Noted with Interest: The Federal Circuit Blurs a Once Bright-Line Rule Regarding Personal Jurisdiction

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Patent owners seeking to assert their rights in forums outside their home states may now need to think twice about whether to hit send on a cease-and-desist or demand letter. For the past two decades, since the Federal Circuit’s decision in Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355 (Fed. Cir. 1998), patent owners have been able to send cease-and-desist letters to alleged infringers in other states without subjecting themselves to personal jurisdiction in that other forum. Red Wing appeared to establish a bright-line rule that precluded personal jurisdiction where a patent owner did nothing more than assert its patent rights in correspondence. Now, the Federal Circuit says that may not always be the case.  In Trimble Inc. v. PerDiemCo LLC, the Federal Circuit held that the that a patent owner was subject to jurisdiction in another state based on its 22 communications with an alleged infringer, which the court found were “extensive” and more akin to an “arms-length negotiation” than to a cease-and-desist or demand letter. Trimble, 997 F.3d 1147, 1156-57 (Fed. Cir. 2021). 

Background

The lawyer for PerDiemCo, a Texas limited liability company, sent a letter to Innovative Software Engineering, LLC (“ISE”), which is an Iowa limited liability company. The letter accused ISE of infringing nine patents related to geofencing and electronic logging technology and included as an attachment an unfiled complaint for the Northern District of Iowa. 

How was a letter from a Texas company to an Iowa company threatening suit in Iowa sufficient for the Northern District of California to have specific personal jurisdiction over the Texas company? 

At the district court level, things went PerDiemCo.’s way – arguably, this was the expected result based on precedent. In what was a seemingly simple application of Red Wing, the district court held that “exercising specific personal jurisdiction over PerDiemCo would be constitutionally unreasonable.” Id. at 1152. After all, Red Wing stood for the proposition 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.” Id. at 1154 (quoting Red Wing, 148 F.3d at 1361). If applied as a bright-line rule, PerDiemCo, the patentee, would not have been subject to specific personal jurisdiction in the Northern District of California solely for informing Trimble, a California resident, of suspected infringement. 

On appeal, the Federal Circuit reversed, identifying identified several reasons why “the minimum contacts or purposeful availment requirement is easily satisfied in this case.”  Id. at 1157.

First, ISE forwarded the letter to Trimble, a Delaware limited liability company, which has its headquarters in Sunnyvale, California and it is the parent of ISE. Once Trimble identified itself as the point of contact for resolution, PerDiemCo began corresponding with it. 

Second, PerDiemCo subsequently raised new allegations against Trimble – not just ISE – implicating eleven patents total. PerDiemCo threatened suit in the Eastern District of Texas, where it is based, and informed Trimble that it had retained counsel for that purpose. 

Third, Trimble and ISE corresponded about entering into binding mediation and negotiating a resolution. Their Chief IP Counsel specifically stated that “Trimble was willing to negotiate as long as the talks continued to be productive.” Id. at 1151. 

Fourth, the court pointed to the sheer volume of communications: the parties communicated by letter, email, or telephone at least twenty-two times in a three-month period before Trimble and ISE sought a declaratory judgment in the Northern District of California. 

What Remains of Red Wing After Trimble

The underlying rules remain the same. To determine whether an out-of-state defendant is subject to personal jurisdiction outside of its home state, the court looks to see if it has “purposely avail[ed] itself of the privilege of conducting activities within the forum State” and whether the plaintiff’s claims “arise out of or relate to” those contacts. Ford Motor Co. v. Mont. Eighth Jud. Dist. Ct., 141 S. Ct. 1017, 1024-25 (2021) (internal quotations omitted).  When courts analyze if they have specific personal jurisdiction, they also must consider if this exercise comports with “fair play and substantial justice.” See id. at 1024 (quoting Int’l Shoe Co. v. Washington, 326 U.S. at 310, 316-17 (1945)).  

In Red Wing, a New Mexico-based patentee sent three letters alleging infringement and offering to negotiate a nonexclusive license. The Minnesota-based accused infringer responded with requests for extensions and denials of infringement before eventually seeking a declaratory judgment in Minnesota. The Federal Circuit determined that the “[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 a foreign forum.”  Red Wing, 148 F.3d at 1360-62. In other words, the Minnesota court could not exercise personal jurisdiction over the New Mexico-based patentee simply because the patentee sent a cease-and-desist letter. 

Trimble went the other way: the Federal Circuit found that the California district court could exercise personal jurisdiction over a Texas-based patentee based on similar conduct. Trimble cuts at the clarity that patent owners had come to rely on based on Red Wing. Although the Federal Circuit maintained that Red Wing was not being overruled, the court explained that Red Wing could not preclude California having jurisdiction over PerDiemCo, because “there is no general rule that demand letter can never create personal jurisdiction.” Trimble, 997 F.3d at 1156. Instead, 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 … conforms to the due process and fairness.”  Id.  

Ramifications

Post-Trimble, both sides of a patent dispute will need to think carefully before corresponding regarding alleged infringement. For patent owners, 22 communications is clearly too much to avoid personal jurisdiction. But the bright line has now blurred. 

Future litigation will determine exactly where that line is. In Trimble, the Federal Circuit gave some hints, explaining that it had interpreted the Supreme Court as providing “instruction to treat ‘isolated or sporadic [contacts] different from continuous ones.’” Id. (quoting Ford, 141 S. Ct. at 1028 n.4). This appears consistent with the earlier Red Wing distinction that a cease-and-desist letter that included an offer for a license was “more closely akin to an offer for settlement of a disputed claim rather than an arms-length negotiation in anticipation of a long-term continuing business relationship.” Red Wing, 148 F.3d at 1361. For the foreseeable future, this may require courts to undergo a case-by-case analysis of these issues.

Without a bright-line rule, and with little ability to predict in advance the number of communications that may be necessary to license an alleged infringer, patent owners will be faced with significant uncertainty. For patent owners that do not want to litigate outside of their home states or chosen forums, there will likely be a greater inclination to file first and attempt to negotiate later.  The thought of being trapped in an undesirable forum for a number of years may be greater than the desire to try to avoid litigation costs. For accused infringers, who may be eager to seize a jurisdictional advantage by filing declaratory judgments first in their respective forum states, there is an incentive to engage with the patent owner and increase the volume of pre-suit communications.  These dynamics will continue to play out as courts interpret and apply the Federal Circuit’s decision in Trimble.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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