By David Wille

BAKER & BOTTS, L.L.P.
Dallas, Texas

Part IV. Declaratory Judgment Cases

 Declaratory judgment actions present one of the more difficult personal jurisdiction issues in IP cases. As one would expect with a difficult issue, courts have issued opinions espousing a variety of theories which are inconsistent with one another. The Supreme Court has not yet faced the issue of how a declaratory judgment should be analyzed for personal jurisdiction purposes. Even where appellate authority exists, a litigant who for strategic reasons believes that the personal jurisdiction issue is of great importance, should consider preserving the issue.

Declaratory judgments present a difficult issue because of how they arise. Personal jurisdiction doctrine, at least in the specific jurisdiction context, seeks to identify those states where events comprising part of the alleged wrong at issue in the case have occurred. In the declaratory judgment context, the alleged wrong is really one caused by the plaintiff (see endnote 102). The plaintiff is asking the court to bless his alleged wrong as legal conduct. True, there may be additional claims against the defendant that will make the jurisdictional inquiry different, but the basic declaratory judgment is as described. In a pure declaratory judgment of noninfringement case, the only relevant act of the defendant is the one causing a reasonable apprehension of suit on the part of the plaintiff, usually the sending of a letter making an infringement accusation. The reason that courts struggle so much with the issue is that in many cases the defendant has done nothing wrong so application of traditional personal jurisdiction tests does not make sense.

In analyzing personal jurisdiction in IP declaratory judgments, courts have split over the issue of whether sending a demand letter (making accusations of infringement) into a state alone is enough to exercise jurisdiction. Some courts have held or stated that the sending of a demand letter alone does not amount to sufficient contact with a state to establish personal jurisdiction (see endnote 103). Other courts have held or stated that the sending of a demand letter constitutes minimum contacts sufficient to establish jurisdiction (see endnote 104). Unfortunately, no persuasive rationale has emerged as to why one view is correct and the other is wrong.

An example of the confusion is the issue of whether the sending of the demand letter gives rise to the declaratory judgment action. Some courts contend that the sending of the demand letter does not create the cause of action--instead it is the defendant's exploitation of his intellectual property (see endnote 105). Other courts contend that the demand letter gives rise to the declaratory judgment action (see endnote 106). The latter view seems correct. An intellectual property owner that does not choose to exploit his intellectual property can just as easily create a reasonable apprehension of suit as one who does. Depending upon the case, the defendant's exploitation of the intellectual property at issue may be irrelevant to the cause of action (see endnote 107). In addition, the sending of the demand letter is crucial. In general, the act that allows the plaintiff to file a declaratory judgment action is the sending of the demand letter. Until the plaintiff has a reasonable apprehension of suit, he cannot file a declaratory judgment and that apprehension arises directly from a demand letter. The wording of the letter, at least in the patent context, is critical as the Federal Circuit has held that demand letters that are really proposals for licensing negotiations do not create a reasonable apprehension of suit.

Some commentators, in the patent context, have made policy arguments as to why the sending of a demand letter should not be enough to create jurisdiction. One reasons is that courts should encourage parties to settle their disputes out of court (see endnote 108). Patent owners should not be discouraged from attempting to settle a dispute out of court due to fear of a declaratory judgment action. Other reasons include potential conflicts with patent law policies and the lack of a state interest in providing a forum because patents are federal rights (see endnote 109).

All of these arguments may be easily dismissed as they really miss the mark. These arguments are more directed to whether or not declaratory judgment actions should be allowed or not. Personal jurisdiction doctrine determines, in part, where someone can be sued, not whether they can be sued. The arguments advanced as to encouraging out of court settlement and conflicts with patent law policy really are arguments as to why a patent owner should not be subject to suit, not arguments as to where he can be sued. The marginal effect of the situs of the lawsuit is insignificant in most cases, certainly much less significant than the prospect of being sued in general. Congress must have taken these arguments into account when passing the declaratory judgment statute and the policy justifications for having declaratory judgments adequately refute these arguments. The need to encourage settlement yields to the accused infringer's need to avoid the dilemma of either ceasing its allegedly infringing activity or risking higher liability and a willfulness finding. When a court declines personal jurisdiction based upon these policy arguments, it ignores the will of Congress and thwarts the purpose of the declaratory judgment statute.

The Federal Circuit has faced the issue of personal jurisdiction in the declaratory judgment context twice. In Akro Corp. v. Luker, (see endnote 110) the Federal Circuit held that the defendant could be subjected to personal jurisdiction. The defendant sent demand letters to the plaintiff and entered into an exclusive license regarding the patent in suit with a third party resident in the forum. Although those demand letters were sent to the plaintiff's attorney in another state, the attorney was merely an agent of the plaintiff and it was the plaintiff to whom the letters were directed. The exclusive license was deemed to relate to the litigation as it obligated the defendant to pursue infringement actions and defend the patent.

More recently, the Federal Circuit revisited the personal jurisdiction issue in Genetic Implant Systems, Inc. v. Core-Vent Corp (see endnote 111). Unfortunately, the first thing to note about the case is that it represents yet another attempt by the Federal Circuit to place a spin on an earlier opinion to make it mean something that it does not. The Federal Circuit stated in Genetic Implant Systems, Inc. "We have held that sending infringement letters, without more activity in a forum state, is not sufficient to satisfy the requirements of due process." (see endnote 112). At best, this statement involves gross negligence on the part of the panel, at worst, intellectual dishonesty. Plainly, the Federal Circuit could not have "held" that the sending of a letter is not sufficient to satisfy due process because the facts of Akro did not involve such a situation. The statement in Genetic Implant Systems is even more amazing as the panel in Akro stated that those cases holding that the sending of a letter was not enough to create personal jurisdiction were "simply inapposite." One can only marvel at how the Federal Circuit can transform a statement that prior case law was irrelevant into a holding.

The failure of the Federal Circuit to follow some basic principles that most courts in this country follow is a subject for another paper, however. For a declaratory judgment plaintiff, the point is that just because one panel of the Federal Circuit grossly mischaracterizes a prior case does not mean that the case stands for the proposition that the later panel asserts. Accordingly, one can still take the position that the sending of a demand letter in a patent case is sufficient to create personal jurisdiction. Given the dictum in Genetic Implant Systems, however, such a plaintiff will have to present a compelling case why that is sufficient.

The facts of Genetic Implant Systems suggest that the Federal Circuit takes a fairly expansive view of jurisdiction. The Federal Circuit found jurisdiction proper because the defendant sent cease and desist letters to the forum and sought to develop a market in the forum. The market development activities took place before the patent was issued. The defendant also appointed a distributor to sell products covered by the patent in the state. The Federal Circuit held that the lawsuit arose out of or related to these contacts. Like other courts that have found similar contacts sufficient to establish jurisdiction, the Federal Circuit does not clearly explain just how the sales of the patented product are relevant to the dispute. Thus, one cannot easily predict what contacts are relevant and what contacts are not relevant. Apparently, a demand letter plus a few contacts that might be more properly characterized as general jurisdiction type contacts will be sufficient to establish jurisdiction.

Plaintiffs may thus legitimately take the position that the sending of a demand letter alone is sufficient to establish personal jurisdiction. The trend in the case law, however, seems to reject this view. Thus, declaratory judgment plaintiffs would be well advised to seek additional contacts in the face of a personal jurisdiction challenge. The plaintiff should start with the demand letter itself. If that letter contains an offer to license the patent, the plaintiff can argue that the license offer amounts to doing business in the state. The Federal Circuit has held that the exclusive licensing of a third party that resides in the forum state is enough to establish personal jurisdiction when accompanied by the sending of a demand letter to the forum (see endnote 113). Thus, offering a license may also be sufficient, especially when that license is offered to the plaintiff, rather than a third party.

If a declaratory judgment plaintiff is faced with a challenge to personal jurisdiction, he should seek discovery and establish other contacts with the forum. Some forum contacts found to be relevant when combined with a demand letter include (1) the use of the intellectual property to secure investment in a product, (see endnote 114) (2) the soliciting of business from the plaintiff involving the intellectual property, (see endnote 115) (3) prior relationships such as contractual relationships, (see endnote 116) (4) the marketing or manufacturing in the jurisdiction of a product embodying a patent at issue or copyright at issue or containing a trademark at issue, (see endnote 117) (5) the existence of a licensee in the forum, (see endnote 118) (6) unfair competition in the forum, including the sending of infringement notices to the plaintiff's customers, (see endnote 119) and (7) a prior business relationship with a state resident (see endnote 120). Besides these contacts, the plaintiff should advance any contact that he can identify in support of his personal jurisdiction argument. Because the courts have not yet adopted a coherent theory as to relevant contacts, a kitchen sink approach may attain the ultimate objective of obtaining jurisdiction.

State long-arm statutes may present an even bigger problem than the minimum contacts test because of the nature of declaratory judgment actions. As explained above, some states either have passed long-arm statutes extending to the limits of due process or interpreted their long-arm statutes as such. Those states will not be a problem. Other states, however, have long-arm statutes that extend jurisdiction to those committing a tort or causing tortious injury in the state or to those doing business in the state. Because of the nature of a declaratory judgment action, the facts do not fit neatly into traditional long-arm statute categories (see endnote 121). Those statutes typically focus on acts of defendants in typical offensive type cases, rather than defensive declaratory judgment actions. Plaintiffs should remember to consult the state long-arm statute before filing a declaratory judgment action.

ENDNOTES

 102. In the subject matter jurisdiction inquiry, courts focus on the actions of the plaintiff that are alleged to be legal to determine whether a federal question is presented. At least one litigant has suggested that the personal jurisdiction inquiry should similarly focus on the plaintiff's conduct, rather than that of the defendant in a declaratory judgment context. PDK Labs Inc. v. Friedlander, 41 U.S.P.Q.2d 1338, 1342 (2d Cir. 1997). The Second Circuit rejected this argument, reasoning that the concerns of expanding federal subject matter jurisdiction through declaratory judgment actions were not implicated in the personal jurisdiction context. Id. at 1342-43.
103. Nationwide Mutual Ins. Co. v. Curry, 42 U.S.P.Q.2d 1139 (S.D. Ohio 1997) (copyright case); Boston Chicken Inc. V. Market Bar-B-Que Inc., 39 U.S.P.Q.2d 1148 (N.D. Ill. 1996) (trademark case); Polaroid Corp. v. Feely, 36 U.S.P.Q.2d 1354 (D. Mass. 1995) (trademark case); Modern Computer Corp. v. Ma, 32 U.S.P.Q.2d 1586 (E.D.N.Y. 1994) (copyright and patent case); Zumbro Inc. v. California Natural Products, 32 U.S.P.Q.2d 1650 (D. Minn. 1994) (patent case); Amway Corp v. Kope Food Products, Inc., 30 U.S.P.Q.2d 1381 (W.D. Mich. 1993) (trademark case); Ryobi America Corp. v. Peters, 26 U.S.P.Q.2d 1878 (D. S.C. 1993) (patent case); Unistrut Corp. v. Baldwin, 26 U.S.P.Q.2d 1397 (E.D. Mich. 1993) (patent case); Brandt Consolidated Inc. v. Agrimar Corp., 24 U.S.P.Q.2d 1341 (C.D. Ill. 1992) (patent case); KVH Industries Inc. v. Moore, 23 U.S.P.Q.2d 1294 (D. R.I. 1992) (patent case); Talus Corp. v. Browne, 21 U.S.P.Q.2d 2019 (D. Maine 1991) (patent case); Consumer Direct, Inc. v. McLaughlin, 20 U.S.P.Q.2d 1949 (N.D. Ohio 1991) (patent case); E.J. McGowan & Assoc. v. Biotechnologies Inc., 15 U.S.P.Q.2d 1145 (N.D. Ill. 1990) (patent case); Tol-O-Matic Inc. v. Proma, 6 U.S.P.Q.2d 1464 (D. Minn. 1987) (patent case); Boatel Industries Inc. v. Wollard, 2 U.S.P.Q.2d 1946 (D. Minn. 1987) (patent case); Starline Optical Corp. v. Caldwell, 225 U.S.P.Q. 577 (D. N.J. 1984) (patent case); see also Genetic Implant Systems, Inc. v. Core-Vent Corp., 43 U.S.P.Q.2d 1786 (Fed. Cir. 1997) (patent case); PDK Labs Inc. v. Friedlander, 41 U.S.P.Q.2d 1338, 1341 (2d Cir. 1997) (trademark case); Lawrence D. Graham, The Personal Jurisdiction Effect of Notifications of Infringement, 78 J.P.T.O.S. 858, 860 (1996) (listing cases).
104. Bounty-Full Entertainment, Inc. v. Forever Blue Entertainment Group, Inc., 923 F. Supp. 950 (S.D. Tex. 1996); Asymetrix Corp. v. Lex Computer and Management Corp., 1995 U.S. Dist. LEXIS 20388 (W.D. Wash. 1995) (patent case); Oki America, Inc. v. Tsakanikas, 1993 U.S. Dist. LEXIS 19475 (N.D. Cal. 1993) (patent case); FMC Corp. v. Hunter Engineering Co., 20 U.S.P.Q.2d 1077 (E.D. Ark. 1991) (patent case); Burbank Aeronautical Corp. II v. Aeronautical Dev. Corp., 16 U.S.P.Q.2d 1069, 1074 (C.D. Cal. 1990) (patent case); Tandem Computers Inc. v. Yuter, 1989 U.S. Dist. LEXIS 18384 (N.D. Cal., Dec. 22, 1989) (patent case); Dolco Packaging Corp. v. Creative Industries, Inc., 1 U.S.P.Q.2d 1586 (C.D. Cal. 1986) (patent case).
105. KVH Industries Inc. v. Moore, 23 U.S.P.Q.2d 1294 (D. R.I. 1992) (patent case); Amway Corp v. Kope Food Products, Inc., 30 U.S.P.Q.2d 1381 (W.D. Mich. 1993) (trademark case); Ryobi America Corp. v. Peters, 26 U.S.P.Q.2d 1878 (D. S.C. 1993) (patent case); see Zumbro Inc. v. California Natural Products, 32 U.S.P.Q.2d 1650 (D. Minn. 1994) (patent case); Unistrut Corp. v. Baldwin, 26 U.S.P.Q.2d 1397 (E.D. Mich. 1993) (patent case); see also Starline Optical Corp. v. Caldwell, 225 U.S.P.Q. 577 (D. N.J. 1984) (patent case); Graham, supra note 104, at 861.
106. Asymetrix Corp. v. Lex Computer and Management Corp., 1995 U.S. Dist. LEXIS 20388 (W.D. Wash. 1995) (patent case); Polaroid Corp. v. Feely, 36 U.S.P.Q.2d 1354 (D. Mass. 1995) (trademark case); Burbank Aeronautical Corp. II v. Aeronautical Dev. Corp., 16 U.S.P.Q.2d 1069, 1074 (C.D. Cal. 1990) (patent case); Tandem Computers Inc. v. Yuter, 1989 U.S. Dist. LEXIS 18384 (N.D. Cal., Dec. 22, 1989) (patent case).
107. See Graham, supra note 104, at 864.
108. R. Scott Weide, Patent Enforcement Deterrence: Liberal Assertions of Personal Jurisdiction in Declaratory Judgment Actions, 65 U.M.K.C. L. Rev. 177, 194 (1996);Graham, supra note 104, at 861; Database America, Inc. v. Bell South Advertising & Publishing Corp., 825 F. Supp. 1195 (D.N.J. 1993); Starline Optical Corp. v. Caldwell, 225 U.S.P.Q. 577 (D. N.J. 1984).
109. Weide, supra note109, at 195-197.
110. 33 U.S.P.Q.2d 1505 (Fed. Cir. 1995).
111. 43 U.S.P.Q.2d 1786 (Fed. Cir. 1997).
112. Id. at 1789.
113. Akro Corp. v. Luker, 33 U.S.P.Q.2d 1505 (Fed. Cir. 1995); but see Consumer Direct, Inc. v. McLaughlin, 20 U.S.P.Q.2d 1949 (N.D. Ohio 1991) (noting that the offering of a license does not constitute minimum contacts).
114. PDK Labs Inc. v. Friedlander, 41 U.S.P.Q.2d 1338 (2d Cir. 1997).
115. Nationwide Mutual Ins. Co. v. Curry, 42 U.S.P.Q.2d 1139 (S.D. Ohio 1997).
116. CompuServe Inc. v. Patterson, 39 U.S.P.Q.2d 1502 (6th Cir. 1996).
117. Kmart Corp. v. Key Industries, Inc., 33 U.S.P.Q.2d 1521 (E.D. Mich. 1994); Polaroid Corp. v. Feely, 36 U.S.P.Q.2d 1354 (D. Mass. 1995); National Kitchen Products Co. v. The Butterfly Co., Inc., 32 U.S.P.Q.2d 1024 (D. N.J. 1994) (unpublished); Der-Tex Corp. v. Thatcher, 27 U.S.P.Q.2d 1234 (D. Mass. 1993); Graham, supra note 104, at 863.
118. Genetic Implant Systems, Inc. v. Core-Vent Corp., 43 U.S.P.Q.2d 1786 (Fed. Cir. 1997); Akro Corp. v. Luker, 33 U.S.P.Q.2d 1505 (Fed. Cir. 1995); Polaroid Corp. v. Feely, 36 U.S.P.Q.2d 1354 (D. Mass. 1995).
119. Modern Computer Corp. v. Ma, 32 U.S.P.Q.2d 1586 (E.D.N.Y. 1994).
120. KVH Industries Inc. v. Moore, 23 U.S.P.Q.2d 1294 (D. R.I. 1992).
121. See e.g., Talus Corp. v. Browne, 21 U.S.P.Q.2d 2019 (D. Maine 1991) (patent case).

For further information please contact Mitch Lukin.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.