Patent Rights Protection Group, LLC v. Video Gaming Technologies, Inc.

United States Court of Appeals for the Federal Circuit
2009-1391

PATENT RIGHTS PROTECTION GROUP, LLC,

Plaintiff-Appellant,

v.

VIDEO GAMING TECHNOLOGIES, INC.,

Defendant-Appellee,

and

SPEC INTERNATIONAL, INC.,

Defendant-Appellee.

Mark Borghese, Weide & Miller, Ltd., of Las Vegas, Nevada, argued for plaintiff-
appellant. With him on the brief was R. Scott Weide.

James D. Boyle, Santoro, Driggs, Walch, Kearney, Holley & Thompson, of Las
Vegas, Nevada, argued for defendant-appellee Video Gaming Technologies, Inc.

Steven L. Underwood, Price, Heneveld, Cooper, DeWitt & Litton, LLP, of Grand
Rapids, Michigan, argued for defendant-appellee Spec International, Inc. With him on
the brief was Jason L. Budd.

Appealed from: United States District Court for the District of Nevada

Judge James C. Mahan
United States Court of Appeals for the Federal Circuit
2009-1391

PATENT RIGHTS PROTECTION GROUP, LLC,

Plaintiff-Appellant,

v.

VIDEO GAMING TECHNOLOGIES, INC.,

Defendant–Appellee,

and

SPEC INTERNATIONAL, INC.,

Defendant-Appellee.

Appeal from the United States District Court for the District of Nevada in case no. 2:08-
CV-00662, Judge James C. Mahan

__________________________

DECIDED: May 10, 2010
__________________________

Before RADER, ARCHER, and LINN, Circuit Judges.

LINN, Circuit Judge.

Patent Rights Protection Group, LLC (“Patent Rights”) appeals an order of the

United States District Court for the District of Nevada granting SPEC International, Inc.’s

(“SPEC”) and Video Gaming Technologies, Inc.’s (“VGT”) motions to dismiss for lack of

personal jurisdiction and denying Patent Rights’ request for jurisdictional discovery.

Because the district court erred in concluding that exercising personal jurisdiction over

SPEC and VGT would be unreasonable and abused its discretion in denying

jurisdictional discovery on this basis, we vacate and remand.
 I. Background

Patent Rights is a Nevada intellectual property holding company and the owner

of U.S. Patents No. 6,475,087 and No. 6,860,814 (“the Gaming Patents”), which relate

to various types of casino-style gaming machines. Patent Rights initiated separate

lawsuits in the District of Nevada against out-of-state gaming companies Nova Gaming,

LLC; Cadillac Jack, Inc.; and VGT, a Tennessee corporation. Patent Rights asserted in

each suit that the respective company had infringed the Gaming Patents by displaying,

using, and offering for sale gaming machines at trade shows in Nevada. See Complaint

at 2, Patent Rights Prot. Group, LLC v. Nova Gaming LLC (“Nova Gaming”), No. 2:08-

cv-00663-PMP-LRL (D. Nev. Dec. 30, 2008); Complaint at 2, Patent Rights Prot. Group,

LLC v. Video Gaming Techs., Inc. (“Video Gaming Techs.”), No. 2:08-cv-00662-JCM-

LRL (D. Nev. April 29, 2009); Complaint at 2, Patent Rights Prot. Group, LLC v. Cadillac

Jack, Inc. (“Cadillac Jack”), No. 2:08-cv-00660-KJD-RJJ, 2009 WL 2242674 (D. Nev.

July 27, 2009). Each suit was assigned to a different judge in the District of Nevada.

Patent Rights later added SPEC, a Michigan company, to each suit, asserting that

SPEC had also infringed the Gaming Patents by displaying, using, and offering for sale

cabinets that house gaming machines at trade shows in Nevada. See Amended

Complaint at 2, Nova Gaming; Amended Complaint at 2, Video Gaming Techs.;

Amended Complaint at 2, Cadillac Jack.

SPEC and VGT separately moved to dismiss the lawsuit underlying this appeal.

Despite SPEC admitting that it had attended trade shows in Nevada “in the late 1990’s”

and both companies conceding that they had attended trade shows in Nevada in the

“early 2000’s, and more recently in 2007 and 2008,” each company argued that its

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contacts with Nevada were insufficient for the court to exercise personal jurisdiction.

SPEC and VGT each stated that it was not registered to do business in Nevada and did

not have sales agents, employees, manufacturing facilities, bank accounts, or telephone

listings in Nevada. Each company further asserted that it did not manufacture any

products in Nevada and that its respective website was not specifically targeted to

residents of Nevada. VGT stated that it did not direct marketing efforts at Nevada nor

generate any revenue from Nevada, while SPEC alleged that it had mailed brochures to

eight potential customers in Nevada and had generated only de minimis sales in the

state. SPEC also alleged that nearly all of its officers, employees, and records

associated with the accused products were located in Michigan.

SPEC and VGT also argued that the venue selected by Patent Rights was

improper, alleging that the District of Nevada does not satisfy the requirements of 28

U.S.C. § 1400(b). Alternatively, both companies asked the district court to either

transfer the suit or stay it pending the outcome of a related declaratory judgment action

filed by SPEC against Patent Rights in Michigan. Patent Rights submitted an opposition

contesting the motions to dismiss and requesting jurisdictional discovery.

Before the district court decided the parties’ respective motions, the district judge

handling the Nova Gaming case dismissed that action, finding that Patent Rights had

failed to establish that the court had personal jurisdiction over SPEC or Nova Gaming,

LLC and that venue was improper. Nova Gaming, No. 2:08-cv-00663-PMP-LRL, slip

op. at 2-3 (D. Nev. Dec. 30, 2008). SPEC informed the district court of the decision in

Nova Gaming and the court ordered the parties to submit supplemental briefing on the

preclusive effect of the decision.

2009-1391 3

 After hearing oral argument regarding the parties’ submissions, the district court

dismissed the action without prejudice. The court concluded that exercising personal

jurisdiction over SPEC or VGT would be unreasonable under Ninth Circuit precedent,

finding that the relevant factors either weighed in favor of a finding of unreasonableness

or were neutral. The court denied Patent Rights’ request for jurisdictional discovery

because, in the court’s view, jurisdictional discovery would not affect the court’s

reasonableness analysis. The court determined that the alternative grounds for

dismissal—issue preclusion and venue—were moot in light of the court’s

reasonableness determination. The court also found that SPEC’s and VGT’s requests

to transfer or stay the action were moot because the declaratory judgment action that

SPEC initiated in Michigan had been transferred to Nevada and dismissed.

Patent Rights filed a timely appeal. We have jurisdiction pursuant to 28 U.S.C.

§ 1295(a)(1).

II. Discussion

On appeal, Patent Rights argues that the district court erred by applying Ninth

Circuit law instead of Federal Circuit law in determining whether exercising personal

jurisdiction would be reasonable. Both SPEC and VGT acknowledge that the district

court erred by applying Ninth Circuit law but believe that this was harmless error

because, in their view, application of our precedent leads to the same conclusion.

SPEC and VGT defend the district court’s decision by arguing that they have not

made the necessary “minimum contacts” with Nevada for the court to exercise personal

jurisdiction and that the District of Nevada is an improper venue for this action. SPEC

also renews its argument that the decision of the Nova Gaming court precludes the

2009-1391 4

district court from considering whether exercising personal jurisdiction over SPEC is

proper. Although these issues were raised below, the district court declined to address

them because the court’s determination that exercising personal jurisdiction was

unreasonable rendered the issues moot. As a general rule, “a federal appellate court

does not consider an issue not passed upon below.” Singleton v. Wulff, 428 U.S. 106,

120 (1976). We see no reason to depart from that rule here. Therefore, we address

only the matters decided by the court—the reasonableness of exercising personal

jurisdiction, and Patent Rights’ request for jurisdictional discovery. We address each

issue in turn. Although we consider the merits of the arguments raised by SPEC and

VGT individually, we refer to them collectively, as the arguments are similar and

complementary.

A. Reasonableness of Exercising Personal Jurisdiction

We apply Federal Circuit precedent when considering whether the district court

properly declined to exercise personal jurisdiction. Akro Corp. v. Luker, 45 F.3d 1541,

1543 (Fed. Cir. 1995) (citing Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d

1558, 1564 (Fed. Cir. 1994)). Because personal jurisdiction is a question of law, we

review de novo whether exercising personal jurisdiction over either SPEC or VGT would

be unreasonable. 3D Sys., Inc. v. Aarotech Labs., Inc., 160 F.3d 1373, 1376 (Fed. Cir.

1998).

In general, a federal district court may exercise personal jurisdiction over a non-

consenting out-of-state defendant if two requirements are satisfied. First, the defendant

must be amenable to service of process. See Omni Capital Int’l, Ltd. v. Rudolf Wolff &

Co., 484 U.S. 97, 104 (1987) (“Before a federal court may exercise personal jurisdiction

2009-1391 5

over a defendant, the procedural requirement of service of summons must be

satisfied.”); Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355, 1358

(Fed. Cir. 1998) (explaining that usually the first step in a personal jurisdiction analysis

is “determin[ing] whether a provision makes the defendant amenable to process.”).

Determining whether a defendant is amenable to service of process often entails

considering whether the defendant “is subject to the jurisdiction of a court of general

jurisdiction in the state where the district court is located,” Fed. R. Civ. P. 4(k)(1)(A).

This, in turn, involves examining the state’s long-arm statute. See, e.g., Red Wing Shoe

Co., 148 F.3d at 1358. Second, exercising jurisdiction over the defendant must comport

with due process. See Avocent Huntsville Corp. v. Aten Int’l Co., 552 F.3d 1324, 1329

(Fed. Cir. 2008) (“Determining whether personal jurisdiction exists over an out-of-state

defendant involves . . . [considering] whether the assertion of personal jurisdiction would

violate due process.” (quoting Inamed Corp. v. Kuzmak, 249 F.3d 1356, 1359 (Fed. Cir.

2001))). The “constitutional touchstone” of the due process inquiry “remains whether

the defendant purposefully established ‘minimum contacts’ in the forum State.” Burger

King Corp. v. Rudzewicz, 471 U.S. 462, 474 (1985) (citing Int’l Shoe Co. v. Washington,

326 U.S. 310, 316 (1945)).

Finding the necessary minimum contacts to exist, however, does not end the

inquiry. Even where a party has been shown to have minimum contacts with the forum

state, these contacts “may be considered in light of other factors to determine whether

the assertion of personal jurisdiction would comport with ‘fair play and substantial

justice,’” i.e., whether exercising jurisdiction would be reasonable. See id. at 476. The

“requirements inherent in the concept of ‘fair play and substantial justice’ may defeat the

2009-1391 6

reasonableness of jurisdiction even if [a] defendant has purposefully engaged in forum

activities.” Id. at 477-78. Factors relevant to this inquiry may include the following:

[T]he burden on the defendant, the forum State’s interest in adjudicating
the dispute, the plaintiff’s interest in obtaining convenient and effective
relief, the interstate judicial system’s interest in obtaining the most efficient
resolution of controversies, and the shared interest of the several States in
furthering fundamental substantive social policies.

Id. at 476-77 (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292

(1985)) (internal quotation marks omitted).

The Supreme Court has stated that “where a defendant [that] purposefully has

directed [its] activities at forum residents seeks to defeat jurisdiction, [it] must present a

compelling case that the presence of some other considerations would render

jurisdiction unreasonable.” Id. at 477. We have explained that these compelling cases

“are limited to the rare situation in which the plaintiff’s interest and the state’s interest in

adjudicating the dispute in the forum are so attenuated that they are clearly outweighed

by the burden of subjecting the defendant to litigation within the forum.” Beverly Hills

Fan Co., 21 F.3d at 1568.

Here, the district court correctly noted that the relevant long-arm statute, Nevada

Revised Statute § 14.065, permits Nevada courts to exercise personal jurisdiction over

a party to the extent permitted by the United States Constitution. See Baker v. Eighth

Judicial Dist. Court, 116 Nev. 527, 531 (2000) (“Nevada’s long-arm statute, NRS

14.065, reaches the limits of due process set by the United States Constitution.”

(citation omitted)). Thus, the two-step personal jurisdiction inquiry described above

reduces to a single question: Does exercising personal jurisdiction over SPEC and VGT

satisfy due process? The district court acknowledged that exercising personal

2009-1391 7

jurisdiction over SPEC and VGT would satisfy due process only if each company had

the requisite minimum contacts with Nevada. But instead of determining whether either

SPEC or VGT had such minimum contacts with Nevada, the district court evaluated

only whether exercising personal jurisdiction over either SPEC or VGT should be

defeated as being unreasonable, applying the seven-factor test set out by the Ninth

Circuit in Amoco Egypt Oil Co. v. Leonis Navigation Co., 1 F.3d 848 (9th Cir. 1993).

The district court concluded that exercising personal jurisdiction would be

unreasonable, finding that three factors militated in favor of this conclusion: (1) both

SPEC and VGT had limited purposeful contact with Nevada, consisting essentially of

only appearances at trade shows; (2) both the companies and their respective

witnesses are located outside Nevada, making defending a lawsuit in Nevada

burdensome; and (3) both companies would be subject to personal jurisdiction in

another forum, namely, Michigan or Tennessee. Order Granting Motion to Dismiss at 2-

3, Video Gaming Techs. (“Dismissal Order”). The court found the remaining

considerations neutral, concluding that this case does not present issues of state

sovereignty; the parties’ respective home states have an interest in the litigation equal

to that of Nevada; and a Nevada district court would be no more convenient or efficient

for Patent Rights than any other district court. Id. at 3. The district court also

considered that Patent Rights is a Nevada company that chose to pursue its claim in

Nevada. Id.

Patent Rights contends that under our precedent this case does not present a

compelling situation where Patent Rights’ and Nevada’s interests are outweighed by the

burden faced by either SPEC or VGT. Patent Rights argues that, on balance, the

2009-1391 8

factors set forth in Burger King indicate that exercising personal jurisdiction over SPEC

and VGT would be reasonable. SPEC and VGT disagree and contend that weighing

the relevant factors leads to the conclusion that asserting personal jurisdiction over

either company is unreasonable. Specifically, they argue that defending this suit in

Nevada is overly burdensome because their respective witnesses and documents

related to the alleged infringing products are outside Nevada. They also contend that

Tennessee and Michigan each have an interest in this suit equal to, if not greater than,

that of Nevada and that either Tennessee or Michigan provides a more efficient forum to

hear Patent Rights’ claims. SPEC and VGT believe that Nevada’s interest here is

limited to providing a forum for Nevada citizens who would be severely economically

disadvantaged by pursuing their claims outside Nevada. They claim that Patent Rights

would not suffer significant hardship, pecuniary or otherwise, if forced to pursue its

claims elsewhere.

We agree with Patent Rights. “[B]ecause modern transportation and

communications have made it much less burdensome for a party sued to defend [itself]”

outside its home state, Burger King, 471 U.S. at 474 (citation omitted), defending this

suit in Nevada is not prohibitively burdensome for either SPEC or VGT. Indeed, their

admitted presence at numerous trade shows in Nevada indicates that, despite their

arguments to the contrary, neither company faces a particularly onerous burden in

defending itself in Nevada.

When SPEC’s and VGT’s respective burdens are weighed against the other

factors set forth in Burger King, in particular Nevada’s and Patent Rights’ interest in this

litigation, it cannot properly be concluded that the either SPEC or VGT has presented a

2009-1391 9

compelling case that the presence of some other consideration would render jurisdiction

unreasonable. See id. 471 U.S. at 477. Here, Nevada has an interest in providing a

convenient forum for all Nevada citizens, not just those who might face severe

economic hardship if forced to litigate outside Nevada. Cf. id. at 473. (“A State

generally has a ‘manifest interest’ in providing its residents with a convenient forum for

redressing injuries inflicted by out-of-state actors.”). This interest extends to actions for

patent infringement. Beverly Hills Fan Co., 21 F.3d at 1568. Moreover, Nevada “has a

substantial interest in cooperating with other states to provide a forum for efficiently

litigating [a] plaintiff’s cause of action.” Id. (citing Keeton v. Hustler Magazine, Inc., 465

U.S. 770, 777 (1984)). By providing a forum for Patent Rights’ claims against SPEC

and VGT, Nevada spares Tennessee and Michigan the burden of providing a forum for

Patent Rights. Not only does this further the “interstate judicial system’s interest in

obtaining the most efficient resolution of controversies,” it also satisfies Patent Rights’

“interest in obtaining convenient and effective relief,” as Patent Rights might otherwise

face the substantial burden of pursuing separate, largely similar actions against SPEC

and VGT in their respective home states.

Because patent infringement is a matter of federal law, “the shared interest of the

several States in furthering fundamental substantive social policies” is not implicated by

this action. See Elecs. for Imaging, Inc. v. Coyle, 340 F.3d 1344, 1352 (Fed. Cir. 2003).

After weighing the relevant factors, we are convinced that this is not the rare situation in

which the plaintiff’s and the state’s interests in adjudicating the dispute in the forum are

so attenuated that they are clearly outweighed by the burden of subjecting the

defendants to litigation within the forum. See Beverly Hills Fan Co., 21 F.3d at 1568.

2009-1391 10

We therefore conclude that the district court erred when it declined to exercise

jurisdiction over SPEC and VGT solely on the ground that to do so was unreasonable.

B. Jurisdictional Discovery

“We review the district court’s denial of discovery, an issue not unique to patent

law, for abuse of discretion, applying the law of the regional circuit,” here the Ninth

Circuit. Autogenomics, Inc. v. Oxford Gene Tech. Ltd., 566 F.3d 1012, 1021-22 (Fed.

Cir. 2009) (citing Digeo, Inc. v. Audible, Inc., 505 F.3d 1362, 1370 (Fed. Cir. 2007)). In

the Ninth Circuit, “discovery should ordinarily be granted where pertinent facts bearing

on the question of jurisdiction are controverted or where a more satisfactory showing of

the facts is necessary.” Laub v. U.S. Dep’t of the Interior, 342 F.3d 1080, 1093 (9th Cir.

2003) (quoting Butcher’s Union Local No. 498 v. SDC Inv., Inc., 788 F.2d 535, 540 (9th

Cir. 1986)). But it is not an abuse of discretion to deny jurisdictional discovery “when it

is clear that further discovery would not demonstrate facts sufficient to constitute a basis

for jurisdiction,” Am. W. Airlines, Inc. v. GPA Group, Ltd., 877 F.2d 793, 801 (9th Cir.

1989) (quoting Wells Fargo & Co. v. Wells Fargo Express Co., 556 F.2d 406, 430 n.24

(9th Cir. 1977)), or where the request for discovery is “based on little more than a hunch

that it might yield jurisdictionally relevant facts,” Boschetto v. Hansing, 539 F.3d 1011,

1020 (9th Cir. 2008) (citing Butcher’s Union, 788 F.2d at 540). “A decision to deny

discovery will not be disturbed except upon the clearest showing that the denial of

discovery results in actual and substantial prejudice to the complaining litigant.” Laub,

342 F.3d at 1093 (citation and quotation marks omitted). “Prejudice is established if

there is a reasonable probability that the outcome would have been different had

discovery been allowed.” Id.

2009-1391 11

 The district court denied Patent Rights’ request for jurisdictional discovery

because the court believed that the “request for jurisdictional discovery, even if granted,

would have no bearing on the . . . [reasonableness] analysis” that led the court to

dismiss the suit. Dismissal Order at 3. Patent Rights essentially argues that the district

court abused its discretion by denying jurisdictional discovery because such discovery is

ordinarily granted where, as here, it would help clarify the issues. SPEC and VGT

respond that the court did not abuse its discretion by denying what they characterize as

an undefined and unsupported discovery request that would not affect the district court’s

analysis.

We again agree with Patent Rights. Patent Rights’ request for jurisdictional

discovery is not based on a mere hunch; rather, the request is supported by the

declaration of Joseph P. Cole, the inventor of the subject matter claimed in the Gaming

Patents and a “member” of Patent Rights. Cole declared that he was aware that SPEC

and VGT had used and marketed what appeared to be infringing gaming machines at

exhibits at the Global Gaming Expo (“the Expo”), a gaming trade show held in Las

Vegas, Nevada. Cole stated that upon information and belief these gaming machines

were operational and set up to present games at the Expo. Although SPEC and VGT

each take issue with Cole’s declaration, neither company denies attending this trade

show and exhibiting gaming products while there. To the extent that either SPEC or

VGT contends that they attended these trade shows without a commercial purpose, we

find that this contention strains credulity. It is simply unrealistic to contend that either

SPEC or VGT, companies engaged in the business of selling gaming products, would

exhibit its products at a gaming trade show in Las Vegas, Nevada, one of the world’s

2009-1391 12

larger gaming markets, without some prospect of commercial benefit. Under these

circumstances, it is apparent that additional discovery may unearth facts sufficient to

support the exercise of personal jurisdiction over one or both of the companies.

Accordingly, we conclude that the district court’s denial of Patent Rights’ request for

jurisdictional discovery resulted in actual and substantial prejudice to Patent Rights—

premature dismissal of Patent Rights’ suit—and therefore constituted an abuse of

discretion.

III. Conclusion

For the foregoing reasons, we conclude that the district court erred when it

declined to exercise personal jurisdiction over SPEC and VGT solely on the basis of

unreasonableness and abused its discretion when it denied Patent Rights’ request for

jurisdictional discovery. We therefore vacate the district court’s judgment and remand

for further proceedings consistent with this opinion.

VACATED and REMANDED

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