Guest Post by Prof. La Belle: Demand Letters, DJ Actions, and Personal Jurisdiction

Demand Letters, DJ Actions, and Personal Jurisdiction

Guest Post by Megan La Belle, Associate Professor, Catholic University of America, Columbus School of Law

For more than fifteen years now, accused infringers have faced substantial personal jurisdiction obstacles in patent declaratory judgment (DJ) actions.  In Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355 (Fed. Cir. 1998), the Federal Circuit held that patent owners are not subject to personal jurisdiction in DJ actions based exclusively on the sending of demand letters to accused infringers in the forum state.  Red Wing Shoe was a purely policy-driven decision: if demand letters could create jurisdiction, patent owners would hesitate to send them and fewer patent disputes would settle out of court.  Because the policy favoring settlement is “manifest,” the Federal Circuit reasoned,  personal jurisdiction doctrine should facilitate—not discourage—the use of demand letters to settle patent disputes.  Since Red Wing Shoe, the Federal Circuit has reaffirmed this holding repeatedly, and other courts have extended it to the copyright and trademark contexts.  See, e.g., Integrity Mgmt. of Fla., LLC. v. Dental Websmith, Inc., 2008 WL 4372878, *5 (D. Neb. Sept. 19, 2008); Lab. Corp. of Am. Holdings, Inc. v. Schumann, 474 F.Supp.2d 758, 762 (M.D.N.C. 2006).  Indeed, the Federal Circuit’s rule has gone virtually unchallenged, as I’ve discussed in other writings.

Recently, however, the use of demand letters by patent owners has come under attack.  Both federal and state lawmakers have criticized patent owners who send demand letters to multiple alleged infringers looking for quick settlements.  Some states have already passed laws aimed at curbing this practice, and the Senate is currently considering various bills that would make the sending of certain types of demand letters an unfair or deceptive act or practice under the Federal Trade Commission Act.  The Executive, likewise, is taking a stand against patent demand letters.  In February, the White House launched a website at http://www.uspto.gov/patents/litigation/index.jsp  “to empower those who have received a demand letter or may be threatened with a patent lawsuit with information about their options.”  The website provides, among other things, that a DJ action may be an option for an accused infringer.

Yet, these legislative and executive efforts to curtail patent demand letters are undermined by the Federal Circuit’s rule in Red Wing Shoe.  Not only does the rule encourage the use of demand letters, but it often insulates patent owners from a DJ suit in the accused infringer’s home state.  Arguably, this special jurisdictional rule for patent DJ actions never made much sense.  As I suggest in this recent article, however, the current debate surrounding demand letters signifies that the time has come for Congress—or perhaps the Federal Circuit itself—to take a hard look at this jurisdictional rule.

Ed.: You can read the full text of Prof. La Belle’s article at http://www.vanderbiltlawreview.org/2014/03/against-settlement-of-some-patent-cases/  

57 thoughts on “Guest Post by Prof. La Belle: Demand Letters, DJ Actions, and Personal Jurisdiction

  1. How many patent infringement suits were filed in March? More than in February?

    Or is the rate “plummeting” again, like it did for two seconds at the end of January?

  2. “Yet, these legislative and executive efforts to curtail patent demand letters are undermined by the Federal Circuit’s rule in Red Wing Shoe.”

    Wrong Professor La Belle. Whatever legislative/execute effort there is to curtail such letters is actually undermined by SCOTUS’ decision in Medimmune, which makes it now imperative for the patentee to “file suit” first and send that demand letter “later.”

    1. makes it now imperative for the patentee to “file suit” first and send that demand letter “later.”

      Do you have data showing the relative rates at which prospective licensees are sued first, prior to being contacted by the patentee?

      If what you see is true, the former would absolutely overwhelm the latter. So what does the data show?

      1. Malcolm,

        The “data” you ask for is the subsequent case law coming out of the Federal Circuit after Medimmune: See SanDisk Corp v. STMicroelectronics (noting prior “reasonable apprehension” as standard for DJ action gone after Medimmune); Micron Tech v. Mosaid Techs (strongly worded warning letter suggesting licensing of technology sufficient for DJ action). The ruling in Micron Tech in particular makes such “demand letters” highly vulnerable to DJ actions. I need say no more.

        1. No, that’s not the data I’m looking for.

          You said it was “imperative” for patentees to file suits before sending “demand letters.”

          So, assuming you’re correct, we should be seeing vastly more “shoot first” patent suits being filed, and vastly less pre-suit negotiations for licenses. What is the actual data?

          Maybe — just maybe — the decision to “shoot first” is highly dependent on what one’s expectations are with respect to the patent.

          1. “You said it was ‘imperative’ for patentees to file suits before sending ‘demand letters.’”

            Malcolm, like I suggested, go read the Micron Tech case like I suggested. Also, consider the recent ruling by SCOTUS in Lexmark International v. Static Control Components which held that false assertions of IP infringement are actionable under 15 USC 1125(a) and could be directly (or indirectly) applicable to the bad faith “demand letters.” If you can’t “connect the dots” I’ve laid out for you here, I can’t help you any further.

            1. If you can’t “connect the dots”

              You’re the one with the difficulty “connecting the dots”, EG. I’m familiar with those cases. The cases don’t provide the data necessary to support your blanket assertion about what is and is not “imperative” for patentees. As I’ve suggested, what is “imperative” for a patentee depends on exactly what the patentee is looking for and the kind of patent that is being bandied about.

              As best I can tell, the vast majority of patentees are continuing to shoot second and ask questions first. If you have data to the contrary, let everyone know. Call a wide range of in-house counsel up and ask them how often they simply “shoot first” when they are interested in licensing their patents, as opposed to other approaches. Let everyone know what you find out.

            2. Well Malcolm, I obviously can’t help you on this one. And as I’ve said before, what you believe, think, or say doesn’t count for squat with me and many others who post on this blog. Over and out.

            3. You’re the one with the difficulty

              LOL – someone said recently that the only interaction of value with Malcolm is to poke him in the eye.

              Shall we brace for a lovely bunch of AOOTWMD in reply?

            4. EG, I’m wondering if you are confusing subject matter jurisdiction with personal jurisdiction. Red Wing Shoe, etc., doesn’t pertain to subject matter case or controversy. It says a patentee can’t be hauled into a foreign forum.

    2. EG, I had no idea why Spangenberg was filing first then negotiating. It made no sense. But then when you and others pointed out that this was the consequence of Medimmune and other Federal Circuit cases that followed, I was informed.

      Someone out to tell the good professor the facts. The statute requires actual notice before damages except under limited circumstances. This forces a notice of infringement and is the real reason why such actions should not automatically create DJ jurisdiction. But that is changed. The patentee no longer has the option of giving a notice of infringement if he genuinely does not want to go to court but simply wants to negotiate.

      But it is interesting when an advocate does not give one the whole story. He stampedes the uniformed into the foolish act.

      1. He stampedes the uniformed into the foolish act.

        That’s the way propaganda rolls Ned. Do I really need to tell you that?

      2. Note, there are cases after Medimmune that say a simple offer of a license by an NPE is enough to trigger DJ jurisdiction. To me, that is interesting because such would not be enough to put the accused into a damages situation (perhaps willful infringement as well), which is the reason for DJ jurisdiction in the first place.

  3. It was recently reported that three states have already passed legislation controlling patent demand letters. This is in addition to those state AGs who had brought actions under their existing laws. Also, some of the currently pending bills would give the FTC express jurisdiction over patent demand letters. Furthermore, a D.J. based on alleged patent invalidity now seems ill-advised on both cost and success-rate odds where those invalidity grounds could be raised in an IPR instead, and without this jurisdictional issue. Was this covered in this article?

  4. This is an interesting and timely article, and not just for the Red Wing jurisdiction issue (I agree with Prof. La Belle, particular where the patentee is an NPE whose “business” is little more than sending demand letters to out-of-state targets).

    Misguided laws that encourage settlement in patent cases can be especially problematic where the same judges intent on encouraging settlement also view licensing as “evidence” that the patent itself is valid. That always was a nonsensical proposition, dreamt up in some judicial fantasyland where the massive costs of litigating even the junkiest patent to its grave apparently don’t exist. It’s long past time to eliminate that irrational and indefensible “secondary factor” from the system.

    1. Interesting? Yes. Timely, I’ll say.

      Here in Europe, every country has its own law concerning Demand Letters. That every country in Europe goes its own way to regulate patent disputes is the despair of non-European owner of a so-called “European” patent.

      Yet even as we write, an international committee is writing the detailed pan-European Rules of Procedure of the Unified European Patent Court. One hopes that the committee will learn from all the experience of Demand Letters as a reality in patent litigation today, in every jurisdiction in the world where patent disputes are litigated, particularly the biggest of them.

      A retired English patents judge once warmed up an audience of patent experts in Germany with “We can learn a lot from the Americans.” Pause. Shocked silence. “Note carefully what they do” another pause “But then don’t do the same”. Laughter, as planned.

      1. Interesting? Yes.

        MaxDrei, did you read the article?

        I think not.

        Sure, the concept is interesting – but the article is dull and plodding, and as I mentioned, takes liberties that are questionable. Overall, this is just more regurgitated academic tripe masquerading as a thoughtful advance on a ‘hot’ topic (timely is hardly a worthwhile notion, given that the large part of the “Troll” hysteria is mere philosophical fabrication).

        It must be kept in mind that the ends do not justify the means.

        1. the article is dull and plodding, and as I mentioned, takes liberties that are questionable.

          LOL.

          Describe one of these “liberties,” show us the quote from the article you refer to, and tell everyone why you think it’s “questionable”.

          With any luck, you’ll make less of a f00l of yourself than you did in your “equal protection” discussion (that one has been preserved for posterity, by the way — quintessential Tr0llb0y!). Go ahead. Make everybody’s day.

          And please make it sooper dooper funny, too. We don’t want any “dull and plodding” analysis. We want that classic TB humor.

            1. the aspect of “public interest” outside of Article III standing.

              Gobbledygook, Tr0llb0y. Try explaining what you’re trying to say in English, using complete sentences. Show everyone exactly the quote to which you’re responding to, and tell everyone how the response addresses that quote.

              I know it’s extremely difficult for you to stop wanking. But give it a shot. Or I suppose you could just launch into some nutcase diatribe about “ivy league taint”, whatever that is.

            2. LOL – the classic Vinnie Barbarino “Huh, what?” response in patent terms.

              Come man – that was real simple English in a legal context. Please tell me that your vaunted “English as a First Language” skills can at least handle that.

      2. And your ad hominem anti-US ‘funny’ is decidedly out of place. Especially as you admit that Europe has not resolved its own “despair.”

        1. What to do about Demand Letters? At least Europe looks to the USA and learns, just as it did back in 1973 when it put together the substantive patent law of the EPC. Unless one is desparate to misunderstand, how can one construe that observation as “anti-US” (even though Europe chose not to build the EPC around the notion of “First to Invent”).

          Now if I had asserted that the USA never even comes to the idea to look anywhere else but within the USA, you might have a point with your “anti-US” schtick.

          Those who most despair of “Europe” are indeed those closest to “Europe”. What other response is proper, for an intelligent person? At least then, on those rare occasions when the European Democracy Project gets something more right than wrong, the rejoicing can be heart-felt.

          1. What to do about Demand Letters

            As I said, the concept is interesting.

            This article? not so much.

            As to “desparate to misunderstand” – nah, that too is no misunderstanding given your long history. Sorry MaxDrei – that is the baggage you created.

            You quite miss the point of my noticing your own despair and its lack of resolution. You cast an aspersion to the US and the speck in our eye, while so carefully not doing anything about the log in your own.

            Desparate to misunderstand? That would be you regarding anything posted by ‘anon.’

          2. Tell me MaxDrei, (as you conveniently dodged the question) did you read the article prior to posting your “Interesting? Yes.” comment?

            1. Tell me MaxDrei, (as you conveniently dodged the question) did you read the article prior to posting your “Interesting? Yes.” comment?

              Another attempt to change the subject.

              Why not just attempt to explain exactly what you were responding to and what you meant when you complained about “public interest outside of Article III standing”? Try being a grown up and standing behind your own words for a change.

            2. Change the subject

              Um, except,… NOT.

              Why do you think noting that MaxDrei dodged the question I asked of him (hint: that question was a straight forward question) is “changing the subject?”

      3. Yes, that “watch the Americans and then do the opposite” gag is an oldy but goody. Not at all surprised that geriatric Euros still recall it fondly.

        It also assuages what I can only assume to be the poignancy if not the pain of once-proud powers having had to rely on the U.S. to save them from a series of Euro-autocracies for a century now.

        Yes, by all means, just as an old man really ought not try to emulate the physical feats of a young man, don’t try to do what we do.

        1. You have to give it to Max, he’s got a one track mind.

          I wonder how he would explain the comparison between the EPO and USPTO with regard to number of patents issued. First, it is a good comparison because the EU (actually smaller than the countries covered by the EPO) has a GDP pretty comparable to the US. However, the number of patents issued by the USPTO in 2013 was 278,000 whereas the number of patents issued by the EPO in 2013 was 66,700. By way of comparison, Germany obtained more patents in the US than patents from the EPO.

          Clearly, there is some factor(s) driving the vast disparity between the number of patents issued. Could it be the one system, as a whole, is simply superior to the other? I wonder what Max’s explanation is for the disparity.

          1. I’ve never before been confronted with the statistic that German applicants are issued with more patents by the USPTO than by the EPO. But it doesn’t surprise me. We should not ignore the distinction between patenting in the home jurisdiction and patenting internationally.

            So, how many patents does the German national Patent Office issue each year to Germans?

            Should we compare the ratio domestic vs foreign for, say, USA, Germany, Japan, China? Take China, for example. At the EPO we see virtually nothing from China entering the EPO national phase, yet the Patent Office in China gets more domestic filings than the USPTO, right?

            To finish, two Details.

            1. Every new PCT gets an EPO filing number, irrespective whether it ever enters the EPO Phase. The EPO President Counts every one of those filings as a filing at the EPO. Hence the huge numbers of “EPO filings” by China. Don’t be fooled.

            2. Look at patent families, based on a single first filing. Typically they show one issue per country but upwards of five, even to 20 and beyond, at the USPTO. Only the USA has the legal device of the continuation or C-I-P. Applicants from Germany take advantage of that legal device as much as anybody else.

            1. Your willingness to miss the point being made by Oh no signifies that you have a mind unwilling to learn.

              Of course, this is no surprise given anyone who is familiar with your posts over the years, and your unwillingness to engage in any conversation that might (just might) show that all you are interested in is shilling the EP way.

              At least you still have a pretty soapbox, MaxDrei.

            2. You are also aware, of course, that Oh no mentioned patent grants and not application numbers, right?

              Why kick up the application number dust, MaxDrei?

            3. More importantly, note the huge differences in application fees between the U.S. and the EPO, including application maintenance fees, plus fees for the separate national patents needed after the EPO issuance. In the U.S. there is not even a first [and small] maintenance fee until 3.5 years after the patent issues.

            4. So, how many patents does the German national Patent Office issue each year to Germans?
              From link to presse.dpma.de:
              ?In 2013, 33,088 patent examination procedures were concluded … [p]atents were granted in 14,083 procedures Unfortunately, no breakout as to country.
              In 2013, the USPTO issued 15,500 patents to Germans (as determined by first named inventor — typical procedure).

              BTW — as anon, pointed out, my numbers were issued patents — not applications.

              Typically they show one issue per country but upwards of five, even to 20 and beyond, at the USPTO
              Your anecdotal evidence grossly overstates the number of continuation applications filed. I haven’t found the exact breakout, but based upon what I’ve seen, continuation applications are around 20% of filings. Needless to say, that doesn’t explain the 4X difference in patent grants.

            5. To OhNo, I agree that if continuations make up only 20% of filing numbers, that wouldn’t explain an overall x4 number in the patent families. I imagine that the patent families I have to view are members of a special set, namely, those where there is filing activity at both the EPO and the USPTO.

              As to utility patents issued by the German national Patent Office, let’s not overlook those cheap 10 year petty patents which, like design patents, are mostly issued to domestic applicants. In 2013 the DPMA reports about 15000. They pretty much all go through to issue because there is no examination on the merits.

              When all’s said and done though, the fact remains, that the USPTO issues per year an awful lot more duly examined patents than does the EPO. That might be because industry is not convinced it is worthwhile going through the EPO mill, perhaps because it knows that a mere preponderance of evidence of invalidity will be enough to render nugatory any assertions of infringement in Europe.

          2. Clearly, there is some factor(s) driving the vast disparity between the number of patents issued. Could it be the one system, as a whole, is simply superior to the other?

            It could be, I suppose, if you were a simple-minded goon and assumed that the “superiority” of a patent system directly relates to the “number of patents granted.”

            Maybe next we can find out if the New Zealand system is superior to South Africa’s system. Fun stuff, Johnny!

            1. Goon — an intimidator, a ruffian. I kind of like that, although I apologize for intimidating you. Then again, apologizing isn’t quite ruffian-like.

              I would respond to the rest of what you wrote if you had anything substantive to say. Alas, however, you’ve met my expectations by writing much and saying little — then again, you ALWAYS meet my expectations in that regard.

            2. Goon — an intimidator, a ruffian.

              That’s the second definition. I was using it refer to the “simple-minded” and “foolish” nature of your comment. That was rather obvious, of course. Nice try, though.

              I would respond to the rest of what you wrote

              Go ahead. Tell everybody what the relationship is between the “superiority” of a patent system and the number of patents granted, and tell everyone how you determined that relationship.

              Or are you too intimidated?

            3. LOL – number 2 on his script list.
              Hmmm, let me guess … always ask the other side for evidence/explanation without providing an argument for his own conclusory beliefs.

              Don’t worry, the best way to deal with trolls is to poke them in the eye and walk away — nothing to be gained by engaging them.

            4. always ask the other side for evidence/explanation without providing an argument for his own conclusory beliefs.

              I’ve provided more arguments and explanations for my beliefs here than you ever will “Oh No”.

              In any case, it’s not my “conclusory belief” that we’re discussing here. It’s yours. Nice attempt to change the subject, though.

            5. I’ve provided more arguments and explanations for my beliefs here than you ever will “Oh No”.

              LOL – Item Number 3 from Malcolm’s script: always always always claim victory no matter how much lying needs to be done in doing so.

            6. pretend that I don’t provide arguments and support for my beliefs

              No pretending necessary. The plain fact is that you run just as fast as you can from any discussion that involves actual law, actual facts or actual ethics.

              Tell me – in your ‘oh so straightforward’ way, do you understand the controlling law regarding the exceptions to the judicial doctrine of printed matter?

              Tell me – in your ‘oh so straightforward’ way, why you dissembled when your volunteered admission of knowing such was thrown back in your face to expose your duplicity in your posts on this social media site?

              Tell me – in your ‘oh so straightforward’ way, how does an ‘oldbox’ – without change – come to have capabilities that it did not have prior to the change?

            7. …and “Malcolm says so” is not providing “arguments and explanations for [your] beliefs” – at least not on this planet the natives like to call Earth.

            8. I’ve provided more arguments and explanations for my beliefs here than you ever will “Oh No”.
              You’ve probably produced 20-25% of all posts on this blog over the last couple of years. Even a blind squirrel finds a nut, so even given the rare instance you stumble onto a substantive argument, you’ve certainly produced more than I — however, I strive for quality of arguments — not verbal diarrhea.

              In any case, it’s not my “conclusory belief” that we’re discussing here. It’s yours.
              You seem to have a problem with reading comprehension. I asked a question: “Could it be the one system, as a whole, is simply superior to the other?” Asking a question is not a “conclusory belief.”

            9. I asked a question: “Could it be the one system, as a whole, is simply superior to the other?” Asking a question is not a “conclusory belief.”

              Golly, it seemed like a rhetorical question, the answer to which yo already knew. My bad. LOL.

              you’ve certainly produced more [explanations] than I

              Far, far, far more than you, to be perfectly accurate. Feel free to engage me at any time, “Oh no”, if you’re ever confused about the basis for any of my statements. My advice would be not replicate your li’l buddy “anon’s” path0l0gical lying habits. He’s got a losing streak going back a long time. Who’d want anything to do with that?

            10. That’s a funny (albeit not unexpected) way of answering my questions at 2.1.3.1.2.7.

              It is however in your typical ‘oh so straightforward’ way.

              Go figure.

              (LOL, losing streak? Yet another lovely AOOTWMD)

            11. Feel free to engage me at any time
              Let’s see, I’m engaging someone else, you jump into the conversation, and in your first statement, you infer that I’m a “simple-minded goon.” Have you wondered why most avoid “engaging” you? Do you believe that an insult from the get-go is a good way to ‘engage’ someone?

              I’ve worked in a big city before, and in a big city, you’ll occasionally run across a person wandering the streets who is, so-to-speak, not playing with a full deck of cards. If said person attempts to speak to you, the worst thing you can do is respond to him or her in any manner. Nothing good comes of it.

              Now, I wouldn’t advocate poking them in the eye. However, you are a special case for which a poke in the eye is well-deserved.

            12. LOL – more than a poke, Oh no.

              Plus, having engaged Malcolm, I can tell you that he is nothing but a cyber-bully, flaccid and vapid in any real tangle involving law or facts.

              He tends to stay away from these things, as when he ventures forth into any discussion of substantive merit, he has a habit of tossing his crusades onto bonfires with volunteered admissions against his own interests.

              He is all big talk about “showing proving and discussing” until it comes time to actually show, prove and discuss. He then up and vanishes like a f@rt in the wind (said in the best Warden Ed Norton tones).

    2. I definitely agree with the statements that this is an urgent call for the Federal Circuit to improve this situation.
      Is this perhaps another case where only the financially privileged will be able to establish whether demand letters are legit, while the poor will blindly succumb to these letters?
      An important aspect I also think we seem to overlook is that this entire situation is definitely overriding the positive use of demand letters. We should take care not to let the good purpose of demand letter be lost by creating an image that all demand letters are patent Troll orientated.
      Can this situation be changes so that the use of demand letters can be controlled yet still have a good image?

  5. Hmmm,

    A laborious effort to trudge through with some dubious underpinnings (public interest outside of Article III standing…)

    Pass.

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