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Jurisdictional Risks of Pre-Litigation Communications

Publications / Aug 01, 2021

Article written by Sarah Benowich

The Federal Circuit recently clarified – and lowered – the threshold to exercise specific personal jurisdiction over an out of state declaratory judgment defendant.  In Trimble Inc., Innovative Software Engineering, LLC v. PerDiemCo LLC, the Federal Circuit reiterated that there is “no general rule that demand letters can never create specific personal jurisdiction” and reversed the district court’s dismissal of a declaratory judgment action for lack of personal jurisdiction where the parties had engaged in extensive pre-litigation communications.  997 F.3d 1147, 2021 U.S. App. LEXIS 13985, at *16 (Fed. Cir. 2021).  Trimble highlights several key trends and practical takeaways for parties and practitioners alike, including a lesson in being cautious, conscientious, and strategic when engaging in pre-litigation communications including cease-and-desist letters.

I. Factual Background

This case arose after PerDiemCo LLC (“PDC”, or “Defendant”) sent a cease-and-desist letter to Innovative Software Engineering, LLC (“ISE”), which is wholly owned by Trimble Inc. (“Trimble” or “Plaintiff”).

  1. The Parties

PDC is the assignee of 11 patents related to electronic devices for logging hours and activities of trucks and other commercial vehicle drivers for compliance with federal and state safety regulations.  Id., at *2.  Although PDC is registered to do business and rents space in Texas, it has only one employee-owner who resides in Washington, D.C.  That individual has never visited the rented space in Marshall, Texas, which is conveniently located in the patentee-friendly United States District Court for the Eastern District of Texas.  Id.

ISE is incorporated and headquartered in Iowa, and Trimble is incorporated in Delaware with its headquarters in California.  Trimble supplies electronic logging devices and provides related services.  Id. at *3-4

  1. The Letters and Communications

PDC sent letter accused ISE of using technology allegedly covered by several of PDC’s patents.  The letter also claimed that PerDiemCo “actively licens[es]” its patents and had entered into nonexclusive licenses with multiple companies after they had “collectively spent tens of millions of dollars in litigation expenses.”  Id. at *3.  The letter offered ISE a nonexclusive license to PerDiemCo’s patents and attached a nondisclosure agreement to facilitate further negotiations between the parties.  PerDiemCo also attached a draft complaint for patent infringement for possible filing in the Northern District of Iowa together with an infringement chart mapping the patents to ISE’s products.  Id. at *4.

ISE forwarded the letter to Trimble, which attempted to resolve the matter and responded to PDC’s letter and agreed to negotiate to resolve the dispute.  The parties communicated at least 22 times directly via letter, email, or phone.  Ultimately, negotiations faltered and PDC accused Trimble and ISE of infringing 11 patents, threatened to sue them for patent infringement in the Eastern District of Texas, even identified litigation counsel that PDC stated it had retained for this purpose.  In response, Trimble filed an action for a declaration of noninfringement against PDC.  Id. at *5.

II. District Court – Dismissing the Complaint for Lack of Personal Jurisdiction

PDC moved to dismiss Trimble’s complaint for lack of personal jurisdiction, relying on Red Win Shoe v. Hockerson-Halberstadt, Inc., 148 F.3d 1355 (Fed. Cir. 1998) holding 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 *6.

In Red Wing, the plaintiff, a Louisiana corporation with its principal place of business in New Mexico, sent a letter to Red Wing Shoe Co. (“Red Wing”), a corporation registered and with its principal place of business in Minnesota, alleging patent infringement and offering a nonexclusive license.  The parties exchanged a few letters over the course of several weeks before Red Wing filed a declaratory judgment for noninfringement in district court for the District of Minnesota.  On appeal, the Federal Circuit ruled 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 *10. According to the Federal Circuit, the “[p]rinciples of fair play and substantial justice afford a patentee sufficient latitude to inform others of its patent rights [via a cease-and-desist letter that included an offer for a license] without subjecting itself to jurisdiction in a foreign forum.”  Id. at *11.  This general proposition has largely guided parties to act on the belief that simply sending pre-litigation communications will not expose them to personal jurisdiction.  The key difference that the Federal Circuit highlighted as a point of contrast between Red Wing and Trimble, was that whereas in Red Wing there was no effort to negotiate, in Trimble, which would have established an intent to establish longer term contacts and given “fair warning that [its] activity may subject [it] to the jurisdiction of a foreign sovereign”.  Id. at *13.

Based on its application of Red Wing, the district court dismissed the complaint, holding that even though PDC had sufficient minimum contacts with California through sending its cease-and-desist letters and subsequent communications which were purposefully directed towards Trimble in Sunnyvale, California, these contacts did not satisfy Constitutional standards.

III. The Federal Circuit Reverses – Holding Red Wing is Subject to Specific Personal Jurisdiction

Apply Federal Circuit law and a de novo standard of review, the Federal Circuit reversed the district court’s ruling, and held that PDC’s communications satisfied the Constitutional standard for exercising specific personal jurisdiction over a foreign defendant.

The well-established two-step analysis for personal jurisdiction was essentially compressed into one step, because California’s long-arm statute authorizes personal jurisdiction to the Constitutional limits of “purposeful availment” i.e., “the defendant must take some act by which it purposefully avails itself of the privilege of conducting activities within the forum State.”  Id. at *8. And, the “plaintiff’s claims must arise out of or relate to the defendant’s contacts with the forum.”  Id.

Before weighing the oft-cited Burger King reasonableness factors, the Federal Circuit ruled that there was “no general rule that demand letters can never create specific personal jurisdiction” before setting forth three main guideposts regarding personal jurisdiction.

First, the Court warned that personal jurisdiction does not turn on special “patent” considerations.  Looking to post-Red Wing precedent, and the Supreme Court’s recent decision in Ford Motor Co. v. Mont. Eighth Jud. Dist. Ct., 141 S. Ct. 1017 (2021), the Federal Circuit emphasized that the personal jurisdiction analysis must not rest on any special considerations unique to patent cases because Congress has not enacted any patent-specific statutes related to this issue.  Instead, the Supreme Court has repeatedly emphasized that “patent law is governed by the same procedural rules as other areas of civil litigation.”  Id. at *12.

Second, the nature and degree of the cease-and-desist letters affects the assessment of personal jurisdiction in a state.  However, the Court did not set forth any explicit bright-line rules as to what quantity or quality of cease-and-desist letters would satisfy the threshold but warned that an entity that repeatedly sends communications into a forum state “clearly has fair warning that its activities may subject it to that state’s jurisdiction.”  Id. at *13.  It is important for entities and counsel to remember that “a business need not have a physical presence in a State to satisfy the demands of due process”, and generally speaking, the more frequent, urgent, substantive, and repeated the communications are, the more likely those communications are to expose the foreign sender to personal jurisdiction in the recipient’s state, particularly if those communications threaten or attempt to resolve disputes.  Id.

Third, although specific personal jurisdiction requires that the requisite contacts be those from which the claim arose, courts may look to other factors to determine whether the exercise of personal jurisdiction would be appropriate.  These factors include (at *14-15):

  • hiring an attorney or patent agent in the forum state to prosecute a patent application that leads to the asserted patent;
  • physically entering the forum state to demo the technology underlying the patent to the eventual plaintiff, or to discuss infringement contentions with the eventual plaintiff;
  • the presence of “an exclusive licensee doing business in the forum state”; and
  • “extra-judicial patent enforcement” targeting business activities in the forum state.

Looking to these factors, the Federal Circuit ruled, overall, PDC’s activities were more extensive than those in Red Wing, because the numerous contacts within a short period of time made it clear that PDC was going far beyond “solely … informing a party who happens to be located [in California] of suspected infringement.” Id. at *18 (alterations in original).  The Federal Circuit was guided by the Supreme Court’s recent Ford decision, which held that a wide range of contacts with a forum are relevant to the minimum contacts analysis.  In Ford, the Supreme Court ruled that Montana and Minnesota courts could exercise personal jurisdiction over Ford for accidents involving two Ford vehicles that took place in the states despite the two vehicles not having been sold in either state because Ford had engaged in broader efforts to sell similar vehicles in each state.  Thus, even contacts which are not directly related to the underlying suit are still “relevant in assessing the link between the defendant’s forum contacts and the plaintiff’s suit.”  Id. at *16. Again, while there are no bright-line rules, the personal jurisdiction analysis will focus on the quality and quantity of contacts, and the nexus between those contacts and the present dispute.

Finally, the Federal Circuit ruled that exercising personal jurisdiction would be reasonable per the federal Constitution’s Due Process Clause’s requirement that personal jurisdiction must comport with notions of fair play and substantial justice.  The Federal Circuit largely focused its analysis on the first three of the following five factors:

  • The burden on the defendant;

Here, the district court found that PDC’s office in Texas was merely “pretextual” and “amounted to little more than a façade”.  Id. at *21. Moreover, the Texas office, which housed no employees, was far from the principal’s residence in Washington, D.C., and was not meaningfully closer or more convenient than California.  This factor thus weighed in favor of reasonableness.

  • The forum State’s interest in adjudicating the dispute;

Because Trimble is a domiciliary of California, the state, and the United States District Court for the Northern District of California has “definite and well-defined interests in commerce and scientific development” and “protecting its residents from unwarranted claims of patent infringement”.  Id. at *22. This factor thus weighed in favor of reasonableness.

  • The plaintiff’s interest in obtaining convenient and effective relief;

As in the second factor, because Trimble is headquartered and maintains employees (and evidence) in California, it would be more convenient and efficient to obtain relief in California.  Id. at *23.

  • The interstate judicial system’s interest in obtaining the most efficient resolution of controversies; and

This, and the following, factor were at worst neutral in the analysis.  Id. at *24.

  • The shared interest of the several States in furthering fundamental substantive social policies.

Similarly, the Federal Circuit ruled that PDC had not identified any conflicts or compelling reasons why California was an inappropriate jurisdiction to hear and resolve this dispute.

IV. Conclusion

This decision is an important cautionary tale for entities to consider before sending and when responding to infringement notices, as these communications may form the basis for exercising jurisdiction over the senders.  While the Federal Circuit set forth no clear guidance as to what types and number of communications would support the reasonable exercise of personal jurisdiction, counsel and clients should be aware that sending numerous, threatening, and highly substantive communications, particularly within a short period of time and coupled with nondisclosure agreements, draft complaints, or other indicia of a likelihood of initiating a lawsuit can expose the sender to personal jurisdiction for the purposes of declaratory judgment actions.

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