Recent US Court Decision Addresses Patent Infringement Dispute Between Two Finnish Companies

The World in U.S. Courts: September 2017 - Special Issue | September.27.2017

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The World in U.S. Courts was launched as a quarterly publication almost five years ago to catalogue new U.S. court decisions discussing some of the unique risks and opportunities for parties based in other countries. A few doctrines of special importance to non-U.S. parties are on display in the recent case of Polar Electro Oy v. Suunto Oy, (2017 WL 3713396 (D. Del. August 29, 2017)) a patent infringement case brought by one Finnish company against another. We have prepared this brief summary as an introduction to this complicated field.

Background

Plaintiff Polar Electro Oy (“Polar”), based in Kempele, Finland, holds U.S. patents relating to heart-rate monitoring for athletic purposes. It believed that products made by a competitor, Vaanta, Finland-based Suunto Oy (“Suunto”) infringed these patents, and Polar sued Vaanta in federal district court in Delaware. Suunto distributed its products to brick-and-mortar retailers through two U.S. companies, and both were also sued. The larger distributor, a company referred to as “ASWO,” took title in Finland to all products sold in the U.S. ASWO also fulfilled orders placed by consumers through its own e-commerce platform on the Suunto website.

Discussion

The Court first addressed whether it could assert personal jurisdiction over Suunto, applying precedent from the U.S. Court of Appeals for the Federal Circuit which is applicable to patent infringement cases. That precedent first looks to the law of the forum State of Delaware, whose jurisdictional provisions extend to the full extent permitted under the U.S. Constitution. Thus, the Court stated, Polar was required to show that Suunto had “purposeful minimum contacts” with Delaware and that asserting jurisdiction was otherwise “reasonable and fair.” (Id. at *3 (quotation marks and citation omitted).)  In an earlier phase of the litigation, the Federal Circuit (reversing the district court’s decision) had found the requisite “purposeful minimum contacts” to exist in the form of the shipment of at least ninety-four relevant Suunto products to Delaware retailers. Notably, Suunto neither directed nor even knew where its products would be distributed in the U.S., as those tasks had been assumed by ASWO. Nonetheless, the Court of Appeals found that Suunto and ASWO had “act[ed] in consort” with one another, attributing ASWO’s knowledge and intentions to the manufacturer in order to satisfy the constitutional requirement. (Id. at *5 (quotation marks and citations omitted).  The District Court expressly disagreed with the Court of Appeals’ conclusion, characterizing it as a “foray into factfinding,” id. n.3, but acknowledged that it was bound by the ruling nevertheless.)

The Court of Appeals did not address whether asserting jurisdiction over Suunto was “reasonable and fair,” and this was the issue addressed by the District Court. The Court noted that a five-factor test was used to make the decision, and its discussion of the five factors may be summarized as follows:

  • Burden on Suunto. The Court’s analysis of this factor suggested that asserting jurisdiction would be unfair, noting that the company was based not just in a different state but a different nation with a different legal system. Suunto was willing to respond to litigation in Utah, but the Court concluded this only meant that it was fair for Suunto to be sued in that state, where the company had decided to structure its U.S. distribution there with some “minimum assurance” that Utah would be the U.S. location where the company would be held accountable for its conduct in the U.S. (Id. at *4.)  Combined with what it continued to view as Suunto’s tangential contacts with Delaware, the Court found that “burden” weighed “strongly” against the assertion of jurisdiction. (Id. at *5.)
  • Delaware’s Interest in Adjudicating the Dispute Locally. The absence of a U.S. plaintiff was key to the Court’s conclusion that Delaware’s interest in resolving the case was small. While the state’s judges have much experience with patent infringement cases, local competence was not the same as a local interest in resolving the dispute. Likewise, the Court found that sales within the state were relatively small, and certainly not disproportionately large when compared with sales in other states.
  • Polar’s Interest in Obtaining Effective relief. Retention of the case was not necessary for Polar to obtain relief because the dispute likely could be resolved in Utah, with which Suunto had minimum contacts and indeed consented to suit. In some situations courts defer to a plaintiff’s choice of forum, but the Court noted that this factor was not relevant for purposes of determining whether personal jurisdiction existed over a defendant. Deference in any event is less appropriate where, as here, the plaintiff is not a resident of the forum.
  • The Interest of the “Interstate Judicial System” in Providing Convenient and Effective Relief. The Court found this factor did not support the assertion of jurisdiction over Suunto. Courts in every state would apply the same federal law of patent infringement, and it noted “the location of witnesses and evidence” pointed to the case being resolved more efficiently in Utah. (Id. at *7.)   
  • The Shared Interest of the States in Furthering “Fundamental Social Policies.” Because federal law would apply, and because the Court noted that the individual states had only an “indirect” interest in hosting litigation over a dispute where injuries were not localized, the Court concluded that this factor did not support litigation in Delaware specifically.

The Court thus concluded that this was a “rare situation” where minimum contacts existed but the assertion of personal jurisdiction over the defendant nevertheless would be unfair, and thus prohibited by the U.S. Constitution. (Id. at *9.)  The Court recognized, however, that dismissing Suunto alone, leaving the two U.S.-based distributors as defendants, would create the potential for duplicative litigation if Polar were to sue Suunto in Utah. Accordingly, it decided on its own motion to transfer the entire case to Utah, where, presumably, the matter could be resolved in a single forum.

Analysis

The Polar litigation illustrates a number of issues, principles and possibilities that run through litigation involving non-U.S. entities.

  • The concept of personal jurisdiction in the U.S. is separate from provisions describing where a case may be brought. Although this may be unfamiliar to many litigants outside the U.S., it is a fundamental principle of American litigation, and may be a potent argument for dismissal. As the Court itself noted, the argument may have particular force where a defendant is not based in the U.S.
  • The doctrine certainly is flexible. The District Court’s original finding that Suunto lacked minimum contacts with Delaware was reversed by the Court of Appeals, and Judge Sleet plainly was not happy with this decision. In the end, he found a way to return to his original view while still accepting the appellate decision.
  • A non-U.S. plaintiff will find it harder than a domestic party to retain its preferred choice of forum, and in such case even closer attention should be paid to the nature and quality of the defendant’s contacts, as well as the dispute’s relationship, with the forum.
  • The presence of multiple defendants, some U.S. and some not, will complicate the jurisdictional analysis and make litigation in the U.S. more likely—at least where the non-U.S. defendant is central to the dispute.
  • The Court’s extended discussion of the relative interests of Polar Electro, Delaware and other States in resolving the dispute are useful benchmarks for assessing in advance the likelihood that an effort to force a non-U.S. litigant into an American court will succeed.

While the Polar decision provides a useful survey of certain issues facing non-U.S. litigants, it by no means is an exhaustive one. Typically, the question of a defendant’s “minimum contacts” with a forum will be the most important inquiry in assessing personal jurisdiction, with different tests to be applied depending on the nature of the claims and the court where a dispute has been brought. Additionally, defendants often argue that the “forum non conveniens” doctrine requires dismissal even where jurisdiction exists, based upon an argument that compelling reasons exist for a dispute to be resolved elsewhere.

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