment tests were satisfied by the “extensive number of contacts with the forum in a short period of time.” Id. at 1156-57.
In contrast to the relative flurry of communications in Trimble, Zipit’s interactions with Apple in California in this case accumulated over a seven-year period, beginning in 2013 when Zipit first contacted Apple. See Apple at 2-4. During the next three years, Zipit and Apple exchanged several rounds of correspondence, had detailed telephone conferences, and conducted at least two in-person meetings at Apple in California. Id. The correspondence and meetings included accusations that Apple infringed Zipit’s patents and Apple’s repeated denials that it needed a license to the patents. Id. at 4-5. Zipit even offered to sell the patents to Apple. Id. After a final round of correspondence in 2016, there was no further contact between the two companies until Zipit sued Apple for patent infringement in the Northern District of Georgia on June 11, 2020. Id. at 5-6. Two weeks later, Zipit voluntarily dismissed the complaint without prejudice on June 24, 2020. Id. Apple reacted to Zipit’s actions by filing a declaratory judgment action in the Northern District of California, seeking a declaration that the patents are not infringed. Id.
The Federal Circuit determined that Zipit’s conduct sufficiently established the requisite minimum contacts for personal jurisdiction in the Northern District of California. Id. at 9. And, although noting that there was “no doubt that Zipit’s initial contacts with California can be fairly viewed as attempting to settle its dispute with Apple out of court,” the Federal Circuit emphasized that “Zipit’s communications with Apple arguably went further, extending over the course of several years and reaching beyond license negotiations to include the sale of its patents.” Id. at 19. After weighing the other jurisdictional factors in Apple's favor, the Federal Circuit concluded that the Red Wing policy considerations do not “render the exercise of jurisdiction over Zipit compellingly and constitutionally unreasonable given the nature and extent of Zipit’s contacts.” Id. at 20.
For the second time in less than a year, the Federal Circuit has clarified that its precedent does not preclude the exercise of personal jurisdiction over out-of-state patent owners who make licensing overtures to in-state targets. As noted in Trimble, these decisions conform the case law to Supreme Court rulings that “[a]n entity that repeatedly sends communications into a forum state ‘clearly has fair warning that [its] activity may subject [it] to the jurisdiction of a foreign sovereign.’” Trimble, 997 F.3d at 1155 (quoting Quill Corp. v. North Dakota, 504 U.S. 298, 308 (1992)). The Red Wing policy continues to provide some protection to patent owners who correspond briefly with out-of-state targets to provide notice of infringement. However, the recent Federal Circuit cases make clear that when negotiations become protracted, as they invariably do, patent owners must soberly assess the risk of suit in the target’s home jurisdiction.