Retailers Be Aware: Using a Third-Party E-Commerce IP Evaluation Program Could Subject You to Previously Unexpected Federal Jurisdiction
Time 5 Minute Read

On May 2, 2024, the Federal Circuit issued a decision ruling that initiation of an e-commerce website’s procedure to evaluate patent infringement claims subjects the initiating party to personal jurisdiction in the alleged infringer’s home state. Retailers and consumer products companies may wish to consider the possibility of ending up in federal court in a non-preferred venue prior to using one of these programs.

SnapRays, DBA SnapPower v. Lighting Defense Group, No. 2023-1184 (Fed. Cir. May 2, 2024) centers around a low-cost third-party patent evaluation procedure that patent owners can use “[t]o efficiently resolve claims that third-party product [e-commerce] listings infringe utility patents.”

To initiate an evaluation, a patent owner submits a “patent evaluation program agreement” to the e-commerce website where an allegedly infringing product is being sold, identifying one claim of a patent and up to 20 allegedly infringing sales listings on the website. The e-commerce website notifies the alleged infringing sellers. Each seller has three options to avoid automatic removal of their accused listings: (1) opt into the patent evaluation program and proceed with a third-party evaluation; (2) resolve the claim directly with the patent owner; or (3) file a lawsuit in federal court for a declaratory judgment of noninfringement. If the seller takes no action in response, the accused listings are removed from the website after three weeks.

In SnapPower, Lighting Defense Group (LDG) initiated the evaluation program by alleging certain SnapPower product listings infringed US Patent No. 8,668,357. The e-commerce website notified SnapPower of the alleged infringement and available options. SnapPower and LDG then exchanged emails and held a conference call regarding the notice, but no agreement was reached. SnapPower subsequently filed an action in the District of Utah for declaratory judgment of noninfringement, which LDG moved to dismiss for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2).

The district court granted LDG’s motion, holding it lacked specific personal jurisdiction over LDG because LDG lacked specific contacts with Utah. The district court found LDG’s infringement allegations were directed toward the e-commerce website in Washington. The Federal Circuit reversed, finding jurisdiction existed in Utah.

The Federal Circuit has a three-factor test to determine if specific personal jurisdiction comports with due process, evaluating whether: (1) the defendant ‘purposefully directed’ its activities at residents of the forum; (2) the claim ‘arises out of or relates to’ the defendant’s activities with the forum; and (3) assertion of personal jurisdiction is ‘reasonable and fair.’ The first two factors comprise the “minimum contacts” portion of the jurisdictional framework. When those factors are satisfied, specific jurisdiction is “presumptively reasonable.” The burden then shifts to the defendant to present “a compelling case that the presence of some other considerations would render jurisdiction unreasonable.”

On appeal, SnapPower argued that LDG purposefully directed enforcement activities at Utah when it initiated the patent evaluation program. LDG opposed and analogized its initiation of the program to sending a cease and desist letter, which the Federal Circuit has held, without more, does not subject a party to personal jurisdiction in the alleged infringer’s home state.

The Federal Circuit agreed with SnapPower. The Court held that LDG purposefully directed its activities at SnapPower in Utah (intending effects that would be felt in Utah) and concluded this satisfies the first and second factors of the specific personal jurisdiction test. Specifically, the Court found that LDG: (1) intentionally submitted the patent evaluation program agreement to the e-commerce website; (2) knew, by the terms of the program, that the e-commerce website would notify SnapPower and inform SnapPower of the available options; and (3) knew that if SnapPower took no action, its listings would be removed, which would necessarily affect sales and activities in Utah. The Court further found that the initiating the patent evaluation program goes beyond a cease and desist letter because, absent action by SnapPower, its listings would be automatically removed. According to the Court, the automatic takedown process afforded by the patent evaluation program, which would affect sales and activities in the forum state, distinguishes the procedure from conventional cease and desist letters that operate to merely notify suspected infringers.

The Court rejected LDG’s argument that its holding will open the floodgates of personal jurisdiction, or that such a result is inherently unreasonable. The Federal Circuit noted that parties who participate in the patent evaluation program will only be subject to specific personal jurisdiction where they have targeted a forum state by identifying listings for removal that, if removed, affect the marketing, sales or other activities in that state.

Parties who are considering initiating a patent evaluation procedure like this to assist in taking down alleged infringing e-commerce listings will likely want to weigh the low-costs and efficiencies it affords against the risk of being subjected to personal jurisdiction in a suspected infringer’s home court. It will be interesting see what impact the ruling will have on patent owners going forward.

  • Counsel

    Ozzie has experience in patent and IP litigation and PTAB proceedings, including: presenting oral argument to district court, ITC, Federal Circuit and PTAB judges, motion, hearing and trial practice, direct and cross examination ...

Search

Subscribe Arrow

Recent Posts

Categories

Tags

Authors

Archives

Jump to Page