United States: Personal Jurisdiction/Forum Non Conveniens - The World in U.S. Courts: Summer-Fall 2018

Last Updated: December 6 2018
Article by   Orrick

US Company's Failure To Provide Evidence of an Adequate Alternative Forum Fatal to Its Motion To Dismiss on Forum non Conveniens Grounds

Associaçio Brasileira de Medicina de Grupo, DBA Abramge v. Stryker Corp., US Court of Appeals for the Sixth Circuit, May 31, 2018

An association of Brazilian health insurance providers sued Stryker, a Michigan corporation that manufactures and distributes medical devices, alleging that Stryker's fraudulent and improper payments to Brazilian doctors increased the cost of providing healthcare. The District Court had dismissed the case on forum non conveniens grounds, and in this opinion the Court of Appeals reversed.

The Court of Appeals stated that dismissal under the doctrine of forum non conveniens should occur in the "relatively rare case" in which a court, after applying the degree of deference owed the plaintiff's forum choice, finds the defendant has carried its burden of establishing that an "adequate alternative forum" for the dispute exists and that the plaintiff's chosen forum is "unnecessarily burdensome based on public and private interests."

The Court of Appeals noted that the plaintiff was a non-US entity and its selection of a US forum was thus entitled to reduced deference but had no occasion to determine whether alternative factors (such as an ability to obtain jurisdiction over Stryker) provided a stronger case for respecting the plaintiff's decision to litigate in the US.

The Court of Appeals then addressed the adequacy of another forum for the dispute, noting that the plaintiff's ability to litigate elsewhere was a prerequisite to dismissal on forum non conveniens grounds, not merely a factor to be considered and balanced against others. The Court of Appeals observed that an alternative forum could be inadequate because jurisdiction over the defendant cannot be obtained or that the local law does not provide a remedy for the conduct in question—although a forum is not inadequate merely because "its substantive law is different or less favorable to the plaintiff than that of the US forum." Here, Stryker stated in a brief that it would submit to the jurisdiction of the Brazilian courts but provided no documentation of that concession in the form of a binding declaration admissible as evidence. And it provided no evidence of any kind that the Brazilian court would hear the dispute and provide a minimally-adequate remedy. Stryker having failed to show that an adequate alternative remedy existed, the Court of Appeals returned the case to District Court to be litigated.

Forum non Conveniens Defense defeated in Part Because Choice of Law Provision Inadequate to Show that UK Forum was Adequate

Azima v. Rak Investment Authority, US District Court for the District of Columbia, April 13, 2018

Briefly (and simplifying somewhat a complex set of facts), the plaintiff Farhad Azima was an American citizen and resident who was employed for many years by the investment authority of Ras Al Khaimah, one of the UAE emirates (the investment authority is known as "RAKIA"). Azima and RAKIA engaged in several joint ventures and in 2015 and 2016 Azima played some role in trying to resolve a dispute between RAKIA and its former CEO. In March 2016 a business dispute between RAKIA and Azima was settled, with the settlement agreement also reciting as a basis for payment Azima's "informal" service in RAKIA's dispute with its former CEO. RAKIA's relationship with Azima was also then breaking down, however, and RAKIA terminated their relationship in July 2016. During this period, "multiple websites" appeared on the Internet disparaging Azima and containing documents and photographs that Azima alleged had been illegally stolen from his personal and professional computers through "hacking" orchestrated by RAKIA in 2015-2016. That hacking also allegedly resulted in Azima's computers losing data and being infected by malware. Azima then brought federal and state-law claims against RAKIA based on the alleged hacking in federal court in Washington, D.C.

As relevant here, the Court rejected RAKIA's argument that the case should be dismissed under the doctrine of forum non conveniens because it more appropriately should be litigated in the UK. It faulted RAKIA for not providing a factual predicate for satisfying the doctrine's requirements, including a requirement that the UK be an "adequate" alternative forum. And its own review suggested that UK law would not cover the computer-related conduct allegedly giving rise to Azima's injuries. Similarly, the Court rejected RAKIA's argument that its settlement agreement with Azima—which included a forum selection clause providing for disputes to be litigated under English law in the UK—either covered the present dispute or would satisfy the requirements of the forum non conveniens doctrine that the alternative proposed forum be "adequate."

[Editor's note: The Azima case also appears in the Foreign Sovereign Immunities Act (FSIA) section of this report.]

Dutch Parent Exercises Insufficient Control over US Subsidiary to be Deemed its "Alter Ego"

Britax Child Safety, Inc. v. Nuna International B.V., US District Court for the Eastern District of Pennsylvania, July 26, 2018

The plaintiff Britax alleged that a competitor, a Dutch company called Nuna and its US subsidiary, committed patent infringement in connection with the sale of child's car seats. Nuna (Netherlands) argued that it should be dismissed from the case because it was not subject to the Court's jurisdiction.

The Court observed that specific personal jurisdiction (jurisdiction based on a defendant's contacts with the forum) is analyzed under a three-part test: "(1) whether the defendant purposefully directed its activities at residents of the forum state; (2) whether the claims arise out of or relate to those activities; and (3) whether assertion of personal jurisdiction is reasonable and fair." Notably, the Court also stated that, in the context of a patent infringement claim, "the specific jurisdiction analysis centers on the nature and extent of the commercialization of the accused products or services by the defendant in the forum."

Britax first argued that Nuna had "purposefully directed" its actions at Pennsylvania through operation of a website in The Netherlands that promoted Nuna products worldwide and was accessible in Pennsylvania. The Court stated that operation of a website could support jurisdiction only where evidence showed "direct targeting of the forum," and that was not the case. Indeed, Nuna stated that it did not itself "operate" or manage sales over the website but had contracted those functions to a third party. Finally, the Court noted that even if Nuna's sole employee, as alleged, worked in the forum district "eight to twenty days a year," Britax could not satisfy the requirement that its claims have arisen out of those contacts.

Britax also argued that Nuna's US subsidiary, over which jurisdiction was clear, was merely an "alter ego" or "agent" of its parent and so the former's presence in Pennsylvania should be attributed to the Dutch company. The Court explained that a parent's control over a subsidiary could be so strong as to require the subsidiary's independent corporate status to be disregarded but, citing a ten-factor test, only if "clear and convincing evidence" shows that the "parent company is operating the day-to-day operations of the subsidiary such that the subsidiary can be said to be a mere department of the parent." Britax had not made allegations sufficient to meet that standard, but the Court permitted discovery to be taken to discover further facts.

[Editor's note: The Britax Child Safety case is also addressed in the Intellectual Property-Patent section of this report.

Indiana Plaintiff Cannot Sue Korean Water-Heater Manufacturer for Defective Product Purchased in Forum State

Dreibelbeis v. Daesung Celtic Enersys Co. Ltd., US District Court for the Northern District of Indiana, June 27, 2018

The plaintiff, Leroy Dreibelbeis, sued Daesung Celtic Enersys Co., a Korean water-heater manufacturer, in Indiana when the water heater caught fire in his home causing injuries and property damage. The court granted Daesung's motion to dismiss for lack of personal jurisdiction because Dreibelbeis failed to demonstrate that Daesung had contacts with Indiana sufficient for exercising personal jurisdiction.

The Court observed that specific personal jurisdiction could exist under the "stream-of-commerce" theory often used in product liability cases if "the defendant can be said to have targeted the forum; as a general rule, it is not enough that the defendant might have predicted that its goods will reach the forum State." That standard was not satisfied in the present case. Nothing in the record demonstrated that Daesung expected, or could otherwise infer, that its products would be sold in Indiana. Daesung retained a non-Indiana entity to develop distribution networks to promote sales and had no knowledge of the operation of those networks, the States targeted for the sale of products, or the locations where the products were actually sold. The Court found that, under the "stream-of-commerce" theory, the fact that Daesung's products found their way to Indiana unbeknownst to the manufacturer precluded the assertion of jurisdiction.

The Court also explained that exercise of jurisdiction over Daesung was not reasonable and thus would violate the Due Process Clause of the US Constitution, even acknowledging that Indiana may have a strong interest in protecting its citizens from defective products. The absence of adequate contacts by Daesung meant that it was not on notice that it could be sued in Indiana. The Court also observed that Dreibelbeis could obtain relief from the remaining defendants in the case.

Specific Personal Jurisdiction Exists Over UAE Resident Who Traveled to the Forum State to Meet Romantic Partner, Give Gifts to Her there, and Persuade Her to Leave with Him

Henning v. Arya, US District Court for the District of Nevada, July 1, 2018

Plaintiff Jessica Henning, a Nevada resident, sued defendant Chirag Arya, a resident of the United Arab Emirates, for fraudulent misrepresentation and conversion. Henning and Arya met through a matchmaking service. Over the course of several months, Arya visited Henning in Nevada and bought tickets for her to travel internationally with him. Arya also gave and promised to give Henning expensive watches, jewelry, and cars. In an attempt to convince Henning to leave Nevada permanently, Arya also offered her a job at his company. Arya, however, allegedly drank to excess and took back his gifts. Hening alleged that she ended her relationship with Arya because of his drinking and, after Arya refused to return several gifts he had given her, Henning sued. As relevant here, Arya moved to dismiss the complaint for lack of specific personal jurisdiction.

The District Court in Nevada held that it had personal jurisdiction over Arya. The Court noted that personal jurisdiction under Nevada's long-arm statute is as broad as allowed by the Due Process Clause. Thus, the question was whether Arya has the requisite minimum contacts with Nevada to render him subject to Nevada's jurisdiction, and whether the assertion of jurisdiction would comply with traditional notions of fair play and substantial justice.

Addressing the question of minimum contacts first, the Court used a two-factor test for minimum contacts. First, the Court considered whether Arya's relationship with Nevada arose out of contacts Arya himself created. The Court noted that Arya traveled to Nevada with the express purpose of entering into a romantic relationship with Henning, and that he continued to maintain a connection with Nevada by sending gifts and travel arrangements to Henning while she was in Nevada. Arya continued to send Henning gifts, sometimes through third parties, even after Henning retuned to Nevada to avoid seeing Arya further. Indeed, those contacts allegedly harmed Nevada itself, by seeking get Henning to leave the jurisdiction's protections through conversion and misrepresentations. The Court held that these actions established that Arya's relationship with Nevada arose out of contacts he created, satisfying the first Due Process factor.

The Court also concluded that Henning claims arose out of Arya's contacts with Nevada because, "but for" Arya's alleged conduct, Henning would not have been harmed. Finally, the Court concluded exercise of personal jurisdiction over Arya would comport with fair play and substantial justice. It rejected Arya's argument that litigating in Nevada would be too costly, noting that the facts of the case demonstrated Arya's wealth and ability to travel internationally. The Court also reasoned that Nevada's interest in the dispute was significant, given that Henning was in Nevada as she received many of Arya's gifts and allegedly fraudulent misrepresentations, and that Arya attempted to convince her to leave the State.

Specific Personal Jurisdiction Based on Imputation of US Contacts by Alleged Co Conspirator

Iowa Public Employees' Retirement System et al. v. Merrill Lynch et al., US District Court of the Southern District of New York, September 27, 2018

In this antitrust conspiracy action, plaintiffs sued six banking institutions (the "Prime Broker Defendants") engaged in securities lending and stock lending. The plaintiffs also sued US-based EquiLend Holdings LLC and EquiLend Europe, both dealer consortiums that plaintiffs alleged the Prime Broker Defendants used as a front for their conspiracy. The plaintiffs claimed that the Prime Broker Defendants conspired to prevent EquiLend from adopting several innovations that would have served to lower transaction costs and increase transparency in securities and stock lending. They also claimed that the Prime Broker Defendants and EquiLend conspired to prevent EquiLend's competitors from entering the US market. As relevant here, EquiLend moved to dismiss plaintiffs' complaint against EquiLend Europe, arguing that the Court lacked personal jurisdiction over that company, which was headquartered in London and incorporated in the U.K. and Wales.

The District Court in New York found that it had specific personal jurisdiction over EquiLend Europe, citing precedent allowing imputation of the acts of one co-conspirator against all co-conspirators for purposes of personal jurisdiction. In this case, the Court noted that the plaintiffs alleged members of EquiLend Europe's board of directors made statements that showed evidence of the conspiracy, tying them for present purposes to parties in the US.

Personal Jurisdiction Over Brazilian Company Upheld Despite Ro;le of Third Party in Conduct Targeting the US

M-I Drilling Fluids UK Ltd. v. Dynamic Air Ltda, US Court of Appeals for the Federal Circuit, May 14, 2018

M-1 Drilling is a UK company that owns five US patents relating to the disposition of waste from undersea oil wells. It sued Dynamic Air, the Brazilian sub of a US company, for infringement, based on the installation of allegedly infringing products on US-flag ships engaged in oil exploration off the coast of Brazil. Personal jurisdiction was based on Federal Rule of Civil Procedure 4(k), under which personal jurisdiction may be based upon a defendant's contacts with US as a whole, as opposed to contacts only with the forum State, where the plaintiff has brought claims under a federal statute and the defendants' contacts with any one State are insufficient to support jurisdiction in that State. The trial court had dismissed the case because the decision to employ the US flag vessels was made unilaterally by the Brazilian oil company, Petrobras, not by the defendant.

The Court of Appeals for the Federal Circuit, which reviews all appeals of patent infringement cases, observed that the Due Process Clause of the US Constitution only permitted personal jurisdiction to be asserted where "(1) the defendant purposefully directed its activities at residents of the forum; (2) the claim arises out of or relates to the defendant's activities with the forum; and (3) assertion of personal jurisdiction is reasonable and fair." The first factor was critical here, and the Court of Appeals stated that, with respect to patent infringement claims, "the jurisdictional inquiry is relatively easily discerned from the nature and extent of the commercialization of the accused products or services by the defendant in the forum." Whether Dynamic Air had installed machinery on US flag vessels at the direction of Petrobras was found not a defense to personal jurisdiction, especially where Dynamic Air continued its conduct in the face of objections by M-I Drilling. The Court of Appeals also observed that, while Petrobras may have specified the location of Dynamic Air's performance, Dynamic Air had itself chosen to utilize the allegedly infringing products.

The Court of Appeals next determined that the assertion of personal jurisdiction over Dynamic Air was "reasonable and fair," noting that the determination required application of a five-factor test evaluating: "(1) the burden on the defendant; (2) the forum's interest in adjudicating the dispute; (3) the plaintiff'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 first three factors "strongly favored" a finding of fairness because the plaintiff is a US company seeking to enforce its US patents and the burden of international litigation has been reduced by advances in electronic communication. The fourth and fifth factors were deemed largely irrelevant because the case proceeded under Rule 4(k), in which contacts with the entire US were relevant and there was not competing interests of different US States to be considered. The Court of Appeals also concluded that relations between the US and Brazil would not be injured if the case were to proceed. Because this was not one of the "rare cases" in which jurisdiction over a defendant with sufficient US contacts was nonetheless deemed unfair, the case was sent back to the trial court for further proceedings.

[Editor's note: The M-I Drilling Fluids case is also addressed in the Personal Jurisdiction/Forum Non Conveniens section of this report.]

Personal Jurisdiction Cannot be Based on Sale of German Manufacturer's Medical Device in Forum by its Distributor

Morgan v. Trokamed GmbH, US District Court for the Western District of Wisconsin, September 14, 2018

Constance Morgan filed claims against Trokamed, a German manufacturer of a laparoscopic power morcellator medical device, and Blue Endo, the North American distributor of the device. Trokamed's morcellator was used in a surgical procedure on Morgan in Wisconsin and she claims it caused the spread of her cancer. Trokamed moved to dismiss the complaint for lack of personal jurisdiction.

To determine whether it could exercise specific personal jurisdiction over Trokamed, the Court examined whether Trokamed "purposefully availed" itself of the privilege of conducting business in Wisconsin or purposefully directed its activities there. The parties opposing the motion to dismiss, both Morgan and Blue Endo, offered several facts and theories to support extending jurisdiction based on Trokamed alleged contacts with Wisconsin, but each was rejected by the Court.

First, the Court found that the distribution agreement between Trokamed and Blue Endo, by itself, failed to provide sufficient basis for personal jurisdiction. Not only did the distribution agreement lack any provision requiring Blue Endo to market or sell in Wisconsin but it recognized Blue Endo as an independent contractor that had exclusive control over its employees, agents, contractors, and business practices and sole discretion to sell to any person or entity. For example, the agreement's provisions directed sales in the US, Canada, and Mexico but did not specify where Blue Endo would sell within those territories. Thus, because the distribution agreement did no target Wisconsin in any way, the Court declined to extend jurisdiction based solely the agreement as written.

Second, the Court found no evidence that Trokamed had a "regular flow" of sales in Wisconsin as to products that related to Morgan's claims. Morgan only identified two sales of Trokamed's morcellators in Wisconsin. In addition, the Court rejected the argument that Blue Endo's sales of disposable component parts for the morcellators attributed to Trokamed's sales in Wisconsin because the source of the parts was Trokamed was unclear and Blue Endo remained silent on the issue.

Third, the District Court found no basis to extend jurisdiction based on Trokamed's alleged "channels of communication" with Wisconsin customers. Morgan and Blue Endo offered the "Instructions for Use" (IFUs) material accompanying the morcellators as containing language that, they alleged, constituted advice by Trokamed to Wisconsin customers. The guarantee in the IFUs further provided that the manufacturer "shipped in perfect order with regard to function, safety, and reliability." The Court was not persuaded. The relevant portions of the IFUs directed the customer to Blue Endo's contact information and every page of the IFUs include Blue Endo's logo. Thus, the District Court concluded that no one reading the IFUs would know that he or she should contact Trokamed and, in fact, neither of the two known Wisconsin customers had communications with Trokamed.

Finally, the District Court rejected the significance two additional arguments regarding FDA filings and a meeting by Trokamed's general manager in Florida. The Court held that Trokamed's application request and the FDA's approval for Trokamed to sell its morcellator in the US and documents related to the FDA's request for Trokamed to update its IFUs were insufficient to establish specific personal jurisdiction, concluding that, like the distribution agreement, these documents related to Trokamed's contacts with the United States generally rather than Wisconsin specifically. Moreover, no showing was made that Trokamed had any direct communication with Wisconsin customers during the updating process of its IFUs. As to the Florida meeting, the Court observed that the meeting between Trokamed's general manager and Blue Endo's president in another State that had nothing to do with Wisconsin specifically does not provide a basis for exercising personal jurisdiction over Trokamed.

Thus, the Court dismissed the claim against Trokamed on jurisdictional grounds.

District Court Finds Specific Personal Jurisdiction over Individual Nonresident Defendant Based on his Alter Ego Corporations' Contracts

Platypus Wear Inc., v. Bad Boy Europe, Ltd., US District Court for the Southern District of California, August 2, 2018

In this breach of contract and fraud action, plaintiff Platypus Wear sued Bad Boy Europe (BBE), Deep Blue Sports Ltd., and John Gardner. BBE and Deep Blue were both UK companies, and Gardner was a UK citizen. Platypus Wear originally licensed Deep Blue to sell products with one of its trademarks. The licensing agreement provided that the parties agreed to jurisdiction in courts in California. Platypus Wear and Deep Blue later amended their agreement to assign Deep Blue's rights and liabilities to BBE. As the agreement's expiration date approached, Platypus Wear learned that BBE still had a substantial inventory it would be unable to sell after the agreement expired. Garner, Deep Blue and BBE's sole owner and managing director traveled to California to renegotiate the agreement with Platypus Wear. At the end of their negotiations, Platypus Wear agreed to release Deep Blue of liability and assist BBE with selling the remaining inventory. In this lawsuit, Platypus Wear alleged that—without its knowledge—Gardner intended to liquidate BBE and transfer all of its assets and inventory to Deep Blue in an attempt to avoid entirely its obligations to Platypus Wear. Platypus Wear also alleged that BBE continued to sell the trademarked products without paying plaintiff royalties required under the licensing agreement. As relevant here, Gardner sought to dismiss the case, arguing that the Court lacked specific personal jurisdiction over him.

The District Court in California rejected Gardner's argument and held that it had personal jurisdiction over him. As to its contract claims, Platypus Wear argued that because Deep Blue and BBE had contractually agreed to personal jurisdiction in California, and both companies were merely an alter ego for Gardner, Gardner had effectively also consented to personal jurisdiction. In response, Gardner argued that Deep Blue and BBE's agreements did not apply to him personally because the "fiduciary shield doctrine" freed individuals of personal liability in certain cases for actions taken on behalf of a company. The Court first noted that Deep Blue and BBE agreed to non-exclusive jurisdiction of San Diego courts through the licensing agreement and amendments they signed with Platypus Wear. Next, the Court noted the fiduciary shield doctrine precludes personal jurisdiction over an individual associated with a corporation unless the court finds reason to pierce the corporate veil. Thus, the Court reasoned that personal jurisdiction over Gardner for the contract claims would not be appropriate unless Platypus Wear presented a reason to disregard the corporate form of either Deep Blue or BBE because they were "alter egos" of one another.

The Court observed that an individual is deemed to be the alter ego of a corporation when there is such a "unity of interest and ownership" that the separate personalities of the corporation and the individual no longer exist, and when failing to disregard the corporate form would result in fraud or injustice. Here, the Court found that the plaintiff made the required showing that Gardner, Deep Blue, and BBE had a unity of interest and ownership. Gardner was the sole owner, stockholder, and managing director of both Deep Blue and BBE, and Gardner also freely transferred assets between them. Additionally, Deep Blue and BBE failed to observe corporate formalities and BBE was essentially an undercapitalized shell company. These facts, alleged by plaintiff and assumed true at this stage, satisfied the Court that BBE, Deep Blue, and Gardner had a unitary interest. The Court further found that treating Gardner, Deep Blue, and BBE as separate entities would allow Gardner to avoid liability and abuse the corporate form. The Court rejected Gardner's argument that his actions were not fraudulent, noting that at this stage, plaintiffs only had to allege facts that, if true, would justify exercising personal jurisdiction. Having concluded that Deep Blue and BBE were alter egos of Gardner, the Court held that the fiduciary shield doctrine did not apply, and that Gardner was bound by Deep Blue and BBE's consent to personal jurisdiction for the contract claims.

Turning to the tort-based claims, the Court noted that specific personal jurisdiction exists for claims arising out of intentional torts when (1) the defendant purposefully directed his activities toward the forum, (2) the plaintiff's claims arise out of the defendant's forum-related activities, and (3) it is reasonable for the court to assert jurisdiction. To assess whether Gardner directed his activities at California, the Court used the "effects" test, which asks whether the defendant committed an intentional act expressly aimed at the forum State which caused harm that the defendant knew would be suffered in the forum State. The Court held that plaintiff's allegations that Gardner repeatedly traveled to California, contracted with a California business, and made intentional misrepresentations during the course of negotiating with a California company satisfied all the prongs of the effects test. Therefore, the Court concluded that Gardner purposefully directed his activities toward California.

The Court also concluded that plaintiff's claims arose out of Gardner's activities in California, because but for Gardner's allegedly fraudulent misrepresentations plaintiff's claims would not have arisen. The Court noted that Gardner failed to offer any evidence supporting his argument that his actions were not fraudulent. As a result, the Court found that exercising personal jurisdiction over Gardner based on plaintiff's tort claims would be reasonable.

Personal Jurisdiction Asserted Over Operator of German Website Providing Cloud-Based Services Based on the Volume of Business Transacted with US Customers

Plixer International, Inc. v. Scrutinizer GmbH, US Court of Appeals for the First Circuit, September 13, 2018

The defendant, Scrutinizer, is a German company that operates in Germany an eponymous English-language website offering cloud-based website services similar to those offered by the plaintiff, Plixer, a US-based company. Plixer holds a US trademark for "Scrutinizer," and sued the Scrutinizer company in the US for violations of the Lanham Act. A preliminary issue was whether the US court could assert personal jurisdiction over Scrutinizer.

Plixer sought to assert jurisdiction under the "federal long-arm statute," Rule 4(k)(2) of the Federal Rules of Civil Procedure, which requires that: "(1) the cause of action must arise under federal law; (2) the defendant must not be subject to the personal jurisdiction of any state court of general jurisdiction; and (3) the federal court's exercise of personal jurisdiction must comport with due process." The Court of Appeals found that the first two requirements were satisfied; the issue was whether Scrutinizer had the "minimum contacts" with the US as a whole necessary to satisfy the three-part constitutional test: "that (1) its claim directly arises out of or relates to the defendant's forum activities; (2) the defendant's forum contacts represent a purposeful availment of the privilege of conducting activities in that forum, thus invoking the benefits and protections of the forum's laws and rendering the defendant's involuntary presence in the forum's courts foreseeable; and (3) the exercise of jurisdiction is reasonable."

The Court of Appeals first addressed the "purposeful availment" requiring, noting that a website operator does not necessarily open itself to litigation in every US state where its website may be accessed. Rather, construing unsettled law emanating from the US Supreme Court, the Court of Appeals found that jurisdiction may be based on its "regular flow or regular course of sales" to US customers, such that it could have "reasonably anticipated" being sued in the US. In the case at bar, Scrutinizer's US sales in three and one-half years were almost USD200,000, a figure found to meet the minimum requirement. The Court of Appeals also noted that Scrutinizer knew where its customers were located, and could have tried to block US users from accessing its website had it wanted to stay out of the US market. It also cited Scrutinizer's post-litigation application for a US trademark, which it concluded reflected a "desire to deal with" the US market.

Especially because it considered the sufficiency of Scrutinizer's contacts to be a "close call," the Court of Appeals paid particular attention to the Due Process requirement that the assertion of jurisdiction be "reasonable" even if minimum contacts existed. Factors often cited as relevant to this inquiry were found not sufficient to preclude jurisdiction: While "inconvenient" to defend itself against US litigation, Scrutinizer identified no factors that "special or unusual." And the Court of Appeals found that the US had an interest in protecting its citizens against infringement of their US trademarks.

[Editor's note: The Plixer case is also discussed in the Intellectual Property-Trademark section of this report.]

Appointment of US Distributor Showed Targeting of US Market Sufficient to Support Personal Jurisdiction Under Rule 4(k)(2)

RegenLab USA LLC v. Estar Technologies Ltd., US District Court for the Southern District of New York, August 15, 2018

RegenLab is the US affiliate of a Swiss manufacturer of medical devices. It sued Estar, an Israeli company, and Eclipse, Estar's sole US distributor, among others, alleging patent infringement. The defendants moved to dismiss for lack of personal jurisdiction.

As a preliminary matter, the Court observed that personal jurisdiction in patent cases is determined by the law of the US Court of Appeals for the Federal Circuit, which first looks to whether the forum State's "long-arm" statute has been satisfied, and then whether the exercise of personal jurisdiction is consistent with the Due Process Clause of the US Constitution. The Court found the New York statute (which differs in some respects from the Constitutional test) to be satisfied, and so turned to the requirements of the Due Process clause.

Federal Circuit law imposes a three-part Due Process test to establish that specific personal jurisdiction exists: "(1) whether the defendant purposefully directed activities at residents of the forum; (2) whether the claim arises out of or relates to those activities; and (3) whether assertion of personal jurisdiction is reasonable and fair." The "purposeful direction" prong of the test implicated the "stream-of-commerce" theory of personal jurisdiction, which focuses on the presence in the forum of products that are the subject of suit. Noting that the "precise requirements" of that theory remained "unsettled," the Court concluded that the test required at a minimum some "targeting" of the forum by the defendants. It found no such "targeting" by Ester merely from evidence that Ester's distributor, Eclipse, hired New York sales representatives and made substantial sales into the State. Likewise, emails between Ester and three New York doctors were dismissed as "isolated" and insufficient to show "purposeful direction."

Alternatively, the plaintiff argued that personal jurisdiction could attach to Ester under the "federal long-arm statute," Federal Rule of Civil Procedure 4(k)(2), which requires that the claim arise under federal law (which was the case) and that the assertion of jurisdiction satisfy Due Process. Notably, in a Rule 4(k)(2) analysis a defendant's contacts with the US as a whole, not merely the forum State, are considered. The Court found this alternative formulation of the Due Process requirement satisfied by Estar's employment of an exclusive US distributor and its shipment of products to the US for resale. Jurisdiction was also "fair and reasonable—another Due Process requirement—mainly because New York had an interest in protecting its residents from patent infringement, the litigation would not be unduly burdensome for Estar given modern communication options, and no institutional considerations suggest that New York would be a poor forum. A final requirement of Rule 4(k)(2) is that the defendant not be subject to personal jurisdiction in any one State. The Court noted a difference among courts as to which party bore the burden of making this showing and concluded that Ester would be required to identify any other State where suit is possible if it wished to avoid application of the Rule, a point which Ester had not yet addressed.

[Editor's note: The RegenLab USA case is also addressed in the Intellectual Property-Patent section of this report.]

Swiss Company Found Not To Have "Transacted Business" in New York Where Complaint Failed To Allege Negotiation of Agreement in New York or "Ongoing Relationship" With an Entity in the State

Schentag v. Nebgen, US District Court for the Southern District of New York, June 21, 2018

Schentag is a holder of medical patents who entered into a business arrangement with Nebgen so he could obtain funding to commercialize his inventions. Schentag's New York company transferred his patents to a Swiss limited partnership, in exchange for which he received an ownership share and a promissory note. Schentag never received payment under the note and he alleged that the transaction was a fraud. He sued Nebgen in New York under the federal securities laws.

As relevant here, Nebgen's Swiss limited liability company, Holdings, sought dismissal on grounds that it was not subject to the Court's personal jurisdiction. The Court observed that the assertion of personal jurisdiction required that three requirements be satisfied: "(1) the entity must have been properly served, (2) the court must have a statutory basis for exercising personal jurisdiction, and (3) the exercise of personal jurisdiction must comport with constitutional due process."

As to the first requirement, the Court reviewed relevant provisions of New York law which, notably, in some ways are more limited than the constitutional test. At issue was the New York provision authorizing jurisdiction where a defendant "transacts any business within the state," therefore purposefully availing itself of the benefits and protections of New York law, and "the claim arises from those business transactions." Citing a multi-factor test for evaluation this requirement, the Court observed that "special emphasis" should be placed on "the locale of contract negotiations." With this in mind, the complaint was found not to have alleged adequate facts—that discussions occurred in New York "to finalize negotiations" or to "assume liability" for allegedly false representations made by Nebgen prior to formation of the contract. Schentag alleged that he signed contract documents in New York, but the Court observed that the relevant facts related to the defendant's conduct, and no allegations were made regarding contract execution by Holdings. The Court also considered whether Holdings had an "ongoing contractual relationship" with a New York entity and concluded that it did not. The agreement in question provided for a one-time transfer of patents and four payments, which the Court deemed insufficient. Among other factors considered, the Court focused on provisions of the agreements relating to choice-of-law in the event of disputes (Delaware) and the location where notices and payments were to be made (New York), both of which were taken to be proxies for whether Holdings had purposely availed itself of the benefits and protections of New York law. These provisions largely offset one another, and the requirements of New York law were thus found not to be satisfied.

Personal Jurisdiction in Texas Exists Where Chinese Cell Phone Manufacturer Distributed All its Products Through a Texas-Based US Subsidiary

Seven Networks, LLC v. ZTE (USA), Inc., US District Court for the Northern District of Texas, May 30, 2018

Seven Networks holds US patents designed to improve the battery life of cell phones. It sued the Chinese cell phone manufacturer ZTE and its US subsidiary in Texas for patent infringement. ZTE China moved to dismiss based on a lack of personal jurisdiction.

The District Court observed that personal jurisdiction must satisfy the requirements of both State law and the Due Process Clause of the US Constitution, but that only the latter test mattered in the present case because Texas law permits jurisdiction to be asserted to the full extent permitted by the Constitution. The District Court also noted that jurisdiction would have to be assessed under the "stream of commerce" theory applicable to products sold outside the forum but allegedly causing in-forum injuries as a result of movement through the distribution chain. The requirements of the "stream of commerce theory" are unsettled, and in this patent infringement case were to be decided under the law existing in the US Court of Appeals for the Federal Circuit. The District Court characterized Federal Circuit law as permitting jurisdiction to attach where "the manufacturer purposefully shipped products through an established distribution channel with the expectation that those products would be sold in the forum." It found that test to be met in this case because ZTE China's US subsidiary—created specifically for distribution of products in the US—was based in Texas and from there distributed products to destinations in Texas and elsewhere.

The District Court also found that this was not one of the "rare cases" in which a defendant's contacts with the forum were sufficient but other factors would cause the assertion of jurisdiction to "violate traditional notions of fair play and substantial justice." ZTE was correct in stating that it would be burdened by litigation in the US, but the District Court found these burdens substantially minimized by modern electronic communication, especially for a multinational corporation, and in any event outweighed by the "substantial interests" of the US and Texas in prohibiting patent infringement within their borders.

[Editor's note: The Seven Networks case is also addressed in the Intellectual Property-Patent section of this report.]

Specific Personal Jurisdiction Over BMW AG Exists Despite Absence of Evidence of Targeting Forum State

Tomas v. Bayerische Motoren Werke AG, US District Court for the Northern District of Alabama, August 24, 2018

Alabama resident Alejandro Tomas filed a personal injury suit against Defendants Bayerische Motoren Werke of North America ("BMW NA") and its indirect parent company, the German auto maker BMW AG. The suit arose from an incident in Alabama where Tomas was injured after airbags unexpectedly deployed from a vehicle designed and manufactured by the defendants. BMW AG moved to dismiss the complaint for lack of personal jurisdiction since it is a holding company with its principal place of business in Germany and has no direct contacts with Alabama.

The District Court denied BMW AG's motion to dismiss. Although the Court acknowledged that BMW AG has no direct dealings, does not own any property, does not maintain a sales force, and does not advertise in Alabama, the Court found that BMW AG was subject to specific personal jurisdiction. It held that by selling vehicles that it designs, tests, and manufactures to its wholly-owned subsidiary and exclusive distributor, BMW NA, to distribute to its dealership network throughout the US market, including those in Alabama, BMW AG puts its vehicles into the "stream of commerce." Under the governing law of the Eleventh Circuit, where the Court sits, the "stream of commerce test" for personal jurisdiction remains "good law" and is satisfied where a high-volume seller places its products into the stream of commerce knowing those products would end up in the forum state, despite the absence of other contacts by the seller with the forum state. The Court observed that BMW AG manufactured and designed "hundreds of thousands" of BMW branded vehicles that it sold to its US subsidiary which then resold them to authorized dealers in Alabama, so BMW AG "obviously" contemplated that some of its vehicles would have made their way to Alabama. The Court also noted that because BMW AG had appended to Tomas's vehicle a sticker with a VIN number and a notice indicating that the vehicle conformed to US Federal motor vehicle safety, bumper, and theft prevention standards, it was clear that he Court found that BMW "sought to serve" the US rather than merely possessing some . Thus, the Court held it may exercise specific personal jurisdiction over BMW AG and concluded that BMW AG possesses more than some "vague awareness" that its vehicles might reach US markets.

Swiss Device Manufacturer Cannot Be Sued Based on Sales to Distributor with Subsidy in Forum State

Wilson v. Nouvag GmbH, US District Court for the Northern District of Illinois, March 30, 2018

Plaintiff Wilson, a Virginia resident, sued Nouvag GmbH, a privately-owned Swiss company, for injuries allegedly caused by a Nouvag medical device used during surgery on his wife. The court granted Nouvag's motion to dismiss for lack of personal jurisdiction because plaintiff failed to demonstrate that the defendant had any contact with the state of Illinois, nor could he demonstrate that any conduct related to the lawsuit occurred there.

The record showed that Nouvag sold its products to a German company, Wolf GmbH, under an original equipment manufacturer agreement. After the sale, Nouvag had no knowledge of or influence over how Wolf resold and distributed the product so could not be said to have "targeted" sales at the state of Illinois, as would be required for the assertion of personal jurisdiction. Moreover, Nouvag did not even track sales of the devices after they were sold to Wolf, so it could not have known if the products would be sold in Illinois.

Wilson also argued that jurisdiction could be based on the "stream-of-commerce" theory, often applied in products liability cases, where the defendant did not itself sell the products alleged to have caused injury. The Court noted that the requirements of the theory remained unsettled, but that the facts could not support jurisdiction even under the most lenient permissible reading of the theory. Specifically, the Court noted that the mere presence of a distributor in a State was an inadequate basis for jurisdiction, and that no evidence showed that the device at issue even passed through Illinois on its way to Virginia. Finally, the Court rejected Wilson's request to take discovery from Nouvag to learn more about the distribution of the devices. Observing that "foreign nationals usually should not be subjected to extensive discovery to determine whether personal jurisdiction over them exists," the Court noted that Wilson had failed to make the kind of minimal showing of jurisdiction that would warrant overturning the resumption against discovery.

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Events from this Firm
17 Dec 2018, Seminar, New York, United States

Orrick partner Evan Hollander will be co-chairing the Practising Law Institute’s annual Nuts and Bolts of Corporate Bankruptcy seminar, which will be held December 17-18, 2018 at PLI New York Center.

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Intellectual Property partner Rich Martinelli will join The Knowledge Group’s live webcast, “Artificial Intelligence: A Discussion of Intellectual Property Trends and Issues in 2019.”

16 Jan 2019, Other, New York, United States

Intellectual Property partner Paul Fakler will moderate the “The Future of Music Mechanical Licensing” panel at the Copyright and Technology 2019 Conference.

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