Personal Jurisdiction Established by Solicitations Accompanying Patent Demand Letters

Case: Breckenridge Pharmaceutical, Inc. v. Metabolite Laboratories, Inc. and Pamlab, L.L.C. No. 05-1221, -1428 (Fed. Cir. April 7, 2006)

The One Sentence Summary: The exercise of personal jursidiction over the patent holder and its exclusive licensee by a District Court in Florida comported with due process where the exclusive licensee promoted, advertised, and sold products covered by the patent in Florida; the patent holder and exclusive licensee cooperated in sending cease and desist letters to others in Florida; and the exclusive license agreement (1) granted the licensee the right to sue for patent infringement with the holder's written consent, (2) required the holder and licensee to cooperate reasonably in any enforcement action, and (3) required the patent holder to provide consultation to the exclusive licensee in the science, medicine, and marketing of the vitamins covered by the patent.

What They Were Fighting About: Defendant Metabolite holds patents for a method of controlling elevated serum metabolite levels. Co-defendant PamLab manufactures and distributes a prescription-only vitamin product containing a specific formulation of folic acid used in controling elevated serum metabolite levels, and was the exclusive licensee of the Metabolite patents. Plaintiff Breckenridge is a generic drug company headquartered in Florida that manufactures a similar formulation of folic acid which it sells to large pharmacies and retailers, including Walgreens, Eckerd, and Rite Aid, as a substitute for PamLab's folic acid formulation.

Metabolite and PamLab sued Breckenride in the United States District Court for the District of Colorado alleging that Breckenridge had infringed the Metabolite patents by offering to sell Breckenridge's generic folic acid formulation to drug wholesalers and retailers as a generic equivalent to PamLab's formulation. The district court denied Metabolite and PamLab's motion for a temporary restraining order, and they voluntarily dismissed the suit. Several weeks after dismissing the Colorado litigation, Matabolite and PamLab cooperated in sending between 10 and 20 letters to vitamin distributors and retailers informing them of the patents and PamLab's exclusive license, and enclosing PamLab's promotional materials. The Federal Circuit characterized these as cease and desist letters. Three of the letters were sent to customers of Breckenridge in Florida.

Breckenridge then filed suit against Metabolite and PamLab in the United States District Court for the Southern District of Florida, seeking a declaratory judgment of non-infringement and alleging state law claims of tortious interference with contract and unfair competition. The District Court granted Metabolite's motion to dismiss for lack of personal jurisdiction, and then granted summary judgment to PamLab under Federal Rule of Civil Procedure 19 on the ground that Metabolite was a necessary party that could not be joined for lack of personal jurisdiction. Breckenridge appealed.

Federal Circuit Holdings:

• Florida's long-arm statute authorized personal jursidiction over Metabolite because the cease and desist letters had language that could be interpreted as a solicitation, and thus the defendants' actions subjected them to personal jurisdiction under Fla. Stat. Section 48.193(f) which authorizes personal jursdiction over a defendant engaged in solicitation or service activities within the state. However, Section 48.193(b) authorizing personal jurisdiction over defendants who commit tortious conduct in the state could not be a basis for personal jurisdiction because the cease and desist letters may have qualified as protected communications under federal patent laws which preempt state laws imposing tort liability for a patentholder's good faith conduct in communications asserting infringement of its patent and warning about potential litigation.
• The question of whether the exercise of personal jurisdiction over Metabolite with respect to the claims for a declaratory judgment of noninfringement comported with due process was "intimately related to patent law" and thus governed by Federal Circuit law regarding due process.
• Federal Circuit law regarding due process also applied to the question of personal jurisdiction on the non-patent claims against Metabolite of tortious interference because resolution of the patent infringement issue would be a significant factor in determining liability under the non-patent claims. The claims for tortious interference with contract would only be viable if Breckenridge Labs prevailed on the question of whether it infringed the Metabolite patents. If Breckenridge did, in fact infringe the patents, the cease and desist letters could not constitute tortious interference.
• The exercise of personal jurisdiction over a defendant does not comport with principles of fair play and substantial justice where the defendant's only activities in the forum state involve unsuccessful attempts to license the patent there (e.g., sending cease and desist letters), or where the defendant has successfully licensed the patent and the license agreement itself does not create "continuing obligations" in the forum state other than the mere payment of royalties.
• By contrast, the exercise of personal jurisdiction over Metabolite in Florida comported with principles of fair play and substantial justice since the license agreement between Metabolite and PamLab granted PamLab the right to sue for patent infringement with Metabolite's written consent, and required Metabolite to cooperate in the defense of the suit. Thus the exclusive license created continuing obligations of Metabolite in Florida where PamLab sold product.
• Metabolite had not provided a compelling case that the exercise of jurisdiction by a court in Florida would offend principles of fair play and substantial justice because three of the five factors used in evaluating the question (the burden on the defendant, the forum state's interest in adjuidicating the dispute, the plaintiff's interest in obtaining convenient and effective relief) did not favor another forum; the fourth factor (the interstate judicial system's interest in obtaining the most efficient resolution of convtroversies) tipped only slightly towards Metabolite, and the fifth factor (the shared interest of the several states in furthering fundamenta substantive social policies) played little role in this patent dispute.
• In light of the reversal of the District Court's ruling that Metabolite was not subject to personal jurisdiction, it was error to grant PamLab's summary judgment motion which had been premised on the argument that Metabolite was a necessary party over whom the Florida District Court could not obtain personal jurisdiction.