Legal Alert: Licenses Can Create State
Contacts Bestowing Personal
Jurisdiction Over Licensor
May 12, 2006
Breckenridge Pharm., Inc. v. Metabolite Labs., Inc.,
Nos. 05-1221, 05-1428, 2006 WL 895208 (Fed. Cir. Apr. 7, 2006)
The Federal Circuit’s recent holding in Breckenridge Pharm., Inc. v. Metabolite Labs.,
Inc., Nos. 05-1221, 05-1428, 2006 WL 895208 (Fed. Cir. Apr. 7, 2006), has made life easier for
forum shoppers by establishing that a defendant in a patent declaratory judgment action may
have the necessary “minimum contacts” with a forum state to confer personal jurisdiction simply
by virtue of the defendant’s relationship with an exclusive licensee headquartered or otherwise
doing business in the forum state – even if the defendant has no other contact with that state.
Many patent holders would not expect this result.
Although Breckenridge involves a patent license, the Federal Circuit’s analysis could
easily be applied in other situations. Breckenridge, therefore, is of concern to all businesses that
contract with other businesses, not just to businesses that license patents. A party seeking to file
a litigation often shops for the forum that provides the best chance of success in that litigation.
Breckenridge makes it easier for such a party to bring its action in a favored forum by providing
a more attenuated basis for a court to find personal jurisdiction over a defendant.
Case Analysis
In 1985, the Supreme Court set forth the current paradigm for determining personal
jurisdiction in Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985). Under that paradigm, if a
defendant is not subject to general personal jurisdiction, then the district court determines
whether the defendant is subject to specific personal jurisdiction because the cause of action
“arises out of” or “relates to” the defendant’s in-state activity. See Burger King, 471 U.S. at 47273. The determination of specific personal jurisdiction involves a two-part inquiry. “First, the
state long-arm statute must permit service of process on the defendant.” Breckenridge, 2006 WL
895208, at *2 (citing Fed.R.Civ.P. 4(e), 4(k)(1)(A)). “Second, the exercise of personal
jurisdiction must satisfy due process requirements.” Id. (citing Burger King, 471 U.S. at 47476).
© 2006 Sutherland Asbill & Brennan LLP. All Rights Reserved.
This article is for informational purposes and is not intended to constitute legal advice.
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The due process requirements for personal jurisdiction are satisfied where the defendant
maintains sufficient “minimum contacts” with the forum state such that a lawsuit in that state
does not offend “traditional notions of fair play and substantial justice.” Id. (citing Burger King,
471 U.S. at 476-78). In patent litigation, the issue of what constitutes “minimum contacts” for
due process purposes is governed by Federal Circuit law. See id. at *3 (citation omitted). The
Federal Circuit “employs a three-prong test, in which [it] determine[s] 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.” Id. at *4
(citation omitted).
In Breckenridge, the Federal Circuit focused on the due process requirements necessary
for a district court to have personal jurisdiction over an out-of-state defendant patentee in a
declaratory judgment action brought by a potential infringer. The patentee Metabolite Industries,
Inc. (“Metabolite”) faced a declaratory judgment action filed in the Southern District of Florida
by potential infringer Breckenridge Pharmaceutical, Inc. (“Breckenridge”). Id. at *2. Metabolite
contended it had no direct contact with Florida other than having sent cease and desist letters to
three of Breckenridge’s Florida customers. See id. at *1-2. Metabolite, however, also had an
exclusive license agreement with PamLab L.L.C. (“PamLab”) authorizing PamLab to
manufacture and sell products covered by Metabolite’s patents throughout the United States,
including Florida. See id. at *1. PamLab actively sold licensed products in Florida, but was
headquartered in another state.
After deciding that Metabolite was subject to service of process in Florida, the
Breckenridge court turned its attention to the due process analysis and Metabolite’s exclusive
license agreement with PamLab. The Federal Circuit reasoned that, in determining personal
jurisdiction, a patentee need not direct its activities at the potential infringer to have the
necessary “minimum contacts” with the forum state. See id. at *5. Thus, it is proper to look “to
the defendant’s [i.e. patentee’s] relationship with its exclusive licensee to determine the extent of
the defendant’s forum state contacts.” Id.
The Breckenridge court held the mere existence of an exclusive license agreement does
not establish “minimum contacts” if the patentee has no relationship with its licensee beyond the
receipt of royalty income. Id. at *7. The possibility of establishing “minimum contacts,” and
thus personal jurisdiction, increases, however, when the license agreement contains terms and
conditions beyond the payment of royalties from the licensee to the patentee. As the Federal
Circuit explained:
[T]he crux of the due process inquiry should focus first on whether the defendant
has had contact with parties in the forum state beyond the sending of cease and
© 2006 Sutherland Asbill & Brennan LLP. All Rights Reserved.
This article is for informational purposes and is not intended to constitute legal advice.
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desist letters or mere attempts to license the patent at issue there. Where a
defendant-licensor has a relationship with an exclusive licensee
headquartered or doing business in the forum state, the inquiry requires
close examination of the license agreement. In particular, our case law
requires that the license agreement contemplate a relationship beyond
royalty or cross-licensing payment, such as granting both parties the right to
litigate infringement cases or granting the licensor the right to exercise
control over the licensee’s sales or marketing activities.
Id. (emphasis added). The Federal Circuit concluded these requirements were met here, where
“Metabolite has established a relationship with… its exclusive licensee which promotes,
advertises and sells [the licensed product] in Florida, and with which Metabolite coordinates
cease and desist letters and infringement litigation.” Id. at *10.
Practical Impact
Most businesses would not expect that a license agreement with one company could
create jurisdiction for a lawsuit brought by a different company, but that is the result of
Breckenridge. Further, the analysis underlying that result is not limited to the context of patent
litigation. A defendant facing any form of litigation now may have to examine its existing
agreements with distributors or other businesses to determine if the defendant has unwittingly
exposed itself to suit in states in which it has no contact other than the contract, or the other
contracting party’s activities in the forum state. Moreover, in negotiating future contracts, all
businesses should consider the possibility of being hailed into court in any state in which the
other contracting party is headquartered or otherwise does business.
Unfortunately for potential defendants, the Federal Circuit provides little guidance as to
what factors in a license agreement or contract (other than the two examples listed above)
establish the “relationship beyond royalty or cross-licensing payment[s]” that may result in a
court finding personal jurisdiction over the defendant. Nor does the Federal Circuit state
whether its finding of actual activity pursuant to the license or contract is essential to establishing
jurisdiction. That will be left to the courts to develop in subsequent cases.
For more information concerning this alert, please contact:
Ann G. Fort
Jeffrey D. Blake
404.853.8493
404.853.8084
ann.fort@sablaw.com
jeff.blake@sablaw.com
© 2006 Sutherland Asbill & Brennan LLP. All Rights Reserved.
This article is for informational purposes and is not intended to constitute legal advice.
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