Personal Jurisdiction Exists Due to Warning Letters and Prior Litigations in Forum
By Joseph Herndon --
Establishing personal jurisdiction in the United States over a company operating in a foreign country can be difficult. How does a U.S. company protect itself in its home state when threatened with patent infringement by patents owned by a foreign company? The Federal Circuit answered this question, and indicated that the U.S. courts will have personal jurisdiction over the foreign company in any declaratory judgement action found if sufficient minimum contacts are established and absent any rare undue burden on the defendant.
In the instant case, Xilinx is a Delaware corporation that is headquartered in San Jose, California. Xilinx designs, develops, and markets programmable logic devices for use in electronics systems. U.S. Patent Nos. 6,574,759 and 6,704,891, which are owned by Papst, are directed to methods for generating and verifying memory tests in electronics. Papst attempted to license these patents to Xilinx, but when negotiations failed, Xilinx filed a declaratory judgment action and Papst countered with a patent infringement action, but each were filed in different jurisdictions, and the District Court dismissed the declaratory judgment action for lack of personal jurisdiction. On appeal, the Federal Circuit found that the District Court in which Xilinx filed has specific personal jurisdiction over Papst with respect to Xilinx's declaratory judgment action, and thus, the case was reversed and remanded.
Turning to the facts of the case, Papst is organized under the laws of Germany and has its principal place of business there. Papst is a non-practicing entity that is solely in the business of monetizing and licensing intellectual property rights. According to Papst, it has always been in the business of obtaining and licensing patents, it does not manufacture or sell any consumer products, and it has always had fewer than 30 employees. In fact, Papst's business model is to acquire and then assert patent rights. Before agreeing to purchase a patent, Papst performs due diligence to identify patent infringement by comparing the patent claims against the potentially infringing products, and the due diligence involves identifying the companies potentially involved in infringements, and the markets they are selling their product in -- where they are located, and how large they are, including where the product is made as well as where it is sold.
When Papst identifies infringers, it notifies them that Papst believes they are infringing. After technical discussions confirming the infringement, the conversation moves towards licensing the patents through an agreement. If negotiations fail, Papst is prepared to effectively enforce the respective patents in courts. Especially in the United States, Germany, and the Netherlands Papst has years and years of experience in patent litigation. Papst has repeatedly filed patent infringement suits in California federal courts. The record shows that Papst has filed patent infringement lawsuits in California at least seven times between 1994 and 2007 based on other patents in Papst's portfolio.
For the patents-in-suit, in January 2014, Papst sent a patent infringement notice letter to Xilinx. In the letter, Papst identified several of Xilinx's products that allegedly infringed the patents-in-suit, and stated that Papst proposes commencing discussions with Xilinx so that Xilinx can consider taking a license to the Papst Patents. Negotiations failed, and Xilinx filed its declaratory judgment action in California, and on the same day, Papst filed an infringement suit against Xilinx in the District of Delaware asserting the same patents-in-suit. Papst moved to dismiss the California declaratory judgment action for lack of personal jurisdiction, or in the alternative, transfer the action to the District of Delaware. The California District Court granted Papst's motion and dismissed the declaratory judgment action for lack of personal jurisdiction.
On appeal, the central issue in this case is whether the exercise of specific personal jurisdiction over Papst in California is fair and reasonable. Determining whether jurisdiction exists over an out-of-state defendant involves two inquiries: whether a forum state's long-arm statute permits service of process and whether assertion of personal jurisdiction violates due process. California's long-arm statute permits service of process to the full extent allowed by the due process clauses of the United States Constitution. Accordingly, in this case, the two inquiries collapse into a single inquiry: whether jurisdiction comports with due process.
In the case of specific, as opposed to general jurisdiction, the Federal Circuit summarized the Supreme Court's due process jurisprudence into a three-factor 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. The first two factors correspond with the minimum contacts prong of the International Shoe analysis, and the third factor corresponds with the fair play and substantial justice prong of the analysis.
Papst makes no argument that its activities directed to Xilinx in California do not satisfy the minimum contacts prong of the specific jurisdiction test. The Federal Circuit went on to make clear that there is no question that Papst has the required minimum contacts with California. Papst purposefully directed its activities to California when it sent multiple notice letters to Xilinx and traveled there to discuss Xilinx's alleged patent infringement and potential licensing arrangements. Xilinx's declaratory judgment action of non-infringement certainly relates to these contacts. In the context of declaratory judgment actions involving assertions of patent non-infringement or invalidity, the Federal Circuit has concluded that cease-and-desist letters sent by the patentee defendant into the forum are relevant contacts in the personal jurisdiction analysis.
In arguing against personal jurisdiction, Papst focused entirely on the "reasonable and fair" prong and argued that exercising specific jurisdiction over a patentee based solely on cease-and-desist letters, which contain notice of the sender's patent rights, accusations of infringement, and/or licensing offers, does not comport with fair play or substantial justice.
The inquiry under the reasonableness prong (step two) is not limited to the specific facts giving rise to, or relating to, the particular litigation. Once it has been decided that a defendant purposefully established minimum contacts within the forum State, these contacts may be considered in light of other factors to determine whether the assertion of personal jurisdiction would comport with fair play and substantial justice. These other factors -- the burden on the defendant, the plaintiff's interest in obtaining convenient and effective relief, etc. -- often cannot be analyzed without looking to circumstances beyond those that give rise or relate to the specific lawsuit.
Five considerations commonly considered relevant to the reasonableness analysis include:  the burden on the defendant,  the forum State's interest in adjudicating the dispute,  the plaintiff's interest in obtaining convenient and effective relief,  the interstate judicial system's interest in obtaining the most efficient resolution of controversies, and  the shared interest of the several States in furthering fundamental substantive social policies.
Papst makes no argument that factors – weigh against a finding of personal jurisdiction, nor could it. Xilinx, which is headquartered in California, indisputably has an interest in protecting itself from patent infringement by obtaining relief from a nearby federal court in its home forum. Also, California has a substantial interest in protecting its residents from unwarranted claims of patent infringement. Jurisdiction over Xilinx's declaratory judgment claims in California would also result in an efficient resolution of the controversy. Finally, 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 the patent invalidity claim irrespective of the forum.
The only possible factor that Papst argued was the burden on the defendant. With respect to this factor, Papst argued that its contacts with Xilinx in California are insufficient to justify the burden of litigating in that forum. Namely, Papst argued that a patentee's sending of warning letters and offers to license, without more, are not sufficient to satisfy the requirements of Due Process in declaratory judgment actions.
The Federal Circuit disagreed with Papst because Papst had done more than just send letters to Xilinx. Representatives from Papst traveled to California to meet with Xilinx in person to discuss Papst's infringement contentions and licensing offer with respect to the patents-in-suit. By the very nature of its business, Papst must litigate its patents in the United States in fora far from its home office in Germany. In this context, the burden on Papst to litigate in California appears not undue.
The lack of significant burden on Papst is also evidenced by Papst's prior litigations in California itself. Papst has repeatedly availed itself of the California federal court system -- at least seven times -- by filing patent infringement lawsuits there.
In light of the totality of circumstances present in this case, the Federal Circuit found that this case is not one of the rare situations in which sufficient minimum contacts exist but where the exercise of jurisdiction would be unreasonable. Thus, the Federal Circuit held that Xilinx has established that personal jurisdiction over Papst is proper in California. Accordingly, the District Court's dismissal of Xilinx's declaratory judgment complaint was reversed and remanded.
Xilinx, Inc. v. Papst Licensing GmbH & Co. KG (Fed. Cir. 2017)
Panel: Chief Judge Prost and Circuit Judges Newman and Dyk
Opinion by Dyk