Jack Henry & Associates, Inc. et al. (JH) v. Plano Encryption Technologies LLC (PET)


Docket No. 2016-2700

NEWMAN, WALLACH, STOLL
December 7, 2018

Brief summary: DC dismissal of JH’s DJ action against reversed and remanded since PET’s letters to the Banks charging infringement established minimum contacts in the ND TX and PET did not “make a ‘compelling case’ that the exercise of jurisdiction…would be unreasonable and unfair”.

Summary: JH and eleven banks appealed the Northern District of Texas (ND TX) DC decision dismissing their declaratory judgment (DJ) action against PET because, the DC held, “PET’s contacts with the Northern District did not subject it to personal jurisdiction, and therefore that venue was improper.” The FC panel reversed, finding PET to be subject to personal jurisdiction in the ND. The FC panel opinion explained that PET “declare[d] that its ‘sole business is to enforce its intellectual property” and that PET’s CEO “wrote to each of the Banks, identifying PET’s patents, stating that the Banks are believed to be infringing the patents, and inviting non-exclusive licenses”. At least one of the Banks was the American National Bank of Texas which is located in the ND (as are some of the others). JH provides software systems to the Banks, “indemnif[ies] the Banks for any liability for infringement”, and its “counsel wrote to PET, giving reasons why the PET patents are infringed, questioning patent validity, and requesting PET and its counsel to meet and discuss the issues” but PET did not respond to JH. PET did send letters “to each of the Banks, stating that ‘only your bank is accused of infringement’” and disputing JH’s “views of non-infringement and invalidity”, after which JH and the Banks filed their DJ action in the ND of TX. The DC dismissed the DJ action because, e.g., “letter threatening suit for patent infringement sent to the alleged infringer by themselves do not suffice to create personal jurisdiction”, citing Avocent (FC 2008). But the FC panel explained that Avocent “did not establish the generalization that [a] letter charging infringement can never provide specific jurisdiction, and did not depart from due process precedent on this aspect of venue.” The FC panel also explained that Inamed (FC 2001) three factors are considered in the due process determination: “(1) whether the defendant ‘purposefully directed’ its activities at residents of the forum; (2) whether the claim ‘arises out of relates to’ the defendant’s activities within the forum” (“minimum contacts”; “and (3) whether assertion of personal jurisdiction is fair” (see also Burger King, US 1985). In New World Int. (FC 2017) (see also Breckenridge Pharm., FC 2006), the FC “held that the sending of a letter that forms the basis of the claim may be sufficient to establish minimum contacts”, and PET agreed on this point (“PET ‘purposefully directed’ its charges” at Banks in ND TX; Red Wing Shoe (FC 1998) and Avocent “did not create…a rule” “that patent enforcement letters can never provide the basis for jurisdiction in a [DJ] action”). “The burden”, the FC panel explained, “befalls PET, as the source of the minimum contacts, to make a ‘compelling case’ that the exercise of jurisdiction in the [ND TX] would be unreasonable and unfair” (World-Wide Volkswagon, US 1980) and it did not, and so the FC concluded PET is subject to ND TX jurisdiction. PET also argued JH did not have standing since “it did not accuse [JH] of infringement”, but the FC panel explained that “[a]n indemnitor has standing to participate in an action that could determine its liability” (Microsoft, FC 2014; Arris, FC 2011; ABB, FC 2011). Thus, the DC dismissal was reversed and remanded.

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