The Personal Jurisdiction Burden

November 12, 2019 – Article
Intellectual Property Magazine - November Issue
Robert Mattson wrote an article for Intellectual Property Magazine entitled "The Personal Jurisdiction Burden," which is featured in their November issue. 

Patent owners are often faced with the pre-lawsuit decision of whom to sue for patent infringement. Even if one or more potential defendants sell an infringing product in the US, the product itself might be manufactured outside the country by a company with no US presence. A foreign manufacturer may be the most desirable target because the foreign manufacturer is a better source of discovery for liability or damages issues, or because a lawsuit against the foreign manufacturer permits a patent owner to obtain relief without having to sue a potential customer. But how can a patent owner force a foreign manufacturer with no US presence into a US district court?

While the Federal Circuit’s decision in In re HTC Corp,1 opened up all of the district courts for lawsuits against a foreign defendant for purposes of venue, personal jurisdiction requirements still restrict a patentee’s ability to pull a foreign defendant into any federal court. In a typical stream-of-commerce situation presented by the foreign manufacture of an infringing product, the patentee must argue that a foreign defendant is subject to a district court’s personal jurisdiction because the defendant purposefully ships products to the forum US state or otherwise has minimum contacts with the forum state to warrant the court’s exercise of personal jurisdiction. Unfortunately for patentees, the Federal Circuit has thus far avoided the task of articulating a single test by which to assess whether a foreign manufacturer’s placement of products into the stream of commerce results in minimum contacts sufficient for personal jurisdiction to exist.

In fact, when presented with opportunities to establish such a test, the Federal Circuit has expressly avoided doing so.2 Thus, a patent owner should look closely at the tendencies of the forum state, as well as its long-arm statute, if personal jurisdiction over a foreign defendant will be based on the defendant’s placement of the infringing product into the stream of commerce. The results in some jurisdictions will be heavily weighted to whether the defendant was aware that its products would foreseeably reach the forum state, whereas other jurisdictions will require that the defendant engage in additional conduct purposefully directed to the forum state. These approaches loosely reflect the “Asahi divide,” resulting from the Supreme Court’s 4-4 split in Asahi Metal Industry Co v Superior Court of California, Solano County.3 In view of these approaches, there are some pre-suit guidelines that patent owners should consider.
 
First, patent owners should try to ascertain whether accused products are placed into the stream of commerce by the potential defendant or another entity. While a foreign parent corporation may own subsidiaries in the US, the patent owner will still have to show that the foreign parent placed, or influenced the placement of, the accused products in the stream of commerce. If the situation is unclear, the patent owner should try to obtain sufficient information about the foreign defendant to support good-faith allegations in the complaint that will help the patent owner to obtain jurisdictional discovery should the defendant file a motion to dismiss for lack of personal jurisdiction.
 
If a potential defendant or one of its parent companies publishes annual reports or similar information directed to investors, the statements in the reports can provide a rich source of information about the manufacturing activities of the corporate family. When analysing such reports, some courts have decided to exercise personal jurisdiction based on generic statements that the defendant’s products are intended for the US market, generally.4 Where the accused product is such that national distribution and sales are presumed, the defendant’s intent to serve the US market will often suffice to establish personal jurisdiction in courts that exercise jurisdiction based on whether the defendant could foresee that its products would reach the forum state, ie, the broader of the two Asahi tests.
 
On the other hand, those jurisdictions that apply a narrower stream-of-commerce test, requiring a defendant to have purposely availed itself of the laws of the forum state, make jurisdiction over a foreign manufacturer more challenging.5 In those states, when sales are made by a downstream customer or distributor, the sales alone are insufficient to establish minimum contacts. Typically, a patent owner must show that the foreign defendant did “something more” to have “targeted the forum.”6 In such states, isolated emails to customers in the forum state or FDA-manufacturer obligations to customers in the forum state may be insufficient to establish minimum contacts.7
 
When it appears that personal jurisdiction will be difficult to establish for any given state, one remedy is the “federal long-arm statute,” Federal Rules of Civil Procedure 4(k)(2), which can be particularly helpful in patent cases. For example, a patent owner may encounter jurisdictional problems in each state if it seeks to sue a foreign manufacturer for supplying customers outside of the US with products that the customer imports into the US. The manufacturer may not be directing its activities to any state in particular, even if the manufacturer is inducing infringement under 35 USC § 271(b). In this scenario, personal jurisdiction is appropriate in any federal district court under Rule 4(k)(2) if the foreign manufacturer is not subject to personal jurisdiction in any state but still has sufficient contacts with the US, as a whole, to comport with due process.
 
Providing further assistance to patent owners, the Federal Circuit has adopted an approach to Rule 4(k)(2) that encourages patent owners to plead federal long-arm jurisdiction in the alterative. Specifically, patent owners do not have to prove the lack of personal jurisdiction in all 50 states. Instead, the court applies a burden-shifting approach that triggers Rule 4(k)(2) when a defendant contests personal jurisdiction in the forum state and refuses to identify another state that can exercise personal jurisdiction.8
 
Lastly, alternative theories of jurisdiction should be explored. For example, an agency theory of personal jurisdiction may work even where a stream-of-commerce theory fails. Under an agency theory, the specific jurisdictional acts of the US subsidiary can be imputed to the foreign parent corporation if the subsidiary is acting on the parent’s behalf or at its direction. In determining whether an agency relationship exists, courts will look at the degree of control that the foreign parent exercises over the US subsidiary, including the overlap of corporate officers, financing of operations, division of management, and how each company obtains its business. Another alternative to district-court litigation altogether is to file a complaint in the US International Trade Commission. There, personal jurisdiction is irrelevant to whether the ITC can block importation of infringing products.
 
In conclusion, the broad venue provisions that apply to foreign defendants don’t affect the separate requirement that courts must have personal jurisdiction over defendants. In order to take full advantage of the generous venue provisions applicable to foreign defendants, patent owners should be aware of all the different options for establishing personal jurisdiction.

Footnotes
1. 889 F.3d 1349 (Fed Cir 2018).
2. See, eg, Polar Electro Oy v Suunto Oy, 829 F.3d 1343, 1350 (Fed Cir 2016) (declining “to decide which version of the stream-of-commerce theory should apply”).
3. 480 US 102 (1987).
4. See, eg, Koninklijke KPN NV. Kyocera Corp, Case No 17-cv-0087-LPS-CJB, 2017 US Dist LEXIS 207204, at *8 (D Del 18 Dec 2017).
5. See, eg, RegenLab USA, LLC v Estar Techs Ltd, 335 F Supp 3d 526, 544-45 (SDNY 2018).
6. J. McIntyre Mach, Ltd v Nicastro, 564 US 873, 882, 889 (2011) (concurring opinions of Justices Kennedy and Breyer).
7. See RegenLab, 335 F Supp at 545.
8. See Touchcom, Inc v Bereskin & Parr, 574 F.3d 1403, 1415 (Fed Cir 2009).