Hong Kong Holding Company Subject to Specific Personal Jurisdiction Even Though it Did Not Manufacture, Sell, or Import the Allegedly Infringing Products

The World in U.S. Courts: Fall 2017 - Personal Jurisdiction/Forum Non Conveniens | August.08.2017

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The Chamberlain Group, Inc. v. Techtronic Industries Co., Ltd., US District Court for the Northern District of Illinois, August 8, 2017

Plaintiff Chamberlin Group sued a number of US and non-US entities involved in the manufacture and sale of allegedly infringing garage door openers sold under the Ryobi brand. The parent entity among the defendants, Techtronic Industries Co., Ltd. (TTK-HK), a Hong Kong holding company, argued that the Court could not assert specific personal jurisdiction over it because it had no contacts with Illinois, including that it had no direct or advertising presence and had never conducted any of the following activities in the state: (i) employed anyone, (ii) maintained a registered agent, (iii) paid taxes, (iv) owned, leased, possessed, or maintained any real or personal property, or (v) manufactured, produced, marketed, imported, or sold any products. The Court stated, however, that Chamberlain Group had made an initial showing that TTK-HK approved, monitored, and oversaw both the development of the allegedly infringing products and their sale to an exclusive distributor with a heavy Illinois presence, and on this basis found that it had jurisdiction over the Chinese company.

The Court noted that it was required to apply the jurisdictional law as stated by the US Court of Appeals for the Federal Circuit, which has exclusive jurisdiction over patent infringement cases. Under that law, jurisdiction must satisfy the Illinois “long-arm” jurisdictional statute, which has been construed to apply to the full extent permitted under the Due Process Clause of the US Constitution. The applicable test thus was whether TTK-HK “purposefully directed activities at forum residents,” the claim “arises out of or relates to those activities,” and asserting personal jurisdiction is “reasonable and fair.” The Court acknowledged that two potential rules could apply to the present facts, however. Under one formulation of the “stream of commerce” theory, specific personal jurisdiction may exist where a non-US manufacturer merely “places its product into the stream of commerce” in the US, and that product causes an injury “where there is a regular flow of its product or regular course of sales in that state.” Alternatively, a stricter rule requires “additional conduct” showing an “intent to serve the forum state’s market.”

The Court did not choose between the potentially applicable rules because it found jurisdiction appropriate even under the stricter one. Federal Circuit case law establishes that such “additional conduct” may include evidence that the defendant “to some degree selects or controls the distribution process accounting for the accused product’s presence in the forum state,” for example, through the presence of an “established distribution channel” in a State, or actual knowledge of sales into a state. It found this test satisfied through evidence that TTK-HK “approved and allocated capital necessary to develop and bring to market the allegedly infringing product, and it had at least some say in the decision to continue exploiting a longstanding distribution channel that inexorably deposits a significant number of the products at issue in Illinois.” The Court emphasized that a disproportionate share of the product’s sales were to Illinois, and that TTK-HK’s CEO received regular updates on sales to the US distributor.

TTK-HK argued further that because it did not manufacturer, sell, or import the products into the US, it could not have committed patent infringement and thus the requirement for specific personal jurisdiction that the plaintiff’s claim “arise out of or relate to” its contacts with a forum could not be satisfied. The Court disagreed, finding evidence that TTK-HK may have violated the Patent Act by inducing patent infringement by its subsidiaries—it being irrelevant that Illinois-based infringement was merely one basis for Chamberlain Group’s claims.

Finally, the Court found the assertion of jurisdiction “reasonable and fair,” applying a test that looked primarily to the burden on the defendant, the forum State’s interest in adjudicating the dispute, and the plaintiff’s interest in obtaining convenient and effective relief. (The Court found two factors (the interstate judiciary’s desire to resolve disputes efficiently and to further “fundamental social policies”) applicable only to jurisdictional disputes involving multiple state interests and thus irrelevant to the issue regarding a non-US defendant.) While it found a modest burden on TTK-HK, the Court noted that party’s preexisting retention of counsel in a related trade proceeding, and found that the other pertinent factors—most notably the interest of an Illinois company in protecting its patent with respect to sales made disproportionately to Illinois customers and the convenience to Chamberlain Group of litigating in its home state—supported the reasonableness of proceeding.

[Editor’s note: The Chamberlain Group case is also discussed in the Intellectual Property-Patent section of this report.]

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