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JAKKS Pacific v. Conte

District court grants defendant patent holders' motion to dismiss declaratory judgment action for lack of personal jurisdiction, holding that defendants’ cease-and-desist letter to resident of New Jersey did not subject them to jurisdiction in that state.

Plaintiff JAKKS Pacific, a manufacturer of toys, filed a declaratory judgment in New Jersey against defendants, California residents and holders of a patent for an interactive, hide-and-seek doll, seeking a declaration that plaintiff’s hide-and-seek bear toys did not infringe defendants’ patent. Defendants moved to dismiss the complaint for lack of personal jurisdiction, and the court granted the motion, holding that it lacked specific jurisdiction over defendants.

Defendants, mother and daughter, owned a patent for an interactive, hide-and-seek toy doll that allows a child holding a hand-held transmitter and receiver to look for the doll while receiving verbal clues relating to the doll’s whereabouts. After learning that non-party Toys “R” Us was selling hide-and-seek toy bears manufactured by plaintiff, defendants, through counsel, sent a letter to Toys "R" Us at its headquarters in Wayne, N.J., advising the company of the defendants’ patent and their belief that the JAKKS toys were nearly identical in design, concept, and capabilities to their patented toy dolls, and requesting information about the number of toy bears sold and the price for the toys. As a result of this letter, plaintiff JAKKS, also headquartered in California, filed a complaint in the federal court in New Jersey, seeking a declaration of non-infringement.

Defendants asserted – and the court agreed – that the court lacked personal jurisdiction over the defendants for two reasons: (1) that they had never availed themselves of the jurisdiction of New Jersey and (2) that their letter to Toys "R" Us did not confer personal jurisdiction over them. The court focused its analysis on specific jurisdiction – jurisdiction which 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 with the forum are isolated and sporadic.

At the outset, the court determined that although the defendant’s letter did not call itself a “cease-and-desist” letter, it nonetheless was, for four reasons. First, the letter appeared to be a cautionary notice describing the offensive activity at issue –that Toys "R" Us and its affiliate stores had sold products of JAKKS that defendants believed to be nearly identical to the design and concept of a product that is patented, trademarked, and copyrighted to defendants. Second, the letter was “remedial” in nature, in that defendants were asking Toys "R" Us to provide sales information relating to the sale of the allegedly infringing dolls. Third, the court reasoned that it was immaterial that the letter was not labeled "cease and desist" because the notion of infringement was implicit within the body of the letter. Finally, the court considered it “plausible” that the letter could have been used either to stop or block suspected infringement relating to defendants' intellectual property rights, or to obtain an out-of-court resolution with JAKKS.

The court then concluded that it could not exercise personal jurisdiction over the defendants. Under the law of the Federal Circuit cease-and-desist letters alone cannot justify personal jurisdiction. Defendants also had not engaged in other activities in New Jersey that related either to enforcing or defending the validity of their patent. They had neither initiated judicial or extra-judicial patent enforcement within the forum, nor entered into licensing agreements or other undertakings that impose enforcement obligations with a party residing or regularly doing business in the forum. Finally, the principles of fair play and substantial justice allow the defendants, as patent holders, sufficient latitude to inform others of its patent rights without being subjected to jurisdiction in a foreign forum. Cease-and-desist letters attempt to produce out-of-court solutions, which align the interests of the parties and public policy favoring private resolution of difficulties. If these of letters operated as a waiver of objection to personal jurisdiction, the result would be a chilling effect on the assertion of legal rights by holders of copyrights, patents, and trademarks.