The U.S. Court of Appeals for the Federal Circuit has affirmed a decision dismissing a patent infringement action brought by Rates Technology, Inc. (Rates), against Nortel Networks Corp. (NNC), for lack of personal jurisdiction because at the time personal jurisdiction was contested, it was lacking. Rates Technology, Inc. v. Nortel Networks Corp., Case No. 04-1212 (Fed. Cir., Feb. 17, 2005) (Michel, J.).
After Rates filed suit against NNC for patent infringement, NNC, in its answer, raised permissive counterclaims and asserted the defense of lack of personal jurisdiction. NNC, claiming that it was a Canadian holding company that had not manufactured, used, sold or offered for sale the infringing products in the United States, moved to dismiss under Fed. R. Civ. P. 12(b)(2).
The district court scheduled a hearing on the motion to dismiss at the end of the discovery period. During discovery, Rates deposed NNC’s corporate designee and learned that a subsidiary based in the United States, Nortel Networks, Inc. (NNI) – rather than NNC – may have manufactured or sold at least some of the accused products during the period of alleged infringement. Nearly eight months later (four months after the deadline for joining additional parties had passed) and just a few days prior to the hearing, Rates filed a supplemental opposition, attaching a purported counterclaim-reply for infringement that named both NNC and NNI as defendants and repeated verbatim its prior infringement allegations against NNC.
At the hearing, Rates argued that by raising permissive counterclaims, NNC had consented to personal jurisdiction and effectively waived this defense. The district court disagreed and granted NNC’s motion to dismiss, holding that NNC had not waived personal jurisdiction, as the defense was asserted in a timely fashion at the inception of the litigation. The court also dismissed Rates’ claims against NNI, finding that Rates failed to timely and properly name and serve NNI as a defendant in suit. Rates appealed.
The Federal Circuit affirmed, holding that where a defendant properly asserts a defect in personal jurisdiction as a defense in its answer, permissive counterclaims cannot be used by the plaintiff to establish a basis for personal jurisdiction via a counterclaim-reply. The Court explained that although it was applying its own law, its conclusion was supported by jurisprudence from its sister circuits, namely the Third, Fifth, Ninth and D.C. Circuits. The Court also affirmed the district court’s dismissal of Rates’ claims against NNI, noting that Rates’ counterclaim-reply was filed some four months after the deadline for joining additional parties and without leave of court. It was, therefore, improper.
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