Summary
noting that "caselaw suggests ... that CPLR 302 requires something more than knowledge"
Summary of this case from Bissonnette v. PodlaskiOpinion
00 Civ. 9399 (LTS)(KNF)
August 20, 2002
WEIL, GOTSHAL MANGES, Stephen D. Kahn, Esq., Steven J. Rizzi, Esq., Kerry C. Foley, Esq., New York, New York, for Plaintiff.
SARGOY STEIN ROSEN SHAPIRO, Harvey Shapiro, Esq., New York, New York SHELDON MAK, Jeffrey G. Sheldon, Esq., Edward C. Schewe, Esq., Pasadena, California, For Defendants Ponica Industrial Co., Ltd. and Finest Industrial Co., Ltd.:
MEMORANDUM OPINION AND ORDER
Plaintiff Westvaco Corporation ("Plaintiff" or "Westvaco") brings this action, alleging infringement of its United States patent 5, 788, 068 (the "'068 patent"), which is entitled "Apparatus for Holding a Compact Disk." (Compl. ¶¶ 10-11.) Plaintiff contends that defendants, individually and in concert, have infringed its patent by, inter alia, seeking to sell and distribute compact disk and DVD holders that embody the subject matter of the '068 patent. (Compl. ¶¶ 13-14.) Defendants include Ponica Industries Corporation ("Ponica"), a California based corporation that imports and distributes products including compact disk and DVD packaging boxes (Chien Decl. ¶ 2) and Finest Industrial Co., Ltd. ("Finest"), a company based in Hong Kong, which manufactures compact disk and DVD containers in China and sells its products from China or Hong Kong (Lau Decl. ¶ 2). Ponica has moved to dismiss the Complaint as against it on grounds of lack of personal jurisdiction, improper venue, and forum non conveniens. Alternatively, Ponica seeks to transfer the case to the United States District Court for the Central District of California under 28 U.S.C. § 1404(a) and 1406(a), and/or for severance of the claims against it pursuant to Federal Rules of Civil Procedure 20 and 21 from those asserted against certain other defendants. Finest has also moved to dismiss the Complaint as against it for lack of personal jurisdiction, alternatively to transfer the action, and, alternatively, for severance of the claims against it. Plaintiff opposes the motion and seeks certain discovery relating to jurisdictional issues. The parties have provided written submissions and presented oral arguments to the Court in connection with these motions, all of which have been considered thoroughly. For the reasons set forth below, the Court grants Plaintiffs application for jurisdictional discovery to the extent herein set forth and reserves decision on the dismissal and transfer motions pending the additional discovery and the Court's receipt of supplemental submissions.
Ponica was formerly known as Ponica Industrial Co., Ltd., and is so identified in the Complaint.
DISCUSSION
Personal Jurisdiction
When a defendant brings a motion under Federal Rule of Civil Procedure 12(b)(2) to dismiss an action for lack of personal jurisdiction, the plaintiff bears the burden of showing that the court has jurisdiction over the defendant. Metropolitan Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 566 (2d Cir. 1996). Prior to discovery, and in the absence of an evidentiary hearing, a plaintiff facing a motion to dismiss for lack of personal jurisdiction "'need make only a prima facie showing of jurisdiction through its own affidavits and supporting materials.'" Bank Brussells Lambert v. Fiddler Gonzalez Rodriguez, 171 F.3d 779, 784 (2d Cir. 1999) (citation omitted). See also Ball v. Metallurgie Hoboken-Overpelt. S.A., 902 F.2d 194, 197 (2d Cir. 1990). In bringing a Rule 12(b)(2) motion, a defendant "assumes the truth of the plaintiffs factual allegations for purposes of the motion and challenges their sufficiency." Id. In determining whether jurisdiction over a defendant has been established, the court can consider matters outside the pleadings without converting a motion to dismiss into a motion for summary judgment. Bensusan Restaurant Corn. v. King, 937 F. Supp. 295, 298 (S.D.N.Y. 1996), aff'd 126 F.3d 25 (2d Cir. 1997). Facts from the pleadings and affidavits are to be construed in the light most favorable to the plaintiff. Mattel. Inc. v. Adventure Apparel, No. 00 Civ. 4085 (RWS), 2001 WL 286728 at *2 (S.D.N.Y. 2001), citing Hofritz for Cutlery. Inc. v. Amajac, Ltd., 763 F.2d 55, 57 (2d Cir. 1985).
In evaluating personal jurisdiction, the Court engages in a two-part analysis: first, it must be determined whether there is jurisdiction over the defendant under the forum state's laws — in this case, New York's Civil Practice Law and Rules ("CPLR") section 302 — and second, if the forum state's law would support jurisdiction, the Court examines "whether an exercise of jurisdiction under these laws is consistent with federal due process requirements." Bank Brussels Lambert v. Fiddler Gonzalez Rodriguez, 171 F.3d 779, 784 (2d Cir. 1999). See also Dan-Dee Int'l v. Kmart Corp., No. 99 Civ. 11689 (DC), 2000 WL 1346865 at *2. Both state law and due process requirements must be met in order to exercise jurisdiction over a non-domiciliary.
Westvaco contends that this Court has personal jurisdiction of Ponica and Finest under New York's long arm statute, Section 302 of the CPLR, which provides in relevant part that:
(a). . . [A] court may exercise personal jurisdiction over any non-domiciliary, or his executor or administrator, who in person or through an agent:
(2) commits a tortious act within the state . . . ; or
(3) commits a tortious act without the state causing injury to person or property within the state, . . . if he
(i) regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in the state, or
(ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce. . . .
N.Y. CPLR § 302(a)(2) (McKinney 2001). Westvaco contends that Ponica and Finest contributed to infringement of its '068 patent or induced others to infringe the '068 patent, thereby committing a tort "within the state" for purposes of section 302(a)(2). Plaintiff also argues that the Court can exercise jurisdiction under section 302(a)(3) because Defendants caused injury in New York by their allegedly infringing activities outside of the state. With respect to the satisfaction of constitutional due process requirements, Westvaco relies on the "stream of commerce" principles set forth in Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558 (Fed. Cir. 1994). Plaintiff argues in addition that the Court can exercise personal jurisdiction over Finest, a foreign corporation, based on the aggregation of Finest's contacts with the United States.
Plaintiff argues that out-of-state acts that contribute to or induce infringement of intellectual property rights within New York are tortious acts "within the state" for purposes of CPLR section 302(a)(2). Plaintiff has not proffered any evidence that Ponica or Finest sold or delivered any of their products in New York. Similarly, although Plaintiff also asserts that Defendants have advertised their products for sale to New Yorkers via advertisements in national publications and a web site, accessible from New York, which permits potential purchasers to obtain information on product availability and to provide their own contact information, there is no allegation that this activity, even if tantamount to an "offer for sale" of an infringing product in New York, was performed in New York. Under these circumstances, the invocation of section 302(a)(2) in support of personal jurisdiction based on the alleged infringement and contributory infringement activities is unavailing. Second Circuit decisions make it clear that the statutory provision requires that The tortious act itself physically be performed within New York State. See Bank Brussells Lambert, 171 F.3d at 790; Bensusan Restaurant Cow. v. King, 126 F.3d 25 (2d Cir. 1997). See also Pieczenik v. Dyax Corn., No. 00 Civ. 243 (HB), 2000 WL 959753 (S.D.N.Y. July 11, 2000) (finding no personal jurisdiction where defendant was not physically present in jurisdiction when allegedly tortious act committed). Thus, CPLR section 302(a)(2) does not provide a basis for this Court's assertion of personal jurisdiction over Finest or Ponica.
Westvaco contends, altematively, that section 302(a)(3)(ii) of the New York Civil Practice Law and Rules provides a predicate for the exercise of personal jurisdiction over Defendants in New York The statute provides in pertinent part that a court may exercise jurisdiction over a non-domiciliary who "commits a tortious act without the state causing injury to person or property within the state, . . . if he (ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce." N.Y. CPLR 302(a)(3) (McKinney 2001). Westvaco argues that Defendants' infringement of the '068 patent outside of the state caused injury to Plaintiff within New York, by the sale of the goods in New York, and that Defendants expected or should reasonably have expected their acts to have consequences in New York.
Plaintiff has clearly made prima facie allegations that Defendants infringed and/or induced or contributed to infringement of Plaintiff's patent outside the state. In a patent case, injury is deemed to occur where sales of infringing products occur. Beverly Hills Fan, 21 F.3d at 1571; Dan-Dee, 2000 WL 1346865 at *4 Plaintiff has proffered affidavits alleging that certain MGM Home Video DVDs packaged in the accused boxes are available for sale to the public at various Blockbuster Video and other retail outlets in this District, thus satisfying its prima facie obligations with respect to the local injury prong of the statute.
Defendants argue that Plaintiff has failed to make a prima facie showing with respect to their derivation of substantial revenue from interstate or international commerce. In its complaint, Plaintiff alleges that Defendants Finest and Ponica, which are alleged to be Hong Kong and California businesses, respectively, manufacture, import, sell, and distribute in the United States, including in New York, large quantities of the accused products. (Compl. ¶ 13, 14.) A declaration proffered by Plaintiff includes the further information and belief assertions that infringing Ponica products have been marketed to consumers in New York in large numbers, and that Ponica markets its products on a national basis, holding itself out as having sales and distribution on the East and West coasts. (Decl. of Michael Sims ¶¶ 11, 12.) Plaintiff has also proffered evidence of U.S. advertising by Finest. (Exh. B to Kerry Foley Decl., dated March 13, 2001.) These allegations are arguably sufficient to sustain Plaintiff's burden on the issue of "substantial revenue from interstate or international commerce" under section 302(a)(3) at this stage of the inquiry.
The requirement that Plaintiff show that the defendant "expects or should reasonably expect the [tortious] act to have consequences in [New York]" is, however, more problematic. In its unverified complaint, Plaintiff alleges in a conclusory fashion that all four defendants "are jointly and individually . . . placing large quantities of compact disk/DVD holders infringing plaintiffs patent rights in the . . . State and District" (Compl. ¶ 8) and that "[u]pon information and belief, defendants . . . have been . . . distributing their compact disks and DVDs nationally, including in large quantities in New York State" (Compl. ¶ 14). The complaint cites unspecified "infringing activities" by Ponica and Finest "in connection with MGM Home Entertainment" as examples of defendants' alleged "manufacturing, importing, selling, promoting, offering for sale, and distributing in the United States . . . large quantities of compact disk/DVD holders that embody the patented subject matter." (Compl. ¶ 13.) In opposition to the instant motions, Plaintiff has further proffered the aforementioned affidavits asserting that employees or agents of Plaintiff's counsel or its licensee have found DVDs packaged in what they believe to be the accused boxes for sale in New York (Aff. of Jeremy Bloomenthal; Decl. of Michael Sims ¶ 12). In a declaration, the president of Plaintiff's licensee asserts that, based on his "knowledge of the packaging industry and of the popularity of the [MGM films packaged in the accused boxes], I believe it is highly likely that Ponica knew, when it entered into its agreement with MGM, that its DVD holders . . . would be shipped in very large quantities into New York State." (Sims Decl. ¶ 13.) Plaintiff also asserts that Ponica advertises in nationally distributed packaging industry publications, including one that is published in New York, and that Ponica has represented in a magazine that it has "sales and distribution on the East coast as well as the West coast." (Sims Decl. ¶ 11 Ex. A thereto.) Plaintiff has proffered documentation indicating that Finest maintains a web site that is accessible from the United States, including from New York, that includes product query and communications capabilities, and that Finest has advertised in an American publication. (3/13/01 Foley Decl. exhibits thereto.)
Plaintiff asserts that, by providing the accused holders to MGM Entertainment, Inc., "Finest and Ponica have placed their infringing DVD boxes into the stream of commerce with knowledge that they would be sold in New York, and that [because] these boxes have indeed been sold in New York in combination with MGM DVDs," the exercise of personal jurisdiction over the two defendants is appropriate. (Post-Hearing Mem. of Westvaco Corp. at 7.) Relevant caselaw suggests, however, that CPLR 302(a)(3)(ii) requires something more than knowledge that an offending product will be sold in New York. Thus, in Kernan v. Kurz-Hastings, 175 F.3d 236 (2d Cir. 1999), the panel observed:
New York courts have asserted that the simple likelihood or foreseeability "that a defendant's product will find its way into New York does not satisfy th[e reasonable expectation] element [of the statute], and that purposeful availment of the benefits of the laws of New York such that the defendant may reasonably anticipate being haled into New York court is required.' . . . '[I]t is not enough that a defendant foresaw the possibility that its product would find its way here; foreseeability must be coupled with evidence of a purposeful New York affihation, for example, a discernible effort to directly or indirectly serve the New York market.'
Id. at 241 (citations omitted). Such an effort was found in Kernan based on the foreign defendant's exclusive distributorship agreement with a Pennsylvania corporation for sales in the United States, which agreement included provisions for the exchange of pricing and product development information, and an oral agreement between those two entities for the manufacture of machines for sale by the distributor. Id. at 242.
The record before the Court is unclear as to the nature and extent of the Defendants' commercial dealings that led to the presence of their accused products in New York. Westvaco has requested permission to conduct limited discovery relating to the issue of personal jurisdiction, and will be permitted to conduct such discovery regarding: the nature and extent of Defendants' sales activities with respect to the accused product(s), including the terms of any agreement(s) with MGM Home Entertainment, Inc., and of other sales or distribution arrangements relating to the accused product(s), and any advertising or marketing of such accused products. Such discovery may also be relevant to the propriety under the federal due process clause of the exercise of personal jurisdiction in New York, if Plaintiff establishes that the prerequisites of CPLR section 302(a)(3) are met. Cf. Asahi Metal Ind. Co., Ltd v. Superior Court of California, 480 U.S. 102, 114 (1987) (Justice O'Connor, writing for four members of the Court, opines that purposeful action of defendant toward state is necessary for finding of minimum contacts and that mere placement of product into stream of commerce is insufficient); Id. at 117-17 (Justice Brennan, writing for four members of Court, opines that minimum contacts aspect of due process clause is satisfied where participant in stream of commerce is aware that final product is being marketed in forum state, but concurs in judgment that exercise of jurisdiction in the particular case would be unreasonable and unfair); Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558, 1565 (Fed. Cir. 1994) (allegation that defendants purposefully shipped accused product into forum state through established distribution channel sufficient to satisfy minimum contacts aspect of due process analysis).
Plaintiffs request for discovery is, however, denied insofar as Plaintiff seeks more broadly to discover information regarding Defendants' business operations and sales of products that are not the subject of the patent infringement claims asserted in this litigation except to the extent Defendants' derivation of substantial revenues from international or interstate commerce continues to be at issue, in which case Plaintiff may seek discovery of data, on an aggregate basis, concerning Defendants' international and/or interstate sales revenues.
The additional discovery shall be completed by October 24, 2002. Plaintiff shall serve and file any supplemental papers in opposition to the instant motions no later than November 6, 2002; Defendants shall serve and file any supplemental reply papers by November 13, 2002. An evidentiary hearing will, if necessary, be held on December 3, 2002 at 2:00 p.m.
In light of the propriety of further discovery on the issue of personal jurisdiction, the Court does not reach at this time the venue and transfer aspects of Defendants' motions.
SO ORDERED.