In Xilinx, Inc. v. Papst Licensing GmbH & Co. KG, decided on February 15, 2017, the Federal Circuit reversed a California district court decision and held that Papst, a Germany-based patent licensing firm that sent patent-infringement notice and license-offer letters to Xilinx in San Jose, California and also sent its representatives to California to meet with Xilinx, was subject to personal jurisdiction in the Northern District of California. The decision has important ramifications for patentees and patent licensing and assertion entities, especially those based outside the United States.

Under the Declaratory Judgment Act, when a party is threatened with a patent infringement lawsuit, it may preemptively sue the patent owner in a declaratory judgment action and seek to have the patent declared not infringed and/or invalid. The ability to strike first allows the accused infringer to file suit in the forum of its choosing (an important consideration), provided that it can establish that the patentee is subject to the court’s personal jurisdiction.

Shortly after the meeting between Papst and Xilinx in California, Xilinx filed a declaratory judgment action against Papst in the Norther District of California seeking a declaration that its products do not infringe Papst’s patents and that the patents are invalid. The district court first determined that it lacked general jurisdiction over Papst because it is neither incorporated in California nor does it have its principal place of business there. The district court also held that it lacked specific personal jurisdiction over Papst. Relying principally on Federal Circuit precedent, the district court determined that Papst’s California contacts were “either related solely to Papst’s attempts to license the patents, which the Federal Circuit has held insufficient, or according to Federal Circuit law are irrelevant to the parties’ instant dispute.”

On appeal, the Federal Circuit first noted that analyzing specific personal jurisdiction involves a three-factor test: “(1) whether the defendant ‘purposely 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.” Papst did not contend that its activities directed to Xilinx in California did not satisfy the first two factors – also known collectively as the “minimum contacts” prong – of the specific personal jurisdiction test. As the court reiterated, “[m]inimum contacts may be established by the ‘threat of an infringement suit, as communicated in a cease-and-desist letter.”

In arguing against personal jurisdiction, Papst focused entirely on the “reasonable and fair” prong and argued that “exercising specific jurisdiction over a patentee based solely on cease-and-desist letters, which contain notice of the sender’s patent rights, accusations of infringement, and/or licensing offers, does not comport with fair play or substantial justice. Citing Supreme Court precedent, the Federal Circuit clarified that the specific jurisdiction analysis “is a two-step process, and the reasonableness prong is separate from the minimum contacts prong.” First, the court must determine whether the connection between the forum and relevant facts of the suit justify the exercise of specific jurisdiction. Then, in a second step, the court must consider “several additional factors to assess the reasonableness of entertaining the case” and those additional factors are not limited to the specific facts relating to the particular case.

The court also cautioned that “the Supreme Court has made clear that the reasonableness prong is typically satisfied by a showing of minimum contacts” and the “[w]here a defendant who purposefully has directed his activities at forum residents seeks to defeat jurisdiction, he must present a compelling case that the presence of some other considerations would render jurisdiction unreasonable.” The Federal Circuit noted five considerations that the Supreme Court has identified as relevant to the reasonableness analysis: (1) the burden on the defendant; (2) the forum State’s interest in adjudicating the dispute; (3) the plaintiff’s interest in obtaining convenient and effective relief; (4) the interstate judicial system’s interest in obtaining the most efficient resolution of controversies; and (5) the shared interest of the several States in furthering fundamental substantive social policies.

Papst made no argument regarding factors 2-5 and, indeed, the Federal Circuit observed that each of those factors tilted the balance in favor of finding that jurisdiction was reasonable. Regarding the first reasonableness factor, Papst argued that its contacts with Xilinx in California were insufficient to justify the burden of litigating in that forum. The Federal Circuit confirmed its precedent set forth in prior decisions that “[t]o require a defendant to answer ‘in a distant foreign forum when its only contacts with that forum were efforts to give proper notice of its patent rights’ would place an undue burden on the defendant.” The court, however, found that this case was not controlled by this rule because Papst did more than just send letters to Xilinx. Specifically, the Federal Circuit found that even more significant than the notice letters was Papst’s visit to Xilinx in California, “another activity that certainly ‘relate[s] in some material way to the enforcement or defense of the patent.’”

The court also found that other factors, for example Papst’s prior patent infringement lawsuit filings in California, favored the view that the burden on Papst of litigating this case in California was not undue. Notably, the court also observed that any burden on Papst was mitigated by its status as a non-practicing patent holder residing outside the United States. According to the court, this fact distinguished this case from situations where a “defendant conducts its affairs in one state and is called to litigate in a distant state rather than its own residence.” On the contrary, “[b]y the very nature of its business, Papst must litigate its patents in the United States in fora far from its home office.” Thus, the Federal Circuit concluded that Papst “failed to meet its burden to show a ‘compelling case’ . . . that jurisdiction is unreasonable.”

While not disturbing its rule that, in general, sending patent infringement and license notice letters is insufficient alone to justify the burden of subjecting an out-of-state patentee to jurisdiction, the decision presents several important takeaways. First, the Federal Circuit has now made clear that in only “rare situations” will sufficient minimum contacts exist but the exercise of jurisdiction would nonetheless be unreasonable. The decision also makes clear that traveling to the forum where a licensing target is located likely is sufficient to confer jurisdiction; however, actions short of physical presence, for example telephone or video conferencing, might also be relevant in the jurisdictional analysis. Finally, for patent holders based outside the United States, accused infringers likely will rely upon this decision to support arguments that the burden on such patentees for having to litigate a patent dispute in one state as opposed to another is substantially the same and therefore not unreasonable.