by Dennis Crouch
In a significant decision on personal jurisdiction in patent cases, the Federal Circuit held that using Amazon’s patent enforcement process (APEX) to target an alleged infringer’s listings can subject the patent owner to specific personal jurisdiction in the alleged infringer’s home state. SnapRays, LLC v. Lighting Def. Grp. LLC, No. 2023-1184 (Fed. Cir. May 2, 2024).
Plaintiff SnapRays (d/b/a SnapPower) is a Utah company that designs and sells electrical outlet covers with USB ports and night lights. Defendant Lighting Defense Group (LDG), a Delaware company based in Arizona, owns a patent on outlet cover technology. In 2022, LDG initiated an action against SnapPower through Amazon’s Patent Evaluation Express (APEX) program that follows a notice and takedown approach. Under APEX, a patent owner can submit an agreement identifying an allegedly infringing Amazon listing. If the accused seller takes no action, Amazon will automatically remove the listing after three weeks. As part of the program, an accused seller “has three options to avoid automatic removal of their accused listings: (1) opt into the APEX program and proceed with [a] third-party evaluation; (2) resolve the claim directly with the patent owner; or (3) file a lawsuit for declaratory judgment of noninfringement.” SnapPower chose option 3 and sued LDG in Utah federal court, seeking a declaration of non-infringement. But, LDG moved to dismiss for lack of personal jurisdiction. The district court agreed with LDG that the APEX submission was insufficient to establish specific personal jurisdiction in Utah.
In a unanimous decision authored by Chief Judge Moore, the Federal Circuit reversed, holding that “LDG purposefully directed extra-judicial patent enforcement activities at SnapPower in Utah,” thereby subjecting LDG to specific personal jurisdiction there. According to the Federal Circuit, the key error by the district court was that it focused too narrowly on the physical location where LDG sent its infringement complaint (Amazon in Washington), rather than considering the purpose and the intended effects of LDG’s actions on SnapPower who was located in Utah. “[T]he district court found SnapPower did not demonstrate LDG purposefully directed activities at SnapPower in Utah, or that the action arose out of or related to any LDG activities in Utah. Instead, the district court found LDG’s allegations of infringement were directed toward Amazon in Washington, where the APEX Agreement was sent.” But the Federal Circuit held this was error, because the APEX agreement (1) identified the SnapPower listings as allegedly infringing; (2) knew, by the terms of APEX, Amazon would notify SnapPower of the allegations and potential impact; and (3) knew that if SnapPower took no action, its listings would be removed, “which would necessarily affect sales and activities in Utah.”
In its reversal, the appellate panel applied a three-part test for specific jurisdiction, asking:
- whether the defendant purposefully directed its activities at residents of the forum;
- whether the claim arises out of or relates to the defendant’s activities with the forum; and
- whether assertion of personal jurisdiction is reasonable and fair.
On the first factor, the Federal Circuit concluded that LDG purposefully directed its activities at SnapPower in Utah by submitting the APEX agreement:
LDG intentionally submitted the APEX Agreement to Amazon. The APEX Agreement identified SnapPower listings as allegedly infringing. LDG knew, by the terms of APEX, Amazon would notify SnapPower of the APEX Agreement and inform SnapPower of the options available to it under APEX. If SnapPower took no action, its listings would be removed, which would necessarily affect sales and activities in Utah.
An important factor here is that LDG knew that SnapPower was located in Utah. In reality, we don’t know that is true, but this case is at the pleading stage and the pleadings allege that the patentee did known that SnapPower was in Utah. (Oral arguments). And, LDG apparently did not directly deny that allegation.
The court distinguished prior cases finding cease-and-desist letters insufficient for purposeful direction, explaining that “The APEX Agreement goes beyond a cease and desist letter because, absent action by SnapPower in response to the APEX Agreement, SnapPower’s listings would have been removed from Amazon.com.”
The Federal Circuit noted this holding was consistent with decisions from the Ninth and Tenth Circuits “which held extra-judicial enforcement activities, even when routed through a third-party, satisfy purposeful direction.” See Dudnikov v. Chalk & Vermilion Fine Arts, Inc., 514 F.3d 1063 (10th Cir. 2008) and Bancroft & Masters, Inc. v. August National Inc., 223 F.3d 1082 (9th Cir. 2000)). In those cases, the defendants initiated third-party dispute resolution processes that would automatically affect the plaintiffs unless they took action, much like the APEX program here.
On the second jurisdictional factor, the court easily found that SnapPower’s declaratory judgment action arose out of LDG’s APEX submission, since that submission was aimed at affecting SnapPower’s marketing and sales activities in Utah.
Finally, the court held it would be reasonable and fair to subject LDG to jurisdiction in Utah, rejecting LDG’s arguments that this would “open the floodgates” to jurisdiction over any APEX participant. The court emphasized that jurisdiction will lie only where the defendant “targeted a forum state by identifying listings for removal that, if removed, affect the marketing, sales, or other activities in that state.” The court also distinguished its prior decision in Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355 (Fed. Cir. 1998), which held that “principles of fair play and substantial justice” protected a patentee from jurisdiction based solely on sending cease-and-desist letters into a forum. LDG’s use of the APEX process went well beyond just providing notice of suspected infringement.
Although there are some questionable aspects of the decision, it establishes the important point that patent owners must be cautious in wielding Amazon’s increasingly popular APEX system. While the program offers an efficient way to combat infringement on Amazon’s platform, it may come at the jurisdictional price of being haled into the accused infringer’s home court. Patent owners who want to enforce their rights while avoiding personal jurisdiction in potentially unfavorable forums may need to consider other options. Of course, personal jurisdiction is not even a consideration for the most popular patent-challenge forum – the patent trial and appeal board.
One point of difficulty here is the Supreme Court’s precedent in Walden v. Fiore. In that non-patent case, the Court held that the defendant’s contacts must be with the forum state itself, not just the plaintiff who resides there. At oral arguments, LDG’s counsel argued that “the Supreme Court made clear in Walden that minimum contacts for specific personal jurisdiction must be created by the defendant themselves. By actions that the defendant himself has. And those contacts must be with the forum state, not with the persons who reside there.”
IPWatchdog today noted the following line from this Fed. Cir. SnapRays decision: ““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)).” What other situations where patent owners think they have fully third-party-enforcer insulated themselves, yet retain infringement recoverery rights, might that arguably apply to?
Unified Patents immediately comes to mind.
Wow. This is just another holding to reduce the rights of patent holders. Now, if you have a patent and people infringe it and sell on Amazon, then you can’t use Amazon’s resolution procedures without being hauled into the infringer’s jurisdiction.
Anyway, I am too busy this morning to go through the details of why this is another bad holding.
Note that filing a DJ lawsuit is just one, and by far the most expensive, of the indicated 3 APEX ways for a patent owner to get Amazon to stop selling infringing products. By opting into the APEX program one gets an independent evaluation by an independent patent attorney to determine if infringement is confirmed. Reportedly for only a few thousand dollars. [Like a simple arbitration.] That seems like a good deal for the patent owner as compared to other, normal, legal patent enforcement costs?* Or one can also resolve the claim directly with the patent owner, if both parties are agreeable. [Which absence of first-to-file forum-shopping might make easier?]
*But reportedly not usable for complex technology products or ambiguously complex claims?
But the patent holder doesn’t get to choose.
Plus, I think APEX puts restrictions on what actions the patent holder can take if they are selling their own products covered by the patent.
? Where does the APEX system say that “the patent holder doesn’t get to choose” which of the 3 options?
Night Writer,
As I recall, those constraints are directly solely to inoculating Amazon.
Also (and conveniently for Amazon), the process indemnifies Amazon.
Important for context.
What (exactly) constitutes “ambiguously complex claims?”
Claims that the independent third party patent attorney is unwilling to render a clear pro-infringement decision on would be one example.
[That or a clear non-infringed decision by a third party patent attorney who is not going to obtain patent litigation fees also ought to give second thoughts to patent owners filing a regular patent infringement suit solely on the advice of those who will.]
P.S. I would, however, be interested finding out how the APEX third party independent patent attorney are selected before using that route, just as in other proposed arbitrations.
Also note that the APEX process has no effect on infringing sales other than on Amazon.
So, not a legal interpretation then (per se).
Also, the “other than Amazon” is indeed because this ‘package’ is solely for Amazon’s benefit – as was discussed when that package was first discussed on this blog.
Although the patent owner’s usage of Amazon’s patent enforcement process (APEX) got jurisdiction for the defendant’s declaratory judgment action against this one patent here, I wonder how fully effective that will be? I found several serial continuations producing other issued patents based on the same outlet cover spec. [Relevant to our recent blog discussion of that tactic.]
Re above: under the APEX program an accused Amazon seller has only “three options to avoid automatic removal of their accused listings: (1) opt into the APEX program and proceed with [a] third-party evaluation; (2) resolve the claim directly with the patent owner; or (3) file a lawsuit for declaratory judgment of noninfringement.”
Note that filing an IPR is not an indicated option, even though faster, cheaper and with better odds than a lawsuit for declaratory judgment of noninfringement. Nor is a lawsuit for declaratory judgment of invalidity an indicated option?
Another twist here is that filing a lawsuit for declaratory judgment normally alledges invalidity as well as noninfringement. But does not that presumably trigger 35 USC 315(a) preventing an IPR?
Not sure that this instance invites IPR cheerleading…
Actually, I was pointing out that an IPR does not seem to be effective or perhaps not even available in this situtation.
(Rah rah)
I suspect many cases will still end up in litigation:
The APEX options:
(1) opt into the APEX program and proceed with [a] third-party evaluation;
– If the patentee is unhappy with the outcome, litigation is likely next
– If the potential infringer is unhappy with the outcome, they might pay the patentee some sort of a license fee if it’s cheaper than fighting
(2) resolve the claim directly with the patent owner;
– if the patentee is OK with a very small license fee this could work, otherwise the potential infringer will fight (in their home jurisdiction per Option 4)
or (3) file a lawsuit for declaratory judgment of noninfringement
– this is the big risk that the patent holder takes – being pulled into a jurisdiction of the potential infringer’s choice
– the patentee is likely better off filing a lawsuit in a jurisdiction of their choosing, then offering a settlement that the potential infringer can be OK with
To all my geeks out there, Happy Star Wars Day.
Goose and Gander issue.
From the article: The court emphasized that jurisdiction will lie only where the defendant “targeted a forum state by identifying listings for removal that, if removed, affect the marketing, sales, or other activities in that state.”
Would those same activities in the same state (say, perhaps, Texas) open up the infringer to be hauled into court in that very state?
Should this not be “equitable?”
“patent owners must be cautious in wielding Amazon’s increasingly popular APEX system.”
Meaning that, going forward, the utilization of APEX will necessarily be constrained; particularly for companies having the financial wherewithal to file court suits (in their choice of venues)?
Anyone know if and where APEX “cases” are tracked / publicly disclosed?
Interestingly it doesn’t seem like Amazon participated as an amicus. You’d think they would have an interest in preventing obstacles like this to people making use of the program.
As I recall, their program exempts them, so I imagine that it never crossed their minds.