Friday, December 07, 2018

ND Texas reversed by CAFC in Jack Henry

The outcome

Jack Henry & Associates, Inc. (“Jack Henry”) and
eleven Texas banks (“the Banks”), collectively “Appellants,”
appeal the ruling of the United States District
Court for the Northern District of Texas, dismissing this
declaratory judgment action against Plano Encryption
Technologies LLC (“PET”). The district court held, citing
Federal Circuit rulings, that PET’s contacts with the
Northern District did not subject it to personal jurisdiction,
and therefore that venue was improper.1
Applying the venue statute and guided by precedent,
we conclude that PET is subject to personal jurisdiction in
the Northern District. We reverse the dismissal and
remand for further proceedings.


Precedent illustrates the dominance of concerns for
due process and fairness. In Red Wing Shoe Co. v. Hockerson-Halberstadt,
Inc., the court cited a “policy favoring
settlement” and “the interstate judicial system’s interest
in obtaining the most efficient resolution of controversies.”
148 F.3d 1355, 1361 (Fed. Cir. 1998) (quoting World-Wide
Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980)),
and held that the letter contacts in that case did not
support jurisdiction in the recipient’s forum. Id.
The diversity of facts in consideration of due process
comports with the Court’s guidance that personal jurisdiction
“is not susceptible of mechanical application.” Kulko
v. Superior Court of Cal., 436 U.S. 84, 92 (1978). The
standard is “fair play and substantial justice.” E.g.,
International Shoe Co. v. Washington, 326 U.S. 310, 316
(1945). For example, in Inamed this court found personal
jurisdiction based only on letters and phone calls initiated
from out-of-state:
Based on the clear principles set out in Supreme
Court jurisprudence, we conclude that Dr. Kuzmak’s
negotiation efforts, although accomplished
through telephone and mail from New Jersey, can
still be considered as activities “purposefully directed”
at residents of California.
Inamed, 249 F.3d at 1362. The court held that personal
jurisdiction in California was “reasonable and fair” on the
facts of that case.


The burden befalls PET, as the source of the minimum
contacts, to make a “compelling case” that the
exercise of jurisdiction in the Northern District would be
unreasonable and unfair. In World-Wide Volkswagen, the
Court identified factors including “the burden on the
defendant, . . . the forum State’s interest in adjudicating
the dispute, the plaintiff’s interest in obtaining convenient
and effective relief, . . . [and] the interstate judicial
system’s interest in obtaining the most efficient resolution
of controversies; . . .” 444 U.S. at 292 (internal citations
omitted). The Court also looks to “the shared interest of
the several States in furthering fundamental substantive
social policies.” Id.
PET cites Red Wing Shoe and Avocent for the proposition
that patent enforcement letters can never provide the
basis for jurisdiction in a declaratory judgment action.
Red Wing Shoe and Avocent did not create such a rule,
and doing so would contradict the Court’s directive to
“consider a variety of interests” in assessing whether
jurisdiction would be fair. Bristol-Myers Squibb Co. v.
Superior Court of Cal., 137 S.Ct. 1773, 1780 (2017). In
Bristol-Myers, the Court made clear that for personal
jurisdiction “the ‘primary concern’ is ‘the burden on the
defendant.’” Id. (quoting World-Wide Volkswagen, 444
U.S. at 292). This concern is even more potent when it
relates to a challenge to venue, for venue “is primarily a
matter of choosing a convenient forum.” Leroy v. Great
Western United Corp., 443 U.S. 173, 180 (1979). PET does
not argue that litigating in the Northern District would be
unduly burdensome, or that any of the other factors
supports a finding that jurisdiction would be unfair.

There was also an issue of standing:

PET repeats its challenge to the standing of Jack
Henry. PET states that it did not accuse Jack Henry of
infringement, and that there is no adversity between
Jack Henry states that it has agreed to indemnify the
Banks for any liability for patent infringement. An
indemnitor has standing to participate in an action that
could determine its liability. See Microsoft Corp. v.
DataTern, Inc., 755 F.3d 899, 904 (Fed. Cir. 2014) (“If
Appellees ha[ve] an obligation to indemnify their customers,
they would [] have standing to bring suit.”); Arris
Grp., Inc. v. British Telecomms. PLC, 639 F.3d 1368, 1375
(Fed. Cir. 2011) (“We have recognized that, where a
patent holder accuses customers of direct infringement
based on the sale or use of a supplier’s equipment, the
supplier has standing to commence a declaratory judgment
action if (a) the supplier is obligated to indemnify its
customers from infringement liability . . . .”);

There were additional views:

While I agree with the judgment of the court, I write
separately to address the statement in Red Wing Shoe Co.
v. Hockerson-Halberstadt that “principles of fair play and
substantial justice afford a patentee sufficient latitude to
inform others of its patent rights without subjecting itself
to jurisdiction in a foreign forum.” 148 F.3d 1355, 1360–
61 (Fed. Cir. 1998). This statement has since been interpreted
to mean that “the sending of infringement letters
would satisfy the minimum contacts requirement of due
process except for policy considerations unique to the
patent context.” Silent Drive, Inc. v. Strong Indus., Inc.,
326 F.3d 1194, 1206 (Fed. Cir. 2003); see also Breckenridge
Pharm., Inc. v. Metabolite Labs., Inc., 444 F.3d
1356, 1362 (Fed. Cir. 2006)


As the majority notes above, the factor
that is “of primary concern” is “the burden on the defendant.”
Bristol-Myers Squibb Co. v. Superior Court of Cal.,
San Francisco Cty., 137 S. Ct. 1773, 1780 (2017) (quoting
World-Wide Volkswagen, 444 U.S. at 292). To the extent
that Red Wing or its progeny fail to adequately assess
these factors, I suggest that they be reconsidered as
directly contrary to established Supreme Court precedent.


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