Federal Circuit Clarifies the Standard for Personal Jurisdiction Arising From Pre-Litigation Attempts to Resolve a Dispute
By Cook Alciati | May 11, 2022
In a recent opinion in Apple Inc. v. Zipit Wireless (available here) the Federal Circuit reversed a judgment of the Northern District of California that had dismissed Apple’s complaint for a declaratory judgment of noninfringement and remanded for further proceedings.
Appellee Zipit is a Delaware corporation with a principal place of business in South Carolina. Zipit owns two patents generally directed to wireless instant message devices that use Wi-Fi to send and receive instant messages. Zipit and Apple had a sorted history spanning seven years during which time the parties exchanged letters, infringement positions, noninfringement positions, and invalidity positions. The parties had in person meetings and exchanged edits relating to a draft patent license agreement.
All of the activity between Apple and Zipit led to a June 2020 complaint Zipit filed accusing Apple of infringement in the United States District Court for the Northern District of Georgia. Zipit dismissed its lawsuit without prejudice after two weeks. Then, nine days later, Apple sued Zipit seeking a declaratory judgment of noninfringement in the United States District Court for the Northern District of California. Zipit promptly moved to dismiss for lack of personal jurisdiction, arguing that Zipit has insufficient contacts in the Northern District of California.
The Northern District of California found that Zipit’s letters and in person meetings with Apple were sufficient contacts to support the exercise of personal jurisdiction over Zipit. The court then found that exercise of personal jurisdiction over Zipit would be “presumptively reasonable.” Nonetheless, the district court found that it could not exercise personal jurisdiction over Zipit based on Federal Circuit precedent, which the district court read as holding that “the exercise of personal jurisdiction. . . would be unconstitutional when ‘[a]ll of the contacts were for the purpose of warning against infringement or negotiating license agreements, and [the defendant] lacked a binding obligation in the forum.” Because all of Zipit’s contacts with California related to attempts to resolve its dispute with Apple, the district court declined to exercise personal jurisdiction over Zipit.
The Federal Circuit reversed, explaining that “there is no general rule that a demand letter can never create specific personal jurisdiction.” Opinion at 12. The Court then turned to a discussion of Red Wing Shoe, noting the policy that “a right holder should be permitted to send a notice letter to a party in a particular forum to try to settle disputes without being haled into court in that forum.” Id. at 13. “But this policy cannot control the inquiry—it must be considered together with the other Burger King factors,” the Federal Circuit explained. Id. at 14.
Having clarified that there is no bright line rule prohibiting consideration of notice letters and negotiations related thereto in connection with an analysis of the propriety of exercising personal jurisdiction over a defendant, the Federal Circuit turned to a consideration of “the variety of interests the Supreme Court has directed us to consider in assessing whether the exercise of jurisdiction would be unreasonable.” Id. at 15. With respect to the burden on Zipit of litigating in California, the Court suggested that Zipit’s arguments were more appropriately raised in challenging the convenience of the Northern District of California as a venue (i.e. Zipit’s arguments that all of its employees were located in South Carolina). The Federal Circuit also noted that Zipit should have foreseen being haled into court in California after it reignited an apparently dormant dispute by suing Apple in Georgia and then dismissing that case without prejudice just two weeks later.
The Court then considered the additional Burger King factors finding that: 1) California had a definite and well-defined interest in adjudicating the dispute; 2) Apple had an interest in obtaining convenient and effective relief; and 3) that there was no conflict between the interests of California and any other state.
In reversing the district court, the Federal Circuit highlighted the policy in favor of promoting settlement and interplay with a court exercising personal jurisdiction over a declaratory judgment defendant that had sought to resolve a suit in a foreign forum. Nonetheless, the Federal Circuit found that the exercise of personal jurisdiction over Zipit was appropriate because “Zipit went beyond attempting to resolve its dispute with Apple outside of court; it amplified its allegations of infringement after Apple stated it did not need a patent license, and Zipit, in the end, sued Apple for patent infringement.” Opinion at 20.
Following Apple v. Zipit, a patentee should consider the nature of its attempts to resolve a suit prelitigation in assessing the risk it will be subject to a declaratory judgment complaint in a foreign jurisdiction.