Mobbing Red Wing: Federal Circuit Eases Declaratory Judgment Personal Jurisdiction against Patent Holding Companies

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).

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