C&D Letters Do Not Establish Specific Personal Jurisdiction for Declaratory Judgment Action

The Court of Appeals for the Federal Circuit held that, when a patentee’s agent pertinent contacts with Texas are limited to the cease and desist letters sent to an alleged infringer in Texas, those letters may be sufficient to constitute minimum contacts with the forum but they are not sufficient to satisfy the fairness part of the test for specific personal jurisdiction. Therefore, the declaratory judgment action for non-infringement and/or invalidity is dismissed. New World International Inc. v. Ford Global Technologies, LLC, Case No. 2016-2097 (Fed. Cir. June 8, 2017) (Available Here).

Plaintiff New World appealed a final decision by the United States District Court for the Northern District of Texas dismissing New World’s declaratory judgment complaint for lack of personal jurisdiction over defendant-patentee Ford Global Technologies, LLC )”FGTL”). FGTL did no business in Texas and neither maintains an office nor has any employees in Texas. FGTL does not make or sell automobiles or automotive products; it owns, manages, and licenses intellectual property for the Ford Motor Company. FGTL designated LKQ its exclusive licensee for the importation and sale of non-original equipment aftermarket products in U.S.

New World is a Texas company with headquarters in Texas. On January 29, 2015, FGTL sued New World and its Internet retailer, Auto Lighthouse Plus, LLC, in the United States District Court for the Eastern District of Michigan. On April 14, 2015, New World filed the present suit in the Northern District of Texas seeking a declaratory judgment of noninfringement and invalidity with regard to the ‘299 and ‘685 design patents against FGTL.

The district court noted that, under controlling Federal Circuit law, FGTL’s cease and desist letters sent to New World in Texas were not sufficient to establish jurisdiction over FGTL.

“For personal jurisdiction, the nonresident defendant must have ‘certain minimum contacts with [the forum] such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.’ Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). For minimum contacts in the context of specific jurisdiction, the plaintiff must show that the defendant ‘has purposefully directed his activities at residents of the forum, and [that] the litigation results from alleged injuries that arise out of or relate to those activities.’ Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985); see also id. at 475 & n.18. If those minimum contacts are sufficient, the defendant may point to other factors ‘to determine whether the assertion of personal jurisdiction would comport with ‘fair play and substantial justice.’’ Id. at 476. This court has articulated those requirements in the form of a three-part test: ‘(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.’’ Inamed Corp. v. Kuzmak, 249 F.3d 1356, 1360 (Fed. Cir. 2001).”

The Federal Circuit has earlier acknowledged that a 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. Further, the subsequent declaratory judgment action by that potential plaintiff ‘arises out of or relates to’ the defendant’s activity-namely, the cease and desist letter. “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.” citing Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355, 1360-61 (Fed. Cir. 1998).

“One such activity that this court has recognized may meet the minimum contacts requirement is the grant of an exclusive license to a licensee that resides or regularly does business in the forum. Avocent Huntsville Corp. v. Aten Int’l Co., 552 F.3d 1324, 1334 (Fed. Cir. 2008); see also, e.g., Breckenridge, 444 F.3d at 1366.” In Genetic Implant Systems, Inc. v. Core-Vent Corp., 123 F.3d 1455 (Fed. Cir. 1997), the Federal Circuit held that a nonresident patent holder was subject to personal jurisdiction based both on direct marketing and sales activities in the forum before the nonresident’s patent issued, and on the nonresident’s execution, after the patent issued, of an exclusive agreement with a distributor whose activities were directed at the forum state.

A decade later, in Breckenridge Pharmaceutical, Inc. v. Metabolite Laboratories, Inc., 444 F.3d 1356 (Fed. Cir. 2006), the Federal Circuit clarified that the question of specific jurisdiction over a nonresident patent holder in a case involving an exclusive license requires close examination of the license agreement.

“This court made that point clear in Avocent Huntsville Corp. v. Aten International Co., 552 F.3d 1324 (Fed. Cir. 2008), [wherein] [t]he court explained that in a declaratory judgment action against a nonresident patent holder, ‘we have consistently required the defendant to have engaged in ‘other activities’ that relate to the enforcement or the defense of the validity of the relevant patents.’”

The license herein states that FGTL has ‘the right to determine what action, if any, is to be taken in each such instance.’ FGTL therefore is free to decide how to enforce the patent, or whether to enforce it at all. If LKQ requests enforcement and FGTL has no reason to refuse, then ‘LKQ agrees … to become a party to such action if necessary, and to cooperate with FGTL, in the prosecution of any such action or proceeding involving any alleged infringement respecting FGTL’s rights in the Ford Design Patents.’” “In sum, under the license agreement, FGTL retains nearly complete control over the patent enforcement decision. New World has not shown that the obligations contemplated in the license have resulted in an undertaking by FGTL to enforce or defend the patents with LKQ.”

Accordingly, Defendant’s pertinent contacts with Texas are limited to the cease and desist letters.
While those letters may be sufficient to constitute minimum contacts with the forum, they are not sufficient to satisfy the fairness part of the test for specific personal jurisdiction. See Xilinx, 848 F.3d at 1357.

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