New World International, Inc. et al. v. Ford Global Technologies, LLC
Decided: June 8, 2017
In an exclusive patent license agreement, the licensor retained the right—but not the obligation—to sue infringers of the licensed patents. After the licensor sent a cease and desist letter to an accused infringer in Texas (where the licensor does no business), the accused infringer filed a declaratory judgment action in its home state. Under these facts, does the Texas court have personal jurisdiction over the licensor? In a case involving automotive design patents, the United States Court of Appeals for the Federal Circuit (Federal Circuit) said no.
Ford Global Technologies is a wholly owned subsidiary of the Ford Motor Company, and it owns, manages, and licenses intellectual property for its parent company. Both companies are incorporated in Delaware and headquartered in Michigan.
Ford Global exclusively licensed some of its patents to LKQ, a manufacturer of automotive replacement parts that is incorporated in Delaware and headquartered in Illinois. The license agreement provides that Ford Global will indemnify LKQ if a third party sues it for design patent infringement, and requires LKQ to notify Ford Global if it learns of infringing activity. If there is infringement, Ford Global has the option to enforce the patents or to do nothing; specifically, Ford Global retained “the ability to decline enforcement on any commercially reasonable basis,” including “a desire not to subject itself to jurisdiction in a particular forum.”
New World International is an aftermarket automotive parts manufacturer based in Texas. When Ford Global learned that New World International made parts that it believed to infringe two design patents licensed to LKQ, Ford Global sent the alleged infringer a cease and desist letter. New World then filed a declaratory judgment action in Texas, which the District Court dismissed for lack of personal jurisdiction over Ford Global. The District Court also rejected as untimely New World’s subsequent motion to amend its complaint to add new allegations in support of personal jurisdiction.
In its decision affirming the District Court, the Federal Circuit explained that for a District Court to have personal jurisdiction over a nonresident defendant, the nonresident must have certain minimum contacts with that forum. These requirements are explained in the Supreme Court’s International Shoe and Burger King personal jurisdiction cases, and in the Federal Circuit’s 2001 Inamed decision; specifically, a court must ask: “(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 with the forum; and (3) whether assertion of personal jurisdiction is ‘reasonable and fair.’”
In an earlier patent-related declaratory judgment action, the Federal Circuit held that the first two Inamed jurisdictional requirements are met when a nonresident defendant sends a cease and desist letter; but the Court also found that assertion of personal jurisdiction is not “reasonable and fair” unless the cease and desist letter is combined with other obligations or activities directed to the forum. For instance, when the patent owner has an exclusive licensee that does business in the forum, and the license agreement obligates the patent owner to enforce the patent, this “may be sufficient to establish specific personal jurisdiction, because a declaratory judgment action typically arises from the patent holder’s actions to enforce or defend its patent in the forum.” But since Ford Global’s agreement with LKQ specifically gives the patent owner “the ability to decline enforcement on any commercially reasonable basis,” including “a desire not to subject itself to jurisdiction in a particular forum,” the Federal Circuit found personal jurisdiction in Texas to be improper.
New World also argued that Ford Global’s obligation to indemnify LKQ for third party allegations of design patent infringement was sufficiently directed to Texas to make personal jurisdiction proper. The panel rejected this argument because the indemnification obligation does not arise out of or relate to the “enforcement or the defense of the [Ford Global design] patent[s],” as is required for specific jurisdiction in a declaratory judgment action.
Finally, New World argued that the District Court abused its discretion when it denied New World’s untimely motion to amend its complaint to add new allegations in support of personal jurisdiction. New World’s explanation for seeking leave to amend was not the discovery of new evidence; rather, it believed its initial complaint was sufficient to establish jurisdiction, but it wanted an opportunity (after the dismissal) to buttress its jurisdictional allegations. On these facts, the panel found there to be no abuse of discretion, and concluded the opinion with a quote from the District Court’s dismissal order: “The only explanation [New World] offer[s] [in support of its motion for leave to amend] is that [it] thought [it] had adequately demonstrated jurisdiction. If this were sufficient, matters would never be final.”
Click here for the PDF.