Automated Facilities Mgt. Corp. V. Smartware Group, et al.

2013 DNH 138

• Court: District Court, D. New Hampshire
• Decided: October 21, 2013
• Docket: 12-CV-327-PB
• Status: Published

Opinion

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Automated Facilities Management Corporation

v. Case N o . 12-cv-327-PB Opinion N o . 2013 DNH 138 Smartware Group, Inc., et a l .

MEMORANDUM AND ORDER

Automated Facilities Management Corporation (“AFMC”), the

exclusive licensee for United States Patent Nos. 7,548,970 and

7,606,919 (the “‘970 Patent” and “‘919 Patent,” respectively),

has sued Smartware Group, Inc., for patent infringement.

Smartware has responded with a counterclaim against AFMC and a

third-party complaint against Tangopoint, Inc., seeking a

declaratory judgment of non-infringement and patent invalidity

against both defendants. Tangopoint moves to dismiss the third-

party complaint pursuant to Federal Rule of Civil Procedure

12(b)(2), claiming that the court lacks personal jurisdiction.

For the reasons set forth below, I grant Tangopoint’s motion to

dismiss. I.

II. BACKGROUND

AFMC is a Texas corporation and wholly owned subsidiary of

Acacia Research Corporation (“ARC”), a patent licensing company.

Doc. N o . 2 . As a patent licensing company, ARC directs its

subsidiaries to partner with patent owners, license patents, and

share resulting revenues.

Tangopoint, a Delaware corporation with its principle place

of business in Nebraska, is the owner of the two patents in

question. In January 2007, Tangopoint entered into an

“Exclusive Licensing Agreement” (“Agreement”) concerning the two

patents with Acacia Patent Acquisition Corporation (“APAC”), a

subsidiary of ARC. APAC then assigned its interest in the

patents to its subsidiary, AFMC.

Smartware is a New Hampshire software corporation with its

principle place of business in New Hampshire. Smartware focuses

its business on maintenance software, including “Bigfoot,” a

computerized maintenance management software (“CMMS”) package.

A. The Exclusive Licensing Agreement

The Agreement between Tangopoint, as owner of the patents,

and AFMC, as licensee, purports to grant AFMC a worldwide

2 exclusive license, including the exclusive right to grant

sublicenses, to sue for and collect past, present, and future

damages, and to seek injunctive relief in cases of patent

infringement. Doc. N o . 18-1. Tangopoint expressly retains the

right to a percentage of all royalties that AFMC obtains from

licenses or enforcement efforts, a limited right to terminate

the Agreement, and a limited right to use the patents in its own

products. Id.

B. Procedural Background

Pursuant to its rights under the Agreement, AFMC brought

suit in this district against Smartware for patent infringement,

claiming that Smartware’s Bigfoot software infringes Patents

‘919 and ‘970. Doc. N o . 1 . Smartware responded with several

affirmative defenses, including non-infringement and invalidity.

Doc. N o . 8 . It also brought a counterclaim against AFMC and a

third-party complaint against Tangopoint seeking a declaratory

judgment of non-infringement and invalidity. Id.

Smartware argues in its third-party complaint that this

court has personal jurisdiction over Tangopoint in part because

“Tangopoint knew, or should have known, that its licensing of

the [patents] would subject it to counterclaims of patent

invalidity in jurisdictions in which AFMC brought suit against

3 alleged infringers.” Id. It further asserts that Tangopoint

“purposely availed itself of the privilege of conducting

activities within the State of New Hampshire” because AFMC

brought suit in this district to enforce the patent and

Tangopoint authorized the suit when it entered into the

Agreement. Id. Smartware does not claim that Tangopoint has

any other contacts with New Hampshire.

III. ANALYSIS

A. Personal Jurisdiction

The analysis of a personal jurisdiction claim in federal

court begins with Rule 4 of the Federal Rules of Civil

Procedure. Merial Ltd. v . Cipla Ltd., 681 F.3d 1283, 1293 (Fed.

Cir. 2012). If a defendant is amenable to suit under Rule 4 ,

personal jurisdiction exists unless the defendant lacks

sufficient “minimum contacts” with the forum to satisfy the

requirements of due process. Patent Rights Prot. Grp., LLC v .

Video Gaming Techs., Inc., 603 F.3d 1364, 1368-69 (Fed. Cir.

2010).

Smartware asserts that it complied with Rule 4 by filing a

properly executed waiver of service form. Under Rule

4(k)(1)(A), the filing of a waiver of service establishes

4 jurisdiction over a defendant if the defendant “is subject to

the jurisdiction of a court of general jurisdiction in the state

where the district court is located.” Fed. R. Civ. P.

4(k)(1)(A). Smartware asserts that Tangopoint is subject to the

jurisdiction of New Hampshire’s state courts pursuant to the

state’s long-arm statute, N.H. Rev. Stat. Ann. § 510:4 (2013).

This statute, in turn, has been authoritatively construed by the

Supreme Court of New Hampshire “to permit ‘the exercise of

jurisdiction to the extent permissible under the Federal Due

Process Clause.’” Kimball Union Acad. v . Genovesi, 70 A.3d 435,

440 (2013) (quoting Fellows v . Colburn, 34 A.3d 5 5 2 , 558

(2011)). Thus, Tangopoint’s personal jurisdiction challenge

turns on whether it is consistent with the requirements of due

process to subject it to jurisdiction in this court.

The Constitution has two due process clauses. In general,

state actors are subject to the Fourteenth Amendment’s Due

Process Clause and federal actors are governed by the Fifth

Amendment’s counterpart provision. See Malloy v . Hogan, 378

U.S. 1 , 26 (1964). The constitutional basis for the due process

right can be significant when considering a personal

jurisdiction challenge. If jurisdiction is determined under the

Fourteenth Amendment, the defendant’s contacts with the state in

5 which the court sits will determine whether due process has been

satisfied, but if jurisdiction is determined under the Fifth

Amendment, a defendant’s contacts with the United States as a

whole will ordinarily be dispositive. United States v . Swiss

Am. Bank, Ltd., 274 F.3d 6 1 0 , 618 (1st Cir. 2001).

An action seeking patent invalidity or non-infringement

arises under federal law. Accordingly, the Federal Circuit has

held that such cases are subject to the Fifth Amendment’s Due

Process Clause. See Akro Corp. v . Luker, 45 F.3d 1541, 1544

(Fed. Cir. 1995). Congress, however, has not enacted a statute

authorizing nationwide service of process in patent cases.

Thus, plaintiffs such as Smartware often must rely on state

long-arm statutes to effect service. When personal jurisdiction

is dependent on a state long-arm statute, the Federal Circuit

has held that the Fourteenth Amendment’s Due Process Clause

constrains the court’s power to act even if the underlying cause

of action is based on federal law. See Red Wing Shoe C o . v .

Dockerson-Halbertstadt, Inc., 148 F.3d 1355, 1358 n.* (Fed. Cir.

1998). Accordingly, the jurisdictional issue in such cases must

be resolved by using Fourteenth Amendment precedents because

Smartware has relied on a state long-arm statute to effect

6 service.1 Id.; see also Ins. Corp. of Ir., Ltd. v . Compagnie des

Bauxites de Guinee, 456 U.S. 6 9 4 , 713 (1982) (Powell, J.,

concurring) (“Because of the District Court’s reliance on the

Pennsylvania long-arm statute the applicable jurisdictional

provision under the Rules of Decisions Act . . . the relevant

constitutional limits would not be those imposed directly on

federal courts by the Due Process Clause of the Fifth Amendment,

but those applicable to state jurisdictional law under the

Fourteenth.”).

A court may exercise either specific or general personal

jurisdiction over a defendant regardless of whether jurisdiction

depends on the Fifth or the Fourteenth Amendment. Here,

Smartware argues only that the court has specific jurisdiction.

Specific jurisdiction “refers to the situation in which the

cause of action arises out of or relates to the defendant’s

contacts with the forum.” Beverly Hills Fan C o . v . Royal

Sovereign Corp., 21 F.3d 1558, 1563 n.10 (Fed. Cir. 1994)

1 If Congress were to enact a special service of process statute for patent cases, the Fifth Amendment’s Due Process Clause would apply and all that would be required to establish personal jurisdiction in any federal court would be compliance with the statute and minimum contacts with the United States as a whole. See generally Med. Mut. of Ohio v . deSoto, 245 F.3d 5 6 1 , 567 (6th Cir. 2001); In re Fed. Fountain, Inc., 165 F.3d 6 0 0 , 602 (8th Cir. 1999); Bellaire Gen. Hosp. v . Blue Cross Blue Shield of Mich., 97 F.3d 8 2 2 , 825 (5th Cir. 1996).

7 (citing Burger King Corp. v . Rudzewicz, 471 U.S. 4 6 2 , 473 n.15

(1985)).

The Federal Circuit employs a three-prong test to evaluate

a specific jurisdiction claim, asking whether (1) the defendant

purposefully directed its activities at residents of the forum;

(2) the claim arises out of or relates to those activities; and

(3) assertion of personal jurisdiction is reasonable and fair.

Breckenridge Pharm., Inc. v . Metabolite Labs., Inc., 444 F.3d

1356, 1363 (Fed. Cir. 2006). The first two prongs must be

proved by the plaintiff, whereas the burden to disprove the last

prong rests with the defendant, who must present a “compelling

case that the presence of some other considerations would render

jurisdiction unreasonable . . . .” Id. at 1362 (quoting Burger

King, 471 U.S. at 476-77).

Because I intend to resolve the jurisdictional issue

without holding an evidentiary hearing, Smartware need only make

a prima facie showing of personal jurisdiction. See Grober v .

Mako Prods., Inc., 686 F.3d 1335, 1345 (Fed. Cir. 2012).

Accordingly, I accept as true Smartware’s well-pleaded

jurisdictional allegations and resolve disputed factual issues

in its favor. See id.

8 B. Discussion

Tangopoint’s principal argument against personal

jurisdiction is that Smartware has failed to identify sufficient

facts to support its conclusory assertion that Tangopoint

purposefully directed its activities at residents of New

Hampshire.

Smartware responds by asserting that Tangopoint is subject

to jurisdiction because it licensed its patents to an entity

that brought an infringement action in this district. Smartware

does not allege that Tangopoint ever conducted business with a

New Hampshire resident. It does not claim that Tangopoint was

directly involved in an effort to enforce the patents here. Nor

does it point to any facts that would support a claim that

Tangopoint had reason to believe when it entered into the

Agreement that AFMC had plans to sue an alleged infringer in New

Hampshire. Thus, its jurisdictional argument depends entirely

on whether AFMC’s decision to sue Smartware in this district can

be attributed to Tangopoint because AFMC was acting pursuant to

a power that Tangopoint granted it in the Agreement.

As a general rule, due process does not permit a person to

be subjected to personal jurisdiction based solely on the

“unilateral activity of another party or a third person.”

9 Burger King, 471 U.S. at 475 (quoting Helicopteros Nacionales de

Colombia, S.A. v . Hall, 466 U.S. 4 0 8 , 417 (1984)). The actions

of a third-party agent, however, may be attributed to its

principal when considering whether personal jurisdiction exists,

see, e.g., Radio Sys. Corp. v . Accession, Inc., 638 F.3d 785,

791 (Fed. Cir. 2011), so long as the actions are within the

scope of the agency and the agent remains subject to the

principal’s control. See Akamai Tech., Inc. v . Limelight

Networks, Inc., 692 F.3d 1301, 1348 (Fed. Cir. 2012) (citing

Restatement (Third) of Agency § 1.01 (2006)) (“Agency is the

fiduciary relationship that arises when one person (a

‘principal’) manifests assent to another person (an ‘agent’)

that the agent shall act . . . subject to the principal’s

control, and the agent manifests assent or otherwise consents to

so act.”).

In contrast, a license agreement that merely entitles the

licensor to royalties without reserving a right to control the

licensee’s actions will not, by itself, be sufficient to support

personal jurisdiction. See Red Wing Shoe, 148 F.3d at 1361; see

also Breckenridge, 444 F.3d at 1364 (explaining that licensees’

contacts with the forum state in Red Wing Shoe were “essentially

‘unilateral’” even though the patentee received payments from

10 product sales by licensees within the forum state). Thus,

whenever the Federal Circuit has held that personal jurisdiction

exists over a patent licensor, it has either relied on other

actions in the forum state by the licensor or a provision in the

license agreement itself that gives the licensor control over

the licensee’s actions. See, e.g., Breckenridge, 444 F.3d at

1367 (finding jurisdiction where the license agreement

“contemplated an ongoing relationship between [licensor and

licensee] beyond royalty payments” and the licensor coordinated

with the licensee in sending cease and desist letters into the

forum state); Genetic Implant Sys., Inc. v . Core-vent Corp., 123

F.3d 1455, 1458-59 (Fed. Cir. 1997) (finding jurisdiction where

an “exclusive” out-of-state distributor “promotes and sells” a

product in the forum state and the licensor sold products in

state prior to the distribution agreement); Akro, 45 F.3d at

1546 (finding jurisdiction where the licensor entered into a

license agreement retaining the power to bring suit with a forum

state licensee, and used this power to send warning letters into

forum state).

A close examination of the Agreement reveals that

Tangopoint lacks sufficient control over AFMC to permit its

forum-based actions to be attributed to Tangopoint. Although

11 Tangopoint remains the record owner of the patents and is

required to pay maintenance fees for patent renewals, it has

completely surrendered its right to enforce the patents. Doc.

N o . 18-1, (“Licensor expressly retains no rights in or to the

Patents, including without limitation, the right to sue for

infringement of the Patents . . . . ” ) . Smartware nevertheless

points to several other provisions in the Agreement that

obligate Tangopoint to cooperate with AFMC in its enforcement

effort. Doc. N o . 19-1. Specifically, it cites a provision

allowing AFMC to require Tangopoint to join as a plaintiff “in

the event APAC’s counsel determines that Licensor is a necessary

party to the action.” Doc. N o . 18-1. It further notes that

Tangopoint grants AFMC the power of attorney to add Tangopoint

“to any such action and bring an action in [Tangopoint’s] name.”

Id. Neither provision, however, demonstrates a shared

commitment to enforcement activities or gives Tangopoint control

over locations where an enforcement action may be brought. At

most, the provisions authorize AFMC to force Tangopoint into

litigation in the event that a court finds Tangopoint to be a

necessary party – a far cry from Tangopoint retaining any

enforcement authority.

12 Smartware also claims that AFMC’s decision to sue in this

district is attributable to Tangopoint because the Agreement

makes AFMC Tangopoint’s agent. I reject this argument because

the Agreement simply does not give Tangopoint the kind of

control over AFMC that is required to give rise to an agency

relationship. See, e.g., S t . Paul Ins. C o . v . Indus.

Underwriters Ins. Co., 262 Cal. Rptr. 4 9 0 , 494 (Ct. App. 1989);

Restatement (Third) of Agency § 1.01 cmt. (f)(1) (2006); accord

Akamai, 692 F.3d at 1348.

IV. CONCLUSION

Smartware has failed to sufficiently allege that Tangopoint

Hampshire. Accordingly, this court lacks personal jurisdiction

over Tangopoint. Tangopoint’s motion to dismiss (Doc. N o . 17)

is granted.

SO ORDERED.

/s/Paul Barbadoro Paul Barbadoro United States District Judge

October 2 1 , 2013

cc: Robert M . Shore, Esq. Justin P. Hayes, Esq. Michael J. Persson, Esq.