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The CAFC Curbs Personal Jurisdiction For Declaratory Judgment Actions.

Zachary Silbersher

The Supreme Court’s recent case in TC Heartland was no doubt a game-changer.  (As we recently blogged, it may lead to “generic pharma friendly” districts.)  The big takeaway was it would be more difficult for patent-holders to flock to certain forums, such as the Eastern District of Texas.  But it also changed the calculus for patent-holders that often have to make a tactical decision whether to approach a suspected infringer before commencing suit.

Before TC Heartland, choice of venue was typically an important consideration prior to bringing suit.  Given the existing interpretation of venue provisions before the Supreme Court’s decision, patent-holders saw tactical advantages to having the liberty to choose your forum.  (To what extent those advantages actually existed from one forum to another remains debated.)   

The typical hesitation from sending a pre-suit infringement notice letter was that, if worded correctly, it might prompt the accused infringer to strike first and file a DJ action—and in that case, the accused infringer would choose the forum.  This fear evaporated, somewhat, after TC Heartland.  If the patent-holder is constrained to sue the accused infringer in limited venues, anyway, then the risk of DJ action is minimized. 

A recent precedential case by the Federal Circuit, Maxchief Investments, Ltd. v. Wok & Pan, Ind., Inc., shows that the risk of a DJ action resulting from a pre-suit notice letter may be less troubling for a different reason than the one that preceded TC Heartland—namely, personal jurisdiction.

In Maxchief both the plaintiff (Maxchief) and the defendant (Wok) are Chinese companies that manufacture plastic folding tables distributed by retailers in the U.S.  Maxchief, located in Tennessee, commenced a declaratory judgment action there against Wok over Wok’s patents.  Wok moved to dismiss for lack of personal jurisdiction.  The district court granted Wok’s motion, and the Federal Circuit affirmed. 

The Federal Circuit began with the premise jurisdiction must comport with due process.  The Tennessee court can only confer jurisdiction over Wok provided Wok has sufficient minimum contacts with the forum State such that those contacts do not offend “traditional notions of fair play and substantial justice.” 

For minimum contacts, the defendant’s contacts must be both directed at the forum State and relate to the underlying claim.  Here, the second requirement—that the defendant’s minimum contacts related to the underlying claim—illustrate why personal jurisdiction is a different quandary in a declaratory judgment action versus garden-variety patent infringement case.  In a normal patent-infringement case, the defendant’s contacts with the forum State will focus on the allegedly infringing conduct.   

By contrast, in a declaratory judgment action, where the defendant is in fact the patentee, the relevant contacts with the forum State are the patentee’s enforcement activities with respect to the asserted patents.  Likewise, the Federal Circuit has recognized personal jurisdiction over a declaratory judgment action defendant who sent infringement notice letters to an accused infringer within the forum State, and traveled there to discuss the infringement.  See Xilinx, Inc. v. Papst Licensing GmbH & Co. KG, 848 F.3d 1346, 1354 (Fed. Cir. 2017).

Here, Wok did send an infringement notice letter to Maxchief’s attorney in Tennessee.  However, the letter complained of infringement not by Maxchief, but rather by one its downstream retailors, The Coleman Company.  

The Federal Circuit confirmed throughout its opinion that while infringement notice letters may satisfy the minimum contacts prong, without more they do not necessarily satisfy the “fair play and substantial justice” of the personal jurisdiction analysis.  The reason is that “fair play” dictates that a patentee should be able to inform others of its patent rights without risking DJ jurisdiction in a foreign forum—which was exactly one of the concerns among patent-holders contemplating pre-suit notice letters prior to TC Heartland.

Maxchief separately argued that personal jurisdiction over Wok existed by virtue of a separate patent-infringement suit commenced by Wok in California.  There, Wok brought suit against Staples, a downstream retailer for Maxchief’s tables.  Though Maxchief was not a party to that suit, it argued in the Tennessee case that Wok’s requested injunction against Staples in the California suit would have “effects” against Maxchief in Tennessee. 

The Federal Circuit held that “effects,” absent some form of intentional conduct directed at the forum Statem, is not enough.  The interesting aspect of this holding is that it speaks marginally to the bigger question concerning personal jurisdiction in patent law—namely, the split articulated in Asahi over a stream-of-commerce theory. 

As recently as 2015, in Celgard, LLC v. SK Innovation Co., Ltd., the Federal Circuit declined to revolve this split, leaving patent litigants to continue quibbling over the extent to which advertising and selling on the internet is sufficient to subject defendant’s to jurisdiction.  Whether Maxchief hints out how the Federal Circuit wil eventually resolve this split, remains to be seen.