Lead Article: Patent Owners Beware: Lengthy Pre-Suit Discussions May Rule Out Forum of Choice

Patent owners seeking to assert their rights outside of their home states should continue to think twice about sending cease-and-desist or demand letters or traveling to meet with alleged infringers, lest they find themselves defendants in declaratory judgment actions in the alleged infringers’ home jurisdiction. In Apple v. Zipit, the Federal Circuit recently reiterated that cease-and-desist letters and related in- person discussions may provide a basis for personal jurisdiction in a declaratory judgment action. 30 F.4th 1368 (Fed. Cir. 2022).

Background

Applying one of the Supreme Court’s seminal jurisdiction cases, Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472-73 (1985), the Federal Circuit’s decision in Apple v. Zipit reinforces a shift in the case law away from a bright-line rule that cease-and-desist letters may not provide a basis for finding that the party sending the letters has sufficient minimum contracts to establish personal jurisdiction in the alleged infringer’s home state. After first finding that a nonresident defendant has purposefully established minimum contacts with the forum state, courts apply the Burger King factors to assess whether the assertion of personal jurisdiction comports with “fair play and substantial justice.” See Burger King, 471 U.S. at 476. These factors include: (1) the burden on the defendant; (2) the interest of the forum state in adjudicating the dispute; (3) the plaintiff’s interest in obtaining convenient and effective relief; (4) the interstate judicial system’s interest in obtaining the most efficient resolution of controversies; and (5) the shared interest of the several states in furthering fundamental substantive social policies. Id. at 477

Previous Federal Circuit cases, Red Wing Shoe v. Hockerson-Halberstadt, Inc., 148 F.3d 1355 (Fed. Cir. 1998), and Autogenomics, Inc. v. Oxford Gene Tech. Ltd., 566 F.3d 1012 (Fed. Cir. 2009), suggested that such a bright-line rule existed. In Red Wing Shoe, the Federal Circuit found that a limited number of communications informing a suspected party of infringement may fall short of establishing specific jurisdiction in a declaratory judgment action. Red Wing Shoe, 148 F.3d at 1355. Similarly, in Autogenomics, the court found there was no personal jurisdiction in the absence of sufficient activities “relat[ing] to the validity and enforceability of the patent” despite cease-and-desist communications between the parties. Autogenomics, 566 F.3d 1020.

By contrast, more recent Federal Circuit authority suggests a more individualized approach to pre-suit communications and correspondence, which ultimately makes it easier for companies accused of infringement to bring declaratory judgment suits in their home jurisdictions. In Xilinx, Inc. v. Papst Licensing GmbH & Co. KG, 848 F.3d 1346 (Fed. Cir. 2017), the

Federal Circuit held that personal jurisdiction over German patent licensing firm Papst existed based on multiple notice letters and visits Papst made to Xilinx’s headquarters in California. Then, last year in Trimble Inc. v. PerDiemCo LLC, 997 F.3d 1147 (Fed. Cir. 2021), the Federal Circuit found that, even when the only contacts with a foreign forum are communications related to enforcement or licensing (23 communications in a three-month period), fairness may nevertheless dictate exercising personal jurisdiction over the sender in that forum depending on the content and extent of the communications.

District Court Decision

Zipit, a Delaware corporation with a principal place of business in South Carolina, first contacted Apple in 2013 regarding two patents related to Wi-Fi access points. Between 2013 and 2020, Apple and Zipit exchanged letters and claim charts, participated in calls, met in person on several occasions, and exchanged competing drafts of a license agreement. On June 11, 2020, Zipit filed suit in the Northern District of Georgia, accusing Apple of infringing Zipit’s WiFi patents. For reasons not in the record, Zipit voluntarily dismissed the case two weeks later. Nine days after the voluntary dismissal, Apple filed suit in the Northern District of California,seeking a declaratory judgment of non-infringement of Zipit’s patents. Zipit moved to dismiss for lack of personal jurisdiction, and the district court granted the motion. The district court found Zipit had sufficient minimum contacts with California. However, based on Zipit’s lack of binding obligations tying it to California, and because Zipit’s contacts with California all related to the attempted resolution of Zipit’s patent claims, the district court found that specific personal jurisdiction over Zipit in California would be “unreasonable” under the Burger King factors.

Federal Circuit Decision

On appeal, the Federal Circuit in Apple v. Zipit agreed with the district court that the parties’ pre-suit calls, letters, and in-person meetings established that Zipit had sufficient minimum contacts in California to exercise personal jurisdiction. In distinguishing the Autogenomics case—where a pre-suit notice letter did not establish jurisdiction—the Federal Circuit cited “material factual distinctions,” including Zipit’s (a) updates to Apple about ongoing Patent Office proceedings regarding the patents in suit, (b) escalation to allegations of infringement, and (c) communications “going so far as twice describing Apple’s infringement as willful.” Apple v. Zipit, 30 F.4th at 1376 n.3.

But the Federal Circuit reversed the district court’s finding that it lacked personal jurisdiction over Zipit, explaining that Zipit did not, as it must, make a “compelling case” that other considerations would render the exercise of personal jurisdiction unreasonable. The Federal Circuit clarified that its statements in Red Wing, where it had noted that policy considerations favoring settlement may be a reason why pre-suit communications should not provide a basis for jurisdiction, do not control the jurisdiction inquiry and “must be considered together with the other Burger King factors.” Id. at 1378. Accordingly, the Federal Circuit found that the district court “erred in reading” Federal Circuit precedent as creating “a bright-line rule that communications directed to ‘the attempted resolution’ of the parties’ dispute regarding the patents- in-suit trumps all other considerations of fairness and reasonableness.” Id. To reach its conclusion that the interaction between Apple and Zipit was not “one of the ‘rare’ situations in which sufficient minimum contacts exists but where the exercise of jurisdiction would be unreasonable,” the Federal Circuit applied the five factors set forth in Burger King.

Of note, with respect to the first Burger King factor (the burden on Zipit to litigate in California), the Federal Circuit focused on the “limited evidence” Zipit presented—a one-page declaration from Zipit’s CEO

making generic allegations of inconvenience. That conclusory declaration did not establish that litigating in California would be so unreasonably burdensome as to be unconstitutional. Id. at 1379. The Federal Circuit also pointed to Zipit’s decision to file suit in Georgia as an event Zipit should have reasonably foreseen would cause Apple to respond with a declaratory judgment claim in a California court.

With respect to the fourth Burger King factor (obtaining the “most efficient resolution of controversies”), the Federal Circuit acknowledged its prior statements from Red Wing Shoe that the importance of resolving disputes without litigation “squarely invokes” the fourth Burger King factor. Id. at 1380. Although this factor militated against finding jurisdiction over Zipit in California, the Federal Circuit deemphasized the factor in light of certain facts specific to the case. While noting that Zipit’s initial contacts with Apple could be viewed as an attempt to settle, the Federal Circuit found that the parties’ communications “extend[ed] over the course of several years and reach[ed] beyond license negotiations to include the sale of its patents.” Id. Weighing all five Burger King factors together, the Federal Circuit found the exercise of jurisdiction over Zipit would not be “compellingly and constitutionally unreasonable given the nature and extent of Zipit’s contacts. Zipit went beyond attempting to resolve its dispute with Apple outside of court; it amplified its allegations of infringement after Apple stated it did not need a patent license, and Zipit, in the end, sued Apple for patent infringement.” Id. at 1381.

RamificationsofApplev.Zipit

Post-Trimble and post-Zipit, both parties to pre-suit discussions will need to continue to think carefully before sending communications about alleged infringement. Although the line-drawing exercise is likely to remain case-by-case for the foreseeable future, certain principles emerge from the Federal Circuit’s more recent jurisprudence: Personal jurisdiction is more likely to be found when the pre-suit communications extend over time (Trimble, Zipit), relate in a material way to the enforcement or defense of the patents (Xilinx), and include progressively amplified demands (Zipit). Patent owners that want to preserve their ability to litigate in their forum of choice will have to balance providing notice of their claim and attempting to resolve the issue outside the courtroom with a strategy of filing first in their chosen jurisdiction and attempting to negotiate later. To the extent patent owners are faced with declaratory judgment claims, Zipit is instructive insofar as it provides an example of insufficient support for a motion to dismiss: a short boilerplate declaration indicating the company has no physical presence in the forum and the inventors do not reside in the forum. Parties seeking to avoid litigating in the alleged infringer’s home forum should undertake meaningful efforts, supported by specific information, to show the court why litigating in such a forum is unreasonable. Accused infringers, on the other hand, have an added 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 decisions in Trimble and Zipit.