May 21, 2012
LES Insights
Authored by D. Brian Kacedon, Douglas W. Meier, and John C. Paul
As accused infringers increasingly use declaratory-judgment actions to preemptively attack the validity of patents, courts continue to struggle with the question of what conduct can establish jurisdiction for such an action. We have explored the issue of what conduct will create an actual case or controversy sufficient to support subject matter jurisdiction in several prior LES Insights articles. A recent order from a district court in California sheds light on the related question of what conduct by a patent owner is sufficient to support personal jurisdiction.
The order comes from a case between SanDisk Corporation and Round Rock Research LLC, a non-practicing entity with its principal place of business in New York. Round Rock sent a letter from its offices in New Jersey to SanDisk in California, claiming infringement and requesting a meeting to discuss the patents and potential licensing terms. According to the letter, Round Rock had appointed IPValue Management, Inc. as its agent to commercialize Round Rock's patents, and Mr. Paul Riley of IPValue would handle the matter. IPValue is a Delaware corporation with offices in both California and New Jersey.
Nine days later, Mr. Riley sent another letter from New Jersey demanding a meeting with SanDisk. The parties then agreed to meet at SanDisk's offices in California. In preparation for that meeting, two IPValue employees from IPValue's California office prepared claim charts regarding the alleged infringement, and Mr. Riley flew to California.
Rather than wait to be sued, SanDisk filed suit in California, seeking declaratory relief that its products do not infringe Round Rock's patents and that Round Rock's patents are invalid. Round Rock moved to dismiss, relying on the well-settled Federal Circuit rule that a patent holder does not subject itself to personal jurisdiction in a forum solely by informing a party who happens to be located there of suspected infringement.
According to the court, the question in deciding Round Rock's motion to dismiss is whether Round Rock has "purposefully directed” its activities at SanDisk and whether the litigation results from injuries that "arise out of or relate to” those activities. Recognizing that Federal Circuit precedent makes clear that sending infringement letters, without more, will not suffice to establish personal jurisdiction, the court also recognized that the contours of what the "more” is that will support jurisdiction are not as clearly defined.
In the end, the court agreed with SanDisk, finding that Round Rock embarked on a course of conduct designed with the goal of ultimately persuading SanDisk to enter into licensing agreements, which is Round Rock's primary business. Specifically, Round Rock hired a company with a California office to perform the necessary analyses and to carry out the negotiations. In addition, as a non-practicing entity, Round Rock's sole business is licensing its extensive technology portfolio, and it hired an intermediary with a California office with the undisputed intent that negotiations between that intermediary and SanDisk would take place there. Round Rock had argued that IPValue's California office was a product of happenstance, which the court rejected because of the reasonable inference that part of the value to Round Rock in having a relationship with IPValue was the fact that it had offices not only close to Round Rock's own, but also in the heart of Silicon Valley, the home of many potential Round Rock licensees. Further, there was no dispute that IPValue performed services essential to its engagement by Round Rock, such as preparation of claim charts, in its California office.
Accordingly, the court concluded that there would be nothing unfair about subjecting Round Rock to specific jurisdiction in California (even without taking into account the California meeting between SanDisk and Mr. Riley because the complaint was filed just before the meeting, thereby eliminating it as a possible contact for the jurisdictional analysis).
1. Non-practicing entities may be more likely to be subjected to personal jurisdiction. In its order, the court indicated that it relied, at least in part, on its view of Round Rock as a non-practicing entity. Although not focusing on this aspect, the court did appear to give weight to the fact that Round Rock's main business focuses on licensing its patents. Thus, non-practicing entities ought to consider that they may more likely be subject to personal jurisdiction. Targets of non-practicing entities should consider that they may be able to successfully file and maintain a declaratory-judgment action in their home forum.
2. Actions through an agent are sufficient to support personal jurisdiction. Here, the court found personal jurisdiction over Round Rock, even though it was the actions of Round Rock's agent that supported jurisdiction. An entity considering hiring a negotiating agent to handle its licensing efforts should be aware of that agent's contacts in other states and the possible effects of those contacts on establishing personal jurisdiction in an undesirable forum.
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.
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