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Thursday, February 23, 2017

The Federal Circuit and "Patent Exceptionalism": Part II

As discussed in Part I of this series, the Federal Circuit is often criticized for treating patent cases exceptionally, particularly with respect to procedural issues.  The Federal Circuit’s approach to personal jurisdiction in patent declaratory judgment (DJ) actions is a good example.  Most patent suits are initiated by a patent owner suing an accused infringer for allegedly infringing one or more of its patents.  However, a small percentage of patent suits are initiated instead by the accused infringer.  In those cases, the accused infringer sues under the Declaratory Judgment Act seeking from the court a declaration that its products do not infringe the defendant’s patent and/or that the patent in suit is invalid.  Oftentimes, an accused infringer files a DJ action upon receiving a demand letter from the patent owner alleging infringement and threatening a lawsuit if a license agreement is not entered.  The demand letter is generally received by the accused infringer in the state where its principal place of business (PPOB) is located. Under a traditional minimum contacts analysis, an accused infringer that receives a demand letter at its PPOB should be able to sue in its home state because (1) defendant has purposeful contacts with the state (it sent the demand letter there), and (2) those contacts (the letter) gave rise to the plaintiff’s DJ action.  So, unless there’s a “compelling case” that the exercise of jurisdiction is unfair, the defendant is subject to personal jurisdiction.      

In Red Wing Shoe Co. v. Hockerson Halberstadt, Inc., 148 F.3d 1355 (Fed. Cir. 1998), however, the Federal Circuit created a special rule for such situations holding that the exercise of jurisdiction in these cases is never fair because otherwise patent owners would be discouraged from sending demand letters, which, in turn, would discourage settlement.  For the past twenty years, the Federal Circuit has followed and even expanded on Red Wing Shoe holding that other types of contacts (e.g., in-person settlement negotiations) also don’t “count” for personal jurisdiction purposes.  See Autogenomics, Inc. v. Oxford Gene Technology Ltd., 566 F.3d 1012 (Fed. Cir. 2009).  In a recent decision, Xilinx Inc. v. Papst Licensing GmbH & Co. KG, the Federal Circuit has changed course, but hasn’t righted the ship quite yet.

In Xilinx, patent owner Papst, a German company, sent demand letters to Xilinx in California.  Moreover, two Papst representatives met with Xilinx representatives in California to negotiate a license.  When negotiations failed, Xilinx filed a DJ action, Papst moved to dismiss, and the district court—not surprisingly—granted the motion under Red Wing Shoe and Autogenomics.  Amicus briefs were filed in support of Xilinx’s appeal, including by a group of 34 patent and civil procedure professors.  In an opinion by Judge Dyk (joined by Chief Judge Prost and Judge Newman), the Federal Circuit reversed and held that Papst was subject to specific jurisdiction in California.  The good news is that the Federal Circuit took a traditional approach to the personal jurisdiction analysis, as we urged the court to do in our amicus brief, and as I have advocated for in my work.  The bad news is that the court distinguished Red Wing Shoe and so its principle survives (of course, the panel wasn’t in a position to overrule Red Wing Shoe).  Another problem is that there now appears to be a conflict in Federal Circuit case law on this issue because the facts of Xilinx and Autogenomics are very similar, yet the results are different.  As other commentators have noted, unless the Federal Circuit hears the case en banc or the Supreme Court intervenes, there is going to be confusion among litigants and district courts going forward.

Posted by Megan La Belle on February 23, 2017 at 04:32 PM | Permalink


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