United States: Discovery In Website-Based Suit Required To Determine Personal Jurisdiction

Richard Raysman is a Partner in our New York office

Incorporating ergonomics into the workplace, a term/ethos which broadly refers to the principles of "fitting a job to a person," is all the rage these days. Companies large and small, as well as some of their enterprising employees, are extolling the virtues of standing desks and enhanced lumbar support for those millions who spend at least 8 hours a day, 5 days a week fastened to a chair in their cubicle. Designs of ergonomic devices are considered intellectual property by the variety of businesses that provide services related to the optimization of such devices. Such designs, which encompass guides, layouts, images and manuals, recently became the subject of an intellectual property dispute in federal court in Michigan between two companies in the field. Humantech, Inc., v. Ergonomics Plus, Inc., No. 14-CV-12141, 2015 WL 1492224 (E.D. Mich. Mar. 31, 2015). However, the opinion issued discussed herein did not focus on the substantive arguments of the plaintiff, but rather on whether the case could be heard in a Michigan court against an Indiana company without offending Constitutional due process limits on personal jurisdiction.

Facts

Humantech, Inc. (Humantech) is a Michigan corporation that specializes in ergonomic "engineering, training, and consulting." Humantech owns significant intellectual property, including copyrights for guides, manuals, images, and surveys in the field of "ergonomic risk assessment and workplace improvement." Such materials are made available on Humantech's website. Likewise, Ergonomics Plus, Inc. (EP), an Indiana corporation, provides ergonomic consulting services.

This dispute arose when Humantech discovered that EP had posted blogs on its own website that included a "lifting guidelines calculator that was very similar in layout and appearance to" a similar calculator on Humantech's website. In a bit of technical savvy, Humantech averred in its complaint that the calculator posted on EP's website contained metadata identifying one of its employees that had aided in the creation of Humantech's calculator. Humantech also noted that in 2010, EP purchased one of its manuals that included a CD containing the calculator.

After negotiations to resolve the dispute failed, Humantech sued on grounds of copyright infringement, violations of the DMCA, and state trade secrets laws. EP filed a motion to dismiss under Fed. R. Civ. P. 12(b)(2) on the grounds that a court sitting in Michigan lacked personal jurisdiction over an Indiana corporation due to EP's insufficient contacts with Michigan.

Legal Analysis/Conclusions

The court engaged in a bifurcated but not mutually exclusive analysis of the exercise of personal jurisdiction over EP in Michigan by evaluating both the state's long arm-statute (M.C.L. §§ 600.711, 600,715) and the Due Process Clause of the Fourteenth Amendment.  See Beydoun v. Wataniya Restaurants Holding, Q.S.C., 768 F.3d 499 (6th Cir. 2014) (personal jurisdiction analysis with regard to M.C.L. § 600.715 and the Due Process Clause has not merged).

With respect to the long-arm statute, it concluded that it retained jurisdiction over EP because the statute had "uniformly been interpreted to cast an extremely wide net." Specifically, personal jurisdiction is valid pursuant to this statute when a party conducts "the slightest act of business in Michigan." Accordingly, since EP had purchased property from Humantech in Michigan, and Humantech alleged a tort action against it that precipitated an adverse economic effect in Michigan, the court had limited personal jurisdiction over EP under M.C.L. § 600.715.

Whether personal jurisdiction was permissible under the Due Process Clause was considered a closer question. As a structural framework for the analysis that followed, the court limited its discussion to the issue of specific jurisdiction, that is, jurisdiction over a defendant's activity in the forum state that is related to the suit itself.  See Walden v. Fiore, --- U.S. ----, 134 S. Ct. 1115 (2014) (detailed discussion of the law underlying this concept). Specific jurisdiction requires that the defendant have minimum contacts with the forum state in order for jurisdiction to be constitutional.

Michigan courts exist under the purview of the Sixth Circuit, and the latter court has formulated a three-part test to analysis whether sufficient minimum contacts exist: (1) the defendant must purposefully avail himself of the privilege of acting in the forum state or causing a consequence there, (2) the cause of action must arise from the defendant's activities in the forum state, and (3) the acts or consequences of the defendant must have a substantial enough connection with the forum state to make the exercise of jurisdiction reasonable.  S. Mach. Co. v. Mohasco, Indus., Inc., 401 F.2d 374 (6th Cir. 1968).

The Humantech court devoted the bulk of its analysis to the first prong; the "purposeful availment" prong.  Humantech advanced a trio of arguments as to why EP should be triable in Michigan. First, EP's website, which contains information about its services as well as the blog purportedly depicting Humantech's copyrighted lifting guidelines calculator, was accessible by Michigan residents. Second, EP had allegedly copied Humantech's IP and had purchased one of Humantech's products. Finally, EP had allegedly sold its products to Michigan customers.

These rationales were insufficient in and of itself to trigger personal jurisdiction. However, the court concluded that given the opacity of the record, jurisdictional discovery is required as a means of clarifying if EP did in fact purposefully avail itself of the privilege of acting in Michigan. See Murtech Energy Servs., LLC v. ComEnCo. Sys., Inc., 2014 WL 2863745 (E.D. Mich. June 24, 2014) (noting that one of three options for a court when facing a motion to dismiss under Fed. R. Civ. P. 12(b)(2) is to permit discovery). Specifically, the court concluded that the record was unclear as to the veracity of specific actions of EP that would be pertinent to the personal jurisdiction inquiry. For instance, the record did not specify whether EP had obtained the copied property through its purchase from Humantech in Michigan. In the same vein, the record did not illustrate the extent of EP's current business in Michigan, nor did it permit the court to assess whether EP had attempted to compete with Humantech in Michigan, which if true would evince targeting of the forum.

Therefore, Humantech's rationale in favor of personal jurisdiction was premised entirely on EP's website, and its interfacing with Michigan residents. Undoubtedly, EP was aware that its website reached individuals located in Michigan, and that use of its website would probably lead to purchases of its products to the harm of Humantech. However, the Supreme Court emphasized in Walden that "mere knowledge than an intentional tort [copyright infringement] directed at a plaintiff would lead to adverse effects in the forum state is not enough." EP's website must be targeted at the state itself and not only persons living in that state, and at this stage, the mere existence of the website and the knowledge of its owners that it may be used to implicate the owners in an intentional tort could not constitute sufficient targeting for the purposes of a personal jurisdiction analysis.

The court denied EP's motion to dismiss without prejudice. It ordered the parties to conduct limited discovery for a period no greater than 60 days. Following the completion of jurisdictional discovery, EP could renew the motion.

Ultimately, Humantech should probably be pleased with this ruling. Numerous precedents handed down from courts across the nation have rejected personal jurisdiction over an out-of-state entity when such jurisdiction is premised on the existence of a website that can be accessed by individuals in the forum state. And yet, Humantech apparently focused "extensively in its brief" on EP's website and its purported interaction with Michigan residents. It also focused on another jurisdiction case, Calder v. Jones, 465 U.S. 783 (1984), but did not substantially discuss Walden, a case decided thirty years after Calder that significantly altered the context in which Calder would be viewed prospectively. Finally, motions to dismiss under the relevant Rule of Civil Procedure place the burden upon the plaintiff, and it's arguable that only satisfying one prong of the relevant test is insufficient to survive such a motion particularly for the party carrying the burden.

One then naturally wonders if Humantech actually has any significant evidence pertaining to the second and third prongs that could lead to a finding of personal jurisdiction. It seems likely that if they did, it would have been presented in the motion. Limited discovery was authorized for no more than sixty after the entry of the order.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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