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Foreign Corporation Lawsuit Jurisdiction

Wednesday, June 27, 2018   (0 Comments)
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A Foreign Corporation that Installed Infringing Products on U.S.-Flagged Ships May Be Sued for Patent Infringement in Any Federal Court, Regardless of Connection to that Forum

By John Paul, Brian Kacedon, and M. David Weingarten

Abstract: The U.S. Court of Appeals for the Federal Circuit determined that a Brazilian corporation that installed infringing conveyor systems on a U.S.-flagged ship could be sued for patent infringement in a court located in Minnesota, a state where the infringer had no contacts.

Determining where a U.S. company may be sued for infringement, and in particular whether a court has personal jurisdiction over an infringer, typically involves considering whether the infringer has sufficient contacts with the state where the court sits to make it fair for a court in that state to decide a case involving that infringer.

Determining where a foreign company may be sued for patent infringement, and in particular whether a court has personal jurisdiction over an infringer, can involve considering whether the foreign company may be sued in an any state court. If not, under Rule 4(k)(2) of the Federal Rules of Civil Procedure, the foreign infringer may be sued in a federal court regardless of whether the infringer has contacts within the state where the court sits, so long as the infringer has sufficient contacts throughout the entire United States. This provision effectively acts as a federal long-arm statute, allowing a foreign infringer to be sued in a U.S. federal court.

Background
As a result of a bidding process among Brazilian companies, Petrobras engaged DAL to install pneumatic conveyers to transport waste cuttings created by drilling undersea oil wells, and DAL installed conveyor systems on the HOS Resolution and the HOS Pinnacle, both U.S.-flagged ships.

M-I Drilling and its exclusive licensee sued DAL in Minnesota federal court for infringing five U.S. patents by making, selling, and operating pneumatic conveyor systems on the HOS Pinnacle and the HOS Resolution.
DAL attempted to dismiss the case, arguing that it was not reasonable or fair under "due process" principles for the case to be heard by the Minnesota federal court.

The district court agreed with DAL and dismissed the case, finding that although the infringing acts took place on U.S.-flagged ships, DAL had not purposefully directed its activities within the United States because the contract between Petrobras and DAL did not identify the ships on which DAL would be required to make installations. So DAL's contacts with the HOS Pinnacle and the HOS Resolution were exclusively due to the unilateral activity of Petrobras, and the exercise of specific personal jurisdiction over DAL would be neither reasonable nor fair.

The M-I Drilling Decision
On appeal, the Federal Circuit explained that due process requires only that a defendant have certain minimum contacts with the forum consistent with traditional notions of fair play and substantial justice. Considerations for determining whether such minimum contacts exist include (1) whether the defendant purposefully directed its activities at residents of the forum, (2) whether the claim arises out of or relates to the defendant's activities with the forum, and (3) whether the assertion of personal jurisdiction is reasonable and fair.

Here, DAL installed pneumatic conveyor systems on the HOS Pinnacle and the HOS Resolution and then deliberately continued to engage in infringing activities aboard the U.S.-flagged ships despite M-I's warnings that DAL's systems infringed the asserted patents. Nothing more is required to show that DAL purposefully directed its activities at the United States, because even if the contract between Petrobras and DAL directed where the accused systems were installed and operated, DAL controlled the specifics of its own continued performance under the contract.

M-I's claims for patent infringement arose from or related to DAL's accused infringing activities in the United States. So DAL needed to show why jurisdiction unreasonable and failed to do so.

The court weighed five due process factors to determine whether it was reasonable and fair for the federal court in Minnesota to hear the case: (1) DAL's burden, (2) the United States' interest in adjudicating the dispute, (3) M-I's interest in obtaining convenient and effective relief, (4) the interstate judicial system's interest in obtaining the most efficient resolution of controversies, and (5) the shared interest of the states in furthering fundamental substantive social policies.

Factors 1-3 were supported because the United States has a substantial interest in enforcing the federal patent laws and M-I is a U.S. plaintiff trying to enforce its U.S. patents for alleged infringing activity in the U.S.-flagged ships constituting a U.S. territory. Factors 4-5 were supported because there is no competing U.S. forum available to M-I for its infringement claims so there is no clash of social policies or with which to compare the efficiency of a resolution. There is no reason to believe that the Federal Government's interest in its foreign relations policies with Brazil will be hindered by allowing the district court to exercise personal jurisdiction over DAL. The court held that the federal court in Minnesota had personal jurisdiction over DAL because Rule 4(k)(2) comports with due process.

A separate concurring opinion provided additional reasoning why the exercise of personal jurisdiction here does not offend traditional notions of fair play and substantial justice.

Although recognizing that DAL has waived the issue of whether U.S. patent law extends to U.S.-flagged ships on the high seas, the concurring opinion explained that it is worth recognizing the Supreme Court's increasing interest in international activity that bears on U.S. patent laws and that a U.S. patent owner should have a way to recover from the harm of patent infringement in international waters. If U.S. law does not apply to infringing activity on a U.S.-flagged ship in international water, then it is possible that no law applies and the patent owner would have no remedy for patent infringement.

Strategy and Conclusion
A foreign corporation that installed infringing conveyor systems on a U.S.-flagged ship could be sued for patent infringement in a court located in Minnesota, a state where it had no contacts. It was reasonable and fair for the court to hear a case where the allegedly infringing activity is purposely directed toward the United States even where the activities are performed pursuant to a contract with and at the request of a third party.

Further Information
The Federal Circuit opinion in M-I Drilling Fluids UK Ltd. V. Dynamic Air Ltda can be found here.

Editors and Authors
The editors and authors are attorneys at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP.
John Paul                                  john.paul@finnegan.com
Brian Kacedon                         brian.kacedon@finnegan.com
Robert MacKichan                   robert.mackichan@finnegan.com
Cecilia Sanabria                        cecilia.sanabria@finnegan.com
M. David Weingarten, Ph.D.     david.weingarten@finnegan.com
This article is for informational purposes and does not constitute legal advice.
The views expressed do not necessarily reflect the views of LES or Finnegan.


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