District Court Finds No Personal Jurisdiction Over Brazilian Company that Installed Equipment on U.S.-Flagged Ship in Brazilian Waters, Even Though Installation Could Give Rise to Patent Infringement Claim

The World in U.S. Courts: Spring 2016 - Personal Jurisdiction/Foreign Sovereign Immunities Act (FSIA)/Forum Non Conveniens

M-I Drilling Fluids UK Ltd. v. Dynamic Air Ltda., U.S. District Court for the District of Minnesota, March 1, 2016

Plaintiff M-I is a U.K. corporation engaged in the business of developing and installing systems on ships to assist in the removal of waste created by the undersea drilling of oil wells. M-I and the defendant Dynamic Air, a Brazilian corporation, responded to a request for proposals for the installation of such systems issued by the Brazilian state-owned oil company, Petrobas. Dynamic Air won the bid and, at the direction of Petrobas, installed systems on seven ships, three of which were U.S.-flagged. M-I sued Dynamic Air in U.S. District Court in Minnesota (where Dynamic Air's corporate parent is located), claiming that the installation of Dynamic Air's systems on the three U.S.-flagged ships anchored in Brazilian waters infringed U.S. patents held by M-I.

As a preliminary matter the Court observed that, under the "Law of the Flag," the ships were U.S. territory and so a U.S. patent infringement claim could be brought based on the installation of the systems.

The Court then considered whether personal jurisdiction could be asserted over the Brazilian defendant, noting that specific personal jurisdiction had been sought under a special federal court rule requiring that (i) the plaintiff's claim arise under federal law, (ii) the defendant is not subject to jurisdiction in any one State's courts, and (iii) the exercise of jurisdiction comports with the Due process Clause of the U.S. Constitution. The rule, notably, permits the assertion of jurisdiction based on a defendant's contacts with the U.S. as a whole, not, as is normally the case, contacts with the particular forum State. The Court noted that in a patent infringement case the applicable test would be the one set out by the U.S. Court of Appeals for the Federal Circuit: M-I would first be required to show first that Dynamic Air "purposefully directed" its activities to residents of the U.S. and that the claim arose out of those contacts. If those requirements were satisfied, the defendant would then have to show that the assertion of jurisdiction would otherwise be "unreasonable."

The Court found that Dynamic Air's installation of equipment on U.S.-flag vessels was not an act of "purposeful direction" at U.S. territory because Petrobas had sole discretion to determine the installation sites, and Dynamic Air did not even know at the time it contracted that installation on a U.S.-flag ship would be required. The Court also concluded that the assertion of jurisdiction over Dynamic Air would be unfair, finding most notably that (i) the burdens of litigation on Dynamic Air would be substantial, citing its nonresident status, travel, and significant translation requirements; (ii) that the U.S. did not have a significant interest in adjudication of the dispute, notwithstanding the claim of infringement of a U.S. patent, because the alleged infringement occurred on a ship in Brazilian waters and the "economic activities" related to the case and the alleged consequences also occurred in Brazil; (iii) litigation of the dispute outside the U.S. would be "convenient and effective" because of parallel litigation already pending in Brazil, despite some uncertainty about the ability of foreign courts to litigate U.S. patent infringement claims; (iv) "judicial convenience" would not be served because most of the evidence and witnesses were in Brazil; and (v) the case would "directly impact" the operations of Petrobas, a Brazilian state-owned entity, thus potentially hindering U.S. foreign relations.

[Editor's Note: The M-I Drilling Fluids case is also addressed in the Intellectual Property-Patent section of this report.]

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