Automated Facilities Management Corporation v. Smartware Group, Inc.

Filing 23

///ORDER granting 17 Motion to Dismiss. So Ordered by Judge Paul J. Barbadoro.(jna)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE

Automated Facilities
Management Corporation
v.

Case No. 12-cv-327-PB
Opinion No. 2013 DNH 138

Smartware Group, Inc., et al.

MEMORANDUM AND ORDER
Automated Facilities Management Corporation (“AFMC”), the
exclusive licensee for United States Patent Nos. 7,548,970 and
7,606,919 (the “‘970 Patent” and “‘919 Patent,” respectively),
has sued Smartware Group, Inc., for patent infringement.
Smartware has responded with a counterclaim against AFMC and a
third-party complaint against Tangopoint, Inc., seeking a
declaratory judgment of non-infringement and patent invalidity
against both defendants.

Tangopoint moves to dismiss the third-

party complaint pursuant to Federal Rule of Civil Procedure
12(b)(2), claiming that the court lacks personal jurisdiction.
For the reasons set forth below, I grant Tangopoint’s motion to
dismiss.

I.
II.

BACKGROUND

AFMC is a Texas corporation and wholly owned subsidiary of
Acacia Research Corporation (“ARC”), a patent licensing company.
Doc. No. 2.

As a patent licensing company, ARC directs its

subsidiaries to partner with patent owners, license patents, and
share resulting revenues.
Tangopoint, a Delaware corporation with its principle place
of business in Nebraska, is the owner of the two patents in
question.

In January 2007, Tangopoint entered into an

“Exclusive Licensing Agreement” (“Agreement”) concerning the two
patents with Acacia Patent Acquisition Corporation (“APAC”), a
subsidiary of ARC.

APAC then assigned its interest in the

patents to its subsidiary, AFMC.
Smartware is a New Hampshire software corporation with its
principle place of business in New Hampshire.

Smartware focuses

its business on maintenance software, including “Bigfoot,” a
computerized maintenance management software (“CMMS”) package.
A.

The Exclusive Licensing Agreement
The Agreement between Tangopoint, as owner of the patents,

and AFMC, as licensee, purports to grant AFMC a worldwide

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exclusive license, including the exclusive right to grant
sublicenses, to sue for and collect past, present, and future
damages, and to seek injunctive relief in cases of patent
infringement.

Doc. No. 18-1.

Tangopoint expressly retains the

right to a percentage of all royalties that AFMC obtains from
licenses or enforcement efforts, a limited right to terminate
the Agreement, and a limited right to use the patents in its own
products.
B.

Id.

Procedural Background
Pursuant to its rights under the Agreement, AFMC brought

suit in this district against Smartware for patent infringement,
claiming that Smartware’s Bigfoot software infringes Patents
‘919 and ‘970.

Doc. No. 1.

Smartware responded with several

affirmative defenses, including non-infringement and invalidity.
Doc. No. 8.

It also brought a counterclaim against AFMC and a

third-party complaint against Tangopoint seeking a declaratory
judgment of non-infringement and invalidity.

Id.

Smartware argues in its third-party complaint that this
court has personal jurisdiction over Tangopoint in part because
“Tangopoint knew, or should have known, that its licensing of
the [patents] would subject it to counterclaims of patent
invalidity in jurisdictions in which AFMC brought suit against

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alleged infringers.”

Id.

It further asserts that Tangopoint

“purposely availed itself of the privilege of conducting
activities within the State of New Hampshire” because AFMC
brought suit in this district to enforce the patent and
Tangopoint authorized the suit when it entered into the
Agreement.

Id.

Smartware does not claim that Tangopoint has

any other contacts with New Hampshire.

III. ANALYSIS
A.

Personal Jurisdiction
The analysis of a personal jurisdiction claim in federal

court begins with Rule 4 of the Federal Rules of Civil
Procedure.
Cir. 2012).

Merial Ltd. v. Cipla Ltd., 681 F.3d 1283, 1293 (Fed.
If a defendant is amenable to suit under Rule 4,

personal jurisdiction exists unless the defendant lacks
sufficient “minimum contacts” with the forum to satisfy the
requirements of due process.

Patent Rights Prot. Grp., LLC v.

Video Gaming Techs., Inc., 603 F.3d 1364, 1368-69 (Fed. Cir.
2010).
Smartware asserts that it complied with Rule 4 by filing a
properly executed waiver of service form.

Under Rule

4(k)(1)(A), the filing of a waiver of service establishes

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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.”
4(k)(1)(A).

Fed. R. Civ. P.

Smartware asserts that Tangopoint is subject to the

jurisdiction of New Hampshire’s state courts pursuant to the
state’s long-arm statute, N.H. Rev. Stat. Ann. § 510:4 (2013).
This statute, in turn, has been authoritatively construed by the
Supreme Court of New Hampshire “to permit ‘the exercise of
jurisdiction to the extent permissible under the Federal Due
Process Clause.’”

Kimball Union Acad. v. Genovesi, 70 A.3d 435,

440 (2013) (quoting Fellows v. Colburn, 34 A.3d 552, 558
(2011)).

Thus, Tangopoint’s personal jurisdiction challenge

turns on whether it is consistent with the requirements of due
process to subject it to jurisdiction in this court.
The Constitution has two due process clauses.

In general,

state actors are subject to the Fourteenth Amendment’s Due
Process Clause and federal actors are governed by the Fifth
Amendment’s counterpart provision.
U.S. 1, 26 (1964).

See Malloy v. Hogan, 378

The constitutional basis for the due process

right can be significant when considering a personal
jurisdiction challenge.

If jurisdiction is determined under the

Fourteenth Amendment, the defendant’s contacts with the state in

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which the court sits will determine whether due process has been
satisfied, but if jurisdiction is determined under the Fifth
Amendment, a defendant’s contacts with the United States as a
whole will ordinarily be dispositive.

United States v. Swiss

Am. Bank, Ltd., 274 F.3d 610, 618 (1st Cir. 2001).
An action seeking patent invalidity or non-infringement
arises under federal law.

Accordingly, the Federal Circuit has

held that such cases are subject to the Fifth Amendment’s Due
Process Clause.
(Fed. Cir. 1995).

See Akro Corp. v. Luker, 45 F.3d 1541, 1544
Congress, however, has not enacted a statute

authorizing nationwide service of process in patent cases.
Thus, plaintiffs such as Smartware often must rely on state
long-arm statutes to effect service.

When personal jurisdiction

is dependent on a state long-arm statute, the Federal Circuit
has held that the Fourteenth Amendment’s Due Process Clause
constrains the court’s power to act even if the underlying cause
of action is based on federal law.

See Red Wing Shoe Co. v.

Dockerson-Halbertstadt, Inc., 148 F.3d 1355, 1358 n.* (Fed. Cir.
1998).

Accordingly, the jurisdictional issue in such cases must

be resolved by using Fourteenth Amendment precedents because
Smartware has relied on a state long-arm statute to effect

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service.1 Id.; see also Ins. Corp. of Ir., Ltd. v. Compagnie des
Bauxites de Guinee, 456 U.S. 694, 713 (1982) (Powell, J.,
concurring) (“Because of the District Court’s reliance on the
Pennsylvania long-arm statute ─ the applicable jurisdictional
provision under the Rules of Decisions Act ─ . . . the relevant
constitutional limits would not be those imposed directly on
federal courts by the Due Process Clause of the Fifth Amendment,
but those applicable to state jurisdictional law under the
Fourteenth.”).
A court may exercise either specific or general personal
jurisdiction over a defendant regardless of whether jurisdiction
depends on the Fifth or the Fourteenth Amendment.

Here,

Smartware argues only that the court has specific jurisdiction.
Specific jurisdiction “refers to the situation in which the
cause of action arises out of or relates to the defendant’s
contacts with the forum.”

Beverly Hills Fan Co. v. Royal

Sovereign Corp., 21 F.3d 1558, 1563 n.10 (Fed. Cir. 1994)

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If Congress were to enact a special service of process statute
for patent cases, the Fifth Amendment’s Due Process Clause would
apply and all that would be required to establish personal
jurisdiction in any federal court would be compliance with the
statute and minimum contacts with the United States as a whole.
See generally Med. Mut. of Ohio v. deSoto, 245 F.3d 561, 567
(6th Cir. 2001); In re Fed. Fountain, Inc., 165 F.3d 600, 602
(8th Cir. 1999); Bellaire Gen. Hosp. v. Blue Cross Blue Shield
of Mich., 97 F.3d 822, 825 (5th Cir. 1996).
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(citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 473 n.15
(1985)).
The Federal Circuit employs a three-prong test to evaluate
a specific jurisdiction claim, asking 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.
Breckenridge Pharm., Inc. v. Metabolite Labs., Inc., 444 F.3d
1356, 1363 (Fed. Cir. 2006).

The first two prongs must be

proved by the plaintiff, whereas the burden to disprove the last
prong rests with the defendant, who must present a “compelling
case that the presence of some other considerations would render
jurisdiction unreasonable . . . .”

Id. at 1362 (quoting Burger

King, 471 U.S. at 476-77).
Because I intend to resolve the jurisdictional issue
without holding an evidentiary hearing, Smartware need only make
a prima facie showing of personal jurisdiction.

See Grober v.

Mako Prods., Inc., 686 F.3d 1335, 1345 (Fed. Cir. 2012).
Accordingly, I accept as true Smartware’s well-pleaded
jurisdictional allegations and resolve disputed factual issues
in its favor.

See id.

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B.

Discussion
Tangopoint’s principal argument against personal

jurisdiction is that Smartware has failed to identify sufficient
facts to support its conclusory assertion that Tangopoint
purposefully directed its activities at residents of New
Hampshire.
Smartware responds by asserting that Tangopoint is subject
to jurisdiction because it licensed its patents to an entity
that brought an infringement action in this district.

Smartware

does not allege that Tangopoint ever conducted business with a
New Hampshire resident.

It does not claim that Tangopoint was

directly involved in an effort to enforce the patents here.

Nor

does it point to any facts that would support a claim that
Tangopoint had reason to believe when it entered into the
Agreement that AFMC had plans to sue an alleged infringer in New
Hampshire.

Thus, its jurisdictional argument depends entirely

on whether AFMC’s decision to sue Smartware in this district can
be attributed to Tangopoint because AFMC was acting pursuant to
a power that Tangopoint granted it in the Agreement.
As a general rule, due process does not permit a person to
be subjected to personal jurisdiction based solely on the
“unilateral activity of another party or a third person.”

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Burger King, 471 U.S. at 475 (quoting Helicopteros Nacionales de
Colombia, S.A. v. Hall, 466 U.S. 408, 417 (1984)).

The actions

of a third-party agent, however, may be attributed to its
principal when considering whether personal jurisdiction exists,
see, e.g., Radio Sys. Corp. v. Accession, Inc., 638 F.3d 785,
791 (Fed. Cir. 2011), so long as the actions are within the
scope of the agency and the agent remains subject to the
principal’s control.

See Akamai Tech., Inc. v. Limelight

Networks, Inc., 692 F.3d 1301, 1348 (Fed. Cir. 2012) (citing
Restatement (Third) of Agency § 1.01 (2006)) (“Agency is the
fiduciary relationship that arises when one person (a
‘principal’) manifests assent to another person (an ‘agent’)
that the agent shall act . . . subject to the principal’s
control, and the agent manifests assent or otherwise consents to
so act.”).
In contrast, a license agreement that merely entitles the
licensor to royalties without reserving a right to control the
licensee’s actions will not, by itself, be sufficient to support
personal jurisdiction.

See Red Wing Shoe, 148 F.3d at 1361; see

also Breckenridge, 444 F.3d at 1364 (explaining that licensees’
contacts with the forum state in Red Wing Shoe were “essentially
‘unilateral’” even though the patentee received payments from

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product sales by licensees within the forum state).

Thus,

whenever the Federal Circuit has held that personal jurisdiction
exists over a patent licensor, it has either relied on other
actions in the forum state by the licensor or a provision in the
license agreement itself that gives the licensor control over
the licensee’s actions.

See, e.g., Breckenridge, 444 F.3d at

1367 (finding jurisdiction where the license agreement
“contemplated an ongoing relationship between [licensor and
licensee] beyond royalty payments” and the licensor coordinated
with the licensee in sending cease and desist letters into the
forum state); Genetic Implant Sys., Inc. v. Core-vent Corp., 123
F.3d 1455, 1458-59 (Fed. Cir. 1997) (finding jurisdiction where
an “exclusive” out-of-state distributor “promotes and sells” a
product in the forum state and the licensor sold products in
state prior to the distribution agreement); Akro, 45 F.3d at
1546 (finding jurisdiction where the licensor entered into a
license agreement retaining the power to bring suit with a forum
state licensee, and used this power to send warning letters into
forum state).
A close examination of the Agreement reveals that
Tangopoint lacks sufficient control over AFMC to permit its
forum-based actions to be attributed to Tangopoint.

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Although

Tangopoint remains the record owner of the patents and is
required to pay maintenance fees for patent renewals, it has
completely surrendered its right to enforce the patents.

Doc.

No. 18-1, (“Licensor expressly retains no rights in or to the
Patents, including without limitation, the right to sue for
infringement of the Patents . . . .”).

Smartware nevertheless

points to several other provisions in the Agreement that
obligate Tangopoint to cooperate with AFMC in its enforcement
effort.

Doc. No. 19-1.

Specifically, it cites a provision

allowing AFMC to require Tangopoint to join as a plaintiff “in
the event APAC’s counsel determines that Licensor is a necessary
party to the action.”

Doc. No. 18-1.

It further notes that

Tangopoint grants AFMC the power of attorney to add Tangopoint
“to any such action and bring an action in [Tangopoint’s] name.”
Id.

Neither provision, however, demonstrates a shared

commitment to enforcement activities or gives Tangopoint control
over locations where an enforcement action may be brought.

At

most, the provisions authorize AFMC to force Tangopoint into
litigation in the event that a court finds Tangopoint to be a
necessary party – a far cry from Tangopoint retaining any
enforcement authority.

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Smartware also claims that AFMC’s decision to sue in this
district is attributable to Tangopoint because the Agreement
makes AFMC Tangopoint’s agent.

I reject this argument because

the Agreement simply does not give Tangopoint the kind of
control over AFMC that is required to give rise to an agency
relationship.

See, e.g., St. Paul Ins. Co. v. Indus.

Underwriters Ins. Co., 262 Cal. Rptr. 490, 494 (Ct. App. 1989);
Restatement (Third) of Agency § 1.01 cmt. (f)(1) (2006); accord
Akamai, 692 F.3d at 1348.

IV.

CONCLUSION

Smartware has failed to sufficiently allege that Tangopoint
purposefully directed its activities at residents of New
Hampshire.

Accordingly, this court lacks personal jurisdiction

over Tangopoint.

Tangopoint’s motion to dismiss (Doc. No. 17)

is granted.
SO ORDERED.
/s/Paul Barbadoro_______
Paul Barbadoro
United States District Judge
October 21, 2013
cc:

Robert M. Shore, Esq.
Justin P. Hayes, Esq.
Michael J. Persson, Esq.
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