An initial question a consumer product manufacturer or retailer should consider when sued for patent infringement is: does the court have personal jurisdiction?
Determining whether a court has personal jurisdiction to hear a case can help avoid liability and dismiss a case early in the proceedings. This issue can present a difficult question for litigation strategy if the defendant only placed the accused product into the stream-of-commerce.
For example, if a manufacturer in Northern California supplies a widget to a distributor in Massachusetts, can a patent owner sue the manufacturer in a court in Eastern Texas because the distibutor sold the product to a retailer there? Does this change if a foreign entity sells a product online that is then distributed nationwide?
This complex problem rests on unsettled law. Courts remain divided on the factors used to determine whether a plaintiff can require a defendant to defend against allegations of patent infringement in their court.
Personal jurisdiction and stream-of-commerce: the unsettled tension
A court must have personal jurisdiction over a defendant to hear a case. To have personal jurisdiction, the court cannot violate the defendant’s constitutional rights, and the defendant must have sufficient minimum contacts with the forum state.
For example, when the defendant places an accused product into the stream-of-commerce, a court must decide whether charging a potential defendant would “bind strangers to a State.” (See also J. McIntyre Mach. V. Nicastro).
However, courts remain divided on how to apply this. Under the strict approach, courts require a “substantial connection” between defendants and the forum state. Under the more relaxed approach, a defendant need only have “aware[ness] that the final product is being marketed in the forum State.” (See Celgard v. Shenzhen Senior Tech. Material Co., No. 19-cv-05784-JST, 2020 WL 1548513 (N.D. Cal. Mar. 5, 2020)).
Applying the stream-of-commerce theory to patent infringement claims
The Federal Circuit Court of Appeals sets the precedent for determining whether a district court has personal jurisdiction in patent infringement cases. (See Deprenyl Animal Health v. Univ. of Toronto Innovations Found.).
According to Federal Circuit precedent, a court will have personal jurisdiction when the party has sufficient control of the controlled product in the forum state, meaning the defendant
- “deliberately and purposefully ship[ed] the accused products” to retailers in the state; and
- that this active participation constitutes “purposeful availment.”
(See Ultravision Techs. V. Holophane Eur. Ltd., No. 2:19-cv-00291, 2020 WL 3493626 (E.D. Tex. Apr. 23, 2020) (citing Polor Electro Oy v. Suunto Oy)).
However, a different situation arises where a manufacturer sells a widget to a distributor who in turn distributes the widget nationwide. Yet another situation arises when a defendant manufacturer places a widget in the stream-of-commerce and that widget only ends up in a state due to a third-party distributor’s actions.
For example, the Eastern District of Texas recently determined it had personal jurisdiction over a foreign defendant because the defendant had sufficient control–it not only imported products for sale through a Texas city, but also directly or indirectly imported lighting products for sale in Texas specifically. (Ultravision Techs.)
On the other hand, a different district court concluded a foreign defendant could not be sued in its court even though the defendant advertised the accused products in the forum state. (Celgard). The court reasoned the record provided no evidence that the advertisements for the accused products actually turned into a sale there. The plaintiff provided no evidence that:
- the alleged infringing sale in the forum state between the foreign defendant and the defendant’s daughter company actually included the accused devices; or
- the foreign defendant was aware of the sale.
The impact on personal jurisdiction when placing a consumer product in the stream-of-commerce
Determining whether a court has personal jurisdiction to hear a patent infringement case can help avoid significant liability early in the proceedings. A key factor is whether the defendant had sufficient control over selling, manufacturing, and/or distributing consumer products that resulted in the product’s sale in the forum state.
To avoid patent infringement liability in a particular state, an entity should minimize control of a product once it places a product in the stream-of-commerce. For example, an entity could sell products to independent distributors, especially without knowledge of the distributor’s target states. Further, a party could place a product into the stream-of-commerce without intentionally or actively ensuring the product reaches the state.