Summary
In Gemmy Industries, the plaintiff claimed that the court had personal jurisdiction over the defendant with regard to the plaintiff's patent infringement claim because the defendant shipped the allegedly infringing products into Kansas.
Summary of this case from NexLearn, LLC v. Allen Interactions, Inc.Opinion
Case No. 03-2527-JWL
January 28, 2004
MEMORANDUM ORDER
Plaintiff filed suit against defendants asserting federal claims of patent infringement in violation of 35 U.S.C. § 271 against all defendants, copyright infringement in violation of 17 U.S.C. § 501 against defendant Chrisha Creations Limited ("Chrisha") and defendant Alsto, and unfair competition in violation of the Lanham Act, 15 U.S.C. § 1125 against Chrisha and Alsto. Plaintiff also asserts various state law claims, including a state law unfair competition claim against Chrisha and Alsto, a claim under the Kansas Uniform Trade Secrets Act, K.S.A. § 60-3320 et seq., against Chrisha and defendant Quay Richerson ("Mr. Richerson"), and claims against Mr. Richerson for breach of fiduciary duty and breach of implied contract. This matter is presently before the court on defendants Chrisha and Mr. Richerson's motion to dismiss for lack of personal jurisdiction and improper venue or, in the alternative, for transfer of the action to the Southern District of New York (doc. #33). As set forth in more detail below, defendants' motion to dismiss is denied, but the court transfers the case to the United States District Court for the Southern District of New York pursuant to 28 U.S.C. § 1631 on the grounds that the court lacks personal jurisdiction over defendants with respect to plaintiff's patent infringement claim because plaintiff's patent had not issued at the time defendants shipped their products into Kansas and defendant had no relevant contacts with Kansas at any time after the patent was issued.
As an initial matter, plaintiff suggested to the court during a telephone conference that it believed that defendants had waived their right to contest personal jurisdiction by filing a subsequent motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6) or, in the alternative, for summary judgment pursuant to Rule 56. The argument is rejected and no such waiver has occurred. Indeed, the Federal Rules of Civil Procedure expressly provide that no defense available to a party under Rule 12(b) is waived by joining it with another defense available under the rule. See Fed.R.Civ.P. 12(b); accord 5 A Charles Alan Wright Arthur R Miller, Federal Practice and Procedure § 1351 (2d ed. 1990) (a defendant may join objections to jurisdiction under Rule 12(b)(2) with a motion to dismiss for failure to state a claim without waiving the jurisdictional defense). The more interesting question — one that plaintiff did not raise and the court need not address-might be whether defendants waived their right to file their subsequent 12(b)(6) motion, at least at this juncture in the proceedings. See Wright Miller, supra, § 1385 at 728-29 (pursuant to Rule 12(g) requiring consolidation of 12(b) motions, a defendant who first moves to dismiss on the ground of lack of jurisdiction over his person is not allowed to make a second preliminary motion to dismiss on the ground of failure to state a claim upon which relief can be granted, although the defense may be raised, pursuant to Rule 12(h)(2), on a motion under Rule 12(c) for judgment on the pleadings or at trial).
I. Background
Plaintiff Gemmy Industries Corporation ("Gemmy") is the assignee of U.S. Patent No. 6,643,843 (the '843 patent), which issued on November 11, 2003. That patent is directed to the design of self-inflating outdoor holiday decorations ( e.g., inflatable Santas, snowmen and pumpkins) that contain a base with a fan unit, an inflatable body attached to the base and a string of enclosed lights extending through the inflatable body. Gemmy is in the business of developing and selling these products. Gemmy is a Texas corporation with its principal place of business in Texas. Defendant Chrisha is also in the business of selling self-inflating outdoor holiday decorations and Gemmy alleges in its first amended complaint that Chrisha's products (specifically, Chrisha's inflatable Santa, snowman and pumpkin products) infringe the '843 patent. Chrisha is a New York corporation with its principal place of business in Rhode Island. Defendant Quay Richerson is a former sales representative for Gemmy and a current sales representative for Chrisha.
On October 21, 2003, Gemmy filed this suit against Chrisha and Quay Richerson alleging claims of copyright infringement, unfair competition under the Lanham Act, and a variety of state law claims. On November 17, 2003, after the patent issued, Gemmy amended its complaint to assert a claim for patent infringement and to assert various claims against an additional defendant, Alsto. With respect to the exercise of personal jurisdiction over Chrisha and Mr. Richerson, Gemmy asserts in its first amended complaint that "Defendants regularly and systematically conduct business in the state of Kansas by advertising and soliciting customers for their products through, among other means, mailing catalogues and distributing products to retailers in Kansas."
According to Gemmy, defendant Alsto sells and offers to sell Chrisha's products through its catalog and website. The docket reflects that Gemmy obtained service of process on Alsto on November 24, 2003 and that Alsto's answer was due on December 15, 2003. No answer or other responsive motion has been filed by Alsto as of the date of this order.
Chrisha and Mr. Richerson have filed a motion to dismiss the action for lack of personal jurisdiction and improper venue pursuant to Federal Rules of Civil Procedure 12(b)(2) and 12(b)(3) or, in the alternative, for transfer of the action to the United States District Court for the Southern District of New York. In summary, defendants assert that their contacts with Kansas are insufficient to support the exercise of personal jurisdiction and that they did not engage in any infringing activity in Kansas. In support their motion, defendants have submitted the affidavits of William Machala, the President of Chrisha, and Quay Richerson. Mr. Machala avers that Chrisha does not maintain any office in Kansas; does not maintain any bank account in Kansas; does not have an agent for service of process in Kansas; does not have an agent for any purpose in Kansas; is not registered to do business in Kansas; does not conduct business in Kansas; does not have any assets or employees in Kansas; has never conducted a board of directors' meeting in Kansas; does not recruit employees from Kansas; does not own any real or personal property in Kansas; does not advertise, solicit or market the sale of any products in Kansas; does not solicit business in Kansas; does not derive any financial or other benefit from commercial or business activities in Kansas; has not contracted with any resident of Kansas; has not executed any contract in Kansas with respect to its products, services or otherwise; and has not made, used or offered to sell any products in Kansas. In his affidavit, Mr. Richerson generally makes the same points with respect to his contacts (or lack thereof) with Kansas as made by Mr. Machala with respect to Chrisha's contact with Kansas.
According to Mr. Machala's affidavit, Chrisha's contacts with Kansas are limited to a one-time shipment of Halloween products ( i.e., the inflatable Pumpkin at issue in this case) to an "ALDI" store located in Olathe, Kansas in September 2003. By way of background, as explained by Mr. Machala, Chrisha entered into two purchase agreements with ALDI, Inc. ("ALDI") in April 2003. ALDI is a limited assortment discount international retailer that, according to its own description, specializes in the sale of private label, high quality products at low prices. Pursuant to the first purchase agreement, ALDI agreed to purchase approximately 12,600 inflatable Halloween products. Pursuant to the second purchase agreement, ALDI agreed to purchase approximately 14,949 inflatable Christmas products. Because Gemmy alleges that Chrisha's Halloween products were shipped into Kansas, the court focuses on the first purchase agreement executed between Chrisha and ALDI, which Mr. Machala has attached to his affidavit.
According to the express terms of the purchase agreement, the agreement "is made . . . between Chrisha Creations . . . and ALDI Inc. with Corporate offices at 1200 North Kirk Road, Batavia, Illinois and various divisional locations throughout the United States (hereinafter called ALDI)." The agreement provides that ALDI "will place purchase orders for an estimated total quantity of 12,600/units or 4,200/cases" of the inflatable Halloween figures. The agreement further contemplates that specific orders will come from various ALDI divisional locations and that Chrisha will be responsible for delivering the products to the particular division that placed an order. In that regard, the agreement notes that some divisions "may combine their orders to fill container(s) or trailer(s)" and, thus, "an order may not be received from all Divisions." The agreement incorporates a detailed delivery policy explaining when and how deliveries are to be made to each particular division. Toward that end, the agreement contains an appendix that lists each divisional location and each location's shipping address and the hours during which each location accepts deliveries. ALDI's Olathe, Kansas location is identified on this list along with its billing and shipping address. With respect to payment, the agreement states that Chrisha "shall invoice ALDI upon shipment of product to ALDI's warehouse or other mutually agreed upon location" and that payment must be made by ALDI to Chrisha within 90 days of merchandise receipt by ALDI. Moreover, because the appendix, under the subheading "Bill Product To," lists the billing address for each divisional location, the agreement suggests that payment is the responsibility of the particular divisional location to which the product was shipped. In that regard, the agreement references an appendix to the contract that contains a list of each divisional location as well as each location's shipping and billing address.
In May 2003, pursuant to the purchase agreement, ALDFs Olathe, Kansas division placed an order for 700 cases (or 2100 units) of the inflatable Halloween figures. The order was sent by the Olathe, Kansas division via facsimile to Chrisha's independent sales representative, Springtime Santa, who then forwarded the order on to Chrisha. The order further requested a delivery date of September 2, 2003. Chrisha then arranged for shipment of the products to ALDI's division in Olathe, Kansas and the products were delivered on September 5, 2003. While the record is not entirely clear as to when Chrisha received payment for the products shipped to Kansas, a notation on the order for 700 cases sent by the Olathe, Kansas division states "prepaid."
In its opposition to the motion to dismiss, Gemmy has submitted the affidavit of Daniel Flaherty, the President of Gemmy. In his affidavit, Mr. Flaherty avers that, despite the one-time shipment of products into Kansas, "ALDI, Inc., on behalf of Chrisha, has sold and continues to sell [the] products in Kansas." Mr. Flaherty further avers that Chrisha and ALDI continue to have a commercial relationship in which Chrisha has agreed to sell and deliver infringing products to ALDI at its various warehouses, including the warehouse in Olathe, Kansas. Gemmy has also submitted the affidavit of Kathleen Haake, who avers that she purchased Chrisha's allegedly irrfringing products from an ALDI store in Olathe, Kansas on November 11, 2003 (the day that the relevant patent issued).
In addition, Mr. Flaherty asserts his belief that Gemmy has sold infringing products to Sears stores in Kansas. No other information is provided in the record concerning any alleged sales or shipments from Chrisha to Sears. Without any evidence or allegations concerning the date of these alleged sales (and, more specifically, whether the shipments or sales occurred prior to the issuance of plaintiff's patent), the court cannot make any assessment of whether Chrisha's contacts with Sears is sufficient for the exercise of personal jurisdiction over Chrisha.
II. Choice of Law and Applicable Standard
The resolution of defendants' motion must begin with the question of whether the personal jurisdiction analysis in this case is pursuant to Federal Circuit or regional circuit law. See Electronics for Imaging, Inc. v. Coyle, 340 F.3d 1344, 1348 (Fed. Cir. 2003), cert. denied,___ S. Ct.___, 20004 WL 46759 (Jan. 12, 2004). The parties agree that Federal Circuit law applies to plaintiff's claim of patent infringement and there is ample case law supporting the parties' assertion. See id. ("Our prior decisions make clear that where the personal jurisdictional inquiry is 'intimately involved with the substance of the patent laws,' we apply Federal Circuit law.") (quoting Akro Corp. v. Luker, 45 F.3d 1541, 1543 (Fed. Cir. 1995)). The court thus applies Federal Circuit law to plaintiff's patent infringement claim. See Midwest Indus., Inc. v. Karavan Trailers, Inc., 175 F.3d 1356, 1359-60 (Fed. Cir. 1999) (Federal Circuit law applies to questions such as whether the district court has personal jurisdiction over the defendant in a patent suit) (citing Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558, 1564 (Fed. Cir. 1994)).
Under the law of the Federal Circuit, where, as here, the district court's disposition as to the personal jurisdictional question is based on affidavits and other written materials in the absence of an evidentiary hearing, a plaintiff need only make a prima facie showing that defendants are subject to personal jurisdiction. Electronics for Imaging, 340 F.3d at 1349 (citations omitted). In the procedural posture of a motion to dismiss, a district court must accept the uncontroverted allegations in the plaintiff's complaint as true and resolve any factual conflicts in the affidavits in the plaintiff's favor. Id.
III. Analysis
Before a federal court can exercise personal jurisdiction over a defendant in a federal question case, the court must determine whether an applicable statute potentially confers jurisdiction by authorizing service of process on the defendant, and whether the exercise of jurisdiction would satisfy the requirements of due process. Deprenyl Animal Health, Inc. v. University of Toronto Innovations Foundation, 297 F.3d 1343, 1349 (Fed. Cir. 2002) (citations omitted). Rule 4 of the Federal Rules of Civil Procedure allows a plaintiff to rely on the state long arm statute of the state in which the federal district court sits to obtain statutory authorization for the exercise of personal jurisdiction. Id. at 1350 (citing Fed.R.Civ.P. 4(e)).
The Kansas long-arm statute authorizes the exercise of jurisdiction to the full extent permitted by the constitution. Id. (citing Matter of Hesston Corp., 254 Kan. 941, 870 P.2d 17, 25 (1994) ("The Kansas long arm statute . . . is liberally construed to assert personal jurisdiction over nonresident defendants to the full extent permitted by the due process clause. . . ."); OMI Holdings, Inc. v. Royal Ins. Co. of Canada, 149 F.3d 1086, 1091 (10th Cir. 1998) ("Because the Kansas long-arm statute is construed liberally so as to allow jurisdiction to the full extent permitted by due process, we proceed directly to the constitutional issue.")). Thus, as the Federal Circuit has recognized, whether the Kansas long-arm statute permits service of process and whether the assertion of jurisdiction would be inconsistent with due process collapse into a single question and the court may proceed directly to analyze the constitutional issue. See id.; see also Electronics for Imaging, 340 F.3d at 1350 (narrowing personal jurisdiction analysis to one inquiry — whether jurisdiction comports with due process-where California long-arm statute was co-extensive with outer limits of due process).
Because this is a federal question case, the due process requirements of the Fifth Amendment are at issue. Deprenyl, 297 F.3d at 1350. Although it was developed in the context of the due process clause of the Fourteenth Amendment, the Federal Circuit applies the standard articulated in International Shoe Co. v. Washington, 326 U.S. 310 (1945), and its progeny to Fifth Amendment due process cases arising under the federal patent laws. See id. (citations omitted). International Shoe and its progeny establish a two-pronged test for whether the exercise of jurisdiction comports with due process. Id. First, the defendant must have "minimum contacts" with the forum. Where a defendant's contacts with the forum state are continuous and systematic, due process permits the exercise of general jurisdiction. Id. (citations omitted). General jurisdiction confers personal jurisdiction even when the cause of action has no relationship with those contacts. Silent Drive, Inc. v. Strong Indus., Inc., 326 F.3d 1194, 1200 (Fed. Cir. 2003) (citing Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414-16 (1984)). In this case, plaintiff does not contend that the court may assert general jurisdiction over defendants. Rather, plaintiff asserts only that defendants' contacts with the forum state authorize the exercise of specific jurisdiction.
For specific jurisdiction, the "minimum contacts" prong requires the plaintiff to show that the defendant "has purposefully directed his activities at residents of the forum and the litigation results from alleged injuries that arise out of or relate to those activities." Deprenyl, 297 F.3d at 1350-51 (citing Inamed Corp. v. Kuzmak, 249 F.3d 1356, 1360 (Fed. Cir. 2001) (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 471-76 (1985))). The second prong of the due process test affords the defendant the opportunity to defeat jurisdiction by presenting a compelling case that other considerations render the exercise of jurisdiction so unreasonable as to violate "fair play and substantial justice." Id. (quoting Burger King, 471 U.S. at 476-77).
In Akro Corp. v. Lukar, 45 F.3d 1541 (Fed. Cir. 1995), the Federal Circuit described the pertinent Supreme Court jurisprudence by articulating a three-factor test. See id. at 1351 (citing Akro, 45 F.3d at 1545). The three factors for determining whether the exercise of personal jurisdiction over an out-of-state defendant comports with due process are whether the defendant "purposefully directed" its activities at residents of the forum; whether the claim "arises out of or relates to" the defendant's activities in the forum; and whether the exercise of jurisdiction is "reasonable and fair." See id. The "first two factors correspond with the 'minimum contacts' prong of the International Shoe analysis, and the third factor corresponds with the 'fair play and substantial justice' prong of the analysis." Id. (quoting Inamed, 249 F.3d at 1360).
Because defendant Quay Richerson is an agent of defendant Chrisha and the contacts made by Chrisha are attributable to Richerson and vice versa, it is unnecessary to conduct separate minimum contact analyses with respect to each defendent.
As explained above, the court is bound to apply the law of the Federal Circuit in determining whether it may exercise personal jurisdiction over plaintiff's patent infringement claim. The court's application of Federal Circuit law must begin with the Federal Circuit's decision in Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558 (Fed. Cir. 1994), particularly in light of the factual similarities between that case and the present case. In Beverly Hills Fan, the plaintiff, a Delaware corporation with its principal place of business in California, brought a patent infringement action in Virginia against the manufacturer, a Chinese corporation, and the importer, a New Jersey corporation, of allegedly infringing ceiling fans. The district court dismissed the action for lack of personal jurisdiction. The facts showed that the importer was selling the fans to an intermediary, Builder's Square, who was selling the fans in Virginia. The defendants' fans were discovered on the shelves at various Builder's Square locations in Virginia. On appeal, the Federal Circuit reversed and concluded that personal jurisdiction could be exercised over the defendants in Virginia. The Federal Circuit determined that evidence that the defendants purposefully shipped the accused fans into Virginia through an established distribution channel, knowing the likely destination of the fans, satisfied the purposeful minimum contacts requirement of due process and supported the exercise of personal jurisdiction under the stream of commerce theory.
In its brief, plaintiff relies in large part on the Beverly Hills Fan decision to support its argument that the court can properly exercise personal jurisdiction in this case. Plaintiff's analyses with respect to each defendant. reliance on Beverly Hills Fan is reasonable in light of the factual similarities between that case and the one presented here. The purchase agreements executed by Chrisha and ALDI established a distribution channel for Chrisha's products and Chrisha knew, or reasonably could have foreseen, that a termination point of the channel was Kansas. Moreover, Chrisha purposefully shipped their products into Kansas through that established distribution channel. Nonetheless, the facts presented here are different in one significant respect and mandate a different outcome from Beverly Hills Fan. Unlike the circumstances presented in Beverly Hills Fan, at the time Chrisha shipped its products into Kansas, plaintiff's patent had not yet issued and, indeed, Chrisha had no relevant contacts with Kansas at any time after plaintiff's patent issued.
A careful reading of the Beverly Hills Fan decision reveals that the key contact with the forum state in that case — indeed, the only relevant contact with Virginia — was the defendants' shipment of the fans into the forum. The fact that the fans were later resold by Builder's Square to retail customers in Virginia was not relevant to the Federal Circuit's decision. The court, for example, framed the specific question before it as whether due process or Virginia's long-arm statute precluded the exercise of jurisdiction "in a case in which an alleged foreign infringer's sole contact with the forum resulted from indirect shipments through the stream of commerce." See id. at 1564. Ultimately, the court determined that the stream of commerce theory applied to subject the defendants to personal jurisdiction in Virginia because the defendants had purposefully placed their products into the stream of commerce by shipping the fans. The court also emphasized that the plaintiff's claim arose out of the defendants' purposeful shipment of the fans into Virginia. See id. at 1565. Finally, in its discussion of the Virginia long-arm statute, the court expressly noted that the "tortious act" for purposes of analyzing that provision of the statute was the defendants' shipment of the accused fans. See id. at 1569-71 (concluding that no tortious act occurred in Virginia because defendants did not commit any affirmative act there; tortious act occurred outside of Virginia when defendants shipped the fan).
It is undisputed that Chrisha shipped its products into Kansas (and, thus, that Chrisha purposefully placed those products in the stream of commerce). Moreover, plaintiff expressly states in its brief that Chrisha's shipment and delivery of the products in Kansas is the act that gives rise to plaintiff's patent infringement claim. However, it is undisputed that the products that Chrisha shipped and delivered to Kansas — at the time they were shipped and delivered-were not infringing products. Shipment and delivery occurred at least two months prior to the date that the patent issued. Of course, patent infringement occurs only when a defendant "makes, uses, offers to sell or sells any patented invention." 35 U.S.C. § 271(a). Thus, any disputes concerning patent infringement are "necessarily hypothetical before patent issuance." See GAF Building Materials Corp. v. Elk Corp. of Dallas, 90 F.3d 479, 483 (Fed. Cir. 1996) (patent rights are created only upon formal issuance of patent). Here, plaintiff's claim did not arise (because the patent did not issue) until after Chrisha shipped and delivered its products to Kansas. Stated another way, Chrisha had no relevant contacts with Kansas at any time after the issuance of the patent.
It is axiomatic that the court may exercise personal jurisdiction over Chrisha with respect to plaintiff's patent infringement claim only if that claim arises out of or relates to Chrisha's contacts with Kansas. See Electronics for Imaging, Inc. v. Coyle, 340 F.3d 1344, 1351 (Fed. Cir. 2003) (citing Akro Corp. v. Lukar, 45 F.3d 1541, 1545 (Fed. Cir. 1995)), cert. denied, ___S. Ct.___, 2004 WL 46759 (Jan. 12, 2004). Here, Chrisha's only contact with Kansas — under the Federal Circuit's decision in Beverly Hills Fan and plaintiff's own theory-is the shipment of its products into Kansas. That shipment simply did not constitute infringing conduct because the patent had not issued as of the date of the shipment. The shipment, then, cannot support personal jurisdiction because plaintiff's claim cannot arise from noninfringing conduct. See HollyAnne Corp. v. TFT, Inc., 199 F.3d 1304, 1308 (Fed. Cir. 1999) (for specific personal jurisdiction to be exercised over a defendant in a patent infringement case, plaintiff must allege that defendant's infringing conduct occurred in the forum state); see also Oregon Precision Indus., Inc. v. International Omni-Pac Corp., 889 F. Supp. 412, 417 (D. Or. 1995) (direct sales by defendant of its products to customers in Oregon that occurred before plaintiff's patent was issued were not sufficient to constitute minimum contacts necessary for court to exercise personal jurisdiction over defendant).
For the foregoing reasons, the court concludes that it may not exercise personal jurisdiction over defendants with respect to plaintiff's claim for patent infringement. Thus, the court will transfer plaintiff's case, in its entirety, to the United States District Court for the Southern District of New York pursuant to 28 U.S.C. § 1631. See Viernow v. Euripides Dev. Corp., 157 F.3d 785, 793 (10th Cir. 1998) (where transferor court notes that it lacks personal jurisdiction, the proper course of action is to transfer pursuant to § 1631) (citing Ross v. Colorado Outward Bound School, Inc., 822 F.2d 1524, 1526-27 (10th Cir. 1987)). IT IS THEREFORE ORDERED BY THE COURT THAT defendants' motion to dismiss plaintiff's complaint (doc. # 33) is denied; but plaintiff's case is transferred, along with all motions pending as of the date of this order, to the United States District Court for the Southern District of New York pursuant to 28 U.S.C. § 1631.
While there is some authority suggesting that 28 U.S.C. § 1631 permits a district court to transfer "less than all of the claims in a civil action," the bifurcation of claims is generally not preferred and the better approach, at least in those cases where the claims are based on the same factual allegations, is to transfer the entire action. See United States v. County of Cook, Illinois, 170 F.3d 1084, 1088-89 (Fed. Cir. 1999); FDIC v. McGlamery, 74 F.3d 218, 222 (10th Cir. 1996) (suggesting that section 1631 does not permit a district court to transfer a portion of an action in the absence of a severance under Federal Rule of Civil Procedure 21).
The court understands that another case between these parties, Chrisha Creations Limited v. Gemmy Industries Corp., No. 03-Civil-8937, is currently pending in the Southern District of New York. The case is a declaratory judgment action filed by Chrisha regarding the same products at issue in this case and many of the same claims at issue in this case.
IT IS SO ORDERED.