December 18, 2018

December 18, 2018

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December 17, 2018

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Unique Venue and Personal Jurisdiction Challenges of Foreign Corporations

In 2017, the Supreme Court rejected the Federal Circuit’s longstanding interpretation of Personal Jurisdiction and Venue in patent infringement actions against domestic companies. 28 U.S.C. §§ 1391, 1400; see TC Heartland LLC v. Kraft Food Group Brands LLC, 137 S. Ct. 1514 (2017). Under TC Heartland, a domestic corporation can only be sued in its State of incorporation or a district where it has both committed acts of infringement and has a regular and established place of business. See id. In effect, the Supreme Court lessened the ability to “forum shop” in jurisdictions with favorable win rates and local patent rules. See id. Notably, the Supreme Court expressly did not address Brunette Mach. Works, Ltd. v. Krockum Indus., Inc., 406 U.S. 706 (1972) which analyzed personal jurisdiction and venue over foreign corporations. See TC Heartland, 137 S. Ct. at 1520 n.2. As such, foreign corporations, presently, are not afforded the same arguments and conveniences regarding forum shopping and unfamiliar jurisdictions. See § 1391(c)(3); id.

For this article, consider the following hypothetical: two boutique companies make hockey sticks. One is incorporated in Maine and has a principal place of business in northern Maine. The second is incorporated in Canada and has a principal place of business in New Brunswick about the length of a hockey stick away. Both companies use the same distributor which accepts title on the doorstep of both businesses and sells to the same U.S. customers. Both companies forsake all control over distribution after that transfer. In fact, both companies are ignorant to the ultimate purchasers dealing only with the distributor. As a result, the Canadian company does not have an established place of business in any state and the Maine company does not have an established place of business in any other state.

An advanced materials company, incorporated in Delaware with a principal place of business in Arizona, believes that certain IP is being infringed by the hockey stick manufacturers and brings suit against each in the District of Arizona. Both file motions to dismiss for lack of personal jurisdiction and improper venue. Citing TC Heartland, the motion is granted for the Maine company because it has no “regular and established place of business” in Arizona. 137 S. Ct. 1514. However, the motion is denied for the Canadian company a few feet away even though it also lacks a “regular and established place of business” in Arizona. This seemingly bizarre result is due to Fed. R. Civ. P. 4(k)(2) (and § 1391(c)(3)).

For reference, here are the relevant rules and statutory provisions:

28 U.S.C. § 1391

  • (b) Venue in general. –A civil action may be brought in–
    • (1) a judicial district in which any defendant resides, if all defendants are residents of the State in which the district is located;
    • (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated; or
    • (3) if there is no district in which an action may otherwise be brought as provided in this section, any judicial district in which any defendant is subject to the court’s personal jurisdiction with respect to such action.
  • (c) Residency. –For all venue purposes—
    • (1) a natural person, including an alien lawfully admitted for permanent residence in the United States, shall be deemed to reside in the judicial district in which that person is domiciled;
    • (2) an entity with the capacity to sue and be sued in its common name under applicable law, whether or not incorporated, shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question and, if a plaintiff, only in the judicial district in which it maintains its principal place of business; and
    • (3) a defendant not resident in the United States may be sued in any judicial district, and the joinder of such a defendant shall be disregarded in determining where the action may be brought with respect to other defendants.

Fed. R. Civ. P. 4(k)(2)

  • (k) Territorial Limits of Effective Service.
    • (2) Federal Claim Outside State-Court Jurisdiction. For a claim that arises under federal law, serving a summons or filing a waiver of service establishes personal jurisdiction over a defendant if:
      • (A) the defendant is not subject to jurisdiction in any state’s courts of general jurisdiction; and
      • (B) exercising jurisdiction is consistent with the United States Constitution and laws.

Fed. R. Civ. P. 4(k)(2) is especially relevant in intellectual property cases as many claims arise under Federal Law.

In addition to improper venue, Fed. R. Civ. P. 4(k)(2)(A) is facially inapplicable to the Maine company, as it is subject to jurisdiction in Maine’s state courts. However, the Canadian company, for sake of this hypothetical, is not subject to personal jurisdiction in any state’s courts. Fed. R. Civ. P. 4(k)(2)(B) codifies the traditional Due Process concerns of ensuring “minimum contacts . . . such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.” Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). Applying Fed. R. Civ. P. 4(k)(2), the relevant forum is the United States as a whole. See, e.g.Touchcom, Inc. v. Bereskin & Parr, 574 F.3d 1403, 1416 (Fed. Cir. 2009) (“However, the due process analysis under Rule 4(k)(2) differs somewhat from the analysis under Rule 4(k)(1), which we analyzed previously. Rule 4(k)(2) ‘contemplates a defendant’s contacts with the entire United States, as opposed to the state in which the district court sits.’ Id. at 1295. Thus, while the test of specific jurisdiction under 4(k)(2) involves the same steps as under 4(k)(1), we must consider appellees ‘contacts with the nation as a whole.’ Id. at 1296.” citing Synthes (U.S.A.) v. G.M. dos Reis Jr. Ind. Com. de Equip. Medico, 563 F.3d 1285 (Fed. Cir. 2009)).

If the Court properly has Personal Jurisdiction over the Canadian company, Venue would be proper under both § 1391(b)(3) and (c)(3). See supra.

For quick background, Fed. R. Civ. P. 4(k)(2) was added in 1993 to correct for the scenario where a foreign corporation was taking advantage of the United States market but lacked minimum contacts in each, individual jurisdiction. See Fed. R. Civ. P. 4 comments to 1993 Amendment. On the facts of this hypothetical, before Fed. R. Civ. P. 4(k)(2), the Canadian hockey stick manufacturer, above, could not be sued in the United States as it would lack minimum contacts in each jurisdiction.

Turning to Personal Jurisdiction, in patent cases, Federal Circuit law, not regional circuit law, applies to questions of Personal Jurisdiction. See, e.g.Autogenomics, Inc. v. Oxford Gene Tech. Ltd., 566 F.3d 1012, 1016 (Fed. Cir. 2009). The Federal Circuit applies “a three-prong test to determine whether specific 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.’ Nuance Commc’ns, Inc. v. Abbyy Software House, 626 F.3d 1222, 1231 (Fed. Cir. 2010) (citing Akro Corp. v. Luker, 45 F.3d 1541, 1545–46 (Fed. Cir. 1995)).” Polar Electro Oy v. Suunto Oy, 829 F.3d 1343, 1348 (Fed. Cir. 2016).

Turning to the Canadian hockey stick manufacturer, prongs (1) and (2) are met. Hockey sticks were purposefully sold into the U.S. market and through those sales the Arizona advanced materials company was aggrieved irrespective of whether any hockey sticks were actually sold in Arizona. In such a case, the last prong will determine the inquiry. “With respect to the last prong, the burden of proof is on the defendant which must present a compelling case that the presence of some other considerations would render jurisdiction unreasonable.” Autogenomics, 566 F.3d at 1018–19 (internal citations and quotations omitted); see also Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477 (1985).

“The reasonableness inquiry encompasses factors including (1) the burden on the defendant, (2) the interests of the forum state, (3) the plaintiff’s interest in obtaining relief, (4) the interstate judicial system’s interest in obtaining the most efficient resolution of controversies, and (5) the shared interest of the several states in furthering fundamental substantive social policies.” Elecs. For Imaging, Inc. v. Coyle, 340 F.3d 1344, 1352 (Fed. Cir. 2003). In this hypothetical, prongs 2-5 are met. See id. (finding prongs 2-5 met under similar facts).

Regarding prong 1: “[t]he unique burdens placed upon one who must defend oneself in a foreign legal system should have significant weight in assessing the reasonableness of stretching the long arm of personal jurisdiction over national borders.” Asahi Metal Indus. Co. v. Superior Court of California, Solano Cty., 480 U.S. 102, 114 (1987). However, the Federal Circuit has found Brazil to Southern California “not unduly burdensome” and Canada to Kansas was a “relatively minimal” burden. Synthes (U.S.A.) v. G.M. Dos Reis Jr. Ind. Com de Equip. Medico, 563 F.3d 1285, 1287 (Fed. Cir. 2009); Deprenyl Animal Health, Inc. v. Univ. of Toronto Innovations Found., 297 F.3d 1343, 1356 (Fed. Cir. 2002) (“cf. Aristech Chem. Int’l, Ltd. v. Acrylic Fabricators, 138 F.3d 624, 629 (6th Cir. 1998) (stating that the district court properly afforded special attention to defendant’s Canadian status but noting that Canadian defendants do not encounter a particularly heavy burden in light of modern transportation and communication methods and the similarity of the Canadian and United States’ legal systems).”)

A boutique hockey stick company will have better success arguing burden than a major multi-national corporation, but, in light of “modern travel and communication,” it might be to no avail. See Aristech, 138 F.3d at 629. Further, the United States would have a greater interest in adjudicating a multi-national corporation’s presumably greater sales and so the “burden” prong might be insufficient for more distant travel in light of a larger incidence of alleged infringement, for example.

Turning away from the hypothetical, what might a foreign corporation wish to do to avoid defending suit all across the United States? Perhaps subject itself to general jurisdiction in a particular state.1

Reframing the hypothetical, what if this is the pre-eminent sporting equipment manufacturer for the United States market. Instead of transferring title of the goods in Canada, what if it opened a place of business a few feet away in the United States? What if all goods flowed into the United States in Maine and then were combined with the Maine hockey stick company’s products and shipped throughout the United States?

If the Arizona materials company wanted to sue the Canadian sporting goods company in Arizona it would have to prove the sporting goods company had “a regular and established place of business” in Arizona. Similarly, if a non-practicing entity wished to sue in Texas it would have to prove “a regular and established place of business” there. By establishing its presence in Maine, the sporting goods company could control where it defended suit gaining experience with the local rules and precedent adding predictability. For certain companies (particularly companies that are frequently involved in federal litigation), the additional litigation certainty could well be worth the expense (and other considerations) of setting up a permanent presence in the United States.


1. There will, of course, be countervailing considerations which may outweigh the benefits discussed in this article. Each set of circumstances should be individually weighed. On certain facts, establishing a U.S. presence might be beneficial. On other facts, it would not be beneficial.

© 2018 Foley & Lardner LLP

TRENDING LEGAL ANALYSIS


About this Author

Joel Diamond, Foley Lardner Law Firm, Intellectual Property Attorney
Associate

Joel Diamond is an associate and intellectual property lawyer with Foley  Lardner LLP and a member of the Intellectual Property Litigation Practice.

Previously, Mr. Diamond was a summer associate with Foley. He also served as an intern to the Honorable Justice Elizabeth McClanahan of the Supreme Court of Virginia.

617-502-3250
Kimberly K. Dodd, Foley Lardner, IP, mechanical devices patent Lawyer, genetic analysis attorney
Partner

Kimberly K. Dodd is a partner and intellectual property lawyer with Foley & Lardner LLP. Her practice includes patent, trademark, copyright, and trade secret counseling and litigation. Ms. Dodd has worked on a variety of disputes involving different technologies, including mechanical devices, electronics, software, medical devices, financial services, and genetic analysis. She is a member of the firm’s IP Litigation and Trademark, Copyright & Advertising Practices, as well as the Life Sciences Industry Team.

She has represented clients in trials in the Northern and Eastern Districts of California, the Western District of Wisconsin, the Eastern District of Texas, the District of Delaware, and Wisconsin state courts. Her trial work includes first- and second-chair experience.

414-319-7345