If you own Intellectual Property and find out that someone is using it without your permission, your first instinct would be to send them a cease and desist letter to end the infringing use, right?. But, what happens when that infringing user brings a lawsuit against you in a court far, far away?
In a recent patent infringement case, the United States Court of Appeals for the Federal Circuit reversed a Northern District of Texas courts finding that personal jurisdiction could not be established based on a cease and desist letter. Plano Encryption Technologies LLC (PET) sent several banks letters informing them they believed the banks were infringing on their patents and demanding that they either immediately cease use or engage in a non-exclusive licensing agreement with PET. Jack Henry, who provides the alleged infringing software for the bank's mobile apps, and the banks, brought an action for a declaratory judgment in the Northern District of Texas. The court granted PET's motion to dismiss for lack of personal jurisdiction stating that the sending of these letters “do not subject it to personal jurisdiction in the Northern District of Texas.” Jack Henry & Assocs., Inc. v. Plano Encryption Techs. LLC, 910 F.3d 1199, 1204 (Fed. Cir. 2018)
On appeal in the Federal Circuit the courts re-analyzed the issue of personal jurisdiction. When determining whether specific jurisdiction and venue are proper, the court looks to three factors: (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 within the forum; and (3) whether assertion of personal jurisdiction is “reasonable and fair.” PET conceded the first two factors and the court found that it was reasonable and fair to exercise jurisdiction over PET. They stated that PET had undertaken a licensing program premised upon threats of litigation directed at banks in the Northern District of Texas. The burden fell on PET to show that it was unduly burdensome to litigate in the Northern District of Texas but failed to do so.
PET only relied on Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355 (Fed. Cir. 1998) and Avocent Huntsville Corp. v Aten Int'l Co., 552 F3d 1324 (Fed. Cir. 2008) to support their claim that an exception to establishing personal jurisdiction exists for patent infringement letters. Still, the court disagreed with PET stating that the two cases “did not create such a rule, and doing so would contradict the [Supreme] Court's directive to ‘consider a variety of interests' in assessing whether jurisdiction would be fair.” Jack Henry & Assocs., Inc. v. Plano Encryption Techs. LLC, 910 F.3d 1199, 1206 (Fed. Cir. 2018).
Cease and Desist Sending Cease and Desist Letters?
This ruling can shape litigation strategies not only for patent infringement matters, but for trademark and copyright ones too. Attorneys and their clients should be on notice that sending a cease and desist letter alone could subject them to Personal Jurisdiction in a state or district that would otherwise never have jurisdiction over them.
It is unclear whether the court would have come to a different outcome if PET's sole business was not to “enforce its intellectual property.” It is also unclear what would have happened if, on appeal, PET asserted that jurisdiction in the Northern District was unfair and unreasonable. Weighing the three factors listed above is very fact dependent, attorneys and their clients may be able to argue the third prong more effectively than PET was able to.