United States: Patent Licensor May Not Be Sued In Texas Merely Because It Has An Exclusive Licensee In Texas

The Federal Circuit held that a Texas court did not have personal jurisdiction over a Delaware patent licensor who sent cease and desist letters to a Texas company, and that the Delaware licensor may not be sued in Texas merely because it has an exclusive licensee in Texas. For an exclusive license to establish personal jurisdiction, the license must contain additional provisions showing sufficient minimum contacts within the forum, such as a continuing obligation to enforce or defend the patent.

In New World International, Inc. (New World) v. Ford Global Technologies, LLC (FTGL), the U.S. Court of Appeals for the Federal Circuit affirmed a district court's decision to dismiss the case for lack of personal jurisdiction, holding that when an exclusive license is relied on to establish personal jurisdiction, and the license must contain additional provisions showing minimum contacts within the forum to be sufficient, such as a continuing obligation to enforce or defend the patent.

Background

FTGL, a wholly-owned subsidiary of Ford Motor Company (Ford), is incorporated in Delaware and headquartered in Michigan. FGTL entered into an exclusive license agreement with LKQ Corp. (LKQ), an entity that is incorporated in Delaware and headquartered in Illinois. The license agreement designates LKQ as the exclusive licensee for the importation and sale of non-original equipment aftermarket products in the United States. The agreement included a license to several of Ford's design patents and contained provisions indicating that FGTL had discretion in enforcing the patents and that LKQ would be indemnified in any design patent suits against LKQ initiated by third parties.

FGTL sent New World, a Texas-based company, multiple cease-and-desist letters accusing New World of infringing Ford's design patents. FGTL subsequently filed an infringement suit with the U.S. District Court for the Eastern District of Michigan, alleging that New World infringed certain Ford design patents. FGTL subsequently dropped its claims under two of the design patents.

Two months later, New World filed suit in the Northern District of Texas seeking a declaratory judgment of noninfringement and invalidity for the two Ford design patents that FGTL dropped its infringement claims on in the Michigan action. FGTL moved to dismiss the complaint for lack of personal jurisdiction because FGTL does not do business in Texas. New World argued that specific personal jurisdiction was appropriate based on LKQ's business activities in the district. The District Court dismissed the complaint for lack of personal jurisdiction because FGTL's cease-and-desist letters were not sufficient to establish personal jurisdiction, and FGTL's license agreement with LKQ did not require FGTL to enforce or defend the Ford design patents in Texas or give LKQ the ability to enforce the patents on its own.

The New World Decision

On appeal, the Federal Circuit upheld the District Court's decision, holding that FGTL did not have the minimum contacts necessary to establish personal jurisdiction in Texas. To have sufficient minimum contacts to establish personal jurisdiction, New World would have had to show that FGTL purposefully directed its activities at residents of Texas, that New World's claims of noninfringement and invalidity arose out of those activities, and that establishing personal jurisdiction was reasonable and fair.

The Federal Circuit explained that sending ordinary cease-and-desist letters into a forum, alone, does not trigger personal jurisdiction, but additional activities in conjunction with the sending a cease-and-desist letter may be sufficient. One such activity is the grant of an exclusive license to a licensee that resides or regularly does business in a specific forum. But the mere existence of an exclusive licensee will not support jurisdiction, without some obligations beyond the payment and receipt of royalty income, such as an obligation to continually enforce and defend the patent on behalf of the licensee.

New World argued that FGTL's license with LKQ created personal jurisdiction because it was an exclusive license; and because the agreement included indemnification and enforcement provisions. The Federal Circuit rejected this argument, pointing out that the indemnification provision only came into effect for suits initiated by third parties, and FGTL still retained near-complete discretion to enforce the Ford design patents. Accordingly, neither provision was sufficient to support personal jurisdiction over FGTL based on the license agreement in conjunction with its conduct of sending cease-and-desist letters.

Strategy and Conclusion

Personal jurisdiction may be based on the presence of an exclusive licensee in a forum, but only if the agreement provides obligations beyond the payment and receipt of a royalty, such as a continuing obligation to enforce or defend a patent, that establishes minimum contacts within the forum. In addition, ordinarily, sending cease-and-desist letters into a forum will not be sufficient on its own to establish personal jurisdiction.

The New World International opinion can be found here.

Originally printed in LES Insights on July 11, 2017.

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