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Federal Circuit Sticks By Its Bad Law on Personal Jurisdiction In Patent Cases

Friday, February 17, 2017 15:19
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Xilinx will get to fight patent troll in home court, but many troll targets will still be dragged to distant and inconvenient forums.

If a patent troll threatens your company, can you go to your nearest federal court and ask for a ruling that the patent is invalid or that you aren’t infringing it? According to the Federal Circuit (the court that hears all patent appeals), the answer to this question is usually no. The court has a special rule for patent owners that demand letters cannot create jurisdiction. EFF, together with Public Knowledge, recently filed a friend-of-the-court brief asking for this rule to be overturned. But in a decision this week, the Federal Circuit reached the right result for the accused infringer in the case, but left its bad law largely in place.

In Xilinx v Papst Licensing, a German patent troll, Pabst, accused Xilinx of infringing a patent relating to memory tests in electronics. Papst sent Xilinx a couple of letters and visited the company at its offices in California to demand payment of a license fee. Xilinx then filed a lawsuit in the Northern District of California asking the court to rule that the patent was invalid and it did not infringe. The district court dismissed the case. On appeal, the Federal Circuit was asked to determine whether the California district court could exercise personal jurisdiction over Papst.

At EFF we’ve long complained about unfair rules in patent cases that give patent owners almost complete control over where disputes are litigated. The Federal Circuit has developed two strands of jurisprudence that, in tandem, have led to this result. First, in a 1990 case called VE Holding, the Federal Circuit held that companies that sell products nationwide can be sued for patent infringement in any federal court in the country. (The Supreme Court is set to decide whether this holding should be overruled.)

Second, in a case called Red Wing Shoe, the Federal Circuit ruled that companies who receive patent demand letters from trolls can’t sue them in their home district to get a determination the patent is invalid or not-infringed. As others have noted, the Federal Circuit has “gone to great lengths to deny jurisdiction over patentees sending demand letters from afar.”

As a practical matter, VE Holding and Red Wing Shoe operate as a one-two punch that gives patent owners almost complete control over where patent disputes can be litigated. This means that a productive company threatened by a troll may have no choice but to litigate in a distant and expensive forum, such as the Eastern District of Texas, where local rules systematically favor patent owners over patent defendants.

In our amicus brief, we argued that the Federal Circuit should hear the case en banc and overrule Red Wing Shoe. But the court did not go so far. Instead, it relied on the physical visit of Papst employees to Xilinx’s offices to justify jurisdiction in the forum. This allowed the court to distinguish other cases where it held that demand letters are never enough to establish jurisdiction. So while this is a good result for Xilinx, it won’t help most targets of patent trolls.

But the rule in Red Wing Shoe is wrong and should be overruled. Indeed, it is part of a long pattern of Federal Circuit decisions that create rigid rules favoring patent owners. While we suspect it would not survive review by the Supreme Court, that question will have to wait for another case.

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