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IP Alert: License May Not Be Sufficient to Establish Personal Jurisdiction

June 27, 2017

Before a party can be sued in a court, that court must have personal jurisdiction over the party. To be subject to personal jurisdiction in a court, the party must have certain minimum contacts with the forum in which the court sits such that maintenance of the suit does not offend traditional notions of fair play and substantial justice. Typically, a defendant’s minimum contacts in a forum focus on the defendant’s activity in that forum. However, when a defendant is a patent holder that has licensed its patents to a third party, in certain situations that patent holder may be subject to personal jurisdiction in the forum due to its licensee’s activities in that forum. On June 8, 2017, in New World International, Inc. v. Ford Global Technologies, LLC, the Federal Circuit held that patent holder Ford Global Technologies, LLC (“FGTL”) was not subject to personal jurisdiction in the Northern District of Texas despite its licensee’s activities in Texas. The court ruled that under the operative license, FGTL did not have a sufficient obligation to enforce the patents to subject it to specific jurisdiction in Texas, and there were no additional activities in Texas beyond the license that would give rise to jurisdiction.

Defendant FGTL is a licensing branch of the Ford Motor Company. FGTL did not make or sell any products; it simply managed and licensed intellectual property for the Ford Motor Company. FGTL did no business in Texas and did not maintain an office or have any employees in Texas. It did, however, license several patents to LKQ Corp., which did do business in Texas. Plaintiff New World International filed suit against FGTL seeking a declaratory judgment of non-infringement and invalidity of the patents licensed to LKQ Corp. FGTL moved to dismiss the complaint for lack of jurisdiction. The district court granted FGTL’s motion to dismiss, finding that the license between FGTL and LKQ did not impose continuing obligations on FGTL to enforce or defend the patents in Texas, nor did it give LKQ an independent right to enforce those business operations.

On appeal, the Federal Circuit affirmed the district court’s dismissal. The Federal Circuit addressed the factors that are considered in determining whether the assertion of personal jurisdiction would comport with “fair play and substantial justice,” which are (1) whether the defendant purposefully directed its activities at residents of the forum; (2) whether the claim arises out of or relates to the defendant’s activities with the forum; and (3) whether assertion of personal jurisdiction is reasonable and fair. The Federal Circuit acknowledged that while a defendant purposefully directs its activities at residents of a forum when the defendant sends a cease and desist letter to a potential plaintiff in that particular forum, that alone is an insufficient basis to find personal jurisdiction without more. Also, the mere existence of an exclusive licensee does not support a finding of personal jurisdiction. For example, a license that establishes no relationship between a patent holder and a licensee beyond the payment and receipt of royalties is not sufficient, because a declaratory judgment action does not typically arise from or relate to a patent holder’s efforts to license or commercialize its patents. On the other hand, a license that obligates the patent holder to defend or enforce the patent may be sufficient to establish specific personal jurisdiction, because a declaratory judgment action typically arises from the patent holder’s actions to enforce or defend its patent in the forum. What matters, then, is whether the agreement between the patent holder and the exclusive licensee imposes an obligation on the patent holder to enforce or defend the patent on behalf of the licensee that is engaged in exploiting the patent rights in the forum state.

Under that framework, the court found that FGTL was not subject to personal jurisdiction in the Northern District of Texas. First, the Federal Circuit rejected New World’s argument that the existence of an exclusive licensee in the forum is alone sufficient to establish personal jurisdiction. Second, the court rejected New World’s argument that an indemnity provision was alone a sufficient basis for specific jurisdiction. Finally, New World failed to demonstrate that FGTL had assumed a meaningful obligation to enforce or defend the patents under the license provisions regarding infringement suits brought against third parties. There was no question that FGTL retained control over how to handle enforcement of the patents against infringing third parties. New World argued that FGTL had ceded control over whether to initiate enforcement actions to LKQ. The Federal Circuit disagreed, finding that under the license agreement, FGTL retained nearly complete control over the patent enforcement decision, and the license did not impose a sufficient obligation on FGTL to enforce the patents on behalf of LKQ. Therefore, the activities of LKQ in Texas were not sufficient to subject FGTL to personal jurisdiction there.

This case provides a useful summary of the case law regarding personal jurisdiction in a patent owner-licensee relationship. The Federal Circuit’s decision depended heavily on the specific language of the FGTL-LKQ license. Therefore, when assessing whether a patent owner may be subject to personal jurisdiction in a forum through the activities of one of its licensees, the language of the license is of critical importance.

For more information, please contact Fitch Even partner Joseph F. Marinelli, author of this alert.

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