Foreign Defendant Subject to Personal Jurisdiction for Purposely Directing Activities to the U.S.

Federal CircuitThe Federal Circuit recently reversed and remanded the Minnesota district court’s dismissal of a patent infringement suit brought by M-I Drilling Fluids U.K. Ltd. and M-I LLC (M-I) against Dynamic Air Ltda. (DAL) for lack of personal jurisdiction. See M-I Drilling Fluids UK Ltd. v. Dynamic Air Ltd.,No. 2016-1772, 2018 (Fed. Cir. May 14, 2018) (Before Reyna, Hughes, and Stoll, J.) (Opinion for the court, Hughes, J.) (Concurring opinion, Reyna, J.).

M-I Drilling owns five U.S. patents covering pneumatic conveyance systems, which are utilized in the oil drilling industry to transport drill cuttings from oil rigs to ships as part of the disposal process. M-I LLC is an exclusive licensee of these patents. Brazilian-based DAL is a subsidiary of Minnesota-based Dynamic Air Inc. (DAI).

Pursuant to a contract with Petroleo Brasileiro S.A. (Petrobras), DAL developed and installed pneumatic conveyance systems on two U.S. ships in 2013. M-I subsequently sued DAL in the District of Minnesota for infringement of its patents covering those systems. DAL moved to dismiss, arguing that due process prohibited the district court from exercising specific personal jurisdiction over DAL pursuant to Federal Rule of Civil Procedure 4(k)(2). The district court granted DAL’s motion to dismiss, holding that DAL did not purposefully direct its activities toward the United States, because DAL’s activities onboard U.S. ships arose pursuant to its contract with Petrobras, who unilaterally determined where the pneumatic conveyance system would be installed. The court reasoned that it would neither be reasonable nor fair to exercise specific personal jurisdiction over DAL.

Applying de novo review, the Federal Circuit reversed the district court’s decision, holding that exercising specific personal jurisdiction over DAL was proper and in accordance with due process. The Federal Circuit applied Rule 4(k)(2), which authorizes personal jurisdiction if (1) the dispute involves a federal question; (2) the defendant is not subject to personal jurisdiction in any state; and (3) due process considerations are met.

Neither party disputed that the case involved a federal question and that DAL was not otherwise subject to personal jurisdiction. The only issue was whether the exercise of personal jurisdiction over DAL was consistent with due process. Under Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945), the exercise of due process required that DAL have minimum contacts with the United States, such that the maintenance of the suit would not offend fair play and substantial justice. M-I asserted that DAL’s contact with the U.S. flagged ships, considered to be U.S. territory, satisfied the minimum contacts test.

The Court applied a three-part test: (1) whether DAL purposefully directed activities toward the United States; (2) whether M-I’s claim arose out of or was related to DAL’s activities with the United States; and (3) whether the exercise of personal jurisdiction in this case was reasonable and fair. M-I bore the initial burden to satisfy the first two elements. Once satisfied, the burden shifted to DAL to show additional considerations that would make jurisdiction unreasonable.

The district court reasoned that DAL was merely performing its obligations under the contract with Petrobras, which controlled where the allegedly-infringing systems were installed. The Federal Circuit disagreed. DAL purposefully directed its activities toward the United States when it installed the allegedly-infringing systems on two ships considered to be U.S. territory and ignored M-I’s notification that the DAL systems were infringing M-I’s patents. The burden then shifted to DAL to show additional considerations that would make jurisdiction unreasonable and unfair.

The Court weighed five factors to determine whether exercise of specific jurisdiction over DAL would be reasonable and fair: (1) DAL’s burden; (2) the United States’ interest in adjudicating the dispute; (3) M-I’s interest in obtaining convenient and effective relief; (4) the interstate judicial system’s interest in obtaining the most efficient resolution of controversies; and (5) the shared interest of the states in furthering fundamental substantive social policies.

The Federal Circuit held that it would be reasonable and fair to exercise specific personal jurisdiction over DAL because the United States has an important interest in adjudicating patent infringement disputes and M-I has a keen interest in obtaining convenient and effective relief, especially considering that modern advances in communication and transportation would reduce DAL’s burden of litigating in a distant United States court. Since the forum in this case was the entire United States, there would also be no competing U.S. forum in which it would be more efficient to adjudicate the case. Finally, there was no evidence that authorizing personal jurisdiction over DAL would frustrate foreign relations with Brazil or compromise other social policies.

Accordingly, the Court reversed and remanded the case to the district court to proceed in accordance with the Court’s holding.

Take Away

A foreign defendant in a patent infringement case may be subject to personal jurisdiction in a federal district court for purposely directing activities toward the United States even if the activities are performed in a United States territory at the request of another party with whom the defendant is in a contractual relationship.

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