The Federal Circuit has just created a new jurisdictional pitfall for NPEs seeking to litigate where they choose. On May 12, the appellate court held in Trimble v. PerDiemCo (19-2164) that there is no rule preventing courts from exercising specific personal jurisdiction over patent owners based on the sending of demand letters into the forum at issue. The decision could potentially make some NPEs vulnerable to declaratory judgment actions filed by accused infringers in venues commonly seen as less hospitable to patent owners.

The infringement dispute here at issue principally involved three entities: patent owner PerdiemCo LLC, a Texas NPE controlled by its sole employee, Washington, DC resident Robert Babayi; Trimble, a Delaware entity based in Northern California; and Trimble subsidiary Innovative Software Engineering (ISE), an Iowa LLC based in that state. In October 2018, Babayi sent a letter to ISE at its Iowa headquarters, alleging that the company’s products and services infringe patents related to electronic logging devices, noting that ten other companies had taken licenses and attaching an unfiled Northern District of Iowa complaint and claim chart. ISE then looped in its California parent company, with the latter’s in-house counsel denying the infringement allegations and taking the lead in subsequent communications—which subsequently saw PerDiemCo allege that Trimble itself had infringed its patents, sending the company a claim chart detailing these claims. The NPE then expanded its infringement allegations in later communications to include a recently issued patent and another that was at that point about to issue, bringing the total number of asserted patents to 11. Through the remainder of 2018, PerDiemCo communicated with Trimble a total of 22 times, threatening to sue it in the Eastern District of Texas and identifying the counsel it planned to use.

In January 2019, Trimble and ISE filed a declaratory judgment complaint in the Northern District of California (4:19-cv-00526), seeking a judgment that neither company had infringed PerDiemCo’s patents. Crucially, the plaintiffs alleged that the court had jurisdiction over the NPE based on a specific jurisdiction theory, under which jurisdiction is established through the defendant’s contacts with the forum that arise from or are related to the cause of action. PerDiemCo then moved to dismiss under the Federal Circuit’s 1998 decision in Red Wing Shoe Company v. Hockerson-Halberstadt, which held 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” because “[g]rounding personal jurisdiction on such contacts alone would not comport with principles of fairness”. District Judge Jeffrey S. White granted dismissal in July 2019, ruling that while PerDiemCo’s letter-writing campaign and later communications established sufficient minimal contacts with the Northern District of California, “exercising specific personal jurisdiction over PerDiemCo would be constitutionally unreasonable” under Red Wing.

Ruling on appeal, the Federal Circuit held in a precedential decision that three “subsequent developments” have “clarified the scope of Red Wing”. The first is a line of post-Red Wing Supreme Court cases establishing that personal jurisdiction cannot be analyzed under patent-specific rules—including its 2017 ruling in SCA Hygiene, which emphasized that “[p]atent law is governed by the same . . . procedural rules as other areas of civil litigation”; and its 2006 holding in eBay v. MercExchange, which overturned the Federal Circuit’s patent-specific rule governing injunctions in favor of the general approach based on “traditional principles of equity”. The Federal Circuit also noted the Supreme Court’s 2017 TC Heartland decision, which confirmed that the creation of a patent-specific venue statute “placed patent infringement cases in a class by themselves” (whereas personal jurisdiction does not have such a patent-specific statute).

Second, the “Supreme Court has held that communications sent into a state may create specific personal jurisdiction, depending on the nature and scope of such communications”. Notably, the Court explained in its 2018 South Dakota v. Wayfair decision that “[i]t is settled law that a business need not have a physical presence in a State to satisfy the demands of due process”, while other holdings establish that an entity repeatedly sending communications into a state “clearly has ‘fair warning that [its] activity may subject” it to personal jurisdiction (Quill v. North Dakota, 1992). Moreover, the Federal Circuit has interpreted Supreme Court precedent as establishing that a defendant’s “‘negotiation efforts, although accomplished through telephone and mail’ from outside the forum, ‘can still be considered as activities ‘purposefully directed’ at residents of [the forum]” (Inamed v. Kuzmak, 2001).

The Federal Circuit has also applied this principle in the specific context of NPE patent demand letters, citing here its 2018 decision in Jack Henry & Associates v. Plano Encryption Technologies. In that decision, the appellate court found that it was reasonable to exercise personal jurisdiction over an NPE defendant that sent demand letters to eleven banks, customers of the plaintiff, “identifying . . . patents, stating that the Banks [were] believed to be infringing the patents, and inviting non-exclusive licenses”. The Federal Circuit held that Red Wing did not create a rule “that patent enforcement letters can never provide the basis for jurisdiction in a declaratory judgment action”, rejecting the defendant’s “proposition” to the contrary. (More details on that ruling can be found here.) Other contacts relevant to the “purposeful availment” inquiry, as identified by the Federal Circuit, include “hiring an attorney or patent agent in the forum state to prosecute a patent application that leads to the asserted patent”, entering the state to demonstrate the patented technology to the eventual plaintiff, and discussing “infringement contentions with the eventual plaintiff”, as well as “‘extra-judicial patent enforcement’ targeting business activities in the forum state” (citations omitted).

Third, the Federal Circuit cited the Supreme Court’s March 2021 decision in Ford Motor Company v. Montana Eighth Judicial Court, which “established that a broad set of a defendant’s contacts with a forum are relevant to the minimum contacts analysis”. In Ford, a tort case, the Court held that courts in Montana and Minnesota could exercise personal jurisdiction over the defendant for accidents involving two Ford vehicles that were not sold there—concluding that Ford’s “broader efforts . . . to sell similar vehicles in each state” were of sufficient relevance to the defendant’s contacts with the forum. “In light of Ford”, held the Federal Circuit, “just as sales of similar vehicles and the presence of dealerships in a forum can support personal jurisdiction in the tort context, so too can nonexclusive patent licenses in this case”.

The Federal Circuit then appeared to cabin Red Wing to the facts of that case as a result of those three overarching developments and Ford’s requirement to treat “isolated or sporadic [contacts] differently from continuous ones”: “Red Wing remains correctly decided with respect to the limited number of communications involved in that case.” The appellate court then reiterated that there is “no general rule that demand letters can never create specific personal jurisdiction”, repeating its holding from Jack Henry that Red Wing “did not create such a rule” because that rule “would contradict the Court’s directive to ‘consider a variety of interests’ in assessing whether jurisdiction would be fair”. Instead, the Federal Circuit explained that “[t]he central question under Red Wing is now whether a defendant’s connection to a forum is sufficient to satisfy the minimum contacts or purposeful availment test and . . . whether the exercise of jurisdiction conforms to the due process and fairness criteria of precedent”.

That minimum contacts test, the court continued, is easily satisfied in this case, as “PerDiemCo’s contacts with California are far more extensive than those in Red Wing”. Rather than merely informing a party of suspected infringement, “PerDiemCo amplified its threats of infringement as the communications continued, asserting more patents and accusing more of Trimble and ISE’s products of infringement”—even going “so far as to identify the counsel it retained to sue Trimble and ISE and the venue in which it planned to file suit”. The court found that the NPE’s 22 communications with the defendants, which fell within a three-month period, “fall well outside the ‘sufficient latitude’ we sought to grant patentees ‘to inform others of [their] patent rights without subjecting [themselves] to jurisdiction in a foreign forum’ on the basis of three letters sent over a similar time period in Red Wing”.

The Federal Circuit further held that the lower court’s exercise of personal jurisdiction was not unreasonable, as PerDiemCo had also argued—agreeing with the district court’s application of the Burger King and World-Wide Volkswagen factors, which address whether such jurisdiction would “comport with fair play and substantial justice”. The appellate court based this conclusion in part on a finding that the Northern District wielding personal jurisdiction over PerDiemCo would not be unduly burdensome, only “slightly greater” than in its preferred venues in Texas or Iowa, and because its NPE business model required it to litigate far from the Washington, DC office of its sole employee, Robert Babayi, “thus mitigating any burden on it as the defendant”. The court’s analysis of the remaining factors, including the plaintiffs’ interest and those of the courts and states, primarily turned upon Trimble’s status as a California resident aligning with its selection of the Northern District of California.

Given the widespread prevalence of demand letters as a tool used in patent assertion campaigns, the Trimble decision’s impact could be sweeping should it survive further appeal. In the short term, disputes in which suitable communications have been already sent by NPE plaintiffs could lead to a bump in declaratory judgment actions in venues like the Northern District of California as accused infringers seek to lock in their preferred venues. The decision will likely also lead NPEs to reduce their use of letter-writing campaigns in an attempt to retain selection over forum. Additionally, NPEs often base claims of willful infringement on factual allegations that an accused infringer had notice as of the date it received a demand letter from the patent owner. Should the Trimble ruling lead to a reduction in demand letters, a further result could be a shift in how NPEs attempt to show willfulness—one that could make it harder for some assertion entities to make such a showing.