Foreign Defendants Cannot Avoid Personal Jurisdiction in One District by Consenting to Personal Jurisdiction in Another

Addressing the issue of personal jurisdiction for a company incorporated outside the United States, the U.S. Court of Appeals for the Federal Circuit affirmed the enforceability of a district court’s injunction after the district court issued a default judgment on infringement, notwithstanding the defendant’s consent to the jurisdiction of a different district court.  Merial Ltd. et al. v. Cipla Ltd., et al.  Case No. 11-1471; -1472 (Fed. Cir., May 31, 2012) (Lourie, J.) (Schall, J., dissenting).

Cipla, a pharmaceutical company incorporated in India, was sued by Merial in the U.S. District Court for the Middle District of Georgia for infringement of two U.S. patents directed to pest control compositions to controls ticks and other pests.  Merial alleged that Cipla was subject to personal jurisdiction because of Cipla’s alleged contacts with and conduct within the state of Georgia; it provided service of process to Cipla in India by courier and registered mail.  Cipla did not respond to the complaint or enter an appearance, and the district court found Cipla in default and granted an injunction.  Cipla’s distributors were informed of the injunction by former Merial executives.  Nevertheless, after the injunction issued, the distributors distributed Cipla products that consisted of reformulations of Merial’s veterinary pesticide products which Merial claimed infringed its patents.  Thus, Merial claimed that both Cipla and Velcera were in contempt of the injunction.  The district court issued a contempt order to both Cipla and the distributor.  Cipla appealed.

In challenging the contempt order, Cipla argued that the district court lacked personal jurisdiction when it issued the default judgment.  Cipla’s main argument on appeal was that Cipla had consented to personal jurisdiction in the Northern District of Illinois, so the Middle District of Georgia could not have jurisdiction over Cipla.  The Federal Circuit, citing Federal Rule of Civil Procedure 4(k)(2), explained that the rule acted as a federal long-arm statute and was applicable to provide a forum for federal claims in situations in which a foreign defendant lacks substantial contacts with any single state but has sufficient contacts with the United States as a whole to satisfy due process standards.  The Federal Circuit further explained that Cipla’s belated consent to suit in Illinois was not sufficient to prevent the application of Rule 4(k)(2) by the Georgia court, since a defendant cannot defeat Rule 4(k)(2) by simply naming another state, as it is the defendant’s burden to identify a forum that would have been proper at the time of filing—regardless of consent. 

The Court explained the “[o]nce it received notice of suit … the choice was Cipla’s whether the jurisdictional question should be settled then or at some point post-judgment.”  The Court further explained that the Georgia court’s “default judgment was premised on a valid exercise of personal jurisdiction under Rule 4(k)(2), and we therefore decline to upset its decision on that basis.”

The Federal Circuit explained that in situations such as this, Rule 4(k)(2) cannot be negated unless one forum is manifestly more appropriate than the other.  The Federal Circuit stopped short, however, of providing “general requirements” for a defendant to prevent the application of Rule 4(k)(2) by consenting to suit in another jurisdiction, but stated it “suffices in this case” to hold that a defendant challenging a prior default judgment may not do so by naming another forum that would not have had an independent basis for jurisdiction at the time of the original complaint.  If Cipla were allowed to do so, defendants could undo an adverse final judgment in one jurisdiction with a bare assertion of consent to jurisdiction in another location. 

The Court also affirmed the district court’s contempt order on other grounds, including that the contempt proceedings should not be stayed in light of defendant’s declaratory judgment action, that the district court properly found direct and inducement of infringement and that the injunction was proper with regard to scope and parties.

Judge Schall in dissent would vacate the contempt and underlying default order and remand the case with instructions to transfer it to the Illinois court.  He argued that the Georgia court should have permitted Cipla designation of Illinois as the forum for the suit.