United States: Foreign Corporations And The Long Arm Of The Law

Can foreign corporations avoid the long arm of the law? A recent order in a Massachusetts declaratory judgment patent case suggests that the answer may be, "sometimes." The case began when Venmill Industries, Inc. filed a complaint in Massachusetts federal court seeking a declaratory judgment of non-infringement of U.S. Patent No. 8,342,905, titled, "Optical Disk Restoration Method and Apparatus." Venmill, a Massachusetts corporation that develops and manufactures disk repair and maintenance products, sought the declaratory judgment after receiving a "cease-and-desist" letter from ELM – a privately held company incorporated in Japan.

In an April 22, 2015 order, Judge Timothy Hillman granted ELM's motion to dismiss for lack of personal jurisdiction. After analyzing whether ELM was subject to personal jurisdiction in Massachusetts pursuant to Fed. R. Civ. Pro. 4(k)(1)(A) and 4(k)(2), the Court determined that asserting jurisdiction over ELM would violate the U.S. Constitution's guarantee of due process and dismissed the case.

The Court evaluated the question of whether ELM is subject to personal jurisdiction in Massachusetts under both general and specific jurisdictional theories. With regard to general jurisdiction under Rule 4(k)(1)(A), the Court assessed whether ELM had "certain minimum contacts" with Massachusetts such that "the maintenance of the suit does not offend traditional notions of fair play and substantial justice." Noting that Venmill's complaint did not include any allegations tying ELM to Massachusetts beyond the fact that ELM's hired U.S. counsel and sent a cease-and-desist letter to Venmill in Massachusetts, the Court emphasized that ELM did not have "'affiliations so continuous and systematic as to render them essentially at home' in Massachusetts," and so exercise of general jurisdiction was inappropriate.

Turning to an analysis of whether ELM had subjected itself to specific jurisdiction for Venmill's declaratory judgment action with regard to the '905 patent as the subject of ELM's cease-and-desist letter, the Court found that the letter itself did satisfy the first two requirements of the Federal Circuit's three-part test for specific jurisdiction. Specifically, the Court found that (a) ELM purposefully directed its activities at Venmill in Massachusetts and (b) Venmill's claim arose out of or related to that activity. As to the third requirement, however, that "assertion of personal jurisdiction is reasonable and fair," the Court found that jurisdiction was not warranted. Relying on the Federal Circuit's rationale in Red Wing Shoe Company, Inc. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355 (Fed. Cir. 1998), the Court noted that, in light of Venmill's failure to allege any contact by ELM with Massachusetts other than the cease-and-desist letter, the Court's exercise of jurisdiction based on the letter alone would not comport with principles of fairness. The Court noted, however, that had ELM engaged in other patent enforcement activity, such as filing an infringement suit, prior to sending the cease-and-desist letter, jurisdiction may be appropriate.

Notably, the Court also directly assessed Venmill's assertion that jurisdiction should be exercised pursuant to the federal long-arm statute, Rule 4(k)(2). While disagreeing with ELM's contention that the requirements of the rule are not met because 35 U.S.C. § 293 provides for jurisdiction in the Eastern District of Virginia as a suitable forum, the Court noted that § 293 is directed to the limited jurisdiction of federal courts rather than the general jurisdiction as required by Rule 4(k)(2). Despite thus finding that ELM was not subject to jurisdiction in any state's courts of general jurisdiction as required by the rule, the Court ultimately determined that the exercise of jurisdiction was not consistent with the due process considerations afforded by the U.S. Constitution and held that "where a plaintiff seeks a declaration of non-infringement against a patentee, principles of fair play and substantial justice require enforcement activities in addition to cease-and-desist letters to make exercise of jurisdiction reasonable."

The order should be notable to companies who, after receipt of a cease-and-desist letter from a foreign patent holder, consider filing an action for a declaratory judgment of non-infringement. A cease-and-desist letter, alone, may not be enough contact with the forum state to merit a Court's exercise of jurisdiction over the patent holder.

The case is Venmill Industries, Inc. v. ELM, Inc., 4-14-cv-40064, in the District of Massachusetts. A copy of the Court's Order is available here.

JUDGE: HILLMAN

Foreign Corporations And The Long Arm Of The Law

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