Case Analysis: Amazon’s Patent Evaluation Express (APEX) program could create personal jurisdiction in a declaratory judgment action

With the increase in business transactions on e-commerce platforms, e-commerce related litigation has also increased. Jurisdiction is a crucial factor in any litigation. The unique characteristics of e-commerce transactions as compared to traditional transactions also have an impact on the jurisdictional aspects of such lawsuits.

The below US decision, an appeal from the US District Court for the District of Utah, involves an Amazon seller who initiated a declaratory action against a patent owner, that had used Amazon's APEX program. APEX is an expedited and low-cost tool for patent owners to stop the sale of infringing products on Amazon's platform. Under the APEX program, a neutral independent third party is engaged to evaluate the case and decide whether a product sold on Amazon.com infringes a patent or not, and if yes, Amazon would follow the neutral evaluator's decision and remove the listing from Amazon.com accordingly. The central issue in this case however, was the court's jurisdiction to hear the case.

SnapRays, DBA SnapPower (SnapPower) v. Lighting Defense Group (LDG) (Case: 23-1184)

LDG is registered in Delaware with its principal place of business in Arizona. LDG owns US Patent No. 8668347. SnapPower is registered and primarily operates its business in Utah. In 2022, LDG submitted an APEX agreement to Amazon, claiming that certain products sold by SnapPower on Amazon infringed its ’347 patent. Amazon informed SnapPower of LDG’s submission of the APEX agreement and the options SnapPower had.

After failed attempts at settlement negotiations, SnapPower filed a lawsuit against LDG in the United States District Court for the District of Utah, seeking a declaration of non-infringement. LDG filed a motion to dismiss the lawsuit for lack of personal jurisdiction (NB. Courts in the US must have two kinds of jurisdiction to hear a case: personal jurisdiction and subject matter jurisdiction.  Personal jurisdiction refers to the court's authority over the person or entity who is a party to the case and subject matter jurisdiction is the court's authority to hear a certain type of claim). The district court granted LDG’s motion, finding it lacked personal jurisdiction over LDG. The United States Court of Appeals for the Federal Circuit later reversed the district court’s decision.

In this case, the key issue was whether the Utah district court had specific personal jurisdiction over LDG. The district court found insufficient connections between LDG and Utah, thus ruling it did not have specific personal jurisdiction. Specifically, the district court considered that LDG’s infringement claim was directed towards Amazon in Washington, where the APEX agreement was sent to. Although there might be foreseeable effects in Utah, there was no evidence connecting LDG to the state other than LDG’s responses to SnapPower.

The appellate court used a three-factor test to determine whether a forum state has specific personal jurisdiction over a defendant: (1) whether the defendant purposefully directed activities at residents of the forum state; (2) whether the claim arises out of or relates to the defendant’s activities in the forum state; and (3) whether assertion of jurisdiction is reasonable and fair (Xilinx Inc. v. Papst Licensing GmbH & Co. KG, 848 F.3d 1346, 1353 (Fed. Cir. 2017)).

In relation to the first factor, the appellate court found that LDG intentionally submitted the APEX agreement to Amazon, explicitly identifying SnapPower’s allegedly infringing listings. Under the APEX terms, LDG knew Amazon would inform SnapPower and if SnapPower took no action, its listings would be removed, which would necessarily affect SnapPower’s sales and activities in Utah. Therefore, the appellate court found that LDG undertook intentional actions aimed at Utah and foresaw that the effects of its actions would be felt there.

In relation to the second factor, the appellate court concluded that LDG’s submission of the APEX agreement targeted SnapPower, intending to affect its marketing, sales, and other activities in Utah. Thus, SnapPower’s declaratory non-infringement claim arose from LDG’s actions in Utah.

In relation to the third factor, LDG argued that ruling for SnapPower would open the floodgates, allowing an APEX participant to be sued anywhere in the US. However, the court maintained that APEX participants would only be subject to a specific jurisdiction where they have targeted a forum state by identifying listings for removal that, if removed, would affect the marketing, sales or other activities in that state. The appellate court found LDG failed to present a compelling argument as to why such a result would be unreasonable.

Comment

In this case, the district court and the appellate court differed primarily in their views on the defendant’s activities in their findings relating to specific personal jurisdiction.

The District Court for Utah

The district court focused on the defendant’s past actions, while the appellate court looked beyond that and foresaw the potential effects of those actions in the future.

The district court focused on the fact that at the time of the incident, LDG only submitted the APEX agreement to Amazon in Washington. Although Amazon notified SnapPower in Utah, this was Amazon’s action, not LDG’s. The district court however did not look ahead and go one step further to consider whether the alleged infringing links might be removed and, if removed, how that would then affect Utah,

The Appellate Court

The appellate court, on the other hand, looked beyond the defendant’s past activities and focused more on how the defendant’s activities may create future connection with the forum state, and concluded the minimum contact requirement of personal jurisdiction was satisfied.

The appellate court looked to other circuits’ similar decisions to corroborate its decision, noting that extra-judicial enforcement, even routed through a third party, satisfied purposeful direction (i.e. whether the defendant purposefully directed activities at residents of the forum state) as required by the three-factor test.  In particular, the appellate court cited the Dudnikov case decided by the Tenth Circuit and the Bancroft case decided by the Ninth Circuit. Those courts held that it was sufficient to establish personal jurisdiction in a forum state where the defendants took enforcement actions aimed at the forum states, through third-party platforms (eBay in Dudnikov case and NSI (a US domain name registrar) in the Bancroft case), even though the forum states were different to those platforms’ home states.

The appellate court’s forward-looking perspective, however, is not without limits. The appellate court distinguished the present case from the Avocent case where it was ruled that sending cease and desist letters to alleged infringers or others did not create personal jurisdiction in a forum state. The appellate court found that the APEX agreement went beyond a cease and desist letter in the sense that if no action was taken by the alleged infringer, its listings would automatically be taken down by Amazon, which would necessarily affect sales and other activities in the forum state.

The appellate court further distinguished this case from the Maxchief case, where a patentee’s lawsuit against a company in California did not give rise to personal jurisdiction over the patentee in Tennessee, the home state of a downstream distributor of the Californian company. The court considered that the lawsuit filed in California was directed at California, not Tennessee, and any effects that might be felt in Tennessee were too attenuated to satisfy minimum contacts. Unlike the present case, there was no enforcement action or any action taken at all against the Tennessee distributor or directed at Tennessee.

Having said that, this case is still different to the two other “similar” federal circuit cases cited by the appellate court. In the Dudnikov case, as per eBay's VeRO program, eBay automatically terminated the auction of the suspected infringer upon receipt of the rightsholder’s Notice of Claimed Infringement (NOCI) request. In the Dudnikov case, therefore, the impact of the rightsholder’s action was real, rather than speculative. From this perspective, the Bancroft case would perhaps be the better analogy to the present case. In Bancroft, as in the present case, although the defendant's letter automatically triggered the NSI dispute resolution process, which might threaten the plaintiff’s domain name interest, it had not caused any actual damage to the plaintiff. However, unlike the Bancroft case, more options were provided by Amazon to LDG to respond to SnapPower’s APEX request. Importantly Amazon's APEX program itself is a platform for patent infringement dispute resolution. If SnapPower opted in, it might not necessarily lose the case. As a result, compared to Bancroft, the causation between the defendant's action and the consequential effects is even weaker and more uncertain. Nevertheless, the appellate court had no problem finding LDG had enough connection with Utah which made LDG subject to the personal jurisdiction of Utah.

This case marks a further breakthrough by the United States Court of Appeals for the Federal Circuit in finding personal jurisdiction in the e-commerce context. This could lead to patent owners becoming more cautious when using Amazon's APEX program to solve their patent infringement disputes, in order to avoid being sued in any undesirable forum by the alleged patent infringers.