Before Newman, Wallach, and Stoll. Appeal from the District Court of the Northern District of Texas.
Summary: There is no generalized rule that sending letters alleging patent infringement by themselves does not create personal jurisdiction.
Plano Encryption Technologies ("PET"), registered to do business in the Eastern District of Texas, sent letters alleging patent infringement, inviting a license, and otherwise threatening litigation to eleven banks located in the Northern District of Texas. Jack Henry who provides software systems for the banks' mobile applications and had agreed to indemnify the banks, along with the banks filed an action for declaratory judgment against PET in the Northern District of Texas. PET moved to dismiss on the grounds that its contacts with the Northern District of Texas did not subject it to personal jurisdiction and thus venue was improper. The district court agreed with PET and dismissed the case. Jack Henry and the banks appealed.
Texas’s long-arm statute extends to the limits of federal constitutional due process. In analyzing due process, the Federal Circuit reviewed the following three factors: (1) whether the defendant "purposefully directed" its activities at residents of forum; (2) whether the claim "arises out of or relates to" defendant's activities in the forum; and (3) whether the exercise of personal jurisdiction is reasonable and fair. On appeal, PET agreed that the following the New World International case, which held sending a letter that forms the basis for the claim may be sufficient to establish minimum contacts, the first two minimum contacts factors were met. New World International, Inc. v. Ford Global Technologies, LLC, 859 F.3d 1032, 1037-38 (Fed. Cir. 2017). As for the “reasonable and fair” factor, the Federal Circuit found compelling that PET had undertaken a licensing program with threats of litigation directed to banks conducting business in the Northern District of Texas and the forum had an obligation to resolve disputes involving its residents and businesses. Since PET had minimum contacts with the Northern District of Texas, the burden fell on PET to make a "compelling case" that the exercise of jurisdiction would be unreasonable and unfair. PET merely cited Red Wing Shoe Co. v. Hockerson-Hablerstadt, Inc., 148 F.3d 1355, 1361 (Fed. Cir. 1998) and Avocent Huntsville Corp v. Aten Int'l, 552 F.3d 1324, 1444 (Fed. Cir. 2008), and argued that these cases created a rule that patent enforcement letters can never provide the basis for jurisdiction in declaratory judgment actions. The Federal Circuit found that these cases did not create such a rule and doing so would contradict the Supreme Court’s requirement that courts “consider a variety of interests” in assessing whether jurisdiction is fair.
Judge Stoll, joined by Judge Wallach, included an additional view that the Court needs to revisit the statement in Red Wing that “principles 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” and the interpretation of this statement that “sending of infringement letters would satisfy the minimum contacts requirement of due process except for policy considerations unique to the patent context.” Judge Stoll stated that Red Wing and its progeny need to be reconsidered as directly contrary to established Supreme Court precedent. The Federal Circuit reversed the finding that venue was improper.