. . . Here, the APEX Agreement directed to SnapPower in Utah threatened automatic consequences (the proactive removal of Amazon sales listings), which if ignored would directly affect SnapPower's business operations in Utah. . . .
Introduction
In SnapRays, dba SnapPower v. Lighting Defense Group, No. 2023-1184 (Fed. Cir. May 2, 2024) (“Decision”), the United States Court of Appeals for the Federal Circuit reversed the district court's ruling that declaratory judgment defendant and patentee Lighting Defense Group (“LDG”) was not subject to personal jurisdiction in the state of Utah. Acknowledging its prior precedent that the mere transmission of a “cease and desist” letter into the state of an accused infringer does not invoke that state's personal jurisdiction, the Federal Circuit nonetheless held that LDG purposefully directed its activities at SnapPower's home state of Utah by unleashing Amazon's Patent Evaluation Express (“APEX”) program.
Through its APEX program, Amazon offers a streamlined procedure akin to arbitration aimed at resolving a patent owner's claims of patent infringement by third-party sellers who use Amazon's online marketplace. Through APEX, a patent owner can initiate the dispute resolution process by submitting an “APEX Agreement” to Amazon, identifying one representative patent claim and specifying up to 20 allegedly infringing product listings. In response, Amazon notifies the accused sellers, offering three options to address the patent owner's allegations: (1) accepting the APEX Agreement and participating in the APEX program, (2) directly resolving the claim with the patent owner, or (3) filing a declaratory judgment action against the patent owner, seeking a court's declaration of noninfringement. An accused seller has three weeks to pursue one of those three options, otherwise Amazon removes the seller's accused listings from its website.
The Parties & Their Dispute
LDG, a Delaware limited liability company, has its principal place of business in Arizona. LDG owns U.S. Patent No. 8,668,347, which claims faceplate covers for electrical receptacles that include “a transmission tab . . . electrically connected to the receptacle.” Decision at 2.
SnapPower is a Utah company that designs, markets, and sells electrical outlet covers incorporating various functionalities such as integrated guide lights, safety lights, motion sensor lights, and USB charging. SnapPower primarily sells its products through Amazon's online marketplace.
In May 2022, LDG submitted an APEX Agreement to Amazon at its headquarters in Washington state, alleging that certain SnapPower products infringed the '347 patent. After receiving Amazon's notice, SnapPower opted to pursue a declaratory judgment action, which it filed in the U.S. District Court for the District of Utah. The district court, however, dismissed SnapPower's lawsuit for lack of personal jurisdiction over LDG. The court found that LDG did not have sufficient general contacts with Utah and that its conduct related to filing the APEX Agreement was directed at Amazon in Washington state, not at SnapPower in Utah. Although recognizing that its APEX Agreement might have foreseeable effects in Utah, the district court found no evidence that LDG affirmatively directed any activities to Utah—except to respond to communications from SnapPower.
SnapPower appealed the dismissal to the Federal Circuit.
The Federal Circuit's Analysis
Noting that SnapPower's appeal was solely directed to issues concerning patent infringement, the Federal Circuit applied its own three-part test for specific personal jurisdiction as set forth in Xilinx, Inc. v. Papst Licensing GmbH & Co. KG, 848 F.3d 1346, 1353 (Fed. Cir. 2017). Under that test, the court determines: (1) whether the defendant “purposefully directed” its activities at residents of the forum, (2) whether the claim “arises out of or relates to” the defendant's activities in the forum, and (3) whether the assertion of personal jurisdiction is “reasonable and fair.” Decision at 4 (quoting Xilinx, 848 F.3d at 1356). “Where the first two factors are satisfied, specific jurisdiction is presumptively reasonable.” Decision at 5 (quoting Xilinx, 848 F.3d at 1356). “The burden then shifts to the defendant to present ‘a compelling case that the presence of some other considerations would render jurisdiction unreasonable.'” Decision at 5 (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477 (1985)). Finally, the Federal Circuit determined that Utah's long-arm statute is “‘extended to the fullest extent allowed by due process law.'” Decision at 4 (quoting Starways, Inc. v. Curry, 980 P.2d 204, 206 (Utah 1999)).
The First Factor: Activities Purposefully Directed to the Forum State
The Federal Circuit devoted the bulwark of its analysis to the first factor—whether LDG purposefully directed its activities at Utah—agreeing with SnapPower that the first factor was satisfied. In doing so, the Federal Circuit expressed agreement with its “sister circuits which held extra-judicial enforcement activities, even when routed through a third-party, satisfy purposeful direction.” Decision at 5 (citing Dudnikov v. Chalk & Vermilion Fine Arts, Inc., 514 F.3d 1063 (10th Cir. 2008); Bancroft & Masters, Inc. v. August National Inc., 223 F.3d 1082 (9th Cir. 2000), overruled in part on other grounds by Yahoo! Inc. v. La Ligue Contre Le Racisme Et L'Antisemitisme, 433 F.3d 1199, 1207 (9th Cir. 2006) (emphasis added)).
In finding that LDG purposefully directed its activities at Utah, the Federal Circuit was required to distinguish much of its prior precedent. For example, LDG argued that under the court's holding in Avocent Huntsville Corp. v. Aten International Co., Ltd., purposeful direction cannot be found when the patentee merely sends a cease-and-desist letter into the forum state. 552 F.3d 1324, 1340 (Fed. Cir. 2008). The Federal Circuit distinguished Avocent, noting that the cease-and-desist letters sent in that case did nothing more than inform the accused infringer of the patentee's infringement allegations. The letters could be ignored without any immediate effect. Here, the APEX Agreement directed to SnapPower in Utah threatened automatic consequences (the proactive removal of Amazon sales listings), which if ignored would directly affect SnapPower's business operations in Utah.
Nevertheless, LDG argued that the Federal Circuit's decision in Radio Systems Corp. v. Accession, Inc., rejects personal jurisdiction even when the cease-and-desist correspondence is combined with threatened enforcement activities, such as APEX, directed at the accused infringer. 638 F.3d 785 (Fed. Cir. 2011). In Radio Systems, the patentee both sent cease-and-desist letters and threatened to initiate interference proceedings at the patent office, communicating directly with the examiner who was reviewing the accused infringer's patent application. The Federal Circuit denied personal jurisdiction finding both that the threatened enforcement activities were directed to the patent office and not the forum state and that the patentee's combined activities were insufficient to create general in personam jurisdiction. In rejecting LDG's assertion of Radio Systems, the Federal Circuit explained, “To the extent LDG argues Radio Systems stands for the idea that in personam patent enforcement within the forum state is necessary to create specific personal jurisdiction, courts have held otherwise.” Decision at 7 (citing cases).
LDG next argued that any consequences arising from the APEX Agreement in Utah were no different than the effects arising in the forum state in Maxchief Investments Ltd. v. Wok & Pan Ind., Inc., 909 F.3d 1134 (Fed. Cir. 2018). In Maxchief, the declaratory judgment plaintiff, a Tennessee company, was a downstream distributor of a company sued by the patentee in California. There, the Federal Circuit ruled that although the effects of the California suit might have been felt in Tennessee, the lawsuit filed by the patentee was directed to the accused infringer in California—not its distributor in Tennessee. The Federal Circuit here, therefore, found Maxchief distinguishable because LDG's APEX Agreement was not indirectly aimed at SnapPower in Utah but instead was a deliberate act aimed at affecting SnapPower's business in Utah directly and immediately.
Finally, the Federal Circuit distinguished the Supreme Court's precedent in Walden v. Fiore, 571 U.S. 277 (2014), where the Supreme Court emphasized that the defendant's conduct must have a connection with the forum state beyond just affecting a resident of that state. In Walden, a federal agent working in the Atlanta airport stopped, searched, and seized money from a Nevada citizen. The Supreme Court concluded that the Nevada citizen could not file his Bivens action against the federal agent in Nevada simply because the federal agent took action against a Nevada citizen in Georgia. In contrast, the Federal Circuit found that SnapPower's declaratory judgment action was not grounded solely on SnapPower's Utah residency. Instead, LDG's actions in submitting the APEX Agreement were specifically aimed at SnapPower's business operations in Utah, thus establishing a foreseeable and substantial connection with the forum.
The Second Factor: Arising Out of or Relating to Defendant's Activities
The Federal Circuit held that SnapPower's claim for a declaratory judgment of noninfringement directly arose from LDG's activities directed at Utah. The submission of the APEX Agreement by LDG was the catalyzing event leading to the lawsuit, aligning closely with the principles articulated in Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985). There, the Supreme Court emphasized that the defendant's activities must create a substantial connection with the forum state, which the Federal Circuit determined was met by LDG's targeted actions through APEX, “directed towards SnapPower in Utah and aimed to affect marketing, sales, and other activities in Utah.” Decision at 9-10.
The Third Factor: Reasonableness of Exercising Jurisdiction
On the issue of reasonableness, the Federal Circuit concluded that asserting personal jurisdiction over LDG in Utah was fair and reasonable. The Federal Circuit rejected LDG's assertion, adopted by the district court, that allowing declaratory judgment jurisdiction in this case would “open the floodgates of personal jurisdiction and allow lawsuits against any APEX participant anywhere in the country.” Decision at 10-11. The court emphasized that no compelling case was presented by LDG that would render jurisdiction unreasonable.
The court was satisfied that engaging in a process like APEX, which targets a specific seller's activities in a specific state, has reasonably foreseeable judicial consequences in that state. The Federal Circuit explained that patentees such as LDG face such a risk only for those online listings that they specifically target for removal through APEX—a foreseeable and manageable risk. Presumably, LDG could have eliminated the risk of suit in Utah by sending a traditional cease-and-desist letter rather than unleashing APEX.
Conclusion
The Federal Circuit's decision in this case illustrates the evolving landscape of patent enforcement in the age of online commerce, especially where patent owners employ third-party platforms like Amazon to enforce their rights. Patent owners must now consider the jurisdictional implications of using third-party enforcement procedures such as the APEX program. By initiating such actions, patentees potentially expose themselves to litigation in any U.S. jurisdiction where a targeted seller operates. Going forward, patent owners must now assess the benefits of using third-party enforcement tools against the risks demonstrated in this case that can lead to unintended legal battles in distant forums.
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