Personal Jurisdiction In Unfavorable Forum

Tuesday, February 21, 2017

Xilinx, Inc. v. Papst Licensing GMBH, No. 2015-1919 (Fed. Cir. Feb. 15, 2017)

In a recent case applying the constitutional limits of personal jurisdiction in a declaratory judgment action filed by an accused patent infringement against a foreign non-practicing entity, the U.S. Court of Appeals for the Federal Circuit held that specific personal jurisdiction over the NPE satisfied due process requirements. The court based its decision largely on the NPE’s actions in sending warning letters into the forum state and attending an in-person meeting of senior personnel in an attempt to negotiate a license agreement, as well as the NPEs’ history of filing lawsuits in the jurisdiction. The case illustrates that communications with a party, even in an attempt to resolve a patent dispute without litigation, may later support a finding that a party must defend a lawsuit filed in an unfavorable forum.

The decision arose from a declaratory judgment action filed by Xilinx, Inc., a California company, against Papst Licensing GMBH & Co., KG (“Papst”) in the U.S. District Court for the Northern District of California. Papst is a Germany-based, non-operating entity that purchases and monetizes patents by investigating potential infringers, sending letters warning of apparent infringement, and negotiating licenses. In the event that license negotiations are unsuccessful, Papst files suit to enforce its patents.  Notably, Papst had previously filed infringement actions in the Northern District of California.

When Papst’s letter and an in-person meeting did not result in a license, Xilinx filed the action seeking a declaration that Papst’s patents were invalid or not infringed. On the same day that Xilinx filed the action, Papst filed a coercive infringement action against Xilinx in the U.S. District Court for the District of Delaware, and then moved to dismiss the California action for lack of personal jurisdiction. The district court granted the motion to dismiss, and Xilinx appealed to the Federal Circuit.

In a decision written by Circuit Judge Timothy Dyk, the appeals court reversed the district court and reinstated the action. The court noted that since the California long arm statute, Cal. Civ. Proc. Code § 410.10, permits jurisdiction to the full extent of the due process clause of the U.S. Constitution, the question of personal jurisdiction depends on whether the exercise of jurisdiction over Papst comports with due process. Since Papst had no continuous presence in California, Xilinx argued that specific personal jurisdiction existed. This, in turn, depends on a three-factor test:

(1) whether the defendant ‘purposefully directed’ its activities at residents of the forum; (2) whether the claim ‘arises out of or relates to’ the defendant’s activities with the forum; and (3) whether assertion of personal jurisdiction is ‘reasonable and fair.’

Slip op. at 8-9, quoting Inamed Corp. v. Kuzmak, 249 F.3d 1356, 1360 (Fed. Cir. 2001).

The first two prongs, “purposeful direction” and “arising out of” activities in the forum, comprise the “minimum contacts” part of the personal jurisdiction analysis. Papst conceded that minimum contacts existed based on two warning letters it had sent to Xilinx in the forum and a meeting held in the forum attended by Papst’s managing director, in-house counsel, and outside U.S. counsel to negotiate a license agreement. The contacts both concerned the patents and the allegedly infringing acts at issue in the lawsuit, and thus the court ruled that “there is no question that Papst has the required minimum contacts with California.” Slip op. at 10.

As to the third prong, the court ruled that the exercise of personal jurisdiction over Papst in California was consistent with “fair play and substantial justice,” and therefore did not violate the due process of the Constitution. To decide the due process question, a court first determines whether a connection exists between the forum and the dispute, and then considers whether the exercise of personal jurisdiction is reasonable. The reasonableness inquiry is not limited to facts specific to the dispute, and once minimum contacts with the forum are shown, a defendant “must present a compelling case that the presence of some other considerations would render jurisdiction unreasonable.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477 (1985).

As part of its reasonableness inquiry, the Federal Circuit  evaluated five considerations:

[C]ourts in “appropriate case[s]” may evaluate [1] “the burden on the defendant,” [2] “the forum State’s interest 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.”

Slip op. at 13, quoting Burger King, 471 U.S. at 477. Papst’s minimum contacts with California made jurisdiction “presumptively reasonable,” and the court concluded that each consideration supported personal jurisdiction. Xilinx, a California company had a recognized interest in protecting itself from patent infringement liability in its “home forum.” California had a recognized interest in protecting its residents from baseless patent infringement claims, and its interest did not conflict with the interests of other states.

Furthermore, the Federal Circuit held that Papst could not demonstrate an unfair burden from defending the declaratory judgment action in California. It recognized that the simple act of sending warning letters and offers to license a patent into a jurisdiction “without more, . . . are not sufficient to satisfy the requirements of Due Process in declaratory judgment actions.” Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355, 1360 (Fed. Cir. 1998). However, the appeals court noted that Papst’s physical presence in California to negotiate a license indicated that jurisdiction was reasonable. See Burger King, 471 U.S. at 476 (stating that “territorial presence frequently will enhance a potential defendant’s affiliation with a State and reinforce the reasonable foreseeability of suit there.”) Moreover, the court found that Papst’s prior litigation activity in California established that jurisdiction was reasonable, especially since as a foreign entity, Papst would be required to defend itself far from home in any U.S. jurisdiction:

[T]he burden on Papst is mitigated by Papst’s status as a non-practicing patent holder residing outside the United States. . . . By the very nature of its business, Papst must litigate its patents in the United States in fora far from its home office. In this context the burden on Papst to litigate in California appears not undue. The lack of significant burden on Papst is also evidenced by Papst’s prior litigations in California itself. Papst has repeatedly availed itself of the California federal court system—at least seven times—by filing patent infringement lawsuits there.

Slip op at 16-17. Thus, the Federal Circuit concluded that Papst failed to demonstrate that litigating in California would result in an undue burden, and held that it was subject to personal jurisdiction in California.

The Xilinx decision demonstrates that pre-suit communications with a potential defendant in their own forum may expose a patent owner to personal jurisdiction in a declaratory judgment action filed in that jurisdiction. In-person meetings in an unfavorable jurisdiction or the patent owner’s prior history of filing lawsuits in the jurisdiction are factors establishing that the exercise of jurisdiction is reasonable and consistent with due process. This case is consistent with the Supreme Court’s MedImmune, Inc. v. Genentech, Inc. decision, 549 U.S. 118 (2007), which made declaratory actions more readily available, even during licensing discussions.