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Pre-Enforcement Commercialization Isn’t “Impossible” Basis for Personal Jurisdiction of Nonresident Defendant

The US Court of Appeals for the Ninth Circuit reversed a district court’s dismissal of trademark declaratory judgment claims, finding that pre-enforcement commercialization activities can be used to establish personal jurisdiction. Impossible Foods Inc. v. Impossible X LLC, Case No. 21-16977 (9th Cir. Sept. 12, 2023) (Lucero, Bress, JJ.) (VanDyke, J., dissenting).

Impossible Foods is a Delaware corporation manufacturing plant-based meat substitutes, including the “Impossible Burger.” Impossible X, a Texas LLC, is Joel Runyon’s one-person company selling apparel and nutritional supplements using a website and social media. San Diego, California, was Impossible X’s “base point” for two years, serving as Runyon’s apartment and workspace. A LinkedIn profile listed San Diego as the headquarters, and social media frequently tagged San Diego as Impossible X’s location. When vacating his lease, Runyon signed the document as “Joel Runyon, Impossible X LLC.” Even after leaving, Runyon took at least eight trips to California between 2017 and 2019 for the purpose of performing Impossible X work and promoting the Impossible brand.

In 2020, Impossible X filed a notice of opposition at the Trademark Trial & Appeal Board for Impossible Food’s trademark application. Impossible Foods responded with a declaratory judgment action in 2021 in California, seeking a finding of noninfringement and that its rights to the IMPOSSIBLE mark were superior. Impossible X sought dismissal, arguing that the district court lacked personal jurisdiction.

The criteria to establish specific personal jurisdiction over a nonresident defendant are as follows:

  • The defendant must purposefully direct its activities toward the forum or purposefully avail itself of the privileges of conducting activities in the forum.
  • The claim must arise out of or relate to the defendant’s forum-related activities.
  • Exercise of jurisdiction must be reasonable.

The district court acknowledged that the personal jurisdiction question here was a “close one” and concluded that while Impossible Foods satisfied the purposeful direction or availment requirement, the declaratory judgment action did not arise out of or relate to Impossible X’s contact with California. Impossible Foods did not begin use of its mark in commerce until June 2016, at which point Runyon had already left California. The district court found that the parties did not have a live dispute until June 2016, and Impossible X’s contacts with California prior to that time were irrelevant to personal jurisdiction. Impossible Foods appealed.

The Ninth Circuit analyzed each prong of the jurisdiction test and reversed the dismissal. First, the Court agreed with the district court that Impossible X purposefully directed activities toward California and availed itself of privileges of conducting activities by building its brand and establishing trademark rights there. A court typically treats trademark infringement as tort-like for personal jurisdiction purposes and applies the purposeful direction framework. The Ninth Circuit explained that there is no need to adhere to an “iron-clad doctrinal dichotomy” between purposeful availment and direction, however. The Court leaned on “purposefulness” vis-à-vis the forum state and “easily” concluded that Impossible X purposefully directed its activities toward California and/or availed itself of the benefits and privileges [...]

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When It Comes to Claim Construction, Prosecution History and Specification Rule

Addressing claim constructions across two patents that ultimately led to noninfringement findings by a district court, the US Court of Appeals for the Federal Circuit affirmed one construction because it was supported by the prosecution history but reversed another because it was unsupported by the specification. SSI Techs., LLC v. Dongguan Zhengyang Elec. Mech. Ltd., Case Nos. 21-2345, 22-1039 (Fed. Cir. Feb. 13, 2023) (Reyna, Bryson, Cunningham, JJ.)

SSI owns two patents directed to sensors for determining the characteristics of fluid in a container such as a fuel tank. One patent, referred to as the transducer patent, describes an exemplary sensor system containing a “level” transducer and a “quality” transducer. The two transducers use ultrasonic sound waves and time of flight to determine both a level of fluid in a given tank and a quality (i.e., concentration of diesel exhaust fluid). The other patent, referred to as the filter patent, describes a similar system but attempts to address the problem of erratic measurement results that may occur because of air bubbles embedded in the fluid. This patent claims a “filter” covering the sensing area that substantially prohibits gas bubbles from entering the sensing area.

Dongguan Zhengyang Electronic Mechanical (DZEM) produces systems that determine the quality and volume of diesel exhaust fluid that are used in emission-reduction systems for diesel truck engines. SSI accused DZEM of infringing both patents. In the district court action, DZEM brought a motion for summary judgment of noninfringement based on the court’s construction of certain terms that appear in the asserted claims. With reference to the transducer patent, the claims recite the need to “determine whether a contaminant exists in the fluid based on . . . a dilution of the fluid [] detected while the measured volume of the fluid decreases.” The district court determined that this claim element required that the contaminant determination actually consider the measured volume of the fluid. The district court predicated its determination on the prosecution history, having found that this term was amended to include the disputed term and that the applicant’s intention was to incorporate the specific error-detection capability recited in the specification. The parties had previously agreed that the DZEM products did not base the contamination determination on any consideration of the measured volume. As a result, the district court granted DZEM’s motion for summary judgment of noninfringement on the transducer patent.

Regarding the filter patent, the district court adopted DZEM’s construction of the term “filter,” which was “a porous structure defining openings, and configured to remove impurities larger than said openings from a liquid or gas passing through the structure.” DZEM’s accused sensors includes a rubber cover with four apertures. The district court found that the rubber cover was not “porous” because the apertures were “relatively large” when compared with the disclosed embodiments in the specification. As a result, the court granted DZEM’s motion for summary judgment of noninfringement on the filter patent. SSI appealed.

SSI challenged both constructions. Regarding the transducer patent, SSI argued that [...]

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Oh Snap: Sufficient Reasoning Must Support Declaratory Judgment Dismissal

The US Court of Appeals for the Federal Circuit vacated and remanded the dismissal of a declaratory judgment action because the district court failed to sufficiently support its decision. Mitek Systems, Inc. v. United Services Automobile Association, Case No. 21-1989 (Fed. Cir. May 20, 2022) (Dyk, Taranto, Cunningham, JJ.)

United Services Automobile Association (USAA) owns four patents directed to using a mobile device to capture and transmit an image of a bank check for deposit. Mitek created software for mobile check capture called MiSnap™, which it licenses in the form of a software development kit to financial institutions. In 2017, USAA sent letters to Mitek’s customers, some with claim charts and patent lists. The customers subsequently demanded indemnification by Mitek. In 2018, USAA sued Wells Fargo, a Mitek customer, in the Eastern District of Texas. As the case progressed, USAA served a subpoena on Mitek seeking documents, source code and testimony about MiSnap™. The case went to trial on two of the four patents, and Mitek and its products were frequently mentioned.

Shortly thereafter, Mitek filed a complaint in California seeking declaratory judgment of no infringement as to all four USAA patents. To support jurisdiction for its declaratory judgment claim, Mitek alleged that there was real and substantial apprehension of imminent litigation between Mitek and USAA for infringement of the patents-in-suit. In response, USAA argued that there was no case or controversy as required by Article III of the Constitution, and thus the case should be dismissed under Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction. USAA also argued that the California court should exercise discretion to decline to hear claims for declaratory relief. USAA requested alternatively that the action be transferred to the Eastern District of Texas.

The California court transferred the case to the Eastern District of Texas. The Texas court then dismissed the action for lack of a case or controversy and stated that the court would exercise discretion to decline to entertain the declaratory judgment action. Mitek appealed.

Addressing subject matter jurisdiction, the Federal Circuit explained that the question was “whether the facts alleged, under all the circumstances, show that there is substantial controversy, between parties having adverse legal interest, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Along these lines, a plaintiff must plead facts sufficient to establish jurisdiction at the time of the complaint, and a case or controversy must remain present throughout the course of the suit. The Court found that the Texas court’s decision provided insufficient reasoning for dismissal because it failed to identify first whether to treat the Rule 12(b)(1) motion as a facial or factual challenge, as required under Fifth Circuit precedent. The Federal Circuit instructed the district court on remand to explore any post-filing events that may have impacted jurisdiction, as well as similarities between Mitek’s relationships with Wells Fargo and other customers.

The Federal Circuit found that the district court’s case or controversy analysis was similarly inadequate. The Court explained [...]

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The Perils of Falling in Love

The US Court of Appeals for the Second Circuit affirmed the dismissal of a lawsuit that sought a declaratory judgment on the basis that a notice of termination of copyright assignment under 17 U.S.C. § 203 did not validly terminate a 1983 grant of rights in the copyright. Valentina M. Peretti Acuti, et al. v. Authentic Brands Group, LLC, et al., Case No. 21-2174 (2d Cir. May 4, 2022) (Livingston, C.J.; Lynch, Lohier, JJ.)

Hugo Peretti co-wrote “Can’t Help Falling in Love,” a ballad popularized by Elvis Presley in 1961, and registered the composition with the US Copyright Office the same year. In 1983, Peretti, his wife and his daughters transferred their contingent rights and interest in the renewal term of the copyright to Julian and Jean Aberbach, predecessors-in-interest to Authentic Brands. Under the Copyright Act of 1976 (1976 Act), the renewal rights would not vest until the original term of the copyright expired in 1989 (28 years after the copyright was registered, under the Copyright Act of 1909, which applied to the initial term of the copyright because of its registration in 1961). Peretti died in 1986, before the renewal rights vested. His family registered the renewal of the copyright in 1989.

In 2014, Peretti’s widow and his daughter Valentina served a notice on Authentic Brands to terminate the 1983 assignment under 17 U.S.C. § 203. Section 203 provides for the right to terminate a grant executed by the author at any time during a five-year period beginning at the end of 35 years from the date of execution of the grant. Authentic Brands contested the effectiveness of the termination, and Valentina filed a lawsuit seeking a declaratory judgment that the termination was properly effectuated. The district court dismissed the claim, holding that Valentina had no right to terminate the assignment because the rights to the renewal term that were transferred were those of Valentina and her mother, which had vested upon expiration of the original copyright term. The district court held that § 203 provides termination rights only to post-1978 grants executed by an author and, therefore, Peretti’s widow and daughter’s rights to the renewal were not subject to termination under that provision. Valentina appealed.

The Second Circuit began with a discussion of § 203 of the Copyright Act, which applies only to grants executed by the author on or after January 1, 1978. The Court noted that the appeal hinged on the meaning of “executed by the author.” The 1976 Act provides that execution of a transfer of a copyright is not valid unless an instrument of conveyance is in writing and signed by the owner of the rights conveyed. Thus, as the Second Circuit explained, a grant “executed by the author” is a grant that is documented in writing, is signed by the author and conveys rights owned by the author.

Turning to the Peretti 1983 assignment, the Second Circuit explained that at the time the assignment was executed, ownership of the copyright in the composition [...]

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Alleged Trademark Infringer Remains Hog-Tied after Appeal

The US Court of Appeals for the Tenth Circuit dismissed an appeal of a district court order denying a stay of a federal action for lack of jurisdiction under 28 U.S.C. § 1291 and reversed in part the district court’s grant of a preliminary injunction. The Trial Lawyers College v. Gerry Spence Trial Lawyers College at Thunderhead Ranch, Case No. 20-8038 (10th Cir. Jan. 27, 2022) (Bacharach, Briscoe, Murphy, JJ.).

The dispute between the parties arose out of a program called The Trial Lawyers College at Thunderhead Ranch in Wyoming. The College’s board of directors split into two factions known as the “Spence Group” and the “Sloan Group.” After the split, the two groups sued each other. The Spence Group sued in state court for dissolution of the College and a declaratory judgment regarding control of the board of directors. The Sloan Group sued in federal court claiming trademark infringement under the Lanham Act.

Both groups sought relief in the federal case. The Spence Group filed a motion to stay the federal court proceedings in light of the state court proceedings, and the Sloan Group requested a preliminary injunction. The district court denied the Spence Group’s stay and granted the Sloan Group’s request for a preliminary injunction. The Spence Group appealed both rulings.

The Tenth Circuit found that it lacked jurisdiction to review the district court’s stay denial. First, the state court resolved the dispute concerning board control, rendering part of the requested stay moot. Second, the Court determined that it lacked jurisdiction over the remaining motion for stay because it was not a final order. The Court explained that it needed to decide the appealability of the ruling based on the category of order rather than the particular facts of the case. The Court found that there was no unsettled issue of unique urgency or importance that warranted the Court exercising jurisdiction over the denial of the stay. Specifically, the Court explained that piecemeal litigation was unlikely because the state court already decided the issue of board control, and the Spence Group did not identify an unsettled issue of unique urgency.

The Tenth Circuit did exercise jurisdiction over the district court’s grant of a preliminary injunction. The Spence Group challenged the district court’s finding of irreparable harm, the order to remove sculptures bearing the College’s name, restrictions on what the Spence Group could say and the consideration of evidence presented after the hearing ended. The Court reviewed the district court’s findings under an abuse-of-discretion standard. The Court found that the district court did not abuse its discretion by finding irreparable harm, considering evidence after the hearing and enjoining the Spence Group from using words associated with the College. The Court explained that the district court reasonably found irreparable harm based on the College’s efforts to protect its name, logo and trademarks, as well as evidence of likely confusion among customers of the College based on the Spence Group’s use of those trademarks. As for the sculptures, the Court found [...]

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Power Play: District Court Properly Transferred Bad Faith Anticipatory Suit

The US Court of Appeals for the Federal Circuit denied a petition for mandamus relief from an order transferring a first-filed declaratory judgment action from the District of New Jersey to the Western District of Texas, finding that the district court did not abuse its discretion in departing from the first-to-file rule. In re Amperex Tech. Ltd., Case No. 22-105 (Fed. Cir. Jan. 14, 2022) (Lourie, Prost, Taranto, JJ.) (per curiam).

Maxell, Ltd. owns patents related to lithium-ion battery technology. To facilitate licensing discussions regarding Maxell’s patents, Maxell and Amperex entered into a non-disclosure agreement (NDA) stipulating that neither party would sue the other for one year. At the end of the one-year period, Amperex proposed extending the NDA because the parties had not reached an agreement. Maxell replied that Amperex’s products infringed Maxell’s patents and cautioned that if “Maxell and Amperex are not able to enter into a licensing agreement by Friday, April 9, 2020, Maxell will be left with no choice but to pursue litigation.”

After some discussion, Maxell’s counsel expressed interest in having another meeting and requested Amperex’s presentation materials in advance. Amperex’s counsel replied, “I will be in touch as soon as I can get the materials,” just two hours before filing a 90-page complaint seeking a declaratory judgment of noninfringement in the US District Court for the District of New Jersey. Two days later, Maxell filed an infringement action in the US District Court for the Western District of Texas. Maxell moved the New Jersey court to decline jurisdiction over the declaratory judgment action or transfer the action to the Western District of Texas. Amperex subsequently moved to enjoin Maxell’s action, and Maxell filed a motion to dismiss or transfer Amperex’s complaint, arguing that the action was brought in bad faith and in anticipation of Maxell’s actions.

Departing from the first-to-file rule, the district court granted Maxell’s transfer request. The district court acknowledged that a “first-filed action is preferred . . . unless considerations of judicial and litigant economy, and the just and effective disposition of disputes, require otherwise.” The district court then addressed several factors, including whether Amperex’s suit was anticipatory and the relative convenience of the forums. The district court concluded that Amperex’s suit was anticipatory because “when one party gives a deadline by which a dispute must be resolved non-judicially and the other party quickly files a declaratory action, the declaratory action is anticipatory.” Moreover, while neither bad faith nor ongoing negotiations are required for a suit to be anticipatory, bad faith actions that “disrupt the non-judicial settlement of disputes or . . . string the defendant along so that the plaintiff can win the race to the courthouse . . . weigh strongly in favor of transfer or dismissal.” Thus, the district court found that Maxell’s clear ultimatum coupled with Amperex’s “feigned cooperation” weighed heavily in Maxell’s favor.

The district court next noted that neither district was more convenient for the parties or witnesses, whereas Amperex’s failure to properly serve Maxell [...]

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Publisher’s Co-Authorship Claim Arises Under Copyright Act, Invoking Exclusive Federal Jurisdiction

The US Court of Appeals for the Fifth Circuit reversed a district court’s dismissal of a copyright authorship dispute, finding that the district court had exclusive jurisdiction over the case because a book publisher’s claim of co-authorship arose under the federal Copyright Act, not state contract law. Di Angelo Publ’ns, Inc. v. Kelley, Case No. 20-20523 (5th Cir. Aug. 12, 2021) (Higginbotham, J.)

Makeup artist Jentry Kelley and Di Angelo Publications entered into a publishing contract for Kelley’s cosmetics book. Kelley provided Di Angelo with an initial three-page manuscript, which Di Angelo claimed it then transformed into a book while communicating and collaborating with Kelley. The book listed Kelley only as the holder of the book’s copyright. After an initial 1,000-copy print run, Kelley asked Di Angelo to prepare an updated or revised version of the book for sale. Di Angelo claimed it had prepared the updated work when it discovered that Kelley was attempting to work directly with Di Angelo’s printer to reduce the costs she would incur selling the revised edition, which violated the parties’ contract.

After unsuccessful overtures to the printer, Kelley filed a complaint in Harris County, Texas, asking for rescission of the parties’ contract because Di Angelo intentionally misled her regarding publishing costs and overcharged her for publishing services. Kelley alleged that she was the sole copyright owner and that Di Angelo did not develop or have any intellectual property rights in connection with the book. Di Angelo counterclaimed for breach of contract, among other claims, and sought a declaratory judgment that Kelley failed to substantially perform under the contract. Di Angelo alleged that Kelley had prevented it from selling the updated edition of the book.

Following partial summary judgment in favor of Kelley, including on the declaratory judgment claim, Di Angelo filed suit in the Southern District of Texas. Di Angelo disputed Kelley’s claim to exclusive copyright ownership and asserted a single claim for relief: A declaration that Di Angelo owned the copyright in the two editions of the book, as well as any derivative works, and had rights in their printing and distribution. Additionally,Di Angelo alleged that it acquired copyrights in the books by “writing, editing, planning and taking all photographs and making all illustrations, and planning, designing, and arranging the layout” of the book. Kelley moved to dismiss Di Angelo’s declaratory relief claim, characterizing the suit as an end-run around the Harris County rulings against Di Angelo and arguing that there was no federal jurisdiction because Di Angelo’s claim was premised solely on Kelley’s alleged breach of the contract, which was governed by Texas law. Di Angelo responded that resolution of the authorship dispute required the district court to interpret federal copyright law, including definitional and ownership provisions, which the state court lacked jurisdiction to address. The district court agreed with Kelley on the jurisdictional question and granted the motion to dismiss. Noting that the parties’ contract referred to Kelley as the “author,” the district court found that that Di Angelo’s claim [...]

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