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November 25, 2014
License Demand Letter Isn't Enough to Establish Personal Jurisdiction Over Patentee Defendant in a Declaratory Judgment Action
Attorneys often worry that sending a license demand letter (or cease-and-desist letter) on behalf of a patentee will prompt an accused infringer to file a declaratory judgment action in its home forum, thus preempting the patentee's choice of forum. This fear is the most significant factor behind patentees' tendency to "shoot first, ask questions later" in patent litigation. Recent Federal Circuit law has largely erased that concern by holding that only activity relating to the enforcement or defense of a patent can serve as a basis to establish specific personal jurisdiction in a declaratory judgment action. The Northern District of Georgia is the latest court to apply that rule in dismissing a declaratory judgment action for lack of personal jurisdiction over the patentee.
As reported in our August 13, 2012 post, a patent infringement action involving indoor greenhouse patents was transferred from the Central District of California to the Northern District of Georgia based on the "first-to-file" rule because the accused infringer filed a declaratory judgment action in this district before the patentee filed its infringement suit. The declaratory judgment action and the infringement action were not consolidated, but proceeded in tandem before Judge Pannell of the Northern District. On January 3, 2013, Judge Pannell issued an order in each case on various outstanding motions, the net effect of which resulted in a dismissal of the declaratory judgment action for lack of personal jurisdiction and a stay of the infringement action pending reexamination of the patents-in-suit before the United States Patent and Trademark Office ("PTO").
For more background on the technology at issue, see our previous post. In short, in response to a license demand letter from patentee International Growers Supply, Inc. ("IGS") regarding U.S. Patent Nos. 7,823,324 and 7,975,428, accused infringer Atlantis Hydroponics, Inc. ("Atlantis") filed a declaratory judgment action in the Northern District of Georgia on April 9, 2012. Four days later, on April 13, 2012, IGS filed an infringement action in the Central District of California against Atlantis and its manufacturer, retailer, and owners. On August 8, 2012, the California case was transferred to the Northern District of Georgia based on the "first-to-file" rule.
In the declaratory judgment action, IGS moved to dismiss for lack of personal jurisdiction or, alternatively, to transfer to the Central District of California under 28 U.S.C. § 1404. Atlantis moved to conduct jurisdictional discovery, and also moved to stay the action pending a PTO reexamination of the '324 and '428 patents. In the transferred infringement action, Atlantis filed an identical motion to stay pending reexamination, and IGS moved to consolidate the case with the declaratory judgment action.
Order Dismissing Declaratory Judgment Action for Lack of Personal Jurisdiction
First, the Court had to address whether IGS had waived a defense of personal jurisdiction because the time for filing a responsive pleading under F.R.C.P. 12(a) had expired when the motion to dismiss was filed. IGS filed a motion to set aside default contemporaneously with the motion to dismiss. Atlantis consented to setting aside the default but moved to strike the motion to dismiss. The Court found that because the defense was raised in the first responsive pleading or paper filed, though it was not timely filed, IGS did not waive the defense.
Next, the Court considered the law of personal jurisdiction over a patentee defendant in a declaratory judgment action. The plaintiff bears the burden of establishing a prima facie case for personal jurisdiction, and the court must construe all pleadings and affidavits in a light most favorable to the plaintiff. Personal jurisdiction may be based on either general or specific jurisdiction. As stated by the Supreme Court, a "court may assert general jurisdiction over foreign (sister state or foreign-country) corporations to hear any and all claims against them when their affiliations with the State are so ‘continuous and systematic’ as to render them essentially at home in the forum State."
Specific jurisdiction, however, requires that the defendant have "purposefully directed" his activities at residents of the forum State and that the litigation have resulted from alleged injuries that "ar[o]se out of or relate[d] to those activities." A court's exercise of specific personal jurisdiction over an out-of-state defendant must comport with the forum State's long-arm statute and the requirements of due process. Georgia's long-arm statute is expansive enough that its reach is only limited by the boundaries of due process. The Federal Circuit recently explained the relevant contacts and activities a court may consider in determining whether it has personal jurisdiction over a defendant patentee in a declaratory judgment action:
[A]n action for a declaratory judgment "arises out of or relates to the activities of the defendant patentee in enforcing the patent or patents in suit," and ... the relevant inquiry for specific jurisdiction is "to what extent the defendant patentee purposefully directed such enforcement activities at residents of the forum and the extent to which the declaratory judgment claim arises out of or relates to those activities." Thus, only those activities of the patentee that relate to the enforcement or defense of the patent can give rise to specific personal jurisdiction for such an action.
To support its assertion of personal jurisdiction, Atlantis alleged in the complaint that IGS "transacts extensive business within [Georgia]" and that "Defendant's products are sold by dozens of dealers in the State of Georgia." Atlantis also pointed to the license demand letter IGS sent to Atlantis. Atlantis' arguments in favor of both general and specific jurisdiction relied heavily on a "stream of commerce" theory -- that is, that by placing goods into the stream of commerce "with the expectation that they will be purchased by consumers within the forum State," IGS could be said to have purposefully availed itself of the State's laws such that personal jurisdiction would be appropriate. The Federal Circuit has held that the stream of commerce theory applies to patent declaratory judgment actions. In Atlantis’ declaratory judgment action, the court prefaced its analysis by declaring the stream of commerce theory irrelevant to the question of specific jurisdiction, as it does not relate to the defendant's enforcement or defense efforts relating to the patents-in-suit.
With regard to general jurisdiction, the Court noted that "simply selling products in a forum through the stream of commerce is not sufficient to support general jurisdiction." Judge Pannell held that, even taking Atlantis' allegations in the complaint as true, the Court did not have general personal jurisdiction over IGS.
As to specific jurisdiction, the Court held that it could not exercise jurisdiction over IGS because IGS' only contacts within the forum were sales of its patented product and not enforcement activity. Judge Pannell noted that the only enforcement action taken in Georgia was the March 26, 2012 license demand letter IGS had sent to Atlantis, which alone could not justify the exercise of specific jurisdiction. In one of the Federal Circuit cases cited by Judge Pannell, Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., the Court there held that three cease-and-desist letter sent by the patentee were insufficient contacts to create personal jurisdiction, announcing that "[p]rinciples 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."
Because Atlantis made no allegations regarding IGS' enforcement or defense of the patents-in-suit in Georgia, the Court held that it could not exercise specific jurisdiction over the declaratory judgment action and dismissed the action without prejudice.
Turning to the remaining motions filed in that action, the Court denied Atlantis' motion to conduct jurisdictional discovery, holding that because the complaint failed to allege sufficient activity, or even general categories of activity, to support a finding of personal jurisdiction, it would not grant Atlantis the right to conduct a "fishing expedition." Finally, the Court dismissed as moot Atlantis' motion to stay the action pending reexamination. The Court having granted IGS’ principal motion (the motion to dismiss), IGS’ alternative motion to transfer was not addressed.
Order Staying Infringement Action Pending Patent Reexamination
In the patent infringement case, Atlantis filed an identical motion to stay the action pending reexamination of the patents-in-suit. IGS never filed a response to the motion, arguing that it was not served with the motion papers in this action. Judge Pannell placed the blame for not receiving Atlantis' motion on counsel for IGS, who waited for three months after the case was transferred to make an appearance in the case. Nevertheless, Judge Pannell decided to consider IGS' opposition to the motion to stay filed in the declaratory action as if it had been filed in the infringement action. However, the Court refused to consider IGS' "request" that its papers filed in the declaratory judgment action regarding personal jurisdiction and transfer be considered, as well. Judge Pannell noted that while the identical motion to stay was before the Court, the issues involved in making a determination regarding jurisdiction or transfer were entirely different than in the declaratory judgment case.
The Court then turned to the motion to stay. On September 10, 2012, an unrelated third party filed a request for ex parte reexamination of one of the patents-in-suit, the '324 patent. The PTO granted the request as to all claims in the '324 patent, finding that the request presented a "substantial new question of patentability." The Court considered the following three factors in using its discretion whether to grant a stay: "(1) whether a stay will unduly prejudice or tactically disadvantage the non-moving party; (2) whether a stay will simplify the issues and streamline the trial; and (3) whether discovery is complete and a trial date has been set." The Court found all three factors to weigh in favor of a stay primarily due to the stage of litigation and the "benefit [the court will receive] from the PTO's analysis of nonobviousness" in the reexamination.
Thus, the case has been administratively closed pending the resolution of the reexamination. IGS' motion to consolidate the two cases was dismissed as moot due to the dismissal of the declaratory judgment action. Presumably, if IGS’ infringement action is re-opened following the conclusion of the PTO reexamination proceedings, nothing would preclude IGS from filing a motion to transfer that action back to California, pursuant to 28 U.S.C. § 1404(a).
The declaratory judgment order is Atlantis Hydroponics, Inc. v. International Growers Supply, Inc., 1:12-cv-1206-CAP, 2013 U.S. Dist. LEXIS 2187 (N.D. Ga. Jan. 3, 2013) (Pannell, J.). The order issued in the infringement action is International Growers Supply, Inc. v. Atlantis Hydroponics, Inc., et al., 1:12-cv-2728-CAP (N.D. Ga. Jan. 3, 2013) (Pannell, J.)
 Trintec Indus., Inc. v. Pedre Promotional Prod., Inc., 395 F.3d 1275, 1282 (Fed. Cir. 2005).
 Goodyear Dunlop Tires Operations, S.A. v. Brown, ___ U.S. ___, 131 S. Ct. 2846, 2851 (2011).
 Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985).
 Radio Sys. Corp. v. Accession, Inc., 638 F.3d 785, 788-89 (Fed. Cir. 2011).
 Innovative Clinical & Consulting Servs., LLC v. First Nat'l Bank of Ames, 279 Ga. 672, 675, 620 S.E.2d 352, 355 (2005).
 Radio Sys. Corp., 638 F.3d at 789 (quoting Avocent Huntsville Corp. v. Aten Int'l Co., 552 F.3d 1324, 1332 (Fed. Cir. 2008)) (emphasis added); see also Avocent, 552 F.3d at 1338 (The "mere sale of defendant's products--whether covered by the patents in suit or not--is not sufficient to establish specific personal jurisdiction in a declaratory judgment suit.")
 J. McIntyre Mach., Ltd. v. Nicastro, ___ U.S. ___, 131 S. Ct. 2780, 2788 (2011).
 Viam Corp. v. Iowa Export-Import Trading Co., 84 F.3d 424, 428 (Fed. Cir. 1996).
 Citing Goodyear, 131 S. Ct. at 2856.
 Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355 (Fed. Cir. 1998). IGS’ infringement action against Atlantis did not count toward enforcement activity within Georgia, stated the Court in Footnote 5 of its order, because that action “was transferred here against [IGS’] wishes after the present suit had been filed.”
 Id. at 1360-61.
 Tomco2 Equip Co. v. Se. Agri-Systems, Inc., F. Supp. 2d 1303, 1307 (N.D. Ga. 2008).