Outsourcing Patent Enforcement: You May Get What You Pay For

“The Snaprays decision and the two cases it cited touch on several areas of intellectual property, and they bear the imprimatur of a Supreme Court justice. It thus seems likely that they will govern pretty much any IP dispute where the IP owner chooses to ‘outsource’ enforcement.”

patent enforcementIntellectual property litigation in the 21st century has brought to the fore systems for asserting infringement in which IP owners may be spared some of the huge expense of litigation by “routing” extra-judicial enforcement activities through a third party. They may do so by availing themselves of programs operated by middlemen such as Amazon, which can potentially cripple a competitor with the threat of removal from Amazon.com, while the patentee can claim to be immune from a declaratory judgment suit on the accused infringer’s home turf.

Recent Precedent

A recent decision of the U.S. Court of Appeals for the Federal Circuit suggests that, as with many bargains, you may get what you pay for with such programs.

Snaprays, DBA Snappower v. Lighting Defense Group, ____F. 4th ___(slip op., May 2, 2024) involved such an Amazon program, known as “Amazon Patent Evaluation Express” (APEX). Under APEX, a patent owner may submit to Amazon (based in Washington State) an APEX Agreement which identifies a patent claim and allegedly infringing listings. Amazon forwards the APEX Agreement to the identified seller. The seller has several options to avoid automatic removal of their listing; but if the seller takes no action, the listing is removed from Amazon.com. (Id., slip op. at 2-3.)

In this case, the patent owner LDG, based in Arizona, submitted an APEX Agreement asserting patent infringement by products of SnapPower, which was based in Utah. After efforts to resolve the dispute proved fruitless, SnapPower filed a declaratory judgment action against LDG in the District of Utah. The District Court dismissed the suit for lack of personal jurisdiction over LDG, holding that LDG’s allegations of infringement were directed toward Amazon in Washington State, and not against SnapRays in Utah. (Id. at 3.)

The Federal Circuit reversed and remanded. It focused on the requirement for “specific” (as opposed to “general”) personal jurisdiction that the defendant (here, the patentee LDG) “purposefully directed its activities at residents of the forum,” viz. plaintiff SnapPower. (Id. at 4, citing Xilinx, Inc. v. Papst Licensing GmbH & Co., 848 F. 3d 1346, 1353 (Fed. Cir. 2017).) It held that LDG purposefully directed its activities at SnapPower in Utah, intending effects which would be felt in Utah. And LDG knew, by the terms of APEX, that Amazon would notify SnapPower of the APEX filing and inform SnapPower of its available options. (Id. at 5.)

The Federal Circuit opinion, by Chief Judge Moore, did not cite any earlier Federal Circuit opinions dealing squarely with this issue, which may explain why the opinion was designated as precedential. But it wanted to make this point by way of explaining why it reached out for authority from other Circuits: “This decision is consistent with our sister circuits which held extra-judicial enforcement activities, even when routed through a third-party, satisfy purposeful direction.”(Id. at 5 (emphasis added)).

It is not surprising that Judge Moore began her analysis with a copyright case from the District of Colorado, Dudnikov. Chalk & Vermilion Fine Arts, Inc., 514 F. 3d 1063 (10th Cir. 2008). That opinion was authored by then-Circuit Judge, now Supreme Court Justice Neil Gorsuch. Dudnikov involved a program akin to Amazon’s APEX operated by eBay and known as VeRO, for Verified Rights Owner. Under that program, where a copyright owner submits a Notice of Claimed Infringement (NOCI), eBay automatically terminates the alleged infringer’s auction. Id. at 1068.  As the Federal Circuit explained it in Snaprays, the Dudnikow court had reasoned that:

“[W]hile the defendants’ NOCI was technically directed at California, where eBay was located, defendants’ ‘express aim in acting was to halt a Colorado-based sale by a Colorado resident, and neither the lack of defendants’ physical presence in Colorado nor the fact that they used a California-based entity to effectuate this purpose diminish this fact.’”

Snaprays, slip op. at 6, quoting Dudnikov, 514 F. 3d 1076.

Both Dudnikov and Snaprays cited an earlier case, Bancroft & Masters, Inc. v. Augusta National Inc., 223  F.3d 1082 (9th Cir. 2000), a trademark/domain name dispute in which Augusta National (ANI), the owner of  trademark registrations for MASTERS sought redress against California-based Bancroft & Masters (B&M) which had registered the domain name masters.com. ANI had written a letter to Virginia-based Network Solutions Inc. (NSI), then the sole registrar of domain names in the United States, which triggered a dispute resolution process not unlike Amazon’s APEX. After B & M’s declaratory judgment action in the Northern District of California was dismissed for lack of personal jurisdiction over, B & M appealed. The Ninth Circuit reversed. It held:

“ANI acted intentionally when it sent its letter to NSI. The letter was expressly aimed at California because it individually targeted B & M, a California corporation doing business almost exclusively in California. Finally, the effects of the letter were primarily felt, as ANI knew they would be, in California.”

Id. at 1088.

The Snaprays decision and the two cases it cited touch on several areas of intellectual property, and they bear the imprimatur of a Supreme Court justice. It thus seems likely that they will govern pretty much any IP dispute where the IP owner chooses to “outsource” enforcement (my term) or “route” enforcement (Chief Judge Moore’s term) through a middleman such as Amazon or eBay. Courts faced with motions by IP owners to dismiss declaratory judgment actions for lack of personal jurisdiction are likely to deny those motions when it is apparent that the initiation of extra-judicial enforcement activities was plainly directed to a resident of the chosen forum.

Looking Ahead

So how might this affect the strategy of an IP owner who is reluctant to simply file an infringement action? If the case involves patents, current venue jurisprudence makes clear the suit will have to be filed in (or will get transferred to) the defendant’s home turf. Once venue is settled, what remains will be an expensive infringement suit.

Simply sending a cease-and-desist letter to the alleged infringer may still accomplish one’s goals without being dragged into a declaratory judgment action in an undesirable forum. In Snaprays, the court noted the continued vitality of Avocent Huntsville Corp. v. Aten Intern. Co. Ltd., 552 F. 3d 1324 (Fed. Cir. 2008). Avocent had held that “a patent owner may, without more, send cease and desist letters to a suspected infringer, or its customers, without being subjected to personal jurisdiction in the suspected infringer’s home state.”  Id. at 1340 (emphasis added). In Snaprays, the Federal Circuit explained that Amazon’s APEX takedown procedure is the “more” Avocent envisioned. Snaprays, slip op. at 7.

What about suing a customer, presumably in a forum perceived as favorable to the IP rights owner? Of course, that is still a commitment to what could be expensive litigation. The manufacturer might still file a declaratory judgment suit in its home court, and argue that this is just another type of “routing through a third party” where the real target is obviously the manufacturer. The “mere customer” suit might end up stayed or transferred to the manufacturer’s home forum.

Still, programs like APEX may continue to have some appeal when the accused infringer seems to lack the financial and emotional wherewithal to file a declaratory judgment action against, perhaps, a deeper pocket. But no IP lawyer, in-house or outside, wants to pick up the phone to hear the CEO declaiming, “I thought you said they’d never sue!”

Image Source: Deposit Photos
Author: alexeynovikov
Image ID: 474936036 



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Join the Discussion

2 comments so far. Add my comment.

  • [Avatar for Anon]
    May 8, 2024 02:54 pm

    Smartly written – thank you.

  • [Avatar for Pro Say]
    Pro Say
    May 8, 2024 10:51 am

    Outsource patent enforcement against a financially strong infringer?

    Something wicked your way comes.

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