Xilinx, Inc. v. Papst Licensing GmbH & Co. KG, (Fed. Cir. Feb. 15, 2017) (Before Prost, C.J., Newman, and Dyk, J.) (Opinion for the court, Dyk, J.)
Papst is a non-practicing entity engaged in the business of acquiring and asserting patent rights incorporated under the laws of Germany and having its principal place of business there. In October 2012, Papst acquired the patents-in-suit and investigated Xilinx, a Delaware corporation with headquarters in San Jose, California. Papst sent two patent-infringement notice letters to Xilinx in 2014 encouraging Xilinx to take a patent license. Three representatives from Papst traveled to California in October 2014 to meet with Xilinx to discuss Papst’s infringement allegations and Xilinx’s potential licensing.
After negotiations failed, Xilinx filed a declaratory judgment action in California, seeking a declaration that Xilinx’s products did not infringe the Pabst patents and that the patents were invalid. The same day, Papst filed an infringement action in Delaware. Papst filed a motion to dismiss the California action for lack of personal jurisdiction, which the court granted. Papst’s contacts with California related to its attempts to license the disputed patents. The district court concluded this was insufficient, from Federal Circuit precedent holding that attempts to license patents, such as sending cease-and-desist letters, without more, did not establish personal jurisdiction. Xilinx appealed. The Federal Circuit agreed with Xilinix and reversed because Pabst had additional contacts with California that established personal jurisdiction from the totality of circumstances.
The Supreme Court applies a three-factor test in assessing personal jurisdiction: “(1) whether the defendant ‘purposefully directed’ its activities at residents of the forum; (2) whether the claim ‘arises out of or relates to’ the defendant’s activities within the forum; and (3) whether assertion of personal jurisdiction is ‘reasonable and fair.’” For the first two factors, the Federal Circuit has historically distinguished between activities related to the patents-in-suit, which are sufficient minimum contacts, and activities concerning other patents, which are not sufficient. The Supreme Court has identified five considerations for the reasonableness factor: (1) “the burden on the defendant,” (2) “the forum State’s interest in adjudicating the dispute,” (3) “the plaintiff’s interest in obtaining convenient and effective relief,” (4) “the interstate judicial system’s interest in obtaining the most efficient resolution of controversies,” and (5) the “shared interest of the several States in furthering fundamental substantive social policies.” The reasonableness prong of the test is typically satisfied if the defendant has minimum contacts with the forum.
Papst’s sole argument on appeal was that subjecting it to personal jurisdiction in California constituted an undue burden that violated traditional notions of fair play and substantial justice. The Court rejected this argument, finding that there was no undue burden for four reasons. First, representatives from Papst had a “territorial presence” in California when they traveled there to meet with Xilinx to discuss Papst’s infringement allegations and negotiate a license. Second, Papst is a non-practicing entity, and, by the very nature of its business, expects to litigate its patents in the United States and in foreign courts. Third, Papst filed at least seven patent infringement lawsuits in California between 1994 and 2007 and thus “has found a way to shoulder successfully the burden of litigating in California.” Fourth, Papst did not put forth any affirmative evidence showing that litigating in California would be an unduly burden. The Court noted that its precedent did not apply because Papst’s contacts with California extended beyond its attempts to license the patents by sending cease-and-desist letters. The other reasonableness factors, including Xilinx’s interest in litigating in California and California’s interest in protecting its residents from unwanted claims of patent infringement, weighed in favor of exercising personal jurisdiction. For all of these reasons, The Federal Circuit reversed the dismissal of Xilinx’s declaratory judgment action and remanded the case to the Northern District of California.
Sending cease-and-desist letters for the patents-in-suit and conducting licensing negotiations in the forum state can be sufficient for personal jurisdiction. Non-practicing entities are especially likely to be subject to personal jurisdiction because the nature of their business involves asserting and litigating patent rights in foreign courts. This is especially true if the non-practicing entity has had other litigations in the state.