Northern District of Texas Blog

On December 7, 2018, the Federal Circuit issued its decision in Jack Henry & Associates v. Plano Encryption Technologies (available here). Jack Henry and eleven Texas banks (collectively, the “Banks”) appealed Judge Godbey’s order dismissing their declaratory judgment action against Plano Encryption Technologies (“PET”). Judge Godbey found that PET’s contacts with the Northern District of Texas did not subject it to personal jurisdiction, such that venue was improper. The Federal Circuit reversed, finding that PET was subject to personal jurisdiction and, accordingly, that venue existed in the Northern District.

PET is a Texas LLC with its registered address in Plano (in the Eastern District of Texas). The Banks all have their “principal offices or branches or customers in the Northern District of Texas.” All Banks conduct banking business in the Northern District of Texas.

PET wrote to each Bank, identifying its patents, stating that the Banks were believed to infringe the patents, noting that PET actively licenses and enforces its patents, referencing a pending lawsuit in the Eastern District of Texas, and inviting non-exclusive licenses. Jack Henry, the software provider for the Banks (and the Banks’ indemnitor), wrote to PET providing reasons that PET’s patents were not infringed, and requesting a meeting to discuss the issues. PET did not respond to Jack Henry, but its counsel wrote each Bank stating that only the Banks were accused of infringement. PET’s counsel further noted its successfully history of enforcing patents for clients and referenced jury verdicts against infringers.

Jack Henry and the Banks then filed the declaratory judgment lawsuit in the Northern District of Texas. PET moved to dismiss based on improper venue. Venue in multidistrict states (like Texas) is governed by 28 U.S.C. § 1391, which provides that “corporation[s] shall be deemed to reside in any district in that State within which its contacts would be sufficient to subject it to personal jurisdiction if that district were a separate State, and, if there is no such district, the corporation shall be deemed to reside in the district within which it has the most significant contacts.”

Judge Godbey granted PET’s motion for dismissal, finding that PET’s actions did not subject it to personal jurisdiction in the Northern District of Texas. Judge Godbey noted that the Federal Circuit had previously found that demand letters threatening suit for patent infringement sent to the alleged infringer by themselves do not suffice to create personal jurisdiction.

(Judge Godbey was undoubtedly correct. The Federal Circuit had previously held that (i) the “sending of letters threatening infringement litigation is not sufficient to confer personal jurisdiction” even where letters are “purposefully directed” at the forum and the declaratory judgment action “arises out of” the letters, see Silent Drive, Inc. v. Strong Indus., Inc., 326 F.3d 1194, 1202 (Fed. Cir. 2003); and (ii) “cease-and-desist letters alone do not suffice to create personal jurisdiction” because “[p]rinciples 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.” Red Wing Shoe Co., Inc. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355, 1360-61 (Fed. Cir. 1998); see also Avocent Huntsville Corp. v. Aten Int’l Co., 552 F.3d 1324, 1326 (Fed. Cir. 2008) (sending of notice letters at residents of the forum did not satisfy personal-jurisdiction standard).)

The Federal Circuit found that PET “purposefully directed” its demand letters to the Banks, who conducted banking business in the Northern District of Texas, and that the demand letters “arise out of relate to” PET’s patent licensing activities in the Northern District. The Federal Circuit noted that PET did not assert that jurisdiction in the Northern District was “inconvenient or unreasonable or unfair.” Accordingly, the Federal Circuit found that PET was subject to personal jurisdiction in the Northern District of Texas such that venue was proper in the Northern District.

Patent owners who send demand letters should now assume that the accused infringers can file declaratory judgment lawsuits in the districts in which the demand letters were sent.