by Dennis Crouch
The Federal Circuit’s new decision in Trimble Inc. v. PerDiemCo LLC reads like my recent Civil Procedure final exam.[1] The topic is personal jurisdiction–when may a Federal Court exercise its power over an out-of-state patentee in a declaratory judgment action challenging the patent’s validity. The holding is important–repeated and specific threats of litigation by an out-of-state patentee can be sufficient to establish personal jurisdiction for a declaratory judgment action.[2] The decision relies upon the an expanded notion of purposeful availment from the Supreme Court’s 2021 decision in Ford,[3] but should also be seen as further limiting the holding of Red Wing Shoe.[4]
In the U.S., personal jurisdiction is handled on a state-by-state basis, even if the case is filed in Federal Court. “Due process” requires a defendant to have sufficient connection with the forum state before a court can exert power over the defendant or the defendant’s assets.[5] This lawsuit was filed in California against PerDiemCo, and so the personal jurisdiction question boils down to whether PerDiemCo has directed its activities toward California in a way that makes jurisdiction fair, just, and reasonable according to our traditions.[6]
PerDiemCo, the patentee, is a Texas LLC with rented office space in Marshall, TX. Its sole employee is Robert Babayi–a patent attorney practicing in Washington DC who has apparently never visited the Texas office. PerDiemCo owns a number of U.S. patents covering the electronic logging of hours for commercial vehicles and also a process known as geofencing.[7] (Geofencing is the process of electronically “monitoring whether a vehicle enters or leaves” an area.) PerDiemCo’s only apparent business is licensing its patents.
Trimble is a Delaware corporation with its headquarters in N.D. Cal. (Sunnyvale). Trimble is traded on NASDAQ and has a current market cap of $18.75 billion. (TRMB) — most of its business is related to geospatial technology. ISI has does business and has offices throughout the United States. Innovative Software Engineering, LLC (ISI) is also involved in the lawsuit. ISI is a subsidiary of Trimble that is both incorporated and headquartered in Iowa.
The Purposeful Availment: Back in 2018 PerDiemCo’s Babayi mailed a letter to a ISI’s corporate HQ in Iowa, accusing ISI of infringing PerDiemCo’s patents. ISI is a subsidiary of Trimble, and so forwarded the letter to Trimble’s Chief IP Counsel Aaron Brodsky located in Colorado. The parties then began to conduct some amount of negotiation: “Throughout these negotiations, PerDiemCo communicated with Trimble via letter, email, or telephone at least twenty-two times.” The communications apparently included express threats to sue Trimble for patent infringement. However, all the communications were apparently via Brodsky in Colorado.
PerDiemCo exchanged twenty-two communications with Trimble in California over a period of three months, some through its subsidiary ISE in Iowa and others through its Chief IP Counsel in Colorado.[8]
In 2019, Trimble and ISE sued for declaratory judgment. Rather than choosing Iowa or Colorado, the companies chose the Northern District of California, which is Trimble’s home court.
The Question: On these facts, may the California district court exercise personal jurisdiction over the defendant?
The Answer: The district court dismissed the case, finding that it would be unreasonable to assert personal jurisdiction.[9] On appeal, however, the Federal Circuit reversed—finding no problem with the case proceeding in California. In particular, the Federal Circuit found (1) sufficient minimum contacts with the state of California related to the cause of action and (2) that exercise of jurisdiction by a California court would be reasonable.
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Directed to California: If you recall, PerDiemCo repeatedly communicated with Trimble, but only through individuals residing outside of California. These were seen as contacts directed to California because they are “communications sent to Trimble, a California resident.”[10] The court did not spend much time on this particular issue, but addressed it in a footnote:
The [District] court held that PerDiemCo’s communications with Mr. Brodsky in Colorado were, for personal jurisdictional purposes, directed to Trimble in California, rather than in Colorado. This focus is consistent with our cases. Maxchief Investments Ltd. v. Wok & Pan, Ind., Inc., 909 F.3d 1134, 1139 (Fed. Cir. 2018) (holding that, for personal jurisdiction purposes, a letter sent to a company’s counsel is directed to the company at its headquarters, not the location of counsel); Inamed Corp. v. Kuzmak, 249 F.3d 1356, 1360 (Fed. Cir. 2001) (same); Akro Corp. v. Luker, 45 F.3d 1541, 1546 (Fed. Cir. 1995) (same).
Thus, we have contacts and threats of litigation directed toward a resident of California; and these threats relate directly to the eventual cause of action.
What about Red Wing: One big hurdle for Personal Jurisdiction is the Federal Circuit’s 1998 decision in Red Wing Shoe Co.[11] In that case, court held that a patentee does not open-itself to personal jurisdiction in a particular state simply by accusing an in-state resident of infringement. According to the court, that result would be unfair.
Principles of fair play and substantial justice afford a patentee sufficient latitude to inform others of its patent rights without subjecting itself to jurisdiction in a foreign forum. A patentee should not subject itself to personal jurisdiction in a forum solely by informing a party who happens to be located there of suspected infringement. Grounding personal jurisdiction on such contacts alone would not comport with principles of fairness.[12]
In Red Wing, there were three warning letters sent by the patentee HHI to the DJ Plaintiff Red Wing. These letters apparently accused Red Wing of infringement and also offered to license the patents. In addition, HHI’s prior licensees sold licensed products in the forum state (Minnesota), but HHI did not control those sales. After reviewing those facts, the Federal Circuit found those connections insufficient to for Personal Jurisdiction. In particular, the court suggested that the minimum contacts prong had likely been met, but that it remained unfair that those limited contacts would lead to a court proceeding.
In Trimble, the Federal Circuit purported to uphold Red Wing Shoe, but limited the case situations with a small number of communications. Rather, the court found that PerDiemCo’s contacts were “extensive” and went beyond simply “informing” Trimble of its infringement and seeking a license agreement.
PerDiemCo amplified its threats of infringement as the communications continued, asserting more patents and accusing more of Trimble and ISE’s products of infringement. Indeed, PerDiemCo went so far as to identify the counsel it retained to sue Trimble and ISE and the venue in which it planned to file suit. PerDiemCo’s twenty-two communications over the course of about three months fall well outside the “sufficient latitude” we sought to grant patentees “to inform others of [their] patent rights without subjecting [themselves] to jurisdiction in a foreign forum” on the basis of three letters sent over a similar time period in Red Wing.
The Trimble court found that the PerDiemCo communications should be collectively termed “a negotiation” rather than merely providing information. “And Trimble is headquartered in California, connecting California to Trimble’s claims, which is a consideration the Court in Ford found relevant in distinguishing its earlier decision in Bristol-Myers.” In the end, the court found that the minimum contacts were “easily satisfied.” And, any fairness concerns were also overcome.
In its 1985 Burger King Decision,[13] the Supreme Court expanded upon the five fairness elements highlighted by World-Wide Volkswagen Corp. v. Woodson.[14] Trimble walks through these same elements, concluding that it is indeed fair to haul PerDiemCo into a California court.
- Burden on the defendant. Although PerDiemCo has a Texas office, the courts found that office “pretextual” and certainly a distance from Washington DC where Babayi is located. Still, the company has repeatedly filed lawsuits in Texas. According to the appellate court, if Texas is OK, so is California. The basic decision here is that PerDiemCo does not really have any home because it is merely the owner of intangible assets. If PerDiemCo was instead an operating company, then outcome would have been totally different.[15]
- Forum state’s interest in adjudicating the dispute. On this second point, the court found that N.D. Cal. Has a significant interest in hearing the dispute because Trimble is a “resident” of Northern District of California.
- Plaintiffs’ interest in obtaining convenient and effective relief. Nearby federal court is helpful to the plaintiff Trimble.
- Interstate judicial system’s interest in obtaining the most efficient resolution of controversies. On this point, the court did not find any favor one way or the other.
- The shared interest of the several states in furthering fundamental substantive social policies. This does not appear to apply directly.
As you can see, the BK bullet points did not reveal any fairness concern, and thus the appellate panel reversed the lower court’s dismissal for lack of personal jurisdiction.
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Personal Jurisdiction as Patent Law Specific but Not Patent Law Specific.
The Federal Circuit has for many years applied its own law to personal jurisdiction questions even though the doctrine is procedural in nature. Unlike questions of inconvenient venue, the court has found that jurisdiction is “intimately involved with the substance of the patent laws.”[16] For convenient venue questions, the court applies the law of the regional circuit court of appeals.
This patent-focused personal jurisdiction doctrine goes back several decades. In Trimble though the court explains that since that time the Supreme Court has “made clear that the analysis of personal jurisdiction cannot rest on special patent policies.”[17] In Particular, in its 2017 SCA Hygiene decision, the Supreme Court stated that “[p]atent law is governed by the same … procedural rules as other areas of civil litigation.”[18] The appellate panel also notes other areas where the Supreme Court “has repeatedly rejected special rules for patent litigation in the context of rules governing civil litigation generally.”
In its decision, the appellate panel only takes this change toward generalism halfway. In particular, the court uses the Supreme Court’s guidance to narrow its application of Red Wing. But, the court does not question the underlying premise that Federal Circuit law should prevail on the question of personal jurisdiction. This seems to be a bit of doublespeak or perhaps a lack of coherence that could be resolved by an en banc rehearing.
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[1] Trimble Inc. v. PerDiemCo LLC, 2019-2164, 2021 WL 1898127, at *1 (Fed. Cir. May 12, 2021).
[2] See, Silas K. Alexander and Nicole R. Townes, Repeated and Specific Litigation Threats – Sufficient Minimum Contacts, Knobbe Martens Blog (2021).
[3] Ford Motor Co. v. Montana Eighth Jud. Dist. Ct., 141 S. Ct. 1017, 1024 (2021).
[4] Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355 (Fed. Cir. 1998); See also Jack Henry & Associates, Inc. v. Plano Encryption Technologies LLC, 910 F.3d 1199 (Fed. Cir. 2018).
[5] Ford.
[6] See Int’l Shoe Co. v. Washington, 326 U.S. 310, 316–17 (1945) and Bristol-Myers Squibb Co. v. Superior Ct. of Cal., 137 S. Ct. 1773, 1779 (2017).
[7] Patents at issue here include: (1) U.S. Patent No. 8,149,113; (2) U.S. Patent No. 9,485,314; (3) U.S. Patent No. 9,621,661; (4) U.S. Patent No. 9,680,941; (5) U.S. Patent No. 9,871,874; and (6) U.S. Patent No. 10,021,198; (7) U.S. Patent No. 9,319,471; (8) U.S. Patent No. 9,954,961; (9) U.S. Patent No. 10,104,189; (10) U.S. Patent No. 10,148,774; and (11) U.S. Patent No. 10,171,950.
[8] Trimble.
[9] Id.
[10] Trimble.
[11] Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355 (Fed. Cir. 1998); Genetic Implant Sys. Inc. v. Core–Vent Corp., 123 F.3d 1455 (Fed.Cir.1997).
[12] Id.
[13] Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985)
[14] World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980).
[15] See Xilinx, Inc. v. Papst Licensing GmbH & Co. KG, 848 F.3d 1346 (Fed. Cir. 2017) (treating non-practicing entity differently than operating company who also owns patents).
[16] Akro Corp. v. Luker, 45 F.3d 1541, 1543 (Fed.Cir.1995).
[17] Trimble.
[18] SCA Hygiene Prods. Aktiebolag v. First Quality Baby Prods., LLC, 137 S. Ct. 954 (2017).
The fact that Federal Circuit law governs personal jurisdiction has always been something I’ve found to be suspect. In a typical case, there’s no dispute that the state long-arm statute issue is an issue of state law. But the due process issue doesn’t really seem to be an issue unique to patent law. And if you go back to Beverly Hills Fan, the rationale for it is pretty suspect – they say it’s “intimately related to substantive patent law” but only because it has to do with the issues of where/whether rights can be vindicated. But that seems like a quintessential procedural issue, not a substantive issue. The same seems true for the Rule 4(k)(2) issue – there may be different ways of proving that you can use it in each circuit. It seems like instead of the substantive/procedural divide, the basis the Federal Circuit really is relying on is that a split of authority on the stream of commerce means that Federal Circuit law needs to govern the issue to promote uniformity.
Whatever you want to say of the argument in 1990, it’s become clear since then that the bigger rationale underlying the Federal Circuit’s Beverly Hills Fan decision to apply Federal Circuit law doesn’t hold up now. And the Federal Circuit probably needs to reconsider this at some point.
In Particular, in its 2017 SCA Hygiene decision, the Supreme Court stated that “[p]atent law is governed by the same … procedural rules as other areas of civil litigation.”[18] The appellate panel also notes other areas where the Supreme Court “has repeatedly rejected special rules for patent litigation in the context of rules governing civil litigation generally.” Oh, yes, for years and years, SCOTUS has confirmed that patents don’t get special rules or procedural rules. This is of course, until Alice – punch out the patent (with no due process) on the PLEADINGS under this fig leaf 101 subject matter logic. And of course, Oil States –> creating a special place in hades for all patents, out with the 5th, 7th, the separation of powers (ordered liberty) with a brand new Star Chamber court. And who can forget KSR –> common sense <– is a new Fed.R.Evid. category. Isn't all that procedural as well?
This decision appears correct to me as a matter of personal jurisdiction law. I wonder, however, if the patentee-defendant should not have won on an affirmative defense of improper venue under TC Hearthland.
PerDiemCo was not a “resident” of California under 28 U.S.C. §1400(b). Meanwhile, the defendant in this suit is not alleged to have committed any “acts of infringement,” so the second prong of §1400(b) should simply be inapplicable.
Did PerDiemCo raise a venue defense in its answer? Or is there a reason—presumably unique to DJ actions—why such a defense should have failed? I confess that venue is not my strong suit, so it will be no surprise if I am missing something important here.
At a high level, I’m not sure that this makes for good policy. I get that everybody thinks of NPEs as the “bad guys,” and we love to make their life harder. But as my civil procedure professor said, hard facts can make bad law. This seems to create a perverse incentive to not try to settle patent disputes out of court. If I were a small company eyeballing an infringer of my patents, I would look at this case and think, “Hmm. Maybe I just sue first and ask questions later.” Or at most, I send one friendly letter offering a license, and if they balk, I immediately sue.
The caveat “well, it’s ONLY because they’re an NPE” would feel like shaky ground to me, because I would assume (correctly) that my big-money defendant would try to shove me into this new space that was just carved out between Redwing and Burger King. Even if I won, I would spend tens of thousands of dollars fighting DJ in an unfriendly court where opposing counsel plays tennis with the judge every Thursday. Or let’s say I’m an individual inventor with one valid patent to my name, which the defendant is willfully infringing. Basically, the only thing we need to make this case a gross miscarriage of justice is a more sympathetic DJ defendant.
(Also, I think it’s telling that even the unfriendly court where opposing counsel plays tennis with the judge every Thursday said, “Nah, this doesn’t belong in my courtroom.”)
“Hmm. Maybe I just sue first and ask questions later.”
I do not think that the economics of this approach work for an NPE. For an NPE, royalties are revenue, licensees are customers, and litigation is a business expense. No business likes to antagonize its customers any more than is necessary to keep the lights on. Moreover, keeping the lights on becomes only more difficult the higher your business expenses. I expect that if “sue first and ask questions later” becomes the only way in which one can run an NPE, then the net effect will simply become that most folks running NPEs close up their NPE shop and go and find some other line of work.
Dozens “aka Greg DeLassus” responds to a portion of the discussion provided by Sean, while (seemingly purposefully) ignoring the point that “because this is a Tr011, it must be ok” is NOT OK.
I expect that if “sue first and ask questions later” becomes the only way in which one can run an NPE, then the net effect will simply become that most folks running NPEs close up their NPE shop and go and find some other line of work.
Greg DeLasssus wrote nearly the same thing 5 days ago. This opinion evidences a lack of knowledge as to how licensing campaigns are run these days. Nobody, and I mean nobody is going to take a license without getting sued first. The reason why is simple — unless you (as the potential licensee) are being sued, why bother paying? Most companies in that situation say ‘go ahead and sue, I’ll IPR you’ or ‘go ahead and sue, and I’ll file a 12b6 motion to dismiss under 101.’ The reason they do that is because IPRs and motions to dismiss under 101 knock out a substantial number of patents. They simply aren’t afraid of a demand letter.
For a licensor to get any headway with regard to a licensing campaign, they need to put their head into the mouth of the beast and win an IPR (or two or three or four) and win a motion to dismiss before any real chance of a meaningful settlement occurs. This is what one needs to do today to make any money as a NPE, and it has been this way for years — probably since Alice.
An NPE that is afraid of litigation isn’t go to make money.
As I wrote earlier, this decision will mean that patent holders won’t bother with the niceties of a demand letter and simply go straight to filing suit. Why risk being DJ’d?
I would amend your last question slightly:
Why risk being DJ’d in an opponent’s desired forum?
The ‘game’ afoot here — for both players — is forum shopping (as much as anyone might not like that smell, it IS what is).
Nobody, and I mean nobody is going to take a license without getting sued first.
I know from personal experience that this is not categorically true. I expect that others around these parts know equally well from personal experience. If such has not been your experience, however, that is as it is.
One can, for example, search fairly easily on PACER and the PTAB Trials site to see how many lawsuits or IPR petitions were filed antecedent to this deal. One will find that the answer is zero.
The fact that D.J. suits are so much rarer than patent suits started by patent owners supports the “sue first and don’t even try to settle later” approach adopted by most PAEs.
As for Trimble and ISE suing for declaratory judgment in the Northern District of California, “which is Trimble’s home court” I wonder how much benefit a “home court” really is in suits between small corporations? There may be other and more important reasons, such as the local patent suit rules in that District, which, as understood, requires patent owners to early disclose which claims are being asserted against which products, etc.?
The level of contacts that PerDiemCo has with Texas is less than Trimble’s contacts with California. According to the facts of the case, the only connection to Texas was a rented office that the the owner of PerDiemCo had never even visited. Whereas Trimple has a substantial presence in CA, and they are the target of this particular NPE. A fake office (I wonder if there’s any furniture in it) simply for establishing jurisdiction should be immediately rejected and considered a bad faith representation by whatever litigant asserts it as being sufficient.
Thanks Dvan. This is an important point and a key for understanding the Supreme Court’s recent decisions in Ford and BMS.
One bit of evidence regarding PerDiemCo’s contacts with TX is that the company has filed dozens of lawsuits in the state. The appellate panel did not give any weight there.
While I do NOT entirely disagree with you, Dvan, I do not agree that your “automatic” view is correct. The “game” provides for that action as NOT being a bad faith representation. That is to say, I agree that the “game” could be and likely should be changed to make it so, but that would be a change in law that would need be properly promulgated so that all have fair notice.
Note that the action of setting up an actual business presence (even if never actually setting foot there, or placing furniture there) does accord with a different ‘set of rules’ as to a willful and purposeful availment.
Contrast that though with the willful and purposeful availment of any firm desiring to take the benefit side of the coin by doing business in a State, but then clamoring against the actual effect of such a choice of willful and purposeful availment when it comes to those SAME profit making choices incurring a potential risk.
Do you not think that such “benefit without risk” is in any way a “bad faith” attempt?
Anon,
That’s a tough call to make without a lot more facts. For this specific case, it was about as egregious as possible so it was not even close to the line of good faith. I can definitely envision cases that are much closer to the line and could reasonably go either way. With NPEs though, I would suggest that any office they setup solely to create jurisdiction is fraudulent. They could have gone anywhere, and those kind of jurisdictional games need to be eliminated from litigation. Games and things like that are what drive up litigation costs and give the entire profession a bad reputation. If the profession is going to be seen as fair and honest (and most people don’t see it that way), then the same result should be expected anywhere a case is heard. The fact that some courts, judges and jurisdictions are considered plaintiff or defendant friendly adds to the appearance of inequities in the entire system.
I hear you – but simply do not agree.
I do grant that the particular game of Forum shopping is an interesting one.
That being said, the affirmative act of setting up an office — even if it merely be a Ghost office — is a clear indicator of that driver of “purposeful availment.”
You seem to not like that concept based on a particular player (that is, “non-practicing”), but keep in mind that in the case of the particular type of property (patent property), there is no aspect of requiring an affirmative “practicing” that CAN be invoked – based in the nature of patents being merely a negative right.
I do believe that you may well be influenced by at least an appreciative degree of “Ends justify the Means.”
Another aspect to keep in mind is that Forum shopping exists and is a double-edged sword because there are indeed at least two camps, and there are camps that simply are anti-patent, as well as the fact that there IS “home court” advantages. To single out only the game player looking for a pro-patent (or at least a neutral-patent) ground, while turning a blind eye to the other game player is, shall we say, less than credible.
I also agree with you that this may well turn on a case-by-case factual determination, and that not all of the facts of this case may be on the table to come to a “right” decision, but the larger disparity is NOT the one that you focus on (this being an egregious example of illicit behavior). As I posted, what you assert as over the line IS allowed per the current “rules of the game,” thus removing the ‘force’ of your assertion. I “get” that you feel differently, and that you would have the ‘rules of the game’ BE different, but they are – in fact – not different. It is (or at least should be) clear that the larger disparity comes from those who would seek the benefit of purposeful availment of profit on affirmative actions in a State, but then turn around and want to be clear of all risk of those very same profit actions IN that State. What possible “set of facts” could you envision to make it ‘ok’ for a one-sided benefit-only choice?
If the same-as-not-patent-law rule for personal jurisdiction in a patent case is that one way that a defendant can be found to have established sufficient minimal contacts with the forum state is by deliberately seeking to do business in the forum state, then one probably does need to emphasize the Red Wing rule that merely sending C&D letters to a recipient in the forum state is not “doing business” in the forum state. After all, in many instances, the C&D letters are not an attempt to do business, but rather are an attempt to stop business from being done.
In the case of a PAE, however, sending C&D letters is how they do business. Sending repeated letters to a state is a repeated instance of doing business in that state for a PAE. Therefore, it does make a certain sense to have a special rule here—not for patent cases—but rather for cases in which a patent assertion entity is the DJ defendant.
There is NO such “power” in patent law to turn the power based on the OWNER of the patent.
This is a fundamental affront against the full alienability of patents as property.
To even make this suggestion shows an unmitigated corruption.
Being a troll is the new black? Second class ownership, is discrimination, pure and simple. You would think someone would have brought up equal protection at this point.
There is nothing “second class” about the way the rule is applied to PAEs and the way that the rule is applied to practicing entities. The same rule gets applied to both in the same way.
My point is that there is a material, factual difference between the way one conducts business when one monetizes a patent by manufacturing in Florida and distributing only east of the Mississippi and the way that one conducts business when one monetizes by sending C&D letters inviting license negotiations to various states.
The first is likely only going to create “sufficient contacts” to support personal jurisdiction in states easy of the Mississippi. The second is likely going to create “sufficient contacts” in any state to which one sends the letter.
When the same rule is applied to materially different facts, one achieves materially different outcomes. This is not the creation of a “second class citizen,” this is just the boring outworking of the application of a single rule to materially different fact patterns.
There is NO “positive right” to do anything with a patent.
Your focus is out of alignment at the root issue.
There is a collision here in both the “patent or non-patent” thumb on the scale as well as the “purposeful availment” notions.
Transgressors get a “Get out of State” card even as they fully and purposefully avail themselves of the benefits of having business profits within a state (without the risk of the violation of the Federal – that is, nationwide – protection of a rights holder).
“This seems to be a bit of doublespeak or perhaps a lack of coherence”
Such a shock.
Not.
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