Broadway National Bank v. Plano Encryption Technologies, LLC
Filing
21
IT IS HEREBY ORDERED that Defendant Plano Encryption Technologies, LLC'sMotion to Dismiss Plaintiff Broadway National Bank d/b/a Broadway Bank's Original Complaint [#10] is GRANTED; FINALLY ORDERED that this case is TRANSFERRED to the United States District Court for the Eastern District of Texas, Marshall Division. Signed by Judge Sam Sparks. (dm)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
BROAD WAY NATIONAL BANK
BROADWAY BANK,
Plaintiff,
2016
MR
8
P
112.
01
d/b/a
-vs-
Case No. A-15-CA-1056-SS
PLANO ENCRYPTION TECHNOLOGIES, LLC,
Defendant.
ORDER
BE IT REMEMBERED on the 28th day of March 2016, the Court held a hearing in the
above-styled cause, and the parties appeared by and through counsel. Before the Court is Defendant
Plano Encryption Technologies, LLC's Motion to Dismiss Plaintiff's Original Complaint [#10];
Plaintiff Broadway National Bank d/b/a Broadway Bank's Response [#13] thereto; Defendant's
Reply [#14] in support; Plaintiff's Opposed Motion for Leave to File Sur-Reply [#16]; and
Defendant's Response [#18] thereto'. Having reviewed the documents, the relevant law, and the file
as a whole, the Court now enters the following opinion and orders.
Background
Defendant Plano Encryption Technologies, LLC (PET) is a patent licensing company which
owns a portfolio of United States patents related to secure data transmission and storage technology.
PET's sole business is to enforce its intellectual property; PET does not make or sell any products
or services.
See
Mot. Dismiss [#10-1] Ex. A (Liddle Decl.) ¶ 5; Compl. [#1] ¶ 8.
1Plaintiff's Opposed Motion for Leave to File Sur-Reply
[
I 6] is
GRANTED.
I
On July 10, 2015, PET's CEO and Corporate Counsel, Bradley D. Liddle, sent a letter to the
CEO and Vice Chairman of Plaintiff Broadway National Bank d/b/a Broadway Bank claiming it had
a "good faith basis" to believe Broadway Bank's mobile banking applications and online banking
features were infringing claims on three of its patents. See Compi. [#1-5] Ex. D (the Liddle Letter)
at
1.
Specifically, Liddle accused Broadway Bank's "Apple mobile apps" of infringing on U.S.
Patent No. 5,991,399 (the '399 patent) and U.S. Patent No. 5,974,550 (the '550 patent), and
Broadway Bank's "online banking features" of infringing on U.S. Patent No. 6,587,858 (the '858
patent) (collectively, the Patents-in-Issue). Id. To "allow Broadway to continue its use of these
technologies," Liddle proposed "a non-exclusive license to its Patent Portfolio for an amount that
would be a fraction of a reasonable royalty calculation it would otherwise be entitled to as damages
for patent infringement." Id. at 2. While Liddle stated PET' s intention was to "open a meaningful
dialogue toward a mutually beneficial business resolution," he also alluded to the threat of litigation,
citing PET' s active enforcement of its patent rights in a recently filed lawsuit against Citizens
National Bank. Id. at 1 (citing Piano Encryption Techs., LLC v. Citizens Nat '1 Bank, Civ. No. 2:15
cv-1 168 (E.D. Tex filed June 29, 2015)).
This is apparently not the only action PET has taken against banks related to the enforcement
of the Patents-in-Issue. Since sending the Liddle Letter, PET filed three additional complaints in the
Eastern District of Texas for infringement of '399 patent and the '550 patent. See Piano Encryption
Techs., LLC
v.
Am. Bank of Tex., No. 2:15-cv-1273-JRG (E.D. Tex., filed July 15, 2015);
Piano
Encryption Techs., LLC v. Citizens Nat'! Bank, No. 2:15-cv-1168-JRG (E.D. Tex., filed June 29,
2015); Piano Encryption Techs., LLCv. IndependentBank, No. 2:15-cv-1382-JRG(E.D. Tex., filed
July 31, 2015); Piano Encryption Techs., LLCv. Guar. Bank& Trust, NA., No. 2:15-cv-1480-JRG
-2-
(E.D. Tex., filed Sept. 3, 2015). These lawsuits were consolidated with the Citizens Nat'l Bank
action for pretrial purposes on October 28, 2015. See Consolidation Order [#17], Piano Encryption
Techs., LLCv. Am. BankofTex.
etal., No. 2:15-cv-1273-JRG(E.D. Tex., Oct. 29, 2015).
Additionally, multiple banks have filed declaratory judgment actions against PET in response
to PET's cease-and-desist letters. See Nat '1 Bank d/b/a The Nat '1 Bank of Central Tex.
v.
Piano
Encryption Techs., LLC, 6:15-cv-249-WSS (W.D. Tex., filed August 28, 2015); Jack Henry &
Assocs., Inc. et al.
v.
Piano Encryption Techs., LLC, 3:15-cv-3645-N (N.D. Tex., filed Nov. 19,
2015); Fidelity Nat '1 Info. Servs., Inc.
v.
Piano Encryption Techs., LLC et al.,No.
1:1 4-cv-777-LPS-
CJB (D. Del., filed Sept. 3, 2015).
On November 20, 2015, Broadway Bank filed the current declaratory judgment action,
seeking a declaration of non-infringement with respect to the '399 patent, the '550 patent, and the
'858 patent. See Compi. [#1]. On January 20, 2016, PET filed a motion to dismiss for lack ofvenue
pursuant to Rule 1 2(b)(3) or, in the alternative, asking the Court to decline to exercise jurisdiction
on equitable grounds. See Mot. Dismiss [#10]. Broadway Bank responded and also moved for
jurisdictional discovery. The motions are now ripe for consideration.
Analysis
PET contends venue is improper in this Court because it does not have sufficient contacts
with the Western District, and because a substantial part of the events giving rise to the claim
occurred in Piano, not in Austin or San Antonio. Broadway Bank, naturally, disagrees. Broadway
Bank contends PET has waived the right to challenge venue by failing also to challenge personal
jurisdiction under Rule 1 2(b)(2). Alternatively, Broadway argues PET has sufficient contacts with
-3-
the Western District and the sole event giving rise to this
actionreceipt of the Liddle
Letteroccurred in San Antonio.
I.
Legal
StandardVenue
Under Rule 12(b)(3) of the Federal Rules of Civil Procedure, a party may move to dismiss
an action on the basis of improper venue. FED. R.
Civ. P.
12(b)(3). Once challenged, the burden of
sustaining venue lies with the plaintiff See Langton v. Cbeyond Commc 'n, LLC, 282 F. Supp. 2d
504, 508 (E.D. Tex. 2003).2 If, as here, there is no evidentiary hearing, a plaintiff may carry its
burden by presenting facts that, taken as true, would establish venue. Id. The court must accept as
true all allegations in the complaint and resolve all conflicts in favor of the plaintiff Id.; see also
Braspetro Oil Servs., Co.
v.
Modec (USA), Inc., No. 06-20561, 2007 WL 1425851, at *2(5th Cir.
2007). Further, in deciding whether venue is proper, "the court is permitted to look at evidence
beyond simply those facts alleged in the complaint and its proper attachments." Ambraco, Inc.
v.
Bossclip B. V, 570 F.3d 233, 238 (5th Cir. 2009).
As a general rule, a declaratory judgment alleging non-infringement is governed by the
general venue statute, 28 U.S.C. § 1391. See VE Holding Corp.
F.2d 1574, 1583 (Fed. Cir. 1990); see also Gro Master, Inc.
2
v.
v.
Johnson Gas Appliance Co., 917
Farmweld, Inc., 920 F. Supp. 2d 974,
While there is a split of authority among federal courts and in the Fifth Circuit with regard to which party
shoulders the burden of establishing venue on a Rule 12(b)(3) motion to dismiss for improper venue, it appears the
majority place the burden with the plaintiff. Compare LAS Enters., Inc. v. AccuSystems, Inc., No. 11-2196, 2011 WL
6697043, at *4 (ED. La. Dec. 20,2011), and Roach v. Bloom, No. 3:08-cv-439-L, 2009 WL 667218, at *2 (N.D. Tex.
Mar. 16, 2009), with Psarros v. Avior Shipping, Inc., 192 F. Supp. 2d 751, 753 (S.D. Tex. 2002) and Advanced
Dynamics Corp. v. Mitech Corp., 729 F. Supp. 518, 519 (N.D. Tex. 1990); see also Silva v. Frankford Crossing
Shopping Ctr., TX LP, No. 3:12-cv-2014-O-BH, 2013 WL 1264155, at *3 (N.D. Tex. Feb. 22, 2013) ("Although the
Fifth Circuit has not ruled on which party bears the burden on a Rule 12(b)(3) motion, most district courts within the
circuit have imposed the burden of proving that venue is proper on the plaintiff once a defendant has objected to the
plaintiff' s chosen forum."). This approach "may be considered the better view because it is consistent with the plaintiffs
threshold obligation to show that the case belongs in the particular district court in which suit has been instituted." 14D
CHARLES ALAN WRIGHT, ET AL., FEDERAL PRACTICE & PROCEDURE § 3826 (4th ed. 2013).
988-99 (N.D. Iowa 2013); United Sonics, Inc.
Pursuant to
§
v.
Shock, 661 F. Supp. 681, 682 (W.D. Tex. 1986).
1391(b), venue is proper in:
(1) a judicial district in which any defendant resides, if all defendant are residents
of the State in which the district is located; (2) a judicial district in which a
substantial part of the events or omissions giving rise to the claim occurred, or a
substantial part of the property that is the subject of the action is situated; or (3) if
there is no district in which an action may otherwise be brought as provided in this
section, any judicial district in which any defendant is subject to the court's personal
jurisdiction with respect to such an action.
28 U.S.C.
§
139 1(b). In a state with multiple districts, such as Texas, a corporate defendant who is
subject to personal jurisdiction in the state at time the action is commenced is "deemed to reside in
any district in that State within which its contacts would be sufficient to subject it to personal
jurisdiction if that district were a separate state
.
.
." Id. § 139 1(d).
Thus, "a plaintiff must
demonstrate that the defendant has sufficient minimum contacts with the district where the suit was
brought to show venue was proper." Garnet Digital, LLC v. Apple, Inc., 893 F. Supp. 2d 814, 815
(E.D. Tex. 2012).
II.
Legal
StandardPersonal Jurisdiction
Because venue turns on the establishment of personal jurisdiction over PET in this District,
a brief explication of personal jurisdiction principles is helpful. Personal jurisdiction is a question
of law, and because Broadway Bank brings the case pursuant to the patent laws, the Court applies
Federal Circuit law in addressing the jurisdictional issue. Autogenomics, Inc.
v.
Oxford Gene Tech.
Ltd., 566 F.3d 1012, 1016 (Fed. Cir. 2009).
"Determining whether jurisdiction exists over an out-of-[district] defendant involves two
inquiries: whether a forum state's long-arm statute permits service of process and whether assertion
of personal jurisdiction violates due process." Genetic Implant Sys., Inc.
-5-
v.
CoreVent Corp.,
123
F.3d 1455, 1458 (Fed. Cir. 1997) (citing Burger King Corp.
v.
Rudzewicz, 471 U.S. 462, 471-76
(1985)). Because the Texas long-arm statute has been interpreted as extending to the limit of due
process, the two inquiries are the same for district courts in Texas. Religious Tech. Ctr. v. Liebreich,
339 F.3d 369, 373 (5th Cir. 2003); see TEx.
Civ. PRAC.
&
17.001.093. The
REM. CODE §
constitutional touchstone for determining whether an exercise ofpersonal jurisdiction comports with
due process "remains whether the defendant purposefully established minimum contacts in the forum
state." Burger King Corp., 471 U.S. at 474 (quoting Int'l Skoe Co.
v.
Washington, 326 U.S. 310,
316 (1945)).
"Minimum contacts" may give rise to either general or specific jurisdiction. 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." A utogenomics, 566 F.3 d at 1017 (internal quotation marks omitted). The Federal Circuit
applies a three-prong test to determine if specific jurisdiction exists: "(1) whether the defendant
purposefully directed activities at residents ofthe forum; (2) whether the claim arises out of or relates
to those activities; and (3) whether assertion of personal jurisdiction is reasonable and fair." Nuance
Commc 'ns, Inc.
v.
v.
Abbyy Software House, 626 F.3d 1222, 1231 (Fed. Cir. 2010) (citing Akro Corp.
Luker, 45 F.3d 1541, 1549 (Fed. Cir. 1995)). The plaintiff has the burden to show minimum
contacts exist under the first two prongs, but the defendant has the burden of proving the exercise
ofjurisdiction would be unreasonable under the third prong. Elecs. For Imaging, Inc.
v.
Coyle, 340
F.3d 1344, 1350 (Fed. Cir. 2003).
In the declaratory judgment context, the claim arises out of or relates to the activities of the
defendant patentee in enforcing the patents in suit. Avocent Huntsville Corp.
v.
Aten Int'l Co., 552
F.3d 1324, 1332 (Fed. Cir. 2008). "The relevant inquiry for specific personal jurisdiction purposes
then becomes to what extent has 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." Id. at 1332-33 (quoting Breckenridge Pharm., Inc.
v.
Metabolite Labs., Inc., 444 F.3d 1356, 1363 (Fed. Cir. 2006)).
"In many declaratory judgment actions, the alleged injury arises out of the threat of
infringement as communicated in an 'infringement letter,' and the patentee may have little contact
with the forum beyond this letter." Avocent, 552 F.3d at 1333. In Avocent, the Federal Circuit
summarized the court's treatment of "infringement" or "cease-and-desist" letters as they pertain to
the exercise of personal jurisdiction:
While such letters themselves might be expected to support an assertion of specific
jurisdiction over the patentee because "the letters are 'purposefully directed' at the
forum and the declaratory judgment action 'arises out of the letters," Silent Drive,
Inc. v. Strong Indus., Inc., 326 F.3d 1194, 1202 (Fed. Cir. 2003), we have held that,
based on "policy considerations unique to the patent context," id. at 1206, "letters
threatening suit for patent infringement sent to the alleged infringer by themselves 'do
not suffice to create personal jurisdiction," id. at 1202 (quoting Red Wing Shoe Co.,
Inc. v. HockersonHalberstadt, Inc., 148 F.3d 1355, 1359-60 (1998)) (emphasis
added). This is "because to exercise jurisdiction in such a situation would not
'comport with fair play and substantial justice." Id. (quoting Red Wing Shoe, 148
F.3d at 1359-60). "Principles 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. A patentee should not subject itself to personal
jurisdiction in a forum solely by informing a party who happens to be located there
of suspected infringement. Grounding personal jurisdiction on such contacts alone
would not comport with principles of fairness." Red Wing Shoe, 148 F.3d at
1360-61; see also Silent Drive, 326 F.3d at 1206. Thus, "[for the exercise of
personal jurisdiction to comport with fair play and substantial justice, there must be
'other activities' directed at the forum and related to the cause of action besides the
letters threatening an infringement suit." Silent Drive, 326 F.3d at 1202 (emphasis
added); see also Calder v. Jones, 465 U.s. 783, 788 (1984) (noting that "[i]njudging
minimum contacts, a court properly focuses on 'the relationship among the
-7-
defendant, the forum, and the litigation." (emphases added) (quoting Shaffer
Heitner, 433 U.S. 186, 204, (1977)).
v.
Id. at 1333-34 (citations altered).
The Federal Circuit has repeatedly addressed the question of what sort of conduct amounts
to "other activities," which in some identifiable way "relate to" enforcement of the patents in the
forum, and the court summarized its precedent on the issue in Avocent:
While "the plaintiff need not be the forum resident toward whom any, much less all,
of the defendant's relevant activities were purposefully directed," Akro, 45 F.3d at
1547 (citing Keeton v. Hustler Magazine, Inc., 465 U.S. 770(1984), and Calder, 465
U.S. 783), we have consistently required the defendant to have engaged in "other
activities" that relate to the enforcement or the defense ofthe validity of the relevant
patents. Examples of these "other activities" include initiating judicial or extrajudicial patent enforcement within the forum, or entering into an exclusive license
agreement or other undertaking which imposes enforcement obligations with a party
residing or regularly doing business in the forum.
Id. at 1334-35 (citations and footnote omitted). In contrast to exclusive licensing agreements and
other undertakings that impose enforcement obligations on a patentee or its licensee, the defendant
patentee's own commercialization activity does not reflect "other activities" supporting specific
jurisdiction in a declaratory judgment action. Id. at 1335. "What the patentee makes, uses, offers
to sell, sells, or imports is of no real relevance to the enforcement or defense of a patent, because 'the
federal patent laws do not create any affirmative right to make, use, or sell anything." Id. (quoting
Leatherman Tool Group Inc.
II.
v.
Cooper Indus., Inc., 131 F.3d 1011, 1015 (Fed. Cir. 1997)).
Jurisdictional Facts
In its jurisdictional allegations, Broadway Bank asserts two reasons why venue is proper in
the Western District. First, Broadway Bank alleges venue is proper under 28 U.S.C.
§
139 1(b)(2)
because "a substantial part of the events or omissions giving rise to the claims and a substantial part
-8-
of the property that is the subject of the action is situated in the Western District of Texas," namely,
Broadway Bank's receipt of the Liddle Letter in the Western District created the controversy and
gave rise to this action. Compi. [#11 ¶ 6; see also Sur-Reply [#16-11 at 6. Further, each of Broadway
Bank's 39 locations are situated within the Western District and the allegedly infringing mobile
applications are licensed to Broadway Bank by Q2 Software, Inc., which is located in Austin, Texas.
See
Response [#13-3] (Krause Deci.) ¶J 3-4,
under 28 U.S.C.
§
6.
Second, Broadway Bank alleges venue is proper
139 1(b)(1) because "PET is subject to personal jurisdiction in Texas and the
Western District of Texas with respect to the claim." Compl. [#1] ¶
6.
As a Texas limited liability company with its sole office in Piano, PET acknowledges it is
subject to personal jurisdiction in Texas.
See
Liddie Decl. ¶ 4. However, PET disputes whether it
has sufficient contacts with the Western District to support a finding of proper venue under 28
U.S.C.
§
1391(d), which limits the scope of28 U.S.C.
§
1391 (b)(1). According to Liddie, PET does
not reside in the Western District for purposes of determining venue because: it does not have any
offices in the Western District of Texas; PET's sole officer (Liddle) does not reside in the Western
District; no officer or employee of PET has ever traveled to the Western District for the purpose of
conducting business of any kind on behalf of PET; PET has not flied any suits in the Western
District; and all of PET's business is conducted out of its office in Piano, which is situated in the
Eastern District of Texas. Id. ¶J 4, 5. PET claims the only relevant contact with the Western District
is the delivery of the Liddle Letter to Broadway Bank's officers at its address in San Antonio, Texas.
Broadway Bank disputes whether the Liddle Letter is PET' s only relevant contact and directs
the Court to at least two other litigation-related contacts PET has with the Western District. First,
Broadway Bank presents four nearly identical infringement letters sent to other banks in the Western
District of Texas, including: (1) Extraco Banks, located in Temple, Texas; (2) Citizens State Bank,
located in Somerville, Texas; (3) Jefferson Bank, located in San Antonio, Texas; and (4) National
Bank, located in Gatesville, Texas. See Response [#13-2] Exs. B, E. Second, Broadway Bank points
to PET' s defense of the declaratory judgment action brought by The National Bank of Central Texas,
in which PET entered an appearance in the Western District and sought dismissal of the suit with
prejudice without contesting personal jurisdiction or venue. See Joint Mot. Dismiss [#16]; Order
Dismissal [#17], in Nat'! Bank d/b/a The Nat'! Bank of Cent. Tex.
v.
Piano Encryption Techs., LLC,
6:1 5-cv-249-WSS (W.D. Tex. Nov. 13, 2015). Broadway Bank further notes that all of the relevant
financial and technical documents, as well as all of the Broadway Bank witnesses, are located in the
Western District. Krause Deci. ¶ 7-8.
III.
Application
As an initial matter, Broadway Bank contends PET has waived the right to challenge venue
by failing to also file a Rule 12(b)(2) motion challenging personal jurisdiction. See Resp.[#13] at
2-3 (citing KMR Capita!, LLC
v.
Bronco Energy Fund, Inc., No. 06-CA-189-OG, 2006 WL
4007922, at *5 (W.D. Tex. July 11, 2006)); see also
FED.
R.
Civ. P.
12(h)(1). According to
Broadway Bank, by failing to move to dismiss the case for lack of personal jurisdiction, PET has
conceded it is subject to personal jurisdiction in the Western District and therefore is deemed to
"reside" here for purposes of determining venue. Id.
This argument does not have merit, as it ignores § 1391(d), which clearly requires a corporate
defendant have sufficient contacts with the forum district to support personal jurisdiction
f that
district were treated as a separate State, even when personal jurisdiction is otherwise proper in the
state. Therefore, waiving the right to challenge personal jurisdiction in Texas under Rule 12(b)(2)
-10-
did not waive PET's right to challenge venue in the Western District of Texas under Rule 12(b)(3).
See SecureAxcess, LLCv. TrustmarkNat'lBank,No. 6:13-CV-788 ,2014 WL 3884258, at *2(E.D.
Tex. Aug. 7, 2014). Indeed, it would be illogical to require PET, an in-state corporate defendant,
to file a frivolous motion for lack of personal jurisdiction merely to preserve the right to challenge
venue. Each of the cases Broadway Bank cites in favor of its position are inapposite, as they involve
out-of-state corporate defendants who could have moved to dismiss for lack of personal jurisdiction
but chose not to.
Because the Court finds PET has not waived its argument this District is not the proper
venue, the Court must decide whether PET resides in the Western District of Texas, which involves
an evaluation of (1) whether PET has sufficient contacts with the District to subject it to personal
jurisdiction if the Western District were considered as a separate state, see
or (2) whether a substantial part of the events occurred in this District, see
A.
§
§
1391(b)(1) and (d);
139 1(b)(2).
Is PET Subject to Personal Jurisdiction in the Western District of Texas?
The Court finds venue is not proper in the Western District because Broadway Bank has not
shown PET's contacts with this District are sufficient to subject it to personal jurisdiction if the
Western District were a separate state. See Garnet Digital v. Apple Inc., 893 F. Supp. 2d 814, 815
(E.D. Tex. 2012). The totality of PET's undisputed contacts with the Western District of Texas are
as follows: (1) the Liddle Letter; (2) the multiple cease-and-desist letters sent to other banks in the
Western District; and (3) participation as defendant in the National Bank litigation. The application
of Federal Circuit precedent makes clear that the cease-and-desist letters offering non-exclusive
licenses in the Patents-in-Issue sent from PET to banks in the Western District, including the Liddle
Letter, do not alone suffice to justifi personal jurisdiction. Avocent, 552 F.3d at 1333-34; see also
-11-
Red Wing Shoe, 148 F.3d at 1361 (finding cease-and-desist letters insufficient to create personal
jurisdiction even in the event "a patentee casts its net of cease-and-desist letters too widely and
entangles some non-infringing
products").3
Consequently, the cease-and-desist letters are not
sufficient to establish corporate residency in the Western District of Texas for purposes of venue.
Broadway Bank argues Avocent' s conclusion is not applicable here, and therefore the cease-
and-desist letters do support personal jurisdiction and, in turn, venue. Broadway Bank argues the
plain statutory language of § 139 1(d)"a corporation shall be deemed to reside in any district
within which its contacts would be sufficient to subject it to personaljurisdiction"----only involves
an inquiry into the first prong of the personal jurisdiction analysis, namely, whether the defendant
has "minimum contacts" with the forum, and does not involve an inquiry into whether litigating in
the forum would offend "traditional notions of fair play and substantial justice." In other words,
because this motion involves a venue challenge implicating
§
1391(d), whether litigating in this
forum is fair is not part of the analysis. Broadway Bank contends this is "crucial" because the
Avocent court held cease-and-desist letters prong satisfied the minimum contacts prong but only
failed the fairness prong, and therefore Avocent actually supports the conclusion PET "resides" in
the Western District for purposes of venue. See Resp. [#13] at 4-6 (citing Avocent, 552 F.3d at
1333).
While its position is a creative attempt at sidestepping Avocent, Broadway Bank presents no
authority in support, and the Court finds its reading contrary to Federal Circuit precedent and the
PET's status as a patent assertion entity, whose sole business purpose is enforcing its patents, does not alter
this conclusion. The Federal Circuit has continued to cite Red Wing and Avocent favorably for the proposition sending
cease-and-desist letters are not the type of patent enforcement or defense efforts "to be considered for establishing
specific personal jurisdiction in a declaratory judgment action against the patentee." Autogenomics, 556 F.3d at 1020
(citing Avocent, 552, F.3d at 1336); see also Catalyst Medium Four, Inc. v. CardShar/c, LLC, No. A-14-CA-1007-SS,
2015 WL 1412591, at *7 (W.D. Tex. Mar. 26, 2015).
-12-
plain language of § 1391(d). Indeed, Avocent clearly holds that a patentee's cease-and-desist letter,
although purposefully directed to the forum district, "does not suffice to create personal jurisdiction,"
and
§
139 1(d) explicitly confers corporate residency in a district "within which its contacts would
be sufficient to subject it to personal jurisdiction." See 552 F.3d at 1333. Absent Federal Circuit
authority for doing so, the Court refuses to read the fairness prong of the personal jurisdiction inquiry
out of § 139 1(d). See id. ("A patentee should not subject itself to personal jurisdiction in a forum
solely by informing a party who happens to be located there of suspected infringement." (quoting
Red Wing Shoe, 148 F.3d at 1359-60)). The Court finds the cease-and-desist letters sent by PET to
various banks in the Western District of Texas are not alone sufficient to establish personal
jurisdiction in this District if it were a separate state, and thus PET cannot be said to "reside" here
for venue purposes.
Consequently, PET can only be subject to personal jurisdiction in this district if it is engaging
in "other activities" that relate to the enforcement or the defense of the validity of the relevant patents
in addition to purposefully directing the Liddle Letter to Broadway Bank. See Id. at 1334-35.
Broadway Bank argues PET's defense of the validity of the Patents-in-Issue in the National Bank
litigation, and specifically its agreement to dismiss the case without challenging personal jurisdiction
or venue, are the type of "judicial or extra-judicial patent enforcement activities within the forum"
that would subject it to personal jurisdiction pursuant to the teachings of Avocent. See Resp. [#13]
at 6-7.
However, the test for minimum contacts, and in turn personal jurisdiction, focuses on PET's
actions with the forum district and not National Bank's, a third party. See, e.g, Autogenomics, 566
F.3d at 1020; Burger King, 471 U.S. at 475. PET did not initiate the National Bank litigation or file
-13-
a responsive pleading and there is no indication PET and National Bank agreed to an "exclusive
license agreement or other undertaking which imposes enforcement obligations" on PET in this
District. Avocent, 552 F.3d at 1334-35 ("Examples of these 'other activities' include initiating
judicial or extra-judicial patent enforcement.. ." (emphasis added)); cf Viam Corp.
v.
Iowa Export-
Import Trading Co., 84 F .3 d 424,430 (Fed. Cir. 1996) (finding personal jurisdiction where patentee
admitted initiating "a suit seeking to enforce the same patent.
. .
against other parties, unrelated to
this action, in the same district court. . "). Consequently, PET's appearance in the Western District
for the sole purpose of dismissing the National Bank litigation does not qualify as the kind of "other
activities" that would render subject PET to future declaratory judgment actions for noninfringement in this forum. Avocent, 552 F.3d at 1334-35. Indeed, such a rule would disincentivize
patentee defendants from settling declaratory actions in foreign districts without first challenging
personal jurisdiction or venue for fear of consenting to jurisdiction or venue in suits subsequently
brought by other alleged infringers.
In short, Broadway Bank has not met its burden of establishing PET has engaged in activities
that would subject it to either general or specific personal jurisdiction in the Western District of
Texas, and thus PET cannot be said to reside in the District for purposes of establishing venue under
§
1391(b)(1)and(d).
B.
Did a Substantial Part of the Events Giving Rise to the Claim Occur in the
Western District of Texas?
The Court next turns to
§
139 l(b)(2), which provides that venue is proper in "a judicial
district in which a substantial part of the events or omission giving rise to the claim occurred."
Broadway Bank argues venue is proper under this subsection because its receipt of the Liddle Letter
-14-
in the Western District caused the injury giving rise to this declaratory judgment action. In other
words, according to Broadway Bank, the Liddle Letter is the event that gave rise to its claim. See
Sur-Reply [#16-1] Ex. A at 6. The Court disagrees. The Liddle Letter itself, which operates to
notify Broadway Bank of potential infringement and to offer to negotiate a non-exclusive license,
is not the event giving rise to the declaratory claim. Rather, "the source of the cause of action for
non infringement is the ownership and existence of the copyright or patent." Modern Comput. Corp.
v.
Ma, 862 F. Supp. 938, 947 (E.D.N.Y. 1994); see also MiJackProds., Inc.
96-C-7850, 1997 WL 441796, at *7 (N.D. Ill. July 30, 1997) (finding
§
v.
Taylor Grp., Inc., No.
1391(b)(2) inapplicable
where the patentee defendant sent a cease-and-desist letter to the plaintiff in the forum
state).4
Accordingly, a substantial part of the events giving rise to the claims have not occurred in the
Western District of Texas, but rather in the Eastern District of Texas, where PET and the patents are
physically located and where the bulk of the enforcement activities have taken place.
Because a substantial part of the events or omission giving rise to the claim did not occur in
the Western District of Texas, venue is not proper in this Court under
§ 139 l(b)(2).5
Having found
no grounds for venue in the Western District of Texas, PET's motion to dismiss is due to be granted.
As acknowledged by at least one other district court, it would be "anomalous" to find sending a cease-anddesist letter insufficient to establish minimum contacts for the purpose of establishing specific jurisdiction but sufficient
to establish venue. See Database Am., Inc. v. Bellsouth Advert. & Publ'g Co., 835 F. Supp. 1195, 1215 n.34 (D.N.J.
1993). To the extent other district courts have found venue proper based solely on the receipt of a cease-and-desist letter,
these cases were decided before 28 U.S.C. § 1391(b)(2) was amended and are therefore inapplicable. See Package
Concepts & Materials, Inc. v. JFPak, No.6:05-1 184-HMH, 2005 WL 3055073, at *6 n.5 (D.S.C. Nov. 14,2005) ("No
published opinion in the last fifteen years has relied upon [Millipore Corp. v. University Patents, Inc., 682 F. Supp. 227,
234 (D. Del. 1987)] and [Pennwalt Corp. v. Horton Co., 582 F. Supp. 438, 440 (E.D. Pa. 1984)1 for the exceedingly
broad standard that those cases espouse, likely because the standard for determining venue was changed when 28 U.S.C.
§ 1391 (b)(2) was amended, making venue no longer appropriate in the judicial district 'in which the claim arose' but
rather in 'a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred."
(citing Database, 835 F. Supp. at 1224)).
Having found venue lacking in this District, the Court need not address PET's argument the Court should
decline to hear the declaratory judgment action on equitable grounds.
-15-
C.
Request for Jurisdictional Discovery
Finally, Broadway Bank requests a sixty-day period ofjurisdictional discovery for the limited
purpose of determining the full extent of PET's activities in the Western District of Texas. First,
Broadway Bank hypothesizes the settlement agreement between PET and National Bank may
disclose "additional activities" that support venue. Second, Broadway Bank suggests Liddle's
statement "[n]o officer or employee of PET has ever traveled to the Western District of Texas for
the purpose of conducting business of any kind on behalf of PET" is disingenuous. Broadway Bank
intends to depose Liddle with regard to whether entering an appearance in the National Bank
litigation constitutes "conducting business"in the Western District and about the activities of PET's
agents, which Liddle "makes no mention of." Resp. [#13] at 12.
Issues concerning jurisdictional discovery, which are not unique to patent law, are governed
by the law of the regional circuit. Autogenomics, 566 F.3d at 102 1-22. As with all discovery
matters, the question whether to permit jurisdictional discovery is committed to the district court's
discretion. Wyatt v. Kaplan, 686 F.2d 276, 283 (5th Cir. 1982). "As the party opposing dismissal
and requesting discovery, the plaintiffs bear the burden of demonstrating the necessity of discovery."
Monkton Ins. Servs., Ltd.
v.
Ritter, 768 F.3d 429, 434 (5th Cir. 2014) (quoting Davila
v.
United
States, 713 F.3d 248, 264 (5th Cir. 2013)). A plaintiff seeking jurisdictional discovery is expected
to identify with particularity the discovery sought, explain what information it expects to obtain, and
explain how that information would support the assertion of personal jurisdiction; failure to do so
warrants denial of leave to conduct the discovery. See Fielding v. Hubert Burda Media, Inc., 415
F.3d 419,429 (5th Cir. 2005) (citing Toys "R" Us, Inc.
v.
Step Two, S.A., 318 F.3d 446,456 (3d Cir.
2003)); Evergreen Media Holdings, LLC v. Safran Co., 68 F. Supp. 3d 664, 672 (S.D. Tex. 2014)
-16-
(citations omitted). The Court need not permit discovery on jurisdictional matters unless the motion
to dismissraises issues of fact. See Kellyv. SyriaShell Petroleum Dev. B. V, 213 F. 3d 841, 855 (5th
Cir. 2000). When the lack of venue is clear, discovery would serve no purpose and should not be
allowed. Id.; see also Sanderson v. Spectrum Labs, Inc., No. 00-1872, 2000 WL 1909678, at *3(7th
Cir. 2000) ("We believe the same principles apply to a plaintiffs attempt to establish proper
venue.").
The Court declines Broadway Bank's request for jurisdictional discovery. First, PET's
motion does not raise any issues of fact; each of the jurisdictional allegations are undisputed. PET
acknowledges sending multiple cease-and-desist letters to banks in the Western District and admits
to agreeing to dismiss the National Bank litigation with prejudice. Taken together, these contacts
do not support venue in the Western District for the reasons outlined above.
Second, the additional jurisdictional facts Broadway Bank hopes to uncover are irrelevant
to the venue analysis. Deposing Liddle is harassing and serves no purpose; whether Liddle considers
his attorney's appearance in the National Bank to be "conducting business" is wholly irrelevant, and
further inquiry into the activity of PET' s agents in the hopes Broadway Bank might reveal additional
activities by PET in the Western District is a fishing expedition with no basis in the record. In short,
this request casts too wide and vague a net. Similarly, discovery into the terms of PET's settlement
with National Bank serves no purpose. PET acknowledges the settlement involved a non-exclusive
license, which the Federal Circuit has clearly held is not the type of "other activity" which relates
to the enforcement of patents for the purpose of personal jurisdiction. See Avocent, 552 F.3d at
1334-35; Reply [#14] at 9.
-17-
The proposed jurisdictional discovery would serve no purpose, and consequently, the Court
denies Broadway Bank's motion.
Conclusion
Having found venue improper, the Court "must dismiss the case or may, in the interest of
justice, transfer it to a district or division where it could have been brought." 28 U.S.C.
§
1406(a).
The Court finds this case to be a prime candidate for transfer and thereby transfers this matter to the
Eastern District of Texas. First, venue is undoubtedly proper in the Eastern District of Texas, as PET
can be said to reside there for purposes of § 1391(b)(1) and § 1391(d). Second, judicial efficiency
counsels in favor of transfer. PET has already filed four active lawsuits in the Eastern District
related to the enforcement of the '399 and '550 patents, two of which are being defended by counsel
for Broadway Bank. Under these circumstances, transfer would save the parties time and expense
of potentially duplicative litigation in multiple judicial districts and transfer, rather than dismissal,
will avoid the expense and delay of having to re-file. Finally, litigating in the Eastern District of
Texas will not be unduly burdensome or inconvenient for Broadway Bank. The prejudice on
Broadway Bank to litigate in the Eastern District does not outweigh the inefficiency of entertaining
multiple related infringement actions in separate districts. While the Court refuses to imply
Broadway Bank filed suit in this District for the purpose of harassment and to raise the cost of
litigation for PET, it does find that efficiency requires the case be transferred to the Eastern District.
Accordingly,
IT IS HEREBY ORDERED that Defendant Plano Encryption Technologies, LLC's
Motion to Dismiss Plaintiff Broadway National Bank d/b/a Broadway Bank's Original
Complaint [#10] is GRANTED;
-18-
IT IS FINALLY ORDERED that this case is TRANSFERRED to the United States
District Court for the Eastern District of Texas, Marshall Division.
SIGNED this
the.
day of March 2016.
UNITED STATES1'STRICT JUDGE
1056 mot dism ord mns.wpd
19
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