April 27, 2022

Federal Circuit Clarifies Standard for Fair and Reasonable Exercise of Jurisdiction Based on Demand Letters

The U.S. Court of Appeals for the Federal Circuit on Monday issued a decision that clarifies its precedent on the exercise of personal jurisdiction in patent cases. In a precedential decision, the court held that there is no bright-line rule that communications related to attempts to resolve a dispute are insufficient to establish personal jurisdiction so as to outweigh all of the Burger King “fair and reasonable” factors. As a practical matter, the decision provides potential defendants in patent infringement suits a way to avoid litigating in patentee-friendly districts, such as the Western District of Texas.

In Apple Inc. v. Zipit Wireless, Inc., the court reversed the district court’s dismissal of Apple’s complaint for declaratory judgment of noninfringement against Zipit. The district court noted the extensive communications between the parties over the course of several years during which Zipit repeatedly reached out to Apple at its offices in California in order to negotiate a license agreement. The district court analyzed each of the Burger King factors and concluded that Zipit failed to establish a “compelling case” that it would be unreasonable for the court in the Northern District of California to exercise jurisdiction. Having found that the Burger King factors favored (or did not weigh significantly against) exercise of jurisdiction, the court nonetheless found that it would be unreasonable to exercise jurisdiction because all of Zipit’s contacts with California were related to resolving the parties’ dispute about Apple’s alleged infringement of Zipit’s patents. The district court reasoned that Federal Circuit precedent created a bright-line rule that demand letters can never establish personal jurisdiction.

On appeal, the Federal Circuit clarified that there is no such bright-line rule, referencing its recent decision in Trimble, where the court explained “there is no general rule that demand letters can never create specific personal jurisdiction.” Trimble Inc. v PerDiemCo LLC, 997 F.3d 1147, 1156 (Fed. Cir. 2021). Instead, the court explained that, while there exist policy concerns related to encouraging cease and desist letters such that exercise of jurisdiction may be unreasonable based solely on such a letter, the personal jurisdiction inquiry is fact-intensive and this policy alone does not control when the balance of the other reasonableness factors weighs in favor of exercising jurisdiction.

This decision brings additional clarity to the impact of demand letters and any ensuing license negotiations on personal jurisdiction in patent disputes. Importantly, it highlights the potential for parties accused of infringement to litigate patent disputes in their choice of forum by bringing a declaratory judgment action in the district where the demand letters were directed. It is still important to consider all of the Burger King factors, as a single letter directed to the district may not, standing alone, be sufficient to confer jurisdiction.