A Federal Circuit Reminder that Establishing Personal Jurisdiction in a Declaratory Judgment Action Involving Patents Is a High Hurdle
Intellectual Property News
Venue selection has been a primary focus for the past few years in patent infringement cases. However, a recent Federal Circuit decision serves as a reminder that a court must first be found to be able to exercise personal jurisdiction over the parties to an action before venue even becomes a consideration. Indeed, as the Federal Circuit clarified in its precedential opinion last week, personal jurisdiction in a declaratory judgment action requires more than unintentional contact by the defendant with the forum state. More specifically, in a declaratory judgment action brought by an alleged infringer, the contact must relate in a material way to the enforcement or defense of the patent in the forum state by the patent owner. However, as explained in the court’s opinion, even if minimum contacts exist as a result of that enforcement activity, simply sending a notice letter still fails to meet the “fair play and substantial justice” prong of personal jurisdiction.
In 2015, Wok & Pan, Ind., Ltd., a Chinese-based company and owner of a number of U.S. patents for foldable tables, filed suit in the Central District of California against Staples based on tables manufactured by Maxchief Investments Limited. In an apparent response to Staples’ request of Maxchief’s exclusive U.S. distributor Meco Corporation for indemnification, Maxchief filed a declaratory judgment action against Wok & Pan in the Eastern District of Tennessee. In its complaint, Maxchief—also a Chinese-based company—asked the court for declarations of non-infringement and invalidity of all claims of Wok & Pan’s patents at issue in the Staples action. Wok & Pan moved to dismiss all of Maxchief’s claims for lack of personal jurisdiction. The Staples action was tabled pending the results of the Tennessee dispute.
The district court agreed with Wok & Pan on the declaratory judgment claims, noting that Wok & Pan did not have sufficient minimum contacts with Tennessee just because it had “sought to enforce the patents against other parties in other courts” and further noted that Wok & Pan had not tried to enforce its patents in Tennessee. Maxchief’s complaint also alleged tortious interference with business relations by Wok & Pan under Tennessee state law, but the district court also dismissed this claim based on Maxchief’s failure to explicitly allege that the district court had subject matter jurisdiction over the state law tortious interference claim. In doing so, the district court noted the futility in allowing Maxchief any amendment to its complaint to correct the failure because, without the declaratory judgment claim, there would be no independent federal basis for the tortious interference claim.
Maxchief appealed the dismissal of its claims by the lower court and argued that the derivative effects on the Tennessee-based distributor of the allegedly infringing products at issue in the Staples action satisfied personal jurisdiction in Tennessee. Unfortunately for Maxchief, its argument folded under the Federal Circuit’s scrutiny. Explaining that the exercise of personal jurisdiction must be consistent with due process and that due process requires that (1) the defendant have sufficient minimum contacts with the forum state and (2) the suit does not offend “traditional notions of fair play and substantial justice,” the Federal Circuit held that not only did Maxchief’s arguments fail on the first minimum contacts prong, it also would fail on the “fair play and substantial justice” prong if minimum contacts were satisfied.
Indeed, even though Wok & Pan had argued in its push for a preliminary injunction in the Staples action that such an injunction should apply to all “in active concert” with Staples (presumably including Tennessee resident Meco), the court explained that personal jurisdiction simply cannot be established based on an unintentional effect of a lawsuit brought in another jurisdiction. Instead, personal jurisdiction in a declaratory judgment action involving patent infringement and/or invalidity requires intentional contact directed at the forum, such as enforcement efforts conducted in the forum state, by the defendant. Because Wok & Pan had not specifically sought to enforce its patents against Meco in Tennessee, the Federal Circuit deemed the unintentional effect on Meco “too attenuated a connection” to satisfy the minimum contacts needed to establish personal jurisdiction in Tennessee. The court further explained that, even though Wok & Pan sent a notice letter to Maxchief’s attorney in Tennessee, the conduct complained of was related to another Maxchief customer resident in Kansas and, as such, the letter constituted contact with Kansas and not Tennessee (regardless of whether the letter was mailed to Tennessee).
The Federal Circuit also found that personal jurisdiction was lacking for Maxchief’s tortious interference claim against Wok & Pan for the same reasons as discussed with respect to the declaratory judgment claims. Interestingly, the court indicated in a footnote that there may be subject matter jurisdiction over this claim under 28 U.S.C. § 1338 because, to prevail on its tortious interference claim, Maxchief would have to argue that Wok & Pan engaged in unfounded litigation; to do so would require Maxchief to prove non-infringement or invalidity of Wok & Pan’s patents. Ultimately, though, the court left “this issue for another day.”
So what is the key takeaway from this decision? While this decision seems to provide patent owners more ammunition to fight declaratory judgment jurisdiction, a careful selection of forum by the declaratory judgment plaintiff will help to avoid a result such as the one in the Maxchief dispute. Indeed, a thorough pre-filing investigation in a potential declaratory judgment action needs to consider not only the principal patent-related issues, but also properly take into account the court’s jurisdiction and proper venue. When the natural plaintiff (in this case, Wok & Pan) has already filed suit in a different jurisdiction based on the same allegedly infringing activity, the court will likely apply a high degree of scrutiny to the procedural aspects of the suit before the principal issues are even considered. As such, a suit based on a defendant’s tenuous contact with the forum state is not likely to survive the earliest stage of litigation.
Moreover, the pre-filing investigation must carefully examine any and all known activity by the patent owner in the forum state that may satisfy the minimum contacts prong. For example, has the patent owner sent an infringement notice to an entity in the forum state? If so, is the entity resident in the forum state? Did the patent owner have any other contact with the alleged infringer in the forum state, e.g., did the patent owner visit the alleged infringer in the forum state? In this vein, it is important to note that merely sending a notice letter to an alleged infringer will not result in personal jurisdiction over the patent owner because, without more, the letter itself does not satisfy the second “fair play and substantial justice” prong of personal jurisdiction.