A recent Federal Circuit ruling on personal jurisdiction in patent cases conflicts with the court’s precedent and will complicate patent licensing negotiations, attorneys say.
The U.S. Court of Appeals for the Federal Circuit revived a suit by Trimble Inc. seeking a ruling that its driver-logging devices don’t infringe PerDiemCo LLC’s patents on location tracking. PerDiem’s repeated communications with Trimble in California opened it up to a declaratory judgment suit there, the court held in a precedential opinion.
The court said its ruling was consistent with its 1998 holding in Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc. that cease-and-desist letters and unsuccessful licensing negotiations, on their own, can’t establish the “minimum contacts” required for courts to exercise personal jurisdiction over a patent holder.
But attorneys disagree that the two opinions can be reconciled.
The court has created a split of authority among its panels on the issue, patent and procedure professor Megan La Belle of Catholic University Law School said. There is Red Wing Shoe and the cases that followed it for two decades on the one hand, and a new line of cases beginning a few years ago on the other.
The newer cases “stand for the proposition that Red Wing Shoe is not a bright line rule and did not say that cease-and-desist letters can never be the basis for personal jurisdiction,” she said. “But that is what Red Wing Shoe said.”
La Belle thinks the court should go en banc to overturn the case. “Red Wing Shoe needs to go,” she said.
Attorneys who represent patent owners and benefit from Red Wing Shoe‘s premise agree that the Trimble decision adds uncertainty.
“The Federal Circuit says Red Wing Shoe is still good law, but when you read their comments about it, I did not get a good feeling that it’s still good law,” patent litigator Douglas Bridges of Capital Legal Group LLC in Washington said.
It’s unclear where the line between Red Wing Shoe and Trimble is, Bridges said. “And that large gulf is where most patent licensing occurs.”
Patent owners often reach out to companies whose products they believe infringe their patents to open up licensing negotiation instead of going straight to litigation.
If patent owners open themselves up to declaratory judgment suits in jurisdictions where they interact with potential infringers, “patentees will stop sending notice letters, and simply file lawsuits instead,” Berkeley, Calif.-based sole practitioner Nick Gross said in an email.
“There is no upside anymore to trying to negotiate a license in good faith when the infringer can now start a lawsuit wherever and whenever they want to,” Gross said. “From a risk management perspective you can’t put yourself in a situation where the process is so unpredictable/uncertain.”
Bridges said patent owners trying to license their patents have always done a “delicate dance” to make sure they didn’t trigger declaratory judgment jurisdiction while still trying to get potential infringers interested enough in the accusations to consider licensing discussions.
In Red Wing Shoe, the patent owner made three contacts with the accused infringer. The court found 22 communications in Trimble.
“Usually at the point that you’ve sent three letters as a patent holder and gotten no response, you assume nothing is going to happen and you’re going to have to deal with litigation anyway,” Bridges said. “But in Trimble, the 22 communications show there were active communications going on. So as a patent owner trying to license, that means the more you try to negotiate with somebody, the more you’re opened up to personal jurisdiction in their forum.”
Recourse for Accused
But La Belle points out that if the accused infringer’s preferred forum is truly burdensome or inconvenient for the patent owner, they may be able to get around jurisdiction under the normal fairness analysis, or get a change of venue.
And settlement is not always good from a policy perspective, La Belle said.
“When patent cases are adjudicated, we potentially eliminate invalid patents, which creates a public good,” she said. When cases settle, there’s no chance for the patent to be evaluated, she said.
Rachael Lamkin, the founder of Lamkin IP Defense, said the decision gives ammunition to companies being targeted by non-practicing entities. “It should be mined heavily by any lawyer that’s filing a DJ case,” she said.
Non-practicing entities that send hundreds of nuisance-level settlement offers, which Lamkin called “the smash-and-grab kind of entities,” aren’t going to want to pay the $400 filing fee to get into court, she said.
“They are sending letters to unsophisticated business people and hoping to catch $15,000 here and there,” she said. “Now at least if you engage with the legal representation for that non-practicing entity and are in ongoing negotiations, then you have the opportunity to bring that DJ.”
En Banc Needed
La Belle said Red Wing Shoe is “clearly contradictory to Supreme Court precedent that has said over and over that personal jurisdiction needs to be decided on a case-by-case basis with no bright-line rules.”
She’s happy to see the Federal Circuit heading in a different direction, but says it’s time for the full Federal Circuit to reconsider the case.
“This is still confusing district courts because they are used to the Red Wing Shoe rule,” she said. “Unless the Federal Circuit comes out and explicitly reverses it courts will continue to apply it because that’s what they are supposed to do.”
And that confusion could be particularly acute as parties file more preemptive suits.
Declaratory judgment actions had fallen out of style since 2011, when the America Invents Act established post-grant proceedings at the patent office, La Belle said. But covered business method review—which was the only way to challenge patents on eligibility grounds at the agency—ended late last year.
“We may see an uptick again in declaratory judgment actions,” she said.
The case is Trimble Inc. v. PerDiemCo LLC, Fed. Cir., No. 19-2164, 5/12/21.