United States: A U.S. Court Can Dismiss A Case Involving Patent Infringement And Breach Of Contract Based On An Exclusive License Agreement To Manufacture The Patented Invention When The Parties Reside, And The Manufacturing Occurs, Outside The U.S.

Abstract

A U.S. Court in Indiana dismissed a case involving Canadian parties having patent infringement and breach of contract claims based on an exclusive license agreement to manufacture the patented invention. The U.S. Court concluded that courts in Canada were available and adequate to handle the claims, and the dismissal served the public and private interests. 

Background

Bozman and Krepela granted Tyler Research an exclusive license to manufacture shut off valves. The license had no geographical limitation and existed until Bozman's and Krepela's patent rights expired.

Bozman and Krepela subsequently assigned their rights in the shut-off valve technology to JKKB, and JKKB obtained U.S. and Canadian patents on the technology.

Tyler Research then outsourced some of its manufacturing to Envacon, which operated in the same premises as Tyler Research in Canada. JKKB owns 50% of the shares of Envacon, and Bozman indirectly owns 90% of the shares of JKKB.

After several years, Evacon abandoned the premises without notice and continued to manufacture the shut-off valves at another location in Canada without permission from Tyler Research. 

Tyler Research then sued Envancon, Bozman, and JKKB Holdings Corporation, alleging patent infringement, breach of contract, tortious interference, and damages resulting from a civil conspiracy in the Northern District of Indiana.

Defendants moved the Court to dismiss the complaint as having been filed in an inconvenient forum (forum non conveniens), contending that the interests of all involved would be best served continuing the suit in a Canadian court.

The Court granted the defendants' motion and dismissed the case.

The Tyler Research Decision

Under the common law doctrine pertaining to whether a court is an inconvenient forum, a federal court having jurisdiction to hear a lawsuit may dismiss that suit if the dismissal best serves the convenience of the parties and ends of justice and the availability of an adequate alternative forum. Courts typically consider whether dismissing the case would serve the private interest of the parties and public interest of the alternative forum in their analysis.

Tyler Research opposed the motion to dismiss, arguing that the defendants waived their right to invoke the inconvenient forum doctrine because they previously filed two other motions and a Federal Rule of Civil Procedure requires all motions to be filed together. (Federal Rule 12(g) states that "a party that makes a motion under this rule must not make another motion under this rule raising a defense or objection that was available to the party but omitted from its earlier motion.").

Tyler Research attempted to equate the inconvenient forum doctrine to the requirement that the court is a proper "venue" for the case under Federal Rule 12(b)(3). The Court disagreed, explaining that Federal Rule 12(g) governs waiver regarding defenses specifically listed in 12(b)(2)-(5), and the inconvenient forum doctrine is not one of those defenses. The Court further explained that a defense for improper venue concerns whether an action is permitted in a particular district and a motion under the inconvenient forum doctrine addresses the question of whether it is better that an action proceed in a particular court. The Court found that the motion to dismiss was filed in a timely manner, noting there is no time limit to file a motion to dismiss for inconvenient forum and no substantial progress had been made in the litigation.

Tyler Research also argued the proper forum was the Northern District of Indiana, not Canada. But the Court disagreed, explaining that whether Northern District of Indiana is a proper forum was irrelevant to the inquiry of whether the inconvenient forum doctrine should be invoked. 

As to whether Canada was an adequate forum, the Court noted that Tyler Research did not dispute Canada was an available forum. Also, Canada would have jurisdiction over all the parties because all the defendants, as well as Tyler Research, were either Canadian entities, resided in Canada, or had their primary place of business in Canada.

While the Court agreed that a Canadian court is unlikely to adjudicate a claim for infringement based on a U.S. patent, the Court explained Tyler Research could still bring a claim for infringement based on the Canadian patent in a Canadian court.

Further, in a footnote, the Court acknowledged the defendants' arguments that Tyler Research's breach of contract claim would be barred by the Canadian statute of limitations. Without deciding the merits, the Court noted that even if the claim were barred, the Canadian statute of limitations would not affect its analysis because a plaintiff cannot defeat dismissal under the inconvenient forum doctrine by waiting until the statute of limitations in the alternative forum expires, file suit in its preferred forum, and then argue the alternative forum is inadequate.

Lastly, the Court balanced the private interest of the parties and public interests of the alternative forum and found they supported dismissal under the inconvenient forum doctrine.

In evaluating the private interest factors, the Court criticized Tyler Research's position that shut-off valves manufactured abroad, but installed in Indiana, were considered manufactured in this district. The Court explained that the license agreement provided Tyler Research the exclusive right to make the patented invention, so if the defendants do not manufacture the shut off valves in the U.S., Tyler Research could not bring a U.S. patent claim against them.

Regarding the public interest of the Canadian court, the Court noted that all the parties, witnesses and evidence would be in Canada. Furthermore, aside from the infringement claim of the U.S. patent, the rest of the claims would require the Indiana Court to apply Canadian law.

Conclusion

The inconvenient forum doctrine (forum non conveniens) can result in dismissal of an action based on an exclusive license agreement, where a foreign forum is available and adequate, and the public and private interests weigh in favor of the foreign forum. Parties should consider the language of the agreement, and the conduct at issue, when considering where to file a litigation.    

The Tyler Research decision can be found here.

Originally published by LES Insights

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