Agis Software Development LLC v. HTC Corporation, US District Court for the Eastern District of Texas, September 28, 2018
Agis sued HTC, a large Taiwanese developer and manufacturer of smartphones, for patent infringement. HTC argued that it was not subject to the Court’s personal jurisdiction because it had no contacts with the forum—all the smartphones it manufactured for the US market were imported by its US subsidiary and distributed in a manner determined by the subsidiary alone.
The Court stated that jurisdiction could attach consistent with the Due Process Clause of the US Constitution if “(1) the defendant has established minimum contacts with the forum state; and (2) the exercise of jurisdiction would not offend “traditional notions of fair play and substantial justice.” More specifically, it concluded jurisdiction would be appropriate, if at all, under the “stream of commerce” theory, the contours of which it observed remained unsettled. The Court of Appeals for the Federal Circuit, whose law governs patent infringement actions, had, however, stated that jurisdiction “usually” applies where a defendant “purposefully shipped” the allegedly infringing product into the forum State “through an established distribution channel.” The Court found this test satisfied because, even if HTC did not control US distribution, it set its subsidiary up for that purpose and knew that the subsidiary sold HTC smartphones to national telecom networks such as Verizon, Sprint, AT&T, and T-Mobile. Thus, HTC “knew, or reasonably could have foreseen, that a termination point of the channel” was Texas.
The Court also found that HTC had not made the necessary “compelling case” that jurisdiction otherwise would be so unfair as to violate Due Process, describing the requirement principally as one in which “the plaintiff’s interest and the state’s interest in adjudicating the dispute in the forum are so attenuated that they are clearly outweighed by the burden of subjecting the defendant to litigation” there. In the present case, the Court found sufficient plaintiff and State interest existed because of the volume of smartphones involved and HTC’s “concerted effort” to serve the US market.
[Editor’s note: The Agis Software case is also addressed in the Intellectual Property-Patent section of this report.]
Alfandary v. Nikko Asset Management Co., Ltd., US District Court for the Southern District of New York, October 4, 2018
This complicated case was a suit by former executives of the American subsidiary of a Japanese money manager, Nikko Asset Management, claiming they were defrauded out of vested stock purchase rights. In addition to their employer, they sued Nikko, its chief executive officer, and two Japanese parent companies, among other things for vacations of the securities laws. As relevant here, the defendants sought to be dismissed from the case on grounds that they were not subject to personal jurisdiction in New York. The Court found at the outset that the defendants had waived personal jurisdiction defenses in their written separation agreements, which established New York as the “exclusive” forum for resolving employment disputes.
The Court went further, independently concluding that personal jurisdiction was appropriate under the Due Process Clause of the US Constitution. It first addressed the assertion of “general personal jurisdiction” over the defendants, which would allow claims of any kind to be heard but is limited in the situation where a defendant’s contacts with a forum are so extensive that it might be considered “at home” there. General personal jurisdiction over the subsidiary was proper because that company was based in New York. The other defendant corporations were incorporated and based outside the US, however, and general jurisdiction over them in such case would exist only under exceptional circumstances. The Court found those circumstances to be present, principally because Nikko had registered as an investment advisor with the US Securities and Exchange Commission (SEC) and made filings documenting the large volume of assets under management in the US. It was also listed as a “control person” in its US subsidiary’s SEC filings and was directly involved in implementing the stock purchase plan that was the subject of litigation.
The Court also found it had “specific personal jurisdiction” over Nikko, which requires a lesser showing of “minimum contacts” with the forum but is limited to claims arising from or relating to those contacts. The Court noted that in a securities case the applicable constitutional inquiry was whether the defendants had “minimum contacts” with the US as a whole, not merely the forum. It found sufficient contacts by Nikko, which assertedly had implemented the stock purchase plan in part to provide incentives to US employees, did so through direct communications with a substantial number of US residents, and had committed allegedly fraudulent acts through communications with the US plaintiffs in the US. Even if these alleged actions did not give rise to all the plaintiffs’ claims, the Court found they related to the claims and so satisfied the constitutional standard. Nikko’s CEO likewise was subject to personal jurisdiction because he was alleged to have been “directly involved the scheme that caused Plaintiffs’ harm–a scheme that could not have been successfully executed without taking certain actions in the US.”
The Court likewise found Nikko’s direct and indirect parents also subject to specific personal jurisdiction because the plaintiffs had made out a prima facie showing that the companies were co-conspirators of Nikko in the alleged fraud. Personal jurisdiction over co-conspirators was said to exist where: (i) one party was alleged to have violated the securities laws, (ii) the alleged co-conspirator had agreed with the violator to violate the law, (iii) the alleged conspirator had committed an illegal or fraudulent act in furtherance of the conspiracy; and (d) a non-conspirator plaintiff had been damaged. The Court found these requirements were met, primarily because the parents allegedly “were aware of and approved” the allegedly fraudulent plan and had encouraged and facilitated it. The Court also noted the parents allegedly “had extensive control of” the allegedly fraudulent plan implemented by Nikko’s CEO, including acts taken in the US.
The Court found still another basis for personal jurisdiction in the Calder “effects test,” which permits jurisdiction in tort cases where the allegations are that a non-US defendant “expressly aims his conduct” towards the US and harmful US effects occur.
Finally, the Court found that the plaintiffs had satisfied the further Due Process requirement that the exercise of jurisdiction must be “reasonable.” It found that the litigation could be conducted in the US efficiently, that both the plaintiffs’ and the US’s interest in litigating the dispute was significant, and that the defendants had not made the required showing that litigating in the US would be “gravely difficult.”
For the foregoing reasons, the Court denied the defendants’ motions to dismiss.
[Editor’s note: The Alfandary case is also discussed in the Personal Jurisdiction/Forum non Conveniens section of this report.]
[Editor’s note: The Alfandary case is also discussed in the Securities Law/Commodities Exchange Act section of this report.]
Alibaba Group Holding Limited v. Alibabacoin Foundation, US District Court for the Southern District of New York, October 22, 2019
The parent of the Alibaba web services conglomerate sued various Dubai- and Belarus-based companies and individuals for trademark infringement, alleging improper use of Alibaba marks to promote a cryptocurrency called AlibabaCoin. Alibaba sought a preliminary injunction, which requires at least a “reasonable probability” that the Court could assert personal jurisdiction over the defendants. The Court explained that jurisdiction would be proper if consistent with New York law and the Due Process Clause of the US Constitution.
The key New York provision authorizes jurisdiction over parties that “transact business” in the state, a requirement that has been defined potentially to be satisfied by even one commercial contact with a New York resident if “purposeful and there is a substantial relationship between the transaction and the claim asserted.” Jurisdictional discovery revealed at least three transactions in which a New York resident purchased AlibabaCoin. The defendants argued that these purchases were not New York transactions but rather “ledger entries made in Minsk, Belarus, following observation of changes in ‘blockchain’ data outside the United States.” The Court rejected this description, concluding instead that the purchases should be deemed to have occurred “where the buyer clicks the button that commits her to the terms of sale.” The defendants next argued that any contacts with New York residents could not have been “purposeful” since the fact of a New York purchaser was a matter of happenstance. The Court also rejected this argument, citing authority finding purposeful conduct in the electronic transmission of files in response to an order and the maintenance of an interactive website that could be accessed in the US. Finally, the Court rejected the defendants’ argument that isolated contacts could not support specific personal jurisdiction over transactions with residents of other States, observing that jurisdiction attaches not only to claims arising out of a defendant’s contacts with the forum but also claims that are “related” to those contacts. While at some point Alibaba would be required to establish personal jurisdiction over each defendant, the Court concluded that it had met the “reasonable probability” standard for a preliminary injunction through evidence that the defendants collectively were responsible for the sale and marketing of AlibabaCoin and had blurred their own distinct roles in promotional materials.
The Court explained that satisfaction of New York’s requirements for the assertion of personal jurisdiction meant that Due Process requirements of minimum contacts and a relation between those contacts and the plaintiff’s claims were also met. Due Process does, however, impose an independent “reasonableness” requirement, and the Court found this was satisfied by Alibaba’s and New York’s interest in litigating the matter and the defendants’ failure to demonstrate that litigation in the US would pose an extraordinary burden for them.
[Editor’s note: The Alibaba Group case is also discussed in the Intellectual Property-Trademark section of this report.]
Channel One Russia Worldwide v. Infomir LLC, US District Court for the Southern District of New York, September 28, 20188
A group of Russian broadcasters sued a number of companies, including Infomir GmbH and its affiliate, Infomir LLC, a New York company, for allegedly selling set top boxes, servers, and software that allowed individuals to view the broadcasters’ programming without a license. As relevant here, Infomir GmbH, a German corporation with its principal place of business in Germany, moved to dismiss the action for lack of personal jurisdiction.
The Court noted that a plaintiff must satisfy the requirements of both the forum State (New York) and the Due Process Clause of the US Constitution to establish personal jurisdiction. The broadcasters argued that Infomir GmbH satisfied the New York requirement that it had “transacted business” in New York either directly or through its agent (Infomir LLC) and had entered into a contract to supply goods or services in New York. The broadcasters also argued that the two Infomir affiliates were “alter egos” of one another, making the New York contracts of each attributable to both.
The court found that the broadcasters had produced no evidence that Infomir GmbH transacted business in the forum; no information established that the company “manufactures, sells, or otherwise supplies [set top boxes] in New York” or that it “attended trade shows in New York.” Further, the fact that Infomir GmbH had allegedly entered a contract with a New York-based entity could not itself provide a basis for jurisdiction.
The Court rejected the broadcasters’ other argument as well, finding that “[c]onclusory allegations of an alter ego are insufficient to survive a motion to dismiss.” Rather, “to plead alter ego liability, it is not enough to allege that two entities are working in concert . . . a plaintiff must allege ‘complete control by the dominating [entity].’” The court was unpersuaded by plaintiffs’ arguments that (1) the “trademark wrapper” registered to Infomir LLC contained a “contact us” section with information for Infomir GmbH, (2) the software copyright used by third parties using Infomir GmbH’s products was registered to Infomir LLC, (3) both Infomir GmbH and Infomir LLC have transferred trademarks to the same third entity, and (4) information on an EU website, which plaintiffs conclusorily attributed to Infomir GmbH, related to Infomir LLC. None of these facts, per the court, showed that Infomir GmbH “dominated” or “controlled” Infomir LLC such that an alter ego theory could be established.
Dennis v. JPMorgan Chase & Co., US District Court for the Southern District of New York, November 28, 2018
Investors who traded in financial instruments in the US based on the “BBSW” benchmark originating in Australia sued many banks and brokerages claiming to have been injured because the benchmark was set through collusion and the defendants otherwise manipulated the market. They brought suit under the antitrust laws, the securities laws, and RICO.
As relevant here, certain non-US defendants challenged the assertion of personal jurisdiction over them on various grounds. As to the plaintiffs’ antitrust claims, the Court observed that the Sherman Act expanded somewhat the general rules for personal jurisdiction, allowing suit against a defendant in any State in which it “transacts business.” That phrase, in turn, has been defined to mean “the practical, everyday business or commercial concept of doing business or carrying on business of any substantial character”–with “substantial” meaning “some amount of business continuity and certainly more than a few isolated and peripheral contacts with the particular judicial district.” The Court found this standard had not been met. Most of the non-US defendants transacted no business in New York, and the Court refused in the absence of further allegations to conclude they did simply because they may have had subsidiaries that did.
The Court also addressed whether personal jurisdiction over the non-US defendants could be asserted consistent with the requirements of the Due Process Clause of the US Constitution. It first concluded that the question whether a defendant had “minimum contacts” with the forum to satisfy Due Process should be judged with respect to contacts with the US as a whole, not the forum State of New York. It reasoned that each of the antitrust laws, the CEA, and the RICO Act provided for the nationwide service of process, and thus represented an exercise of national, not State, jurisdiction.
“General personal jurisdiction,” pursuant to which claims of any kind could be brought against a defendant, did not exist because this was not an “exceptional case” warranting departure from the rule that general jurisdiction exists only where a corporation is “at home”—where it is headquartered or has its principal place of business.
“Specific personal jurisdiction,” by contrast, requires only “minimum contacts” but is limited to claims arising out of those contacts. The Court addressed three potential theories for specific jurisdiction. First, it noted that jurisdiction attached to a defendant that had “purposefully availed itself of the privilege of doing business in the forum” and as a result could foresee being sued there for disputes arising from or relating to its actions in the forum. The plaintiffs argued the defendants’ purposeful sale of allegedly tainted derivatives in the US satisfied this requirement, but the Court disagreed. It noted that the contacts might suffice for claims more directly related to the sales themselves, but for an antitrust claim relating to the manipulation of the BBSW in Australia the defendants’ US conduct was too far removed.
The Court next considered personal jurisdiction based on an alleged conspiracy among all defendants, with the US contacts of all attributable to each co-conspirator. The conspiracy theory was unavailing, however, because, as noted above, the defendant’s conduct was too remote from the antitrust violation alleged.
Finally, the plaintiffs argued that personal jurisdiction could be based on the “effects test,” which applies where conduct occurs outside the forum and the defendant “expressly aimed its conduct at the forum,” causing a focus of injury there. The Court found this test inapplicable principally because the defendants’ directed their conduct to counterparties worldwide, some of which happened to reside in the US. The fact that injury to US traders was “foreseeable’ was an insufficient basis on which to assert personal jurisdiction.
Enzo Life Sciences, Inc. v. Hologic Inc., US District Court for the District of Delaware, September 26, 2018
Drug maker Enzo sued a Spanish company, GSA, and its US sub, GDS, for patent infringement in connection with the manufacturing and sale by GDS of various blood screening products sold in the US. GSA argued that it should be dismissed because it did not have the required contacts with the US to support personal jurisdiction. Among other things, Enzo argued that, for jurisdictional purposes, GSA should be responsible for its sub’s activities.
The Court observed that a plaintiff must satisfy Delaware’s requirements for asserting personal jurisdiction as well as those of the Due Process Clause of the US Constitution, but that the test was the same: a defendant must have had “minimum contacts” with the State and the exercise of jurisdiction must otherwise not “offend traditional notions of fair play and substantial justice.” Because the parties submitted declarations in support of their arguments and there was no hearing, Enzo was entitled to have all disputed facts assumed to be resolved in its favor and was only required to establish the necessary contacts with “reasonable particularity.”
GSA argued that it did not satisfy the elements of a patent infringement claim because it “has never made, used, advertised, marketed, offered for sale, or sold” any of the relevant products in Delaware or anywhere in the US, and “has no role with respect to the distribution channel” of the products in the US beyond a “general oversight ... that is typical of a corporate parent-subsidiary relationship.” The Court disagreed, citing government filings and public statements that it construed to mean that GSA itself “plays a direct role in the commercial operations relating to” the relevant products in the US, including participation in the “development, sales, and marketing” of the products. In reaching this conclusion, the Court stated that efforts to target the US generally would be deemed to target Delaware because GSA had not affirmatively excluded the Delaware market.
Alternatively, the Court found that GSA was responsible for the actions of its subsidiary under the theory that GDS was acting as GSA’s “agent.” In so doing it relied principally on public statements and regulatory filings in which GSA characterized the acquisition and sale of the relevant products as fulfilling its own worldwide strategy, and on evidence that management of the two companies was “interlinked.”
The Court also concluded that the foregoing established enough direct involvement in US-related matters that GSA “could foresee” being sued in Delaware if a dispute related to those contacts arose. Among other things, the Court noted that GSA had negotiated a right to participate in the defense of this very litigation when it acquired the relevant products and even agreed to pay a portion of any judgment. Nor could GSA establish that keeping it in the case offended “traditional notions of fair play and substantial justice,” as the burdens of litigation were not so great or disproportional to those faced by Enzo, and GSA could hardly claim unfamiliarity with the US legal system.
Frontpoint Asian Event Driven Fund, L.P. v. Citibank, N.A. US District Court for the Southern District of New York, October 4, 2018
Two funds brought a putative class action against 46 banking defendants representing 20 international banking institutions alleging that they manipulated two Singaporean interest rate benchmarks used in the pricing of derivatives, violating the US antitrust laws and RICO. This decision addressed defense motions to dismiss on various grounds and came after an initial complaint was dismissed and certain preliminary issues were resolved.
With respect to personal jurisdiction, the Court noted that the plaintiffs were required to show that the defendants had engaged in “suit-related conduct” in the US. The complaint alleged that certain defendants profited from trades in the US based on the benchmarks. Because one of the goals of the alleged conspiracy was to profit in exactly this way, anywhere in the world, the Court found the allegations sufficient as to those defendants. It also found the allegations adequate as to the other defendants who were alleged to have been co-conspirators on the panel that fixed the benchmarks. The Court separately considered the assertion of jurisdiction over the panel members “reasonable,” as required by the Due Process Clause of the US Constitution, because “there is little burden in requiring them to answer the allegations that they entered into collusive transactions in the U.S.”
Jurisdiction over defendants that were not on the benchmark-setting panel could not be asserted because “no plausible allegations” connected them with the conspiracy.
[Editor’s note: The Frontpoint Asian Event Driven Fund case is also addressed in the RICO section of this report.]
Kyocera International, Inc. v. Semcon IP, Inc., US District Court for the Southern District of California, October 19, 2019
Kyocera sued Semcon in San Diego for a declaration that it had not infringed patents held by Semcon. Semcon moved to dismiss, arguing that claim-based specific personal jurisdiction could not be asserted over it by a California Court because it had no connections with the State: The company and its sole employee were based in New York, it was not registered to do business in California, it neither conducted nor sought business in California, and all efforts to enforce the patents in question were in Texas. The Court agreed.
Kyocera was required to satisfy the requirements of the Due Process Clause of the US Constitution to claim jurisdiction over Semcon. The Court stated that Kyocera must demonstrate that Semcon had “purposefully directed” its conduct towards the forum State, that its claim resulted from injuries that “arise out of or relate to” that conduct, and that the assertion of jurisdiction is otherwise “reasonable and fair.”
The Court found these requirements were not satisfied. In the context of an action for a declaration of non-infringement, the Court stated that the relevant inquiry for specific personal jurisdiction purposes is the extent to which the defendant patentee “purposefully directed its enforcement activities” at California residents and the extent to which the declaratory judgment claim arises out of or relates to those activities. Specifically, merely notifying a California resident of suspected infringement is not enough; a defendant must have engaged in “other activities that relate to the enforcement or the defense of the validity of the relevant patents.” “Other activities” include initiating judicial or extra-judicial patent enforcement in the State or entering into an exclusive license agreement or other undertaking which imposes enforcement obligations with a party “residing or regularly doing business in the forum.” Here, Semcon’s primary connection with California was alleged to be that it served California defendants with a complaint filed in Texas. The Court found that action “tangential” to Kyocera’s request for a declaration of non-infringement. The Court also rejected the argument that jurisdiction could be premised on mediation sessions for settling the Texas case having taken place in California, especially where that location was not shown to have been at Semcon’s urging.
[Editor’s note: The Kyocera case also appears in the Intellectual Property-Patents section of this report.]
Salt Lake City Corporation v. Sekisui SPR Americas, LLC, US District Court for the District of Utah, September 28, 2018
Plaintiff Salt Lake City Corporation hired Southwest Pipeline and Trenchless Corporation to install a sewer liner within an existing sewer pipe in Salt Lake City, Utah. Defendant Sekisui Australia manufactured a proprietary liner product that was sold to Southwest for use in the project, while defendant HydraTech supplied joints that were used to connect and seal the sections of pipe liner. After discovering a leak in the newly installed liner, Salt Lake City brought suit against each for breach of warranty, product liability, negligence and negligent failure to warn. As relevant here, defendants Sekisui Australia, an Australian company, moved to dismiss for lack of personal jurisdiction.
The Court applied the standard two part personal jurisdiction test for minimum contacts required by the Due Process Clause of the US Constitution, analyzing whether (1) Sekisui “purposefully directed its activities at residents of the forum,” and (2) “the plaintiff’s claim arises out of or results from the actions by the defendant himself that create a substantial connection with the forum state.”
Based on affidavits submitted by the parties and resolving all disputes in favor of the plaintiff, the Court concluded that Sekisui Australia had asked Southwest to submit a bid on the Salt Lake City project using its liners, had created design calculations to be used in the bid, had manufactured the liner that was ultimately used (which was eventually sold to Southwest by Sekisui Americas), had sent two of its employees to the jobsite to train Southwest employees, and had specifically approved the use of HydraTech’s products in the project.
The Court found these actions satisfied Due Process requirements. First, it found that Sekisui had purposefully directed its activities toward Utah. Applying the “stream of commerce” test applicable to products sold outside the forum alleged to have caused in-forum injuries, the Court noted that a manufacturer may be subject to personal jurisdiction in a State if it delivered goods into the stream of commerce “with the expectation that they will be purchased” by end-users within that state. A “mere expectation that a good will arrive in a particular state by way of a third-party distributor” is not enough; rather, a court must consider whether there was a “regular course” of sales in the forum State, or whether the manufacturer had done “something more” to direct its product to the forum State, “such as special state-related design, advertising, advice, or marketing.” Because Sekisui Australia encouraged Southwest to place a bid using its liner, created design calculations specific to the project, sent employees to provide training, and approved the use of HydraTech seals, the Court found that Sekisui Australia had specifically directed its product to Utah.
Second, the Court readily found that plaintiff’s claims arose out of Sekisui Australia’s alleged contacts with Utah, as they related directly to the alleged failure of the products that the company provided to the in-forum project. The Court noted that the governing US Court of Appeals for the Tenth Circuit had not yet determined whether a plaintiff must show that the defendant’s actions were the “proximate cause” or merely the “but-for cause” of its alleged injuries, but found both standards satisfied.
Finally, the Court held that asserting personal jurisdiction over Sekisui Australia in Utah would not violate any notions of “fair play and substantial justice.” Considering five “reasonableness” factors – (1) the burden on the defendant, (2) the forum state’s interest in resolving the dispute, (3) the plaintiff’s interest in receiving 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 several States in furthering fundamental social policies – the Court found that Sekisui Australia had not made out the “compelling case” necessary to show that the factors outweighed the presumption that a company with sufficient contacts with a forum nevertheless could not be sued there.
T.R.P. Company, Inc. v. Similasan AG, US District Court for the District of Nevada, November 27, 2018
T.R.P. sued Similasan, a German company, for trademark infringement. Similasan moved to dismiss the complaint on grounds that it had insufficient contacts with the US to support the assertion of personal jurisdiction over it consistent with the Due Process Clause of the US Constitution.
The Court stated that a trademark infringement claim would be treated as a tort for purposes of the jurisdictional analysis, and thus the plaintiff must show that Similasan “purposefully directed” its activities toward the forum, that its claims “arise out of or relate to” those contacts, and that the assertion of jurisdiction otherwise would be “reasonable.” Moreover, because a federal trademark infringement claim had been brought and Similasan had identified no US State in which it claimed sufficient contacts to be sued, the Due Process inquiry under Federal Rule of Civil Procedure 4(k) would look to the German company’s contacts with the US as a whole.
The Court stated that the “purposeful direction” requirement would be judged under the “Calder effects test,” which requires a plaintiff to show that the defendant “(1) committed an intentional act; (2) expressly aimed at the forum state; and (3) the defendant knew that the brunt of the harm was likely to be suffered in the forum state.” The “intentional” nature of Similasan’s alleged infringement was found through the denial of trademark protection for the company’s product because of T.R.P.’s preexisting mark. Targeting of the US (requirements (2) and (3)) was found through the German company’s designation of an affiliate as its US distributor.
The requirement that the plaintiff’s claim arise from or relate to the defendant’s contacts with the forum was construed to mean that the plaintiff’s claim would not have arisen “but for” the defendant’s conduct, and the Court found this requirement easily satisfied as well.
Finally, the Court found the exercise of personal jurisdiction over Similasan to be reasonable, concluding that every relevant factor supported that determination. In so doing it focused on Similasan’s substantial focus on the US, the relatively modest burden imposed on it by the litigation (especially in light of the presence in the US of Similasan’s distributor-affiliate), and the fact that no forum could litigate the matter more efficiently given the location of the witnesses and the progress of the case.
[Editor’s Note: The T.R.P. case is also discussed in the Intellectual Property-Trademark section of this report]
University of Massachusetts Medical School v. L’Oréal S.A., US District Court for the District of Delaware, November 13, 2018
Holder of patent for skin treatment and its exclusive licensee sued the French cosmetics giant L’Oréal for infringement. Personal jurisdiction over L’Oréal was addressed under several alternative analyses.
The Court first addressed the “stream of commerce” theory typically used in connection with product liability cases. This theory looks to activities of a company that introduces a product outside the forum that ends up there and can support personal jurisdiction where the activities are sufficiently targeted to the forum that the company can be said to have “purposefully availed itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.” The Court first noted that the allegedly infringing products were made and sold by L’Oreal’s US sub, observing that no evidence suggested that mere ownership of the sub (or even of the patents) was sufficient for jurisdiction to attach, and that the parent did not itself “have a role in the design, manufacture, marketing, or sale” of the products. The stream of commerce theory was thus inapplicable.
The Court next considered the “agency” theory of personal jurisdiction, under which a parent may become responsible for its sub’s contacts if the sub was deemed to be acting as the parent’s agent in connection with transactions related to a claim. Examining “the extent of overlap of officers and directors, methods of financing, the division of responsibility for day-to-day management, and the process by which each corporation obtains its business,” the Court found L’Oreal’s sub had acted independently. Evidence that the parent was the “entity responsible for the entire group’s strategic, scientific, industrial, and marketing coordination” and that L’Oreal’s Board had met in the US to review the sub’s US strategy was not to the contrary because it did not establish the requisite showing that the parent exercised “control over L’Oréal USA’s day-to-day management and matters of patent infringement.” The Court also cited evidence from L’Oreal that its very large US sub indeed managed its own affairs in significant respects, including as to decisions relevant to the plaintiff’s infringement claims.
Finally, the Court rejected the assertion of jurisdiction under the “federal long-arm statute,” Federal Rule of Civil Procedure 4(k)(2), which applies where a federal claim has been brought and the defendant’s contacts with the US as a whole but not with any one US State are sufficient to satisfy Due Process requirements. The Court found its prior discussion of the inadequacy of allegations of L’Oréal’s involvement with the subject products to be dispositive of this theory as well.
[Editor’s note: The University of Massachusetts decision is also discussed in the Intellectual Property-Patent section of this report.]
US Securities and Exchange Commission v. One or More Unknown Traders in the Securities of Fortress Investment Group, LLC, US District Court for the District of New Jersey, September 27, 2018
The US Securities and Exchange commission sued a variety of non-US individuals and companies alleging insider trading in derivatives linked to the stock of Fortress Investment Group. The fraud was allegedly carried out through brokerage accounts located outside the US, but the transactions led the brokerages to purchase Fortress shares in the US. As relevant here, a number of defendants argued that their ex-US transactions provided insufficient contact with the US for the District Court in New Jersey to assert jurisdiction over them.
The Court stated that the Due Process Clause of the US Constitution imposed a two-part test before personal jurisdiction could be imposed on a non-US defendant. First, a defendant must “purposefully avail” itself of the “privilege of conducting activities within the United States, thus invoking the benefits and protections of its laws.” Based on the allegations of the complaint, it found this requirement was satisfied for three reasons: (i) the defendants were “sophisticated investors” who knew their trades would “trigger” corresponding purchases in the US, (ii) their purchases were made in US dollars based on the US market price of Fortress stock, and (iii) their orders were filled with reference to trading activity in the US market. The Court observed that the contacts need not be with the forum State of New Jersey specifically because the SEC’s claim was based on the federal securities laws, which called for a review of a defendant’s contacts with the US as a whole because the law permitted nationwide service of process. It also noted that these contacts, allegedly constituting “purposeful availment” of the US market, supported the assertion of jurisdiction because they also entitled the defendants to the protections attendant to trading securities in the US. The Court also concluded that the same analysis showed that the SEC had satisfied the Second Due Process test: That the assertion of jurisdiction must be “reasonable.”
[Editor’s Note: The Fortress Investment Group case is also addressed in the Securities Law section of this report.]
Wilson v. Playtika, Ltd., US District Court for the Western District of Washington, November 20, 2018
Plaintiff Sean Wilson, a Washington resident, brought a putative class action against defendants Playtika, Ltd., an Israeli company, and its US affiliates. Playtika makes apps that allow users to play gambling games with virtual coins. Users receive an initial free allotment of coins and may purchase more. Wilson sought to recover money he lost playing the games under a Washington state statute prohibiting illegal gambling. He also alleged violations of the Washington Consumer Protection Act and unjust enrichment. Playtika moved to dismiss for lack of personal jurisdiction, among other reasons.
Wilson conceded that the Court lacked general jurisdiction over Playtika but argued that the Court had specific jurisdiction. The parties first disagreed over which test for specific jurisdiction applied. The “purposeful availment” test, which is often applied in contract cases, focuses on whether the defendant took actions that allowed it to take advantage of the benefits of State’s laws, in which case it would also be subject to obligations the laws imposed. Wilson argued that this test was satisfied by Playtika’s contracts with Washington consumers who downloaded Playtika’s apps. Playtika, however, maintained that the “purposeful direction” test, which is often applied in tort cases, applied. That test focuses on whether the defendant directed its actions towards the forum in a demonstrable way, and Playtika argued the test was not satisfied because it merely placed its app in the stream of commerce and did not direct its activities at Washington.
The Court ultimately agreed with Wilson that the “purposeful availment” test applied and was satisfied. Because Wilson’s claims were primarily based on a statute that prohibited illegal wagering contracts, his claims were better characterized as in contract, rather than in tort. Under this framework, the Court found that “Playtika had purposefully availed itself of the privilege of doing business in Washington,” noting that Playtika used its apps to sell coins to users located in Washington, the coin sales were part of ongoing business relationships, and the transactions allowed Playtika to turn a profit.
The Court added that the “purposeful direction” test would have been satisfied if it had applied, concluding that Playtika had actual or constructive knowledge of its user base in Washington, even though the company may not specifically target Washington residents.
Finally, the Court found that the remaining prongs of the personal jurisdiction analysis had been satisfied: The claims arose out of defendant’s forum-related activities, and the exercise of jurisdiction comported with fair play and substantial justice.