Will the CAFC’s Apple v. Zipit decision increase patent litigation and reduce pre-suit discussions?
Zachary Silbersher
Where is the line between writing a letter that asks for licensing discussions, based on a reasonable assessment of existing infringement, versus one that triggers a DJ action where you are hauled into court in a foreign forum. A recent precedential decision from the Federal Circuit, Apple Inc. v. Zipit Wireless, Inc., addresses this question. While the law generally favors pre-suit settlement discussions that avoid litigation, the practical effects of the Zipit decision may inadvertently do the opposite.
For scores of different technology areas, the plain fact is that patent licensing is driven by efficient infringement. (The reasons for that can be debated at length.). Rather than proactively investigating patents that might need to be licensed, companies often don’t bother until they are themselves bothered about it. In real terms, that means the initial burden is placed upon the patent holder to reach out to potential infringers and attempt to commence licensing discussions. Yet, writing a letter doing just that—namely, putting a company on notice of potential infringement, and seeking licensing discussions—can end up conferring personal jurisdiction over an out-of-state patent holder in a declaratory judgment infringement action.
In Zipit, Apple brought a DJ action against Zipit in California. The district court dismissed the case for lack of personal jurisdiction over Zipit. The sole issue on appeal was whether Zipit’s pre-litigation conduct—namely, sending notice letters and claim charts to Apple as well as follow up meetings and discussions—was sufficient to confer personal jurisdiction over Zipit in California. This issue is distinct from whether Zipit’s pre-litigation conduct conferred declaratory-judgment standing on Apple to bring the suit in the first instance. Yet, for practical purposes, the Zipitdecision is an important one for patent-holders to consider when drafting notice or cease-and-desist letters in advance of litigation.
Zipit did two things. It sent multiple letters and claim charts to Apple, and it also traveled to Apple’s offices in California for in-person meetings. Based on this alone, the district court found that Zipit established minimum contacts with California to confer personal jurisdiction over Zipit in California.
Yet, the district court nevertheless found that conferring jurisdiction over Zipit would be unreasonable because all of Zipit’s conduct was directed to resolving its allegations of patent infringement without recourse to litigation. In the Federal Circuit’s Red Wing Shoe decision (Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355 (Fed. Cir. 1998)), the Court recognized that patent-holders should not expect to be hauled into a court in a foreign forum simply for informing others of their patent rights. Indeed, the Zipit Court recognized that the judicial policy of not discouraging settlement—even before the commencement of litigation—is entrenched throughout the law, not only in patent law.
On appeal, however, the Federal Circuit reversed the district court’s decision, and found that the Zipit’s conduct was sufficient to confer personal jurisdiction over it in Apple’s DJ lawsuit. By doing so, the Zipit Court may have further blurred the line between when a cease-and-desist letters do and do not expose a patent-holder to a DJ action in a foreign jurisdiction.
For instance, Zipit cited Federal Circuit precedent holding that sending notice letters followed by in-person meetings is insufficient to confer personal jurisdiction over the patent-holder. See Autogenomics, Inc. v. Oxford Gene Tech. Ltd., 566 F.3d 1012 (Fed. Cir. 2009). Yet, in the Zipit decision, the Federal Circuit confirmed that Autogenomics set no bright line rules.
Going further, the Court distinguished Autogenomics on multiple grounds. First, Zipit did not just send notice letters, but also kept Apple apprised of ongoing IPRs related to its asserted patents. Second, Zipit purportedly “escalated” its infringement allegations by accusing Apple’s infringement of being willful. Third, Zipit’s discussions purportedly reached past licensing and into the potential sale of patents.
The Court’s distinctions between Autogenomics and Zipit are not entirely understandable. On the one hand, the Court recognized that too easily conferring personal jurisdiction over a DJ defendant based upon cease-and-desist letters and follow up discussions could be counterproductive—because, otherwise, that would quell a patent-holder’s incentives to pursue licensing discussions in lieu of litigation. Yet, given that, it is not clear why keeping the accused infringer apprised of the status of post-grant reviews should change that calculus. This is especially so given that, in the Zipit case, Apple appears to have affirmatively raised the potential invalidity of the patents as a basis not to take a license.
Similarly, it is also not clear why staking out a litigation position during licensing discussions—namely, one related to willfulness—should be deemed an “escalation” so big as to subject a patent-holder to personal jurisdiction in a foreign forum. Practically-speaking, licensing discussions for patents in today’s climate are always dictated by what would hypothetically happen if the patent-holder proceeds to litigation. The discussions between Apple and Zipit do not appear to have been different. Apple itself staked out its own litigation positions with respect to both non-infringement and invalidity.
Finally, a material term in most patent-licensing discussions includes whether the license will be exclusive or non-exclusive. And if its exclusive, then that often raises the prospect of an outright sale. Penalizing patent-holders for following the natural course of licensing discussions by offering the prospect of a sale seems equally counterproductive if the settlement-promotion policy is to intended to avoid recourse to litigation, rather than encourage it.
Instead, in the Zipit decision, the Federal Circuit held that the settlement-promoting policy enunciated in Red Wing Shoe is not controlling, but one of many other considerations. Those other considerations are enunciated in the Supreme Court’s Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985). Those considerations relate, inter alia, to the burden on the patent-holder from litigating in a foreign forum, the forum State’s interest in the suit, judicial efficiency, and the national interest of promoting fundamental substantive social policies.
The Court held that Zipit had not sufficiently demonstrated that litigating this suit across the country from where its headquarters are located would be too burdensome. Notably, the Court pointed out that the burden cannot be too great given that Zipit representatives actually travelled to California to have in-person meetings with Apple.
Yet, that reasoning seems a bit backwards. If the principle of Red Wing Shoe, as well as a significant body of other precedent, is it promote pre-litigation settlement, then it seems counter-productive to penalize a patent-holder for traveling for in-person licensing discussions—which are often more productive than email or phone discussions. Any patent-holder reading the Zipit decision may likely rightly conclude that pre-suit in-person meetings should be avoided. That will likely discourage the incidence of pre-suit settlements. (Going further, in today’s post-pandemic climate, the question will linger whether video Zoom meetings will equally be deemed by the Federal Circuit as a basis to confer personal jurisdiction over a DJ defendant.)
The Federal Circuit also examined the remaining Burger King factors, but the Court’s analysis indicates that the analysis of each factor would most often shake out the same way in most cases. This is because most of these factors do not address the parties’ case-specific conduct, but the respective States’ interests in resolving a patent dispute. That, unfortunately, will not make patent-holders any more sanguine about pursuing healthy licensing discussions in advance of litigation.
There is one important fact in the Zipit case that is likely distinguishable from other cases. There was a lag of several years between when licensing discussions fell off and Apple commenced its DJ suit. Yet, shorty before Apple’s DJ suit, Zipit actually commenced its own suit in Georgia, which Zipit promptly dismissed voluntarily. The Federal Circuit held that, by bringing and dismissing its own suit, that necessarily created the expectation that Apple would haul Zipit into court in California. Yet, is that really true? Zipit’s lawsuit was commenced in Georgie, not in California. And Zipit voluntarily dismissed the suit. Those two facts would suggest that any threat of litigation was either not directed at the forum state (namely, California) or there was no longer any threat at all (given that Zipit dismissed the suit.)
Overall, the Federal Circuit’s Zipit case may engender more patent litigation, while quelling potentially productive pre-suit licensing discussions that could avoid litigation altogether. The decision potentially lists off a number of things not to do if you, as a patent-holder, do not want to establish jurisdiction over yourself in a foreign forum: don’t travel for in-person meetings; don’t “escalate” by staking out litigations position, such as willfulness, even if the other side stakes out their own positions; don’t offer to sell the patents, even if the other side asks about an exclusive license. This is unfortunate because almost all patent-licensing in today’s climate happens within the context of what could happen in the event of litigation. If the parties cannot meet and seriously discuss that possibility, then that will just lead to more litigation.