The World in U.S. Courts: Winter 2018 - Intellectual Property – Patents | October.11.2017
FOX sued SRAM, a US corporation, for infringing patents for bicycle shock absorbers. Among the defendants was Sandleford Limited, Taiwan Branch (Ireland), a Taiwanese limited liability company that is an indirect wholly-owned subsidiary of SRAM. Sandleford manufactures the allegedly infringing products in Taiwan and transfers title to them to SRAM in Taiwan. Third-party distributors then purchase the products from SRAM and resell them to customers in many States, including the Court’s forum State of California.
As relevant here, Sandleford moved to dismiss, arguing that its contacts with California were insufficient to support the assertion of specific personal jurisdiction under the Due Process Clause of the US Constitution, which in patent infringement cases only permits actions against non-US defendants that have “purposefully availed” themselves of the protection of a State’s laws. The Court analyzed the question under the “stream of commerce” theory, pursuant to which personal jurisdiction exists where a defendant has placed a product into the “stream of commerce” with an understanding that it would ultimately be sold in a forum State. The Court noted that the contours of the theory remained uncertain, but that it had been adopted by the US Court of Appeals for the Federal Circuit, whose personal jurisdiction rulings apply in patent infringement cases nationwide. Under the Federal Circuit rule, jurisdiction exists over a non-US defendant if “it knowingly participates in a distribution channel that sends accused products to California.” The Court found that test to be met, concluding that “Sandleford knew or should have known that the accused products were ending up in California.”
The Court rejected as irrelevant various additional facts that Sandleford cited to argue that its intentional conduct towards California was insufficient to infer an expectation that it might be sued in the State: That title to the products was transferred in Taiwan, that SRAM’s conduct in California could not be imputed to Sandleford, that Sandleford had no role in determining how or where its products were distributed in the US, and (unlike prior cases) that California sales occurred only through the intervention of two levels of third parties.
The Court found the Due Process requirement that the exercise of jurisdiction be “reasonable” also was satisfied. The litigation was not “so gravely difficult and inconvenient” to Sandleford as to leave the company at a “severe disadvantage,” in part because of “transportation options” and Sandleford’s affiliation with a US corporation. The Court also found that both FOX and California had legitimate interests in wanting the case to proceed in the State.
[Editor’s note: The FOX Factory case is also discussed in the Personal Jurisdiction/Forum Non Conveniens section of this report.]