Intellectual Property - Patents - The World in U.S. Courts: Winter 2019

March.11.2019

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Taiwanese Manufacturer of Smartphones Subject to Personal Jurisdiction in Texas in Patent Infringement Case Because of its Allegedly Purposeful Efforts to Serve the US Market, Even Though all US Distribution was Orchestrated Independently by its US Sub

Agis Software Development LLC v. HTC Corporation, US District Court for the Eastern District of Texas, September 28, 2018

Agis sued HTC, a large Taiwanese developer and manufacturer of smartphones, for patent infringement. HTC argued that it was not subject to the Court’s personal jurisdiction because it had no contacts with the forum—all the smartphones it manufactured for the US market were imported by its US subsidiary and distributed in a manner determined by the subsidiary alone.

The Court stated that jurisdiction could attach consistent with the Due Process Clause of the US Constitution if “(1) the defendant has established minimum contacts with the forum state; and (2) the exercise of jurisdiction would not offend “traditional notions of fair play and substantial justice.” More specifically, the Court concluded that jurisdiction would be appropriate, if at all, under the “stream of commerce” theory, the contours of which it observed remained unsettled. Nevertheless, the Court of Appeals for the Federal Circuit, whose law governs patent infringement actions, had stated jurisdiction “usually” applies where a defendant “purposefully shipped” the allegedly infringing product into the forum State “through an established distribution channel.” The Court found this test satisfied because, even if HTC did not control US distribution, it set its subsidiary up for that purpose and knew that the subsidiary sold HTC smartphones to national telecom networks such as Verizon, Sprint, AT&T, and T-Mobile. Thus, HTC “knew, or reasonably could have foreseen, that a termination point of the channel” was Texas.

The Court also found that HTC had not made the necessary “compelling case” that jurisdiction otherwise would be so unfair as to violate Due Process, describing the requirement principally as one in which “the plaintiff’s interest and the state’s interest in adjudicating the dispute in the forum are so attenuated that they are clearly outweighed by the burden of subjecting the defendant to litigation” there. In the present case, the Court found sufficient plaintiff and State interest existed because of the volume of smartphones involved and HTC’s “concerted effort” to serve the US market.

[Editor’s note: The Agis Software case is also addressed in the Personal Jurisdiction/Forum non Conveniens section of this report.]

Personal Jurisdiction Established Over Spanish Drug Maker Because of its Own Direct Participation in Allegedly Infringing Activities of its US Sub, and on Theory That the Sub Acted as Parent’s Agent in its Commercial Efforts

Enzo Life Sciences, Inc. v. Hologic Inc., US District Court for the District of Delaware, September 26, 2018

Drug maker Enzo sued a Spanish company, GSA, and its US sub, GDS, for patent infringement in connection with the manufacturing and sale by GDS of various blood screening products sold in the US. GSA argued that it should be dismissed because it did not have the required contacts with the US to support personal jurisdiction. Among other things, Enzo argued that, for jurisdictional purposes, GSA should be responsible for its sub’s activities.

The Court observed that a plaintiff must satisfy Delaware’s requirements for asserting personal jurisdiction as well as those of the Due Process Clause of the US Constitution, but that the test was the same: a defendant must have had “minimum contacts” with the State and the exercise of jurisdiction must otherwise not “offend traditional notions of fair play and substantial justice.” Because the parties submitted declarations in support of their arguments and there was no hearing, Enzo was entitled to have all disputed facts assumed to be resolved in its favor and was only required to establish the necessary contacts with “reasonable particularity.”

GSA argued that it did not satisfy the elements of a patent infringement claim because it “has never made, used, advertised, marketed, offered for sale, or sold” any of the relevant products in Delaware or anywhere in the US, and “has no role with respect to the distribution channel” of the products in the US beyond a “general oversight ... that is typical of a corporate parent-subsidiary relationship.” The Court disagreed, citing government filings and public statements that it construed to mean that GSA itself “plays a direct role in the commercial operations relating to” the relevant products in the US, including participation in the “development, sales, and marketing” of the products. In reaching this conclusion, the Court stated that efforts to target the US generally would be deemed to target Delaware because GSA had not affirmatively excluded the Delaware market.

Alternatively, the Court found that GSA was responsible for the actions of its subsidiary under the theory that GDS was acting as GSA’s “agent.” In so doing it relied principally on public statements and regulatory filings in which GSA characterized the acquisition and sale of the relevant products as fulfilling its own worldwide strategy, and on evidence that management of the two companies was “interlinked.”

The Court also concluded that the foregoing established enough direct involvement in US-related matters that GSA “could foresee” being sued in Delaware if a dispute related to those contacts arose. Among other things, the Court noted that GSA had negotiated a right to participate in the defense of this very litigation when it acquired the relevant products and even agreed to pay a portion of any judgment. Nor could GSA establish that keeping it in the case offended “traditional notions of fair play and substantial justice,” as the burdens of litigation were not so great or disproportional to those faced by Enzo, and GSA could hardly claim unfamiliarity with the US legal system.

[Editor’s note: The Enzo case also appears in the Personal Jurisdiction/Forum non Conveniens section of this report.]

Patent Infringement Suit in Texas Against California Defendants Cannot Support Personal Jurisdiction in California for Action Seeking Declaration of Non-Infringement

Kyocera International, Inc. v. Semcon IP, Inc., US District Court for the Southern District of California, October 19, 2019

Kyocera sued Semcon in San Diego for a declaration that it had not infringed patents held by Semcon. Semcon moved to dismiss, arguing that claim-based specific personal jurisdiction could not be asserted over it by a California Court because it had no connections with the State: The company and its sole employee were based in New York, it was not registered to do business in California, it neither conducted nor sought business in California, and all efforts to enforce the patents in question were in Texas. The Court agreed.

Kyocera was required to satisfy the requirements of the Due Process Clause of the US Constitution to claim jurisdiction over Semcon. The Court stated that Kyocera must demonstrate that Semcon had “purposefully directed” its conduct towards the forum State, that its claim resulted from injuries that “arise out of or relate to” that conduct, and that the assertion of jurisdiction is otherwise “reasonable and fair.”

The Court found these requirements were not satisfied. In the context of an action for a declaration of non-infringement, the Court stated that the relevant inquiry for specific personal jurisdiction purposes is the extent to which the defendant patentee “purposefully directed its enforcement activities” at California residents and the extent to which the declaratory judgment claim arises out of or relates to those activities. Specifically, merely notifying a California resident of suspected infringement is not enough; a defendant must have engaged in “other activities that relate to the enforcement or the defense of the validity of the relevant patents.” “Other activities” include initiating judicial or extra-judicial patent enforcement in the State or entering into an exclusive license agreement or other undertaking which imposes enforcement obligations with a party “residing or regularly doing business in the forum.” Here, Semcon’s primary connection with California was alleged to be that it served California defendants with a complaint filed in Texas. The Court found that action “tangential” to Kyocera’s request for a declaration of non-infringement. The Court also rejected the argument that jurisdiction could be premised on mediation sessions for settling the Texas case having taken place in California, especially where that location was not shown to have been at Semcon’s urging.

[Editor’s note: The Kyocera case also appears in the Personal Jurisdiction/Forum non Conveniens section of this report.]

Personal Jurisdiction Over French Parent Company Does Not Exist in Patent Infringement Case Because Manufacturing and Marketing Decisions Were Made by Parent’s Large US Sub

University of Massachusetts Medical School v. L’Oréal S.A., US District Court for the District of Delaware, November 13, 2018

Holder of patent for skin treatment and its exclusive licensee sued the French cosmetics giant L’Oréal for infringement. Personal jurisdiction over L’Oréal was addressed under several alternative analyses.

The Court first addressed the “stream of commerce” theory typically used in connection with product liability cases. This theory looks to activities of a company that introduces a product outside the forum that ends up there and can support personal jurisdiction where the activities are sufficiently targeted to the forum that the company can be said to have “purposefully availed itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.” The Court first noted that the allegedly infringing products were made and sold by L’Oreal’s US sub, observing that no evidence suggested that mere ownership of the sub (or even of the patents) was sufficient for jurisdiction to attach, and that the parent did not itself “have a role in the design, manufacture, marketing, or sale” of the products. The stream of commerce theory was thus inapplicable.

The Court next considered the “agency” theory of personal jurisdiction, under which a parent may become responsible for its sub’s contacts if the sub was deemed to be acting as the parent’s agent in connection with transactions related to a claim. Examining “the extent of overlap of officers and directors, methods of financing, the division of responsibility for day-to-day management, and the process by which each corporation obtains its business,” the Court found L’Oreal’s sub had acted independently. Evidence that the parent was the “entity responsible for the entire group’s strategic, scientific, industrial, and marketing coordination” and that L’Oreal’s Board had met in the US to review the sub’s US strategy was not to the contrary because it did not establish the requisite showing that the parent exercised “control over L’Oréal USA’s day-to-day management and matters of patent infringement.” The Court also cited evidence from L’Oreal that its very large US sub indeed managed its own affairs in significant respects, including as to decisions relevant to the plaintiff’s infringement claims.

Finally, the Court rejected the assertion of jurisdiction under the “federal long-arm statute,” Federal Rule of Civil Procedure 4(k)(2), which applies where a federal claim has been brought and the defendant’s contacts with the US as a whole but not with any one US State are sufficient to satisfy Due Process requirements. The Court found its prior discussion of the inadequacy of allegations of L’Oréal’s involvement with the subject products to be dispositive of this theory as well.

[Editor’s note: The University of Massachusetts decision is also discussed in the Personal Jurisdiction/Forum non Conveniens section of this report.]

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