No Personal Jurisdiction Over Swiss Corporations Under Stream of Commerce and Agency Theories

The World in U.S. Courts: Fall 2017 - Personal Jurisdiction/Forum Non Conveniens | July.13.2017

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Nespresso USA, Inc. v. Ethical Coffee Company SA, US District Court for the District of Delaware, July 13, 2017

Nespresso USA—a subsidiary of the Switzerland-based Nestle Corporation—sued Ethical Coffee Company, S.A. for a declaratory judgment that its coffee machines did not infringe Ethical’s patents. In turn, Ethical sued Nespresso USA, Nestle, and other Nestle subsidiaries, including Switzerland-based Nestec, for patent infringement and violation of the US antitrust laws in connection with the manufacture, sale, and distribution of Nespresso machines. The two Swiss Nestle defendants moved for dismissal, alleging a lack of personal jurisdiction.

The Court first concluded that it lacked general personal jurisdiction over the Nestle defendants, as the companies were organized and had their principal place of business in Switzerland, and otherwise lacked ties with the Delaware forum sufficient to make them “at home” in the State. The Court next considered whether the Nestle defendants were subject to specific personal jurisdiction in Delaware under the “stream of commerce” theory, which confers jurisdiction over a nonresident defendant that sold items into the US in such manner that it could be said to have “purposefully availed” itself of the privilege of conducting business in the forum state. Ethical argued this test was satisfied because the Nestle defendants (i) helped to develop and manufacture Nespresso products in the US and profited from those efforts; (ii) held Nespresso USA as a subsidiary; and (iii) owned patents for the Nespresso machines through which Nespresso allegedly infringed Ethical’s patents. The Court rejected these arguments, finding that Ethical failed to establish that Nestle placed—or influenced the placement—of Nespresso products into the US markets generally or Delaware specifically. It further reasoned that a company’s mere ownership of a subsidiary or a US patent alone does not confer personal jurisdiction.

The Court also rejected application of the “agency” theory, under which a non-US parent may be deemed itself to have taken the actions of its US subsidiary if the subsidiary was merely acting as the parent’s agent. The key issue for examination is “the degree of control which the parent exercises over the subsidiary,” as to which the Court said it would consider such factors as (i) the extent of overlap of officers and directors; (ii) methods of financing; (iii) the division of responsibility of day-to-day management; and (iv) the process by which each corporation obtains its business. Here, the Court found the overlap among directors to be minimal, and consistent with a normal parent-subsidiary relationship. It also concluded that Ethical had failed to come forward with evidence suggesting any particular control that either of the Nestle defendants exercised over their US subsidiary, Nespresso.

Finally, the Court rejected Ethical’s assertion that personal jurisdiction could be based on Federal Rule of Civil Procedure 4(k)(2), the so-called “federal long-arm statute.” Rule 4(k)(2) applies to provide personal jurisdiction for federal claims where a non-US defendant has minimum contacts with the US as a whole, but not with any particular forum state. The absence of contacts between the Nestle defendants and the US, and the failure of the “agency” theory to apply, established that the requirements of Rule 4(k)(2) could not be met.

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