Digital Ally, Inc. v. Utility Associates, Inc.
Filing
27
MEMORANDUM AND ORDER granting 6 Motion to Dismiss based on lack of personal jurisdiction. Signed by U.S. District Senior Judge Sam A. Crow on 4/9/14. (mb)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
DIGITAL ALLY, INC.,
Plaintiff,
v.
No. 13-2550-SAC
UTILITY ASSOCIATES, INC.,
Defendant.
MEMORANDUM AND ORDER
This declaratory judgment action relating to patent infringement
comes before the Court on Defendant’s motion to dismiss for lack of subject
matter jurisdiction and personal jurisdiction. Plaintiff opposes the motion.
The Court has reviewed the parties’ submissions, including Plaintiff’s notice
of supplemental authority and Defendant’s response to it, and is prepared to
rule.
I. Facts
Plaintiff is a Nevada corporation with its principal place of business in
Kansas. Plaintiff sells advanced digital video systems to consumers, including
law enforcement agencies, across the country. Plaintiff’s products are
designed for law enforcement vehicles and commercial fleets, such as
ambulances and taxis. Defendant, incorporated in Delaware and having its
principal place of business in Georgia, is a competitor of Plaintiff’s.
Defendant has no offices in Kansas and none of its employees or sales
agents reside here. Defendant is not registered to do business in Kansas, but
sells some products to a few customers in Kansas.
U.S. Patent No. 6,831,556 (the ‘556 Patent), titled “Composite Mobile
Digital Information System,” was originally issued in December of 2004. It
has been assigned 13 times, most recently to the Defendant. The claims of
this Patent relate generally to a surveillance system for the storage and
transmission of digital data.
Since March of 2006 Plaintiff has been selling products which use
technology similar to that used in Defendant’s products covered by the ‘556
Patent. When the ‘556 Patent was owned by Defendant’s predecessor-ininterest, Plaintiff met with that owner to discuss Plaintiff’s technology and
possible joint ventures and/or acquisitions. Based on that predecessor’s
knowledge of Plaintiff’s technology and its silence regarding any
infringement, Plaintiff believed that the ‘556 Patent would not be asserted
against its products so continued to manufacture and promote them through
its nationwide sales and distribution channels.
Before Defendant was assigned the ‘556 Patent, the following contacts
were made in Kansas regarding a potential joint business relationship
between the parties:
In November 2010, Defendant’s president faxed a signed mutual
non-disclosure agreement to Plaintiff’s headquarters in Kansas.
2
In April 2011, Defendant sent multiple emails to Plaintiff
detailing the results of tests to integrate Defendant’s product
with Plaintiff’s product.
In August 2011, Defendant called Plaintiff to say that it had
finished integrating the two products.
In early September 2011, Defendant’s new President sent
multiple emails to Plaintiff explaining why it should resell
Defendant’s products as part of Plaintiff’s mobile video
surveillance systems.
In September 2011, Defendant sent to Plaintiff a formal Letter of
Understanding signed by Defendant’s President.
In October and November of 2011, Defendant sent sales quotes
to Plaintiff for Plaintiff to use in sales pitches to two of its
customers or potential customers.
In October 2011, Defendant sent Plaintiff an email requesting a
meeting in Kansas to discuss the business relationship.
In November of 2011, two of Defendant’s representatives came
to Kansas and met with Plaintiff to discuss a potential joint
business relationship between the parties. During this meeting,
Defendant’s employees gave a sales and technical presentation
to Plaintiff’s employees in Kansas. The meeting lasted less than
10 minutes, was unproductive, did not involve any discussion of
3
patent infringement or the ‘556 Patent, and did not result in any
business relationship between the parties. Shortly after that
visit, the parties ceased discussions regarding any potential joint
business relationship.
Defendant acquired the ‘556 Patent in June of 2013. On and after
October 14, 2013, Defendant’s Chairman and CEO, a non-lawyer, sent
letters to some of its potential customers, some of whom were Plaintiff’s
customers located outside Kansas. Those letters were substantially similar to
the following:
Utility Associates, Inc. ("Utility") is the owner of Boykin United
States Patent No. 6,831,556 (the "Boykin patent") (attached). The
Boykin patent relates to mobile video surveillance systems and
methods. Utility has successfully manufactured and sold a mobile
video surveillance system that is covered by the Boykin patent.
Consequently, the Boykin patent has enjoyed a high degree of
commercial success, and a major mobile video surveillance system
provider has already paid for a license under the Boykin patent.
As your office considers the purchase of mobile video
surveillance systems for its public safety operations, you should
consider the consequences of purchasing such mobile video
surveillance systems from third parties that are not licensed under the
Boykin patent. If your office purchases mobile video surveillance
systems that are covered by the claims of the Boykin patent and that
are not licensed under the Boykin patent, [you are] liable for patent
infringement as a result of [your] use of such infringing mobile video
surveillance systems. Infringement may subject [you] to an injunction
against further use of the infringing mobile video surveillance systems
and may result in an award of damages not less than a reasonable
royalty, treble damages, attorney fees, and prejudgment interest.
Moreover, Utility is entitled to collect damages directly from the user of
the infringing mobile video surveillance systems leaving [you] left with
whatever value any indemnity from the seller of the infringing mobile
video surveillance systems might be worth if the seller does not have
substantial financial resources.
4
Therefore, in order to avoid the adverse consequences that may
result from the purchase of infringing and unlicensed mobile
surveillance systems, your office should consider purchasing its mobile
video surveillance system needs from Utility.
Dk. 1, Exh. A. The letters were not sent to Plaintiff and are not alleged to
have been sent to any of Plaintiff’s customers in Kansas.
Thereafter, Plaintiff was contacted by concerned purchasing agents for
two of its customers who had received such letters – one in the State of
Nebraska and one in the State of New York. Plaintiff is obligated to
indemnify these customers from any lawsuit for patent infringement. On
October 25, 2013, eleven days after Defendant initially sent out some of
these letters, Plaintiff filed this action asking the Court to declare that its
products do not infringe Defendant’s ‘556 Patent, or to equitably estop
Defendant from enforcing that patent due to the “misleading conduct” of
Defendant’s predecessor-in-interest.
After Plaintiff filed this suit, it received feedback from some other
customers about similar letters Defendant had sent. One received a letter
from Defendant dated December 2, 2013, then sent Plaintiff an email
attaching that letter and asking Plaintiff whether it was licensed under the
‘556 Patent or it had a reason why it didn’t need to be. Dk. 15, Exh. K. In
February of 2014, that customer sent Plaintiff another email saying that it
could not process a purchase order for Plaintiff’s products until it received a
response to its December email. Another customer also received a letter
from Defendant dated December 2, 2013. That customer had agreed “in late
5
2013” to purchase an order from Plaintiff by December 31, 2013, but
thereafter expressed concerns with potential infringement and delayed its
purchase from Plaintiff.
Plaintiff also alleges that its stock price took a marked dive beginning
on October 23, 2013, due in significant part to its investors’ knowledge of
the Defendant’s letter.
II. Personal Jurisdiction
Defendant challenges both subject matter jurisdiction and personal
jurisdiction. The Court chooses to first address the issue of personal
jurisdiction. See Sinochem Intern. Co. Ltd. v. Malaysia Intern. Shipping
Corp., 549 U.S. 422, 423, 127 S.Ct. 1184, 167 L.Ed.2d 15 (2007) (“ … there
is no mandatory sequencing of nonmerits issues ... A court has leeway, to
‘choose among threshold grounds for denying audience to a case on the
merits ....’ ”) (internal citations omitted).
A. Standard
Personal jurisdiction issues in declaratory judgment cases relating to
patent infringement are determined under Federal Circuit law.
Autogenomics, Inc. v. Oxford Gene Technology Ltd., 566 F.3d 1012, 1016
(Fed. Cir. 2009); Silent Drive, Inc. v. Strong Indus., Inc., 326 F.3d 1194,
1201 (Fed.Cir. 2003). Where, as here, no discovery has been conducted, the
plaintiff need only make a prima facie showing that the defendant is subject
to personal jurisdiction. Silent Drive, 326 F.3d at 1201. Accordingly, the
6
Court construes the pleadings and affidavits in the light most favorable to
the plaintiff. Id.
A United States district court may exercise personal jurisdiction over a
defendant if the defendant “is subject to the jurisdiction of a court of general
jurisdiction in the state where the district court is located.” Fed.R.Civ.P.
4(k)(1)(A). The district court's exercise of jurisdiction over an out-of-state
defendant must be consistent with both the forum state's long-arm statute
and the requirements of due process. See Avocent Huntsville Corp. v. Aten
Int'l Co., 552 F.3d 1324, 1329 (Fed.Cir. 2008). Because Kansas’s long-arm
statute is coterminous with due process limitations, Marcus Food Co. v.
DiPanfilo, 671 F.3d 1159 (10th Cir. 2011), the personal jurisdiction issue in
this case turns on whether the court's exercise of jurisdiction would be
consistent with the requirements of due process.
B. Specific Jurisdiction
Specific jurisdiction must be based on activities that arise out of or
relate to the cause of action, and can exist even if the defendant's contacts
are not continuous and systematic. Burger King Corp. v. Rudzewicz, 471
U.S. 462, 472-73, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985). To satisfy due
process requirements for establishing specific jurisdiction over a defendant,
the plaintiff must show that the defendant purposely directed its activities at
residents of the forum and that the plaintiff's claim arises from or relates to
those activities. In addition, the plaintiff must satisfy the court that the
7
assertion of personal jurisdiction under the circumstances is reasonable and
fair. Breckenridge Pharm., Inc. v. Metabolite Labs., Inc., 444 F.3d 1356,
1363 (Fed.Cir. 2006).
In declaratory judgment actions, only those activities of the patentee
that relate to the enforcement or defense of the patent can give rise to
specific personal jurisdiction.
In Avocent Huntsville Corp., we explained that an action for a
declaratory judgment “arises out of or relates to the activities of the
defendant patentee in enforcing the patent or patents in suit,” and
that the relevant inquiry for specific jurisdiction is “to what extent ...
the defendant patentee purposefully directed such enforcement
activities at residents of the forum and the extent to which the
declaratory judgment claim arises out of or relates to those activities.”
552 F.3d at 1332 (internal quotation marks and citations omitted).
Thus, only those activities of the patentee that relate to the
enforcement or defense of the patent can give rise to specific personal
jurisdiction for such an action. Id. at 1336; accord Autogenomics, 566
F.3d at 1020.
Radio Systems Corp. v. Accession, Inc., 638 F.3d 785, 789-790 (Fed. Cir.
2011). Thus “only enforcement or defense efforts related to the patent
rather than the patentee's own commercialization efforts are to be
considered for establishing specific personal jurisdiction in a declaratory
judgment action against the patentee.” Autogenomics, 566 F.3d at 1020,
citing Avocent Huntsville, 552 F.3d at 1336.
Accordingly, where a patent holder’s contacts within the state with a
potential supplier are focused on generating a market for the patented
product, not on enforcing or defending the particular patent, those contacts
are insufficient for the exercise of specific personal jurisdiction in the state.
8
Defendant contends that the purpose of the 2011 meeting was “to discuss a
business relationship unrelated to the ‘556 Patent,” which it did not acquire
until approximately 18 months later. Dk. 6 p. 3. Plaintiff contends that its
digital video surveillance systems are the “very same systems for which
[Defendant] was seeking a business partnership with [Plaintiff]” in 2011 and
for which it is now threatening Plaintiff’s customers with patent infringement.
Dk. 15 p. 9.
The Court assumes the truth of Plaintiff’s assertion above, yet the
undisputed facts show that the communications between Plaintiff and
Defendant in Kansas occurred long before Defendant acquired the ‘556
Patent, and were focused on the creation of a cooperative business
arrangement to market products. Those contacts were of an entirely
different nature than enforcement-related activities in the forum which could
support specific jurisdiction.
The only other purposeful direction of Defendant’s activities at
residents of Kansas is Defendant’s sales to five customers here, but Plaintiff
does not allege that its claim arises from or relates to those activities.
Nor does Plaintiff rely on the letters in asserting personal jurisdiction
over Defendant, as no evidence shows that any such letter was sent to
anyone in Kansas. Yet even if the Court construed Defendant’s letters as
cease-and desist letters, and even had Defendant sent them to Plaintiff’s
customers in Kansas, that would alone be insufficient to subject Defendant
9
to personal jurisdiction in Kansas. See Red Wing Shoe Co. v. Hockerson–
Halberstadt, Inc., 148 F.3d 1355, 1360 (Fed.Cir. 1998) (holding that three
cease-and-desist notices sent by a patentee to an alleged infringing party in
a different state are not sufficient to subject the patentee to specific
jurisdiction in that state). As a matter of patent law policy, “[p]rinciples of
fair play and substantial justice afford a patentee sufficient latitude to inform
others of its patent rights without subjecting itself to jurisdiction in a foreign
forum.” 148 F.3d at 1360–61. Accordingly, no basis for specific jurisdiction
has been shown.
C. General Jurisdiction
Plaintiff also makes a cursory argument that this court has general
jurisdiction over Defendant because Defendant has had “continuous and
systematic general business contacts” with Kansas. See Helicopteros
Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 416, 104 S.Ct. 1868, 80
L.Ed.2d 404 (1984). General jurisdiction “requires that the defendant have
‘continuous and systematic’ contacts with the forum state and confers
personal jurisdiction even when the cause of action has no relationship with
those contacts.” Silent Drive, 326 F.3d at 1200 (quoting Helicopteros, 466
U.S. at 416).
To meet its burden, Plaintiff relies in part on the fact that Defendant
maintains a sales representative specifically covering Kansas. At the time
this suit was filed, Defendant had one agent responsible for sales in
10
approximately 20 states, including Kansas, in the western region of the
United States. From January of 2011 through December of 2013, Defendant
sold its products to five customers in Kansas, amounting to 1.7% of
Defendant’s total sales for that three-year period. This very small volume of
sales falls short of enough to support general jurisdiction. See Campbell Pet
Co. v. Miale, 542 F.3d 879, 881–884 (Fed.Cir. 2008) (finding 2%
insufficient).
Plaintiff also relies on Defendant’s contacts with the Plaintiff in Kansas,
which consist largely of emails sent to Plaintiff in Kansas, and one personal
meeting in Kansas. But Defendant has no physical presence or license to do
business in Kansas, and none of the facts show that Defendant had more
contact with Kansas than the defendant in Helicopteros had with Texas—
repeated purchases and visits by personnel over a number of years. See 466
U.S. at 418, 104 S.Ct. 1868 (holding that “purchases, even if occurring at
regular intervals” were insufficient to establish general personal jurisdiction
over a nonresident corporation); Campbell Pet Co., 542 F.3d at 881–884
(Fed.Cir. 2008) (finding no general jurisdiction from twelve sales yielding
about $14,000 in revenue over eight years, conference attendance in forum
where products were demonstrated and orders taken, and a generally
accessible website); Grober v. Mako Products, Inc., 686 F 3d 1335, 1346
(Fed. Cir. 2012) (finding no general jurisdiction where defendant shipped
some product into forum state, exhibited products at a trade show there,
11
and placed an ad twice a year in a nationally distributed trade publication
based in the forum state, and listed on its website a contact in the forum
state). Rather, this “is a classic case of sporadic and insubstantial contacts
with the forum state, which are not sufficient to establish general jurisdiction
over the defendants in the forum.” Campbell Pet Co., 542 F.3d at 884.
III. Subject Matter Jurisdiction
The court finds it unnecessary to address Defendant’s assertion that
the court also lacks subject matter jurisdiction.
IT IS THEREFORE ORDERED that Defendant’s motion to dismiss (Dk.
6) is granted based on lack of personal jurisdiction.
Dated this 9th day of April, 2014, at Topeka, Kansas.
s/Sam A. Crow
Sam A. Crow, U.S. District Senior Judge
12
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?