The Stream of Commerce Theory of Personal Jurisdiction in Patent Cases
Earlier this week, Judge Ellis transferred a case from the EDVA to the Northern District of California under 28 U.S.C. 1404(a). Convergence Techs. (USA) LLC v. Microloops Corp., et al., 2010 U.S. Dist. LEXIS 46155 (May 11, 2010) (opinion found here). Venue transfer decisions are common in the EDVA and probably wouldn’t justify a blog post, but Judge Ellis’ decision included a discussion of the “stream of commerce” theory of personal jurisdiction in patent cases. Federal Circuit, not regional circuit, law applies to the issue of personal jurisdiction, and so Judge Ellis’ ruling should be of interest to Virginia litigators more familiar with the Fourth Circuit’s precedent.
The “stream of commerce” refers to a defendant’s placing a product in the “stream of commerce” that takes the product to the forum state. In Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102 (1987), the Supreme Court split over whether a foreign manufacturer of bicycle components which sold its products to another foreign manufacturer was subject to personal jurisdiction in California. In short, Justice O’Connor, writing for four justices, said no, and Justice Brennan, writing for four other justices, said yes. Justice Stevens couldn’t decide who to agree with, and so no theory commanded a majority and uncertainty remains as to what is necessary to establish personal jurisdiction under a stream of commerce theory.
The stream of commerce theory is important to any component part manufacturer or to any manufacturer which sells its products to only a limited number of customers or only through third-party retailers, especially internet retailers. If personal jurisdiction requires more than selling a product which ultimately is sold to a consumer in a forum state, such manufacturers can conceivably limit the number of states in which they can be sued.
As Judge Ellis points out, the Federal Circuit held several years ago that the stream of commerce theory applies in patent infringement suits, Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F. 3d 1558, 1565-68 (Fed. Cir. 1994). The difficulty is that the Federal Circuit has refused at least three times to endorse either Justice O’Connor’s or Justice Brennan’s view of the stream of commerce theory. In that sense, the Federal Circuit shares a kinship with Justice Stevens. Thus, it isn’t entirely clear what the Federal Circuit meant when it said the stream of commerce theory applies in patent cases.
Judge Ellis’ decision, however, clarified a few points:
- The stream of commerce theory requires, at a minimum, knowledge of the product’s likely destination through an established distribution channel. Thus, a component part manufacturer who doesn’t know that its products would end up in the forum state is not subject to personal jurisdiction.
- Ordering an accused product online from a third-party, without more, does not satisfy the stream of commerce theory, where the website is passive and the purchaser initiates the sale. Thus, manufacturers whose products are sold only online may be able to avoid jurisdiction in forums in which they do not sell directly.
- A manufacturer which delivers its products to a forum or knows that its products will be sold in a forum through established distribution channels is subject to personal jurisdiction.
A few other “stream of commerce” jurisdiction points:
- As the Courts have often stated, jurisdiction cannot be created by the actions of others. Touchcom, Inc. v. Bereskin & Parr, 574 F.3d 1403 (Fed. Cir. 2009). Thus, sales by third-party retailers should not establish jurisdiction over a product manufacturer.
- Sales by a patent licensee do not establish jurisdiction over a patent holder. Red Wing Shoe Company, Inc. v Hockerson-Halberstadt, Inc., 148 F.3d 1355, 1361 (Fed. Cir. 1998). “In simple terms, doing business with a company that does business in Minnesota is not the same as doing business in Minnesota. . . . [The plaintiff’s] flawed theory would subject a defendant to nationwide personal jurisdiction if it decides to do business with a company that does business nationwide.” Id.
- Beverly Hills Fan required an “established distribution channel into the forum,” and the case involved delivery of accused products to a retail store in the forum state. Thus, internet sales alone, where the seller has no physical location in the forum state, may not be sufficient for jurisdiction.
- The Federal Circuit has specifically held in one case that the availability of a defendant’s products for sale on a third-party’s website supports jurisdiction “only if [the defendant] had some responsibility for the third party’s advertising of [the defendant’s] products on [the third-party’s] sites.” Trintec Industries, Inc. v. Pedre Promotional Products, Inc., 395 F.3d 1275, 1281 (Fed. Cir. 2005).
