CAFC: Exclusive license must include provisions establishing minimum contacts for personal jurisdiction

New World Int’l, Inc. v. Ford Glob. Techs., LLC, No. 2016-2097 (June 8, 2017) (Before Prost, C.J., Bryson, and Wallach, J.) (Opinion for the court, Bryson, J.)

FGTL sued New World for patent infringement in Michigan. New World countersued in Texas, seeking a declaratory judgment that FGTL’s patents are invalid and were not infringed. FGTL moved to dismiss the Texas action for lack of personal jurisdiction. New World argued that Texas had specific personal jurisdiction over the declaratory judgment action, because LKQ, FGTL’s exclusive licensee, had sent multiple cease and desist letters to New World in Texas. These letters and the exclusive license between LKQ and FGTL was alleged to be sufficient minimum contacts by FGTL with Texas. The district court disagreed and dismissed the declaratory judgment action for lack of personal jurisdiction. New World appealed, and the Court affirmed.

New World is a Texas company headquartered in Texas. FGTL is incorporated in Delaware and headquartered in Michigan. FGTL does no business in Texas. It licensed certain design patents exclusively to LKQ, which is incorporated in Delaware, headquartered in Illinois, and does business in all 50 states. The license included indemnification and enforcement provisions as well as a covenant preventing FGTL from granting a license to New World.

The Court noted that sending a cease and desist letter to an entity in the forum state is insufficient, by itself, to establish personal jurisdiction. Other activities are required, such as the grant of an exclusive license to a licensee that regularly does business in the forum. However, the license must include obligations, apart from royalty payments, which establish sufficient minimum contacts with the forum. For example, a license agreement that “obligates the patent holder to defend or enforce the patent” in the forum state on behalf of its licensee as sufficient for personal jurisdiction.

FGTL’s license with LKQ was not sufficient to establish personal jurisdiction because the indemnity provision narrowly obligated FGTL to indemnify LKQ for infringement suits initiated by third parties. An indemnity provision per se is not necessarily enough.

The Court also rejected New World’s argument that enforcement provisions in the license obligated FGTL to defend or enforce its patents in the forum. FGTL’s obligation to LKQ was voluntary because FGTL expressly had “the ability to decline enforcement on any commercially reasonable basis.”

When relying on an exclusive license as evidence of personal jurisdiction, the license must include provisions establishing minimum contacts with the forum. Indemnity and enforcement provisions that do not unequivocally obligate a non-resident licensor to take action in the form, e.g. to defend or enforce a patent on behalf of a resident licensee, may not establish minimum contacts for personal jurisdiction.




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One comment so far.

  • [Avatar for Paul F. Morgan]
    Paul F. Morgan
    June 17, 2017 09:10 am

    I’m curious why the apparent attempt to split an already filed patent infringement suit in one D.C [ in which invalidity would be a necessary counterclaim] into a sperate later suit between the same parties against the same invalidity of the same patent in a different D.C. was not sanctionable on that basis alone?