LITIGATION REPORTER
Intellectual Property
REPRINTED FROM VOLUME 13, ISSUE 3 / MAY 23, 2006
COMMENTARY
Patent Licenses Can Create State Contacts
Bestowing Personal Jurisdiction
By Ann Fort, Esq., and Jeffrey D. Blake, Esq.*
The Federal Circuit’s recent holding in Breckenridge Pharmaceuticals Inc. v. Metabolite Laboratories Inc., Nos. 051221 and 05-1428, 2006 WL 895208 (Fed. Cir. Apr. 7,
2006), has made life easier for forum shoppers by establishing that a defendant in a patent declaratory-judgment
action may have the necessary “minimum contacts” with
a forum state to confer personal jurisdiction simply by virtue of the defendant’s relationship with an exclusive licensee headquartered or otherwise doing business in the
forum state — even if the defendant has no other contact with that state. Many patent holders would not
expect this result.
The practical impact of the ruling will be felt, as in
Breckenridge, in the context of a declaratory-judgment
action filed by a potential infringer against a patentee.
Potential infringers often use declaratory judgment actions to shop for the forum that provides the best chance
of success against the patentee. Breckenridge makes it
easier for the potential infringer to bring the action in a
favored forum by providing a more attenuated basis for a
court to find personal jurisdiction over a patentee.
must permit service of process on the defendant.”
Breckenridge, 2006 WL 895208, at *2 (citing Fed. R. Civ. P.
4(e), 4(k)(1)(A)). “Second, the exercise of personal jurisdiction must satisfy due-process requirements.” Id. (citing
Burger King, 471 U.S. at 474-76).
The due-process requirements for personal jurisdiction
are satisfied where the defendant maintains sufficient
“minimum contacts” with the forum state such that a
lawsuit in that state does not offend “traditional notions
of fair play and substantial justice.” Id. (citing Burger
King, 471 U.S. at 476-78). In patent litigation, the issue of
what constitutes “minimum contacts” for due-process
purposes is governed by Federal Circuit law. See id. at *3
(citation omitted).
The Federal Circuit “employs a three-prong test, in which
[it] determine[s] whether:
•
The defendant purposefully directed its activities
at residents of the forum,
•
The claim arises out of or relates to those activities;
and
•
Assertion of personal jurisdiction is reasonable
and fair.”
Case Analysis
In 1985 the U.S. Supreme Court set forth the current
paradigm for determining personal jurisdiction in Burger
King Corp. v. Rudzewicz, 471 U.S. 462 (1985). Under that
paradigm, if a defendant is not subject to general personal jurisdiction, then the district court determines
whether the defendant is subject to specific personal jurisdiction because the cause of action “arises out of” or
“relates to” the defendant’s in-state activity. See Burger
King, 471 U.S. at 472-73.
The determination of specific personal jurisdiction involves
a two-part inquiry. “First, the state long-arm statute
Id. at *4 (citation omitted).
In Breckenridge the Federal Circuit focused on the due
process requirements necessary for a district court to
have personal jurisdiction over an out-of-state defendant
patentee in a declaratory-judgment action brought by a
potential infringer. The patentee Metabolite Industries
Inc. (“Metabolite”) faced a declaratory-judgment action
filed in the Southern District of Florida by potential
infringer Breckenridge Pharmaceutical Inc.
© 2006 West, a Thomson business.
Intellectual Property
(“Breckenridge”). Id. at *2. Metabolite contended it had
no direct contact with Florida other than having sent
cease-and-desist letters to three of Breckenridge’s Florida customers. See id. at *1-2. Metabolite, however, also had an
exclusive license agreement with PamLab LLC (“PamLab”)
authorizing PamLab to manufacture and sell products
covered by Metabolite’s patents throughout the United
States, including Florida. See id. at *1. PamLab actively sold
licensed products in Florida, but was headquartered in
another state.
After deciding that Metabolite was subject to service of
process in Florida, the Breckenridge court turned its attention to the due-process analysis and Metabolite’s exclusive license agreement with PamLab. The Federal Circuit reasoned that, in determining personal jurisdiction, a
patentee need not direct its activities at the potential infringer to have the necessary “minimum contacts” with
the forum state. See id. at *5. Thus, it is proper to “look
to the defendant’s [i.e. patentee’s] relationship with its
exclusive licensee to determine the extent of the
defendant’s forum state contacts.” Id. The Breckenridge
court held the mere existence of an exclusive license
agreement does not establish “minimum contacts” if the
patentee has no relationship with its licensee beyond the
receipt of royalty income. Id. at *7. The possibility of establishing “minimum contacts,” and thus personal jurisdiction, increases, however, when the license agreement
contains terms and conditions beyond the payment of
royalties from the licensee to the patentee. As the
Federal Circuit explained:
”[T]he crux of the due process inquiry should focus first on
whether the defendant has had contact with parties in
the forum state beyond the sending of cease-and-desist
letters or mere attempts to license the patent at issue
there. Where a defendant-licensor has a relationship
with an exclusive licensee headquartered or doing business in the forum state, the inquiry requires close examination of the license agreement. In particular, our case
law requires that the license agreement contemplate a
relationship beyond royalty or cross-licensing payment,
such as granting both parties the right to litigate infringement cases or granting the licensor the right to exercise
control over the licensee’s sales or marketing activities.”
Id. (emphasis added).
2
The Federal Circuit concluded these requirements were
met here, where “Metabolite has established a relationship
with … its exclusive licensee which promotes, advertises and
sells [the licensed product] in Florida, and with which
Metabolite coordinates cease-and-desist letters and
infringement litigation.” Id. at *10.
Practical Impact
Most businesses would not expect that a license agreement with one company could create jurisdiction for a
lawsuit brought by a different company, but that is the
result of Breckenridge. A patentee facing a declaratoryjudgment action now must examine its existing license
agreements to determine if the patentee has unwittingly
exposed itself to suit in states in which it has no contact
other than the license, or its licensee’s activities in the
forum state.
Moreover, in negotiating future licenses that include
terms beyond the requirement of royalty payments, a
patentee must consider the possibility of being hauled
into court in any state in which the potential licensee is
headquartered or otherwise does business.
Unfortunately for patentees, the Federal Circuit provides
little guidance as to what factors in a license agreement,
other than the two examples listed in the quote above,
establish the “relationship beyond royalty or cross-licensing payment[s]” that may result in a court finding personal jurisdiction over a patentee. Nor does it state
whether its finding of actual activity pursuant to the
license is essential to establishing jurisdiction. That will
be left to the courts to develop in subsequent cases.
*Ann Fort is a partner and Jeffrey D. Blake is an
associate at Sutherland Asbill & Brennan in Atlanta.
© 2006 West, a Thomson business.