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IP Alert: Federal Circuit Explains Personal Jurisdiction Under "Purposeful Direction" and "Stream-of-Commerce" Theories

July 9, 2015

Before a defendant may be subject to the personal jurisdiction of a federal court, federal due process standards require that a defendant must have sufficient minimum contacts within the court’s forum state. Such minimum contacts may be met via various legal doctrines, including the “purposeful direction” and “stream of commerce” doctrines. On July 6, 2015, in Celgard, LLC v. SK Innovation Co., Ltd., the Court of Appeals for the Federal Circuit provided guidance regarding these doctrines. 

Celgard, the plaintiff, owns a patent in the field of battery cell separators. Celgard sued SK Innovation Co. (“SKI”), a Korean-based manufacturer and supplier of separators, in a North Carolina federal court for patent infringement.

Celgard attempted to establish personal jurisdiction over SKI under a “purposeful direction” theory. Specifically, Celgard alleged that SKI purposefully directed sales or offers for sale of allegedly infringing separators in North Carolina. Alternatively, Celgard alleged that jurisdiction was proper under a “stream-of-commerce” theory, alleging specifically that SKI sold separators to third-party consumer electronics manufactures who then shipped electronics including the separators to North Carolina. After allowing jurisdictional discovery, the district court dismissed the case for lack of jurisdiction.  

On appeal, the Federal Circuit relied on Supreme Court precedent, including the often-cited case Int’l Shoe Co. v. Washington, and a Federal Circuit case, Elecs. for Imaging, Inc. v. Coyle. The Federal Circuit held that to determine whether the due process requirement for specific personal jurisdiction is met, it must be considered “(1) whether the defendant purposefully directed its activities at residents of the forum state, (2) whether the claim arises out of or relates to the defendant’s activities with the forum state, and (3) whether assertion of personal jurisdiction is reasonable and fair.”

As to “purposeful direction,” Celgard alleged that SKI purposely directed its activities to North Carolina by participating in a joint venture with Kia Motor Company (KMC) to develop batteries for vehicles, and that Kia dealers advertised the vehicles within North Carolina. SKI replied by asserting that Celgard had not shown that SKI had purposely directed activity toward North Carolina because it was the dealers, and not SKI or Kia, that had advertised the electronic vehicles in North Carolina. SKI also asserted that Celgard had failed to show that the Kia dealers acted as SKI’s alter ego or its agents because Celgard had not shown any relationship between SKI and the dealers. The Federal Circuit agreed, noting that there was no evidence that SKI directed the activity of the dealers in North Carolina or that the dealers were aware of the joint venture between SKI and KMC. 

Using the “stream-of-commerce” theory, Celgard asserted that SKI was subject to personal jurisdiction because SKI sells separators to consumer electronics manufacturers who incorporate the separators into the electronics that are then shipped to North Carolina through established distribution channels. In response, SKI noted that Celgard had not identified a single accused separator that had been produced by SKI and included in electronics purchased in North Carolina. The Federal Circuit noted that the requirements of the stream-of-commerce theory remain unsettled under Supreme Court precedent, specifically whether foreseeability that a defendant’s product would find its way to a forum state was sufficient to establish jurisdiction, or whether a more substantial connection is required. In this case, the Federal Circuit declined to take a position on the stream-of-commerce test, holding that that the outcome would be the same under either standard. Accordingly, the court affirmed the dismissal.

The decision in Celgard illustrates the fact-intensive nature of questions of personal jurisdiction. The case also provides guidance for litigants seeking to establish or refute a showing of personal jurisdiction. For more information concerning today’s decision, please contact a Fitch Even partner.

–Written by Fitch Even attorney Giles N. Turner

 

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