Antitrust Law is Not Appealing to the Federal Circuit

In Chandler v. Phoenix Services LLC, [2020-1848] (June 10, 2021), the Federal Circuit transferred the appeal of a Walker Process antitrust case to the Court of Appeals for the Fifth Circuit.

Appellants were asserting antitrust claims based on the attempted enforcement of U.S. Patent No. 8,171,993, which had been held unenforceable due to in-equitable conduct.

The Federal Circuit concluded that it did not have jurisdiction over the appeal. The Federal Circuit has jurisdiction over the appeal of a final decision of a district court “in any civil action arising under . . . any Act of Congress relating to patents.” 28 U.S.C. § 1295(a)(1). However, the Federal Circuit noted, “while Walker Process antitrust claims may relate to patents in the colloquial use of the term, our jurisdiction extends ‘only to those cases in which a well-pleaded com-plaint establishes either that federal patent law creates the cause of action or that the plaintiff’s right to relief necessarily depends on resolution of a substantial question of federal patent law, in that patent law is a necessary element of one of the well-pleaded claims.” Because appellant’s cause of action arises under the Sherman Act rather than under patent law, and because the claims do not depend on resolution of a substantial question of patent law, the Federal Circuit lacked subject matter jurisdiction.

A Cease and Desist Letter Can Confer Personal Jurisdiction

In Trimble Inc., Innovative Software Engineering, LLC, v. Perdiemco LLC, [2019-2164] (May 12, 2021), the Federal reversed the dismissal of Trimble’s declaratory judgment noninfringement action against PerDiemCo LLC for lack of personal jurisdiction.

Base upon Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355 (Fed. Cir. 1998), the United States District Court for the Northern District of California held that it would be unreasonable to assert personal jurisdiction over PerDiemCo based on its communications to Trimble in California. However the Federal Circuit concluded that Red Wing does not preclude personal jurisdiction on the facts of this case and that the district court had personal jurisdiction over PerDiemCo.

PerDiemCo’s current sole owner, officer, and employee is Robert Babayi. He lives and works in Washington, D.C. PerDiemCo rents office space in Marshall, Texas. Mr. Babayi has never visited the rented space, and PerDiemCo has no employees in Marshall.  In October 2018, Mr. Babayi, on behalf of PerDiemCo, sent a letter to ISE in Iowa accusing ISE’s products and services of using technology covered by at least PerDiemCo’s electronic-logging-device patents. The letter also explained that PerDiemCo actively licences its patents and listed at least ten companies that had entered into nonexclusive licenses after the companies had “collectively spent tens of millions of dollars in litigation expenses.” Attached to PerDiemCo’s letter was an unfiled complaint for the Northern District of Iowa, which asserted nine of PerDiemCo’s patents against ISE’s products and services, and a claim chart that provided further detail re-garding the alleged infringement. The letter also offered ISE a nonexclusive license to PerDiemCo’s patents, proposed that the parties engage in negotiations, and attached a draft nondisclosure agreement to facilitate the parties’ discussions.  The parties entered negotiations, during which PerDiemCo communicated with Trimble via letter, email, or telephone at least twenty-two times.  In this correspondence and telephone calls, PerDiemCo threatened to sue Trimble for patent infringement in the Eastern District of Texas and identified counsel that it had retained for this purpose.

In Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355 (Fed. Cir. 1998), the Federal Circuit states 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 grounding personal jurisdiction on such contacts alone would not comport with principles of fairness,  The Fedeal Circuit noted three subsequent developments that have clarified the scope of Red Wing.

First, the Supreme Court cases following Red Wing have made clear that the analysis of personal jurisdiction cannot rest on special patent policies.  Second, the Supreme Court has held that communications sent into a state may create specific personal jurisdiction, depending on the nature and scope of such communications.  Third, the Supreme Court’s recent decision in Ford has established that a broad set of a defendant’s contacts with a forum are relevant to the minimum contacts analysis.

Given these developments and consistent with the Supreme Court’s instruction to treat “isolated or sporadic [contacts] differently from continuous ones,” the Federal Circuit concluded that Red Wing remains correctly decided with respect to the limited number of communications involved in that case. However, there is no general rule that demand letters can never create specific personal jurisdiction. The Federal Circuit said the central question under Red Wing is now whether a defendant’s connection to a forum is sufficient to satisfy the minimum contacts or purposeful availment test and, whether the exercise of jurisdiction con-forms to the due process and fairness criteria of precedent.  The Federal Circuit concluded that the minimum contacts or purposeful availment test was satisfied

The Federal Circuit said that PerDiemCo thus has not made a compelling case that the presence of some other considerations would render jurisdiction unreasonable, and it reversed the district court’s order finding a lack of personal jurisdiction and remanded for further proceedings.

Lack of All Substantial Rights Deprived Plaintiff of Statutory Standing, But Not Article III Standing

In Lone Star Silicon Innovations LLC. v. Nanya Technology Corporation, [2018-1581] (May 30, 2019), the Federal Circuit affirmed the district court’s determination that Lone Star did not own the patents in suit, but reversed the dismissal of the action, finding that the court should consider whether AMD, the patent owner, should have been joined.

The asserted patents were originally assigned to AMD, which later executed an agreement purporting to transfer “all right, title and interest” in the patents to Lone Star. The transfer agreement, however, imposed several limits on Lone Star, including that Lone Star agreed to only assert
the covered patents against entities specifically listed in the agreement. If Lone Star sued an unlisted entity, AMD had the right—without Lone Star’s approval—to sublicense the covered patents to the unlisted target. AMD could also prevent Lone Star from assigning the patents or allowing them to enter the public domain.

Lone Star sued entities who were listed in the transfer agreement, alleging that AMD transferred “all right, title, and interest” in the asserted patents to Lone Star. Nearly a year after filing, Lone Star finally produced the transfer agreement, which resulted in motions to dismiss, which the district court granted after concluding that Lone Star did not hold all substantial rights in the asserted patents.

The Federal Circuit agreed with the district court that, while Lone Star was given a number of rights in the transfer agreement, it was not given all substantial rights in the asserted patents. The Federal Circuit explained that the “ultimate task is not to tally the number of rights retained against those transferred.” The inquiry depends on the substance of what was granted rather than formalities or magic words.

Looking at the “totality” of the transfer agreement, the Federal Circuit focused on two salient rights: enforcement and alienation. Noting that Lone Star needed AMD consent to sue unlisted entities, and that Lone Star’s ability to transfer the patents was limited to assignees who agreed to be bound by the same terms and conditions, the Federal Circuit concluded that Lone Star did not have all substantial rights.

However the Federal Circuit found that the district court erred when it concluded that Lone Star did not have standing, noting the difference between statutory jurisdiction and subject matter jurisdiction. The Federal Circuit noted that its own precedent was at least partly responsible for this error, and pronounced it was bringing itself into accord with Lexmark and our sister circuits by concluding that whether a party possesses all substantial rights in a patent does not implicate standing or subject-matter jurisdiction. Accordingly, the Federal Circuit found that although Lone Star does not possess all substantial rights in the asserted patents its allegations still satisfy Article III.

Because it has standing, even if it lacks all substantial rights in the patents, Lone Star should be given an opportunity to join AMD as a necessary party before this case is dismissed, and the Federal Circuit agreed, finding the result compelled by FRCP 19(a)(2) (“If a person has not been joined as required, the court must order that the person be made a party”) and Federal Circuit precedent. The Federal Circuit vacated the district court’s dismissal and remanded with an instruction that it consider whether AMD must be joined here.

C&D Letters Sufficient to Establish Personal Jurisdiction

In Jack Henry & Associates, Inc. v. Plano Encryption Technologies LLC,  [2016-2700] (December 7, 2018), the Federal Circuit reversed the dismissal of the action for lack of personal jurisdiction, and remanded for further proceedings.

PET is a Limited Liability Company established in the State of Texas, and is registered to do business throughout Texas, with its registered address in Plano, Texas, in the Eastern District of Texas.  PET’s sole business is to enforce its intellectual property.  After receiving letters alleging infringement, Jack Henry and its customers brought the declaratory judgment action in the Northern District of Texas.  

The district court granted PET’s motion for dismissal, stating that PET’s actions do not subject it to personal jurisdiction in the Northern District of Texas, noting that while such letters might be expected to support an assertion of specific jurisdiction over the patentee because the letters are purposefully directed at the forum and the declaratory judgment action arises out of the letters, the Federal Circuit has held that, based on policy considerations unique to the patent context, letters threatening suit for patent infringement sent to the alleged infringer by themselves do not suffice to create personal jurisdiction.

The Federal Circuit identified three relevant factors: (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.”  It said that the first two factors comprise the “minimum contacts” portion of the jurisdictional framework, and that it has held that the sending of a letter that forms the basis for the claim may be sufficient to establish minimum contacts, and PET’s counsel conceded as much at oral argument.

The analysis then turned to whether assertion of personal jurisdiction is “reasonable and fair.”  The Federal Circuit noted that PET is subject to general jurisdiction in the state of Texas and is registered to do business throughout the state, and that it has not asserted that jurisdiction in the Northern District is inconvenient or unreasonable or unfair. 

The Federal Circuit said that the burden befalls PET, as the source of the minimum contacts, to make a “compelling case” that the exercise of jurisdiction in the Northern District would be unreasonable and unfair.  However, PET did not argue that litigating in the Northern District would be unduly burdensome, or that any of the other factors supports a finding that jurisdiction would be unfair.  The Federal Circuit concluded that PET has met the minimum contacts requirement without offense to due process.

Personal Jurisdiction in a DJ Action Must be based on Intentional Conduct Directed at the Forum

In Maxchief Investments Ltd. v. Wok & Pan, Ind., Inc., [2018-1121](November 29, 2018), the Federal Circuit affirmed the district court’s dismissal of Maxchief’s declaratory judgment tortious interference claims, because of lack of personal jurisdiction over Wok.

Wok sued Staples in California for infringement of Wok’s U.S. Patent Nos. 5,957,061, 8,881,661, 8,931,421, and 9,089,204 on folding tables,  Staples demanded the distributor Meco defend the action pursuant to an indemnity, and Meco demanded that Maxchief defend the action pursuant to an indemnity.  Maxchief brought a declaratory judgment action against Wok in the Eastern District of Tennessee, alleging specific personal jurisdiction.

The district court held that Maxchief failed to allege that Wok had sufficient minimum contacts with Tennessee, because although Wok sought to enforce the patents against other parties in other courts, Wok did not seek to enforce its patents in the forum state of Tennessee.

The minimum contacts inquiry involves two related requirements: (1) the defendant must have purposefully directed its conduct at the forum state; and (2) the claim must arise out of or relate to the defendant’s contacts with the forum.  A declaratory judgment claim arises out of the patentee’s
contacts with the forum state only if those contacts relate in some material way to the enforcement or the defense of the patent, and thus the minimum contacts prong requires some enforcement activity in the forum state by the patentee.  It is not enough that Wok’s lawsuit might have “effects” in Tennessee, rather, jurisdiction “must be based on intentional conduct by the defendant” directed at the forum.

The Federal Circuit concluded that Maxchief had not established that personal jurisdiction over Wok is proper in Tennessee, and affirmed the district court’s dismissal of Maxchief’s complaint.

Walker Process Monopolization Claim Does not Depend upon Resolution of a Substantial Question of Federal Patent Law

In Xitronix Corp. v. Kla-Tehcor Corp., [2016-2746] (February 9, 2018), the Federal Circuit transferred an appeal of a Walker Process claim to the United States Court of Appeals for the Fifth Circuit, which has appellate jurisdiction over cases from the District Court for the Western District of Texas.

Xitronix raised a Walker Process monopolization claim under § 2 of the Sherman Act and §§ 4 and 6 of the Clayton Act based on the alleged fraudulent prosecution of a patent.

Xitronix asserted that the Federal Circuit had jurisdiction over the appeal pursuant to 28 U.S.C. § 1295(a)(1), and KLA-Tencor did not dispute this assertion, but the Federal did.  The Federal Circuit said the question is whether the monopolization allegation necessarily depends on resolution of a substantial question of federal patent law, in that patent law is a necessary element of one of the well-pleaded claims.  Applying the well-pleaded complaint rule, in light of the Supreme Court’s guidance and rationale in Gunn, the Federal Circuit held that monopolization does not depend upon resolution of a substantial question of federal patent law.

The Federal Circuit said that there is nothing unique to patent law about allegations of false statements.  While a determination of the alleged misrepresentations to the PTO will almost certainly require some application of patent law, but consistency with the federal question jurisdiction statute requires more than mere resolution of a patent issue in a “case within a case.”  Something more is required to raise a substantial issue of patent law sufficient to invoke our jurisdiction under 28 U.S.C. § 1295(a)(1).

The underlying patent issue in this case, while important to the parties and necessary for resolution of the claims, does not present a substantial issue of patent law.  The Federal Circuit noted that patent claims will not be invalidated or revived based on the result of this case. Because Federal Circuit law applies to substantive questions involving its exclusive jurisdiction, the fact that at least some Walker Process claims may be appealed to the regional circuits will not undermine its uniform body of patent law.  The Federal Circuit noted that the fact that its law applies to Walker Process claims does not mean that it has exclusive jurisdiction over appeals of such claims.


Foreign Suits Involving Foreign Patents Do Not Create a Case or Controversy in the U.S.

In Allied Mineral Products, Inc. v. OSMI, Inc., [2016-2641] (September 13, 2017), the Federal Circuit affirmed the dismissal of Allied’s declaratory judgment action seeking a declaration that Stellar’s U.S. Patent No. 7,503,974 is invalid, and that Stellar committed inequitable conduct, for lack of subject matter jurisdiction.

This dispute centered on a Mexican infringement suit between Stellar and two of Allied’s Mexican distributors.  Allied manufactured the accused product in the United States, which are then sold in Mexico by Allied’s Mexican distributors.  The district court held that Stellar’s decision to enforce its Mexican patent under Mexican law against separate entities cannot, without further affirmative action by Stellar, create an
actual controversy with Allied with regard to its U.S. patent.

The Federal Circuit reasoned that the totality of the circumstances in this case does not rise to the level of a case of actual controversy. Declaratory judgment jurisdiction requires some affirmative act by
the patentee, and Stellar has not directed any actions towards Allied, nor has it litigated or threatened litigation in the United States or on its U.S.

Allied argued that it has been forced into an unwinnable business position; it can either continue to sell products in the United States knowing it may be the target of an infringement suit, or it can cease selling products it believes it has a right to sell. The Federal Circuit said that the fear of a future infringement suit is insufficient to confer
jurisdiction.  The Federal Circuit concluded that Allied has failed to establish a case or controversy regarding Stellar’s U.S. patent in the United States under Article III.

Oh, No, Toto An Interactive Website Won’t Bring You to Kansas

In Nexlearn, LLC v. Allen Interactions, Inc., [2016-2170, 2016-2221](June 19, 2017), the Federal Circuit affirmed the dismissal of a complaint for patent infringement for lack of personal jurisdiction.

NexLearn sued Allen Interactions in the District of Kansas alleging infringement of U.S. Patent No. 8,798,522 and breach of contract.  Allen Interactions, a Minnesota corporation, moved to dismiss NexLearn’s complaint for lack of personal jurisdiction.  Allen Interactions argued it was not subject to specific or general jurisdiction in Kansas due to its limited contacts with the forum, which it argued amounted to a single sale unrelated to the accused product that represented less than 1% of its revenue over the past five years.

NexLearn did not argue general jurisdiction in its briefing, and drawing all reasonable inferences in favor of NexLearn, the district court held that NexLearn failed to allege that Allen Interactions had sufficient contacts with Kansas to permit the exercise of specific jurisdiction.

On appeal the Federal Circuit applied a three-part test, in which it determines whether: (1) the defendant purposefully directed its activities to the forum State; (2) the claims arise out of or relate to those activities (collectively, the minimum contacts prong); and (3) the assertion of jurisdiction is reasonable and fair.

The Federal Circuit discounted Allen Interactions’ activities prior to the patent issuance as irrelevant to patent infringement.  The Federal Circuit also agreed that forum selection provisions in an expired NDA and EULA agreement unrelated to the infringement, likewise did not subject Allen Interactions to specific jurisdiction in Kansas.

The Federal Circuit then considered Allen Interaction’s website. NexLearn argued that the fact that “Kansas” was in a drop down menu for billing address showed that Allen Interaction was targeting Kansas.  However the Federal Circuit found that Allen Interaction’s address selector may indicate its amenability to selling the accused product to Kansas residents, but it does not establish minimum contacts
arising out of or related to the infringement claim. The Federal Circuit said that while a Kansas resident could purchase the accused product from the Allen’s website, what was missing was any evidence that such
a sale has taken place, or that any Kansas resident ever even accessed the website.  The Federal Circuit explained that the website:

is conceptually no different than operating an out-of-state store. That a store would accept payment from a hypothetical out-of-state resident and ship its product there does not create a substantial connection for an infringement claim between the store and the hypothetical resident’s forum State. The store’s willingness to enter future transactions with out-of-state residents does not, without more, show purposeful availment of each State in which it would, but has not yet, provided or even offered a sale.

The Federal Circuit said that something more is needed—whether it be actual sales, targeted advertising, or contractual relationships—to
connect the defendant’s infringing acts of making, using, offering, or selling its product with the forum State. While what is sufficient may vary from case to case, the Federal Circuit said that it cannot be that the mere existence of an interactive website, like the existence of an out-of-state store, is suit-related conduct creating a substantial connection with the forum state.

The Federal Circuit also found that Allen Interaction’s email to a NexLearn employee regarding new features of the accused software product, and an offer to a NexLearn employees of a free trial of the accused software product were insufficient.  However the Federal Circuit rejected the district court’s rationale that this was because it was unilateral conduct on NexLearn’s part.  Instead, the Federal Circuit found that the email was a mass-email advertisement that did not show that that Kansas was a target market.  The mailing of one advertisement to
all of its nationwide subscribers did not create a substantial connection with Kansas.

Similarly with respect to the offer of a free trial, the Federal Circuit disagreed that this was irrelevant, but simply that single offer of a
free trial is too attenuated to establish minimum contacts with Kansas.

The Federal Circuit affirmed the dismissal of the patent infringement claim, and the supplemental claim for breach of contract as well.



A Cease and Desist Letter Alone Does not Establish Personal Jurisdiction

In New World International, Inc. v. Ford Global Technologies, LLC, [2016-2097](June 8, 2017), the Federal Circuit affirmed the dismissal of New World’s declaratory judgment complaint for lack of personal jurisdiction over Ford Global Technologies (FGTL).

FGTL sent New World a cease and desist letter accusing New World of infringing its design patents by selling various parts meant for use on Ford vehicles.  New World filed suit in the Northern District of Texas seeking a declaratory judgment of noninfringement and invalidity with regard to the design patents.  The district court found that FGTL’s cease and desist letters sent to New World in Texas were not sufficient to establish jurisdiction over FGTL. The court further found that FGTL’s license agreement with third party LKQ did not provide the court with specific personal jurisdiction over FGTL in the declaratory judgment suit, and the court accordingly dismissed the complaint.

The Federal Circuit applied its three part test, which considers: (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 Federal Circuit has acknowledged that the 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. And a subsequent declaratory judgment action by that potential plaintiff arises out of or relates to the defendant’s activity—namely, the cease and desist letter. However, 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.

The Federal Circuit noted that while the act of sending cease and desist letters is insufficient by itself to trigger a finding of personal jurisdiction, other activities by the defendant, in conjunction with cease and desist letters, may be sufficient. However, the Federal Circuit found no other activities of FGTL sufficient to establish jurisdiction.

A Patent Case is Not Final and Appealable Until It’s All Over but the Counting

In Halo Electronics, Inc. v. Pulse Elecctronics, Inc., [2016-2006](May 26, 2017), the Federal Circuit dismissed Pulse’s appeal from the district court’s decision awarding prejudgment interest because it lacked jurisdiction.

The Federal Circuit said that the Order that Pulse appealed from could not be a final order because the district court never resolved the parties’ dispute regarding the date from which to begin calculating prejudgment
interest or set the amount of prejudgment interest to be awarded to Halo.  As a result, there is no final decision because the district court has not “determine[d], or specif[ied] the means for determining the amount” of prejudgment interest.