“Patent owners that take advantage of the generous venue rules for foreign defendants should not overlook the intricacies of personal jurisdiction.”
The Federal Circuit’s decision in In re HTC Corp., 889 F.3d 1349 (Fed. Cir. 2018), considered whether the TC Heartland decision extended to foreign defendants to afford them the protections of the special patent venue statute, 28 U.S.C. § 1400(b). By finding that no such protections existed, the Federal Circuit reaffirmed the longstanding rule that suits against foreign (alien) defendants “are wholly outside the operation of all the federal venue laws, general and special.” HTC, 889 F.3d at 1354 (citing Brunette Machine Works, Ltd. v. Kockum Industries, Inc., 406 U.S. 706, 714 (1972)). While foreign defendants can still try to persuade a district court judge to transfer a case to a new venue on the basis of the parties’ convenience, the venue laws otherwise offer no protection for foreign defendants.
Why HTC Matters
This matters because product manufacturers are often attractive targets for patent infringement suits for strategic or business reasons. For example, a foreign manufacturer may be the most desirable entity to sue if it is the best potential source of discovery for liability or damages issues. In other situations, the foreign manufacturer may also be the most desirable target if the direct infringer in the United States is a customer or potential customer of the patent owner. There, the patent owner can avoid suing a customer if it can plead indirect infringement by the foreign manufacturer and if the district court can exercise personal jurisdiction over the foreign manufacturer.
Because subject-matter jurisdiction is rarely disputed in patent infringement cases, personal jurisdiction presents the main jurisdictional hurdle for patent owners that are choosing between forums. Personal jurisdiction exists when a defendant’s contacts with the forum state comport both with the state’s long-arm statute, which establishes the statutory test for personal jurisdiction, and with Constitutional due process. When personal jurisdiction is based on a stream-of-commerce theory, selection of a forum can be especially complicated.
Take, for example, a patent owner that relies solely on a foreign manufacturer’s placement of infringing products into the stream of commerce to establish personal jurisdiction. The patent owner must argue that personal jurisdiction is proper because the defendant causes products to be shipped to the U.S. forum state or otherwise has minimum contacts with that state to warrant the court’s exercise of personal jurisdiction. Unfortunately for patent owners and foreign defendants, there are no clear guidelines by which to determine whether personal jurisdiction exists in that situation.
In fact, the Federal Circuit, so far, has avoided constructing 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 under the due process protections of the Constitution. When presented with opportunities to establish such a test, the Federal Circuit has expressly avoided doing so. See, e.g., 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”). The result is that different courts apply different stream-of-commerce tests for personal jurisdiction.
The Asahi Divide
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 infringing products into the stream of commerce. Generally speaking, there are two approaches to steam of commerce, sometimes called the “Asahi divide” in reference to the Supreme Court’s 4-4 split in Asahi Metal Industry Co. v. Superior Court of California, Solano County, 480 U.S. 102 (1987). Mirroring the Justice’s split in Asahi, some jurisdictions take a more liberal approach to stream of commerce by requiring only that the defendant was aware that its products would foreseeably reach the forum state, whereas other jurisdictions also require that the defendant engage in additional conduct purposefully directed to the forum state. Because the same conduct results in personal jurisdiction in some forums and not others, patent owners should consider the following observations and guidelines when filing an infringement lawsuit against a foreign manufacturer with no U.S. presence.
As an initial matter, patent owners should always 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 United States, the patent owner will still have to show that the foreign parent placed, or influenced the placement of, the accused products into the stream of commerce. If the situation is unclear, the patent owner should, through its pre-suit investigation, try to obtain enough information about the foreign defendant to support allegations in the complaint that are sufficient for a court to grant a request for jurisdictional discovery if the defendant contests personal jurisdiction.
Annual reports and other information published for investors can provide a rich source of information about the manufacturing activities of a foreign defendant. The information in an annual report may identify the business activities of the various members of the corporate family, including whether such activities take place in, or are directed at, the U.S. When analyzing annual reports, some courts have decided to exercise personal jurisdiction over a defendant based on generic statements that the defendant’s products are intended for the U.S. market, generally. See, e.g., Koninklijke KPN N.V. v. Kyocera Corp., Case No. 17-cv-0087-LPS-CJB, 2017 U.S. Dist. LEXIS 207204, at *8 (D. Del. Dec. 18, 2017). Where the accused product is such that national distribution and sales are presumed, the defendant’s intent to serve the U.S. market will often suffice to establish personal jurisdiction in courts that exercise jurisdiction based merely on whether the defendant could foresee that its products would reach the forum state, i.e., the broader of the two Asahi tests.
Some Situations Present Higher Hurdles
On the other hand, jurisdiction over a foreign manufacturer is more challenging in those states that apply the narrower of the Asahi tests and require a defendant to purposely avail itself of the laws of the forum state for personal jurisdiction to exist. See, e.g., Lambeth Magnetic Structures, LLC v. Toshiba Corp., Case No. 14-cv-1526, 2017 U.S. Dist. LEXIS 28411, at *12 (W.D. Pa. Mar. 1, 2017). 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.” J. McIntyre Mach., Ltd. v. Nicastro, 564 U.S. 873, 882, 889 (2011) (concurring opinions of Justices Kennedy and Breyer). 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. See, e.g., RegenLab USA, LLC v. Estar Techs. Ltd., 335 F. Supp. 3d 526, 545 (S.D.N.Y. 2018).
In some instances, a defendant’s ties to the United States are so remote that personal jurisdiction is difficult to establish for any particular state. One remedy is the “federal long-arm statute,” Federal Rules of Civil Procedure 4(k)(2). The federal long-arm statute provides a statutory basis for personal jurisdiction when a defendant’s contacts with each state are so minimal that personal jurisdiction does not exist in any state. It is particularly helpful in patent cases where personal jurisdiction is based on a stream-of-commerce theory.
For example, a patent owner may encounter jurisdictional problems in each state if the defendant is a foreign manufacturer that supplies its customers outside of the United States with products that the customers subsequently import into the United States. The manufacturer may not be directing its activities to any state in particular, even if the manufacturer is inducing patent infringement by its customers under 35 U.S.C. § 271(b). In that 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 U.S. contacts 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 alternative. 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 where it is subject to personal jurisdiction. See Touchcom, Inc. v. Bereskin & Parr, 574 F.3d 1403, 1415 (Fed. Cir. 2009).
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 a U.S. subsidiary can be imputed to its 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 exercised by the parent over its subsidiary, including the overlap of corporate officers, financing of operations, division of management, and how each corporate entity obtains its business. Another alternative is to bypass personal-jurisdiction requirements altogether by filing a complaint in the U.S. International Trade Commission. The ITC exercises jurisdiction over products imported into the United States, and personal jurisdiction over the manufacturer is irrelevant to whether the ITC can block importation of infringing products through an exclusion order.
In conclusion, patent owners that take advantage of the generous venue rules for foreign defendants should not overlook the intricacies of personal jurisdiction, particularly when personal jurisdiction is based on a stream-of-commerce theory and the defendant has little or no presence in the United States. Such situations are increasingly common as supply chains become more complex and foreign manufacturing of products that ultimately end up in the United States increases.
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