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Activity in a State Prior to a Patent Grant Does Not Create Jurisdiction for an Infringement Suit...

Tuesday, July 18, 2017   (0 Comments)
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Activity in a State Prior to a Patent Grant Does Not Create Jurisdiction for an Infringement Suit in That State
 
(Authors and editors are attorneys at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP.)
 
Abstract: To prevent defendants from having to litigate in states where they are not active and would be at a disadvantage in litigating, the U.S. Constitution requires defendants to have sufficient minimum contacts with the forum state in which they have been sued before a court in that state can exercise personal jurisdiction over the defendant and resolve the dispute. 

In NexLearn LLC (NexLearn) v. Allen Interactions, Inc. (Allen), the Federal Circuit upheld a District Court’s ruling that the defendant had insufficient contacts with the forum state to support the patent infringement claims, given that most of the contacts arose prior to issuance of the asserted patent. The Federal Circuit also agreed that a forum-selection clause in an end-user license agreement of the plaintiff’s software did not apply to claims for patent infringement and breach of a non-disclosure agreement, and could not be used in the patent infringement suit to dictate the court in which the case would be heard.
 
Background
 
NexLearn and Allen entered into a nondisclosure agreement so that Allen could assess a trial version of NexLearn’s SimWriter social-simulation software. Upon accessing the trial software, Allen also agreed to an end-user license agreement with a forum-selection clause specifying that any disputes arising from the agreement would be resolved exclusively in Wichita, Kansas.

Allen informed NexLearn it was no longer interested in pursuing a deal with NexLearn and eventually unveiled its own social-simulation software, called ZebraZapps.
 
In response, NexLearn sued Allen in Kansas, asserting that Allen infringed its patents covering the SimWriter software and that Allen breached the NDA by misusing confidential information obtained during the trial period. The District Court granted Allen’s motion to dismiss the case, finding that it lacked personal jurisdiction over Allen as a defendant.

NexLearn appealed this decision to the Federal Circuit. 

The NexLearn Decision 

Therefore, to maintain its suit in Kansas, NexLearn could not rely on the forum-selection clause, but instead had to demonstrate that Allen had sufficient minimum contacts with the state of Kansas,  related to NexLearn’s patent-infringement claims based on the facts in the case: 

(1) Allen had made only a single sale in Kansas;

(2) the sale was unrelated to the ZebraZapps products accused of infringing NexLearn’s patent rights;

(3) the sale accounted for less than one percent of its revenue over the past five years; 

(4) Allen sent a number of emails to NexLearn employees residing in Kansas, advertising its products and published an advertisement in a trade magazine that was distributed in Kansas;

(5) Allen’s website allowed purchasers to select “Kansas” from a drop-down menu in the billing-address section; and

(6) a NexLearn employee was able to obtain a free trial of ZebraZapps in Kansas.

In assessing whether these contacts where sufficient to establish personal jurisdiction of the Kansas court over Allen, the Federal Circuit observed that the trade magazine advertisement and all but one of Allen’s emails arose prior to NexLearn’s patent being granted and were irrelevant to jurisdiction because they were not related to the NexLearn’s patent-infringement claims. 

The Federal Circuit found the remaining contacts between Allen and Kansas insufficient to establish personal jurisdiction of the Kansas court over Allen:

(1) the one email, advertising ZebraZapps to NexLearn employees during the patent term, was part of a mass-email that was distributed nationally and failed to establish minimum contacts with Kansas; 

(2) Allen’s ZebraZapps website was accessible to anyone and the availability of Kansas as a possible shipping address did not establish that Allen purposefully directed its sales towards Kansas; and 

(3) the single, isolated offer of a free trial to a Kansas resident was insufficient to establish personal jurisdiction over Allen in Kansas. 

Strategy and Conclusion

This case illustrates that a defendant’s contacts with a forum that occur before a patent is issued may be deemed irrelevant and ignored when a court analyzes whether it has personal jurisdiction to decide patent-infringement claims against that defendant.

It also illustrates that a forum-selection clause may not apply to all claims between the parties. Rather, a court may narrowly construe the clause to only cover claims arising specifically from the agreement containing the clause, and it may not apply the clause to disputes arising under other agreements between the parties, regardless of the connection between the agreements and the activities of the parties from a commercial perspective.

The NexLearn opinion can be found here

This article is for informational purposes and does not constitute legal advice. The views expressed do not necessarily reflect the views of LES (U.S.A. and Canada) or Finnegan, Henderson, Farabow, Garrett & Dunner, LLP.