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Court Helps Litigant Find Its Way Back to Kansas

01-1648
July 23, 2002

Decision icon Decision

Last Month at the Federal Circuit - August 2002

Judges: Gajarsa (author), Linn, and Dyk

In Deprenyl Animal Health, Inc. v. University of Toronto Innovations Foundation, No. 01-1648 (Fed. Cir. July 23, 2002), the Federal Circuit reversed the district court’s dismissal of the case for lack of personal jurisdiction, finding that the exercise of jurisdiction over the University of Toronto Innovations Foundation (“UTIF”) would not violate due process.

UTIF is a Canadian technical licensing company that has assisted the University of Toronto with commercialization of inventions developed by its academics. Deprenyl Animal Health, Inc. (“DAHI”) is a Louisiana corporation that has maintained its principal place of business in Overland Park, Kansas. DAHI is also the subsidiary of Draxis Health, Inc. (“Draxis”), a Canadian corporation.

In 1991, DAHI approached UTIF seeking a license under certain UTIF patent applications. After extended negotiations, the parties entered into a license agreement in May 1992. The parties signed separate copies of the agreement in Toronto and Overland Park.

The license agreement contained both an arbitration clause and a choice of law clause. The arbitration clause provided that, should any disagreement arise between the parties, such disagreement should be settled and determined by arbitration, in accordance with the provisions of the Arbitrations Act (Ontario). The choice of law clause provided that the agreement should be interpreted according to the laws of Ontario, Canada.

The dispute between the parties began when Draxis issued a press release announcing FDA approval of a drug called Anipryl, which is used to treat canine cognitive dysfunction. In response, UTIF sent DAHI a notice contending that the sales of Anipryl would be subject to the royalty provisions of the license agreement. DAHI then filed a complaint in the District of Kansas, seeking a DJ that the license agreement was inapplicable to the sale of Anipryl and that UTIF’s patent, U.S. Patent No. 5,767,164 (“the ‘164 patent”), was invalid and not infringed by the sale of Anipryl. DAHI also filed an application in Canadian Superior Court, seeking a declaration that the suit was incapable of being the subject of arbitration in Ontario. The Canadian Superior Court ordered the Canadian court and arbitration proceedings stayed pending the outcome of the parties’ U.S. proceedings.

In the district court, UTIF filed a motion to dismiss for lack of personal jurisdiction or, in the alternative, to dismiss pending the Canadian arbitration. The district court granted UTIF’s motion on the personal jurisdiction ground without reaching the arbitration issue. The court noted that the Kansas long-arm statute authorizes the exercise of jurisdiction to the full extent permitted by the Constitution. The court also found that UTIF had sufficient minimum contacts with Kansas. Nonetheless, the court held that the exercise of jurisdiction over UTIF would violate fair play and substantial justice. Hence, according to the court, jurisdiction over UTIF would violate due process.

The Federal Circuit reversed. The Court applied the two-part test set forth in International Shoe Co. v. Washington, 326 U.S. 310 (1945) and its progeny to determine that due process permitted the exercise of personal jurisdiction over UTIF in Kansas.

Applying the first prong of the International Shoe test, the Court found that UTIF had sufficient minimum contacts in Kansas to justify the exercise of specific jurisdiction. The Court determined that UTIF had purposefully directed its activities in Kansas by negotiating and executing the licensing agreement with DAHI. The Court specifically noted that UTIF’s president twice traveled to Kansas to negotiate and amend the agreement and that UTIF frequently sent correspondence to Kansas. The Court further found that DAHI’s DJ suit related directly to UTIF’s contacts with DAHI in Kansas because it sought a declaration that Anipryl is not covered by the license agreement and that the ‘164 patent is invalid and not infringed by Anipryl.

In response, UTIF argued that courts have declined to exercise jurisdiction where the defendant’s contact with the forum consists primarily of negotiating an agreement that contained forum selection or choice of law provisions selecting a foreign state or country. The Federal Circuit was unpersuaded by this argument, noting that none of the cases cited by UTIF involved agreements to license technology protected by a U.S. patent. According to the Court, obtaining a U.S. patent constitutes meaningful contact with the United States and requires a patentee to purposefully avail himself or herself of a significant benefit of U.S. law. Such purposeful availment, the Court determined, is substantial and not diminished by foreign choice of forum and choice of law provisions.

The Federal Circuit also decided that exercise of jurisdiction over UTIF in Kansas would not violate notions of fair play and substantial justice. The Court determined that the burden of subjecting UTIF to litigation in Kansas would be relatively minimal, despite the fact that UTIF was a Canadian corporation, and found that Kansas has a substantial interest in the resolution of the patent-related dispute between the parties. In this regard, the Court opined that a state has a substantial interest in preventing patent infringement within its borders, in protecting its residents from claims of patent infringement that may be unwarranted, and in enforcing patent license agreements into which residents have entered.

As to the issue of the arbitration clause, the Court determined that it was the province of the Canadian court to determine the scope of the arbitration clause in the first instance. Accordingly, the Court remanded to the district court with instructions to stay proceedings pending the outcome of the Canadian arbitration proceedings.