Court of Appeals Finds Jurisdiction over German Non-Practicing Entity Based on Delivery of Warning Letters and Visits to California

The World in U.S. Courts: Spring 2017 - Intellectual Property – Patent | March.15.2017

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Xilinx, Inc. v. Papst Licensing GmbH & Co. KG, US Court of Appeals for the Federal Circuit, March 15, 2017

Defendant Papst is a German non-practicing entity (NPE) in the business of asserting patents against alleged infringers and either negotiating licenses or enforcing its patents in court. It believed that plaintiff Xilinx was such an infringer, and sent Xilinx a patent infringement notice in California, where the company is headquartered. Subsequently two Papst representatives from Germany (and its Texas-based outside counsel) traveled to California to try to negotiate a license. The effort was unsuccessful, and Xilinx filed suit in federal court in California for a declaratory judgment of non-infringement. The District Court dismissed the action, concluding that it lacked personal jurisdiction over Papst. In the present decision, the Court of Appeals for the Federal Circuit, which generally has appellate jurisdiction over all patent cases, concluded otherwise.

As relevant here, the Court of Appeals observed that for patent claims personal jurisdiction must be consistent with the requirements of both the forum and the Due Process Clause of the US Constitution. Because California asserts jurisdiction to the full extent of its constitutional ability to do so, the two inquiries collapse into the federal Due Process question. As to that, a two-step test applies: Whether Papst had “minimum contacts” with California, and whether the assertion of jurisdiction would otherwise be “fair” and “reasonable.”

Papst did not dispute that its contacts satisfied the “minimum contacts” prong of the test, and the Court agreed that the company had “purposefully availed” itself of the forum by sending a patent infringement notice and meeting with Xilinx in the State. Rather, the Court of Appeals focused on whether asserting jurisdiction over a patent-holder on the facts presented was “fair” and “reasonable.” It emphasized that this was an independent test, requiring consideration of additional factors including (i) the burden on the defendant, (ii) the forum State’s interest in adjudicating the dispute, (iii) the plaintiff’s interest in obtaining convenient and effective relief, (iv) the judicial system’s interest in resolving issues efficiently, and (v) the “shared interest of the several States in furthering fundamental substantive social policies.” Where “minimum contacts” had been shown, only a “compelling” case following application of these factors would support dismissal.

The Court of Appeals concluded that no such case had been shown. Papst did not argue that factors (ii) through (v) above warranted dismissal and the Court agreed that no such case could be made, especially in the patent context. Factor (i) can tip the balance against jurisdiction only in the “rare situation” in which the state’s interest in adjudicating a case are weak and “clearly outweighed” by the burden on the defendant. Papst argued that this was the case, relying on Federal Circuit precedent in which patent infringement warning letters were found not to establish a “fair” basis for personal jurisdiction. In such cases, courts had relied upon the policy determination that a patent-holder should not be required to expose itself to litigation in potentially numerous and distant locations merely by notifying putative infringers of its patent rights. The Court of Appeals found this policy inapplicable to Papst, principally because (i) Papst additionally sent representatives to California to try to negotiate a license, (ii) as an NPE based outside the US, Papst’s business model is based on enforcement of patents outside its home country, and (iii) Papst had itself “repeatedly” initiated patent infringement litigation in California, demonstrating additionally that the burdens of litigating in California were not insurmountable.

[Editor’s Note: The Xilinx case is also discussed in the Personal Jurisdiction section of this report.]

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