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/