Based on Defendants’ Trade Show Visits to Nevada, Court Finds Exercise of Personal Jurisdiction Appropriate
May 10, 2010
Last Month at the Federal Circuit - June 2010
Judges: Linn (author), Rader, Archer
[Appealed from: D. Nev., Judge Mahan]
In Patent Rights Protection Group, LLC v. Video Gaming Technologies, Inc., No. 09−1391 (Fed. Cir. May 10, 2010), the Federal Circuit reversed the district court’s dismissal for lack of personal jurisdiction and denial of Patent Rights Protection Group, LLC’s (“Patent Rights”) request for jurisdictional discovery.
Patent Rights owns U.S. Patent Nos. 6,475,087 and 6,860,814 (collectively “the Gaming Patents”), which relate to various types of casino−style gaming machines. Patent Rights initiated separate lawsuits against several out−of−state gaming companies, including Video Gaming Technologies, Inc. (“VGT”) and SPEC International, Inc. (“SPEC”). Patent Rights asserted in each suit that the gaming companies had infringed the Gaming Patents by displaying, using, and offering for sale gaming machines at trade shows in Nevada. SPEC and VGT individually moved to dismiss the lawsuit, each arguing that its contacts with Nevada were insufficient for the court to exercise personal jurisdiction.
SPEC and VGT each argued that it was not registered to practice business in Nevada; did not have sales agents, employees, facilities, bank accounts, or telephone listings in Nevada; and that its websites were not targeted to the residents of Nevada. VGT stated that it did not direct marketing efforts to Nevada nor generate revenues from Nevada, and SPEC stated that it had mailed brochures to eight potential customers in Nevada, generating little sales. SPEC did admit that it had attended trade shows in the 1990s, and both SPEC and VGT admitted to attending trade shows in the 2000s, including as recently as 2007 or 2008.
In addition to their motions to dismiss for lack of personal jurisdiction, both SPEC and VGT also argued that the venue was improper for this case, or alternatively, that the district court should transfer the case to Michigan, or stay the case in light of a DJ action filed against Patent Rights by SPEC in Michigan. Patent Rights opposed these motions and requested jurisdictional discovery. In light of a dismissal of a separate case between Patent Rights and another gaming company for lack of personal jurisdiction, the district court judge requested supplemental briefing on any preclusive effect of that decision.
After oral argument and consideration of the briefs, the district court dismissed the action without prejudice. The district court applied Ninth Circuit precedent and found that the factors in the case either weighed in favor of unreasonableness of exercise of personal jurisdiction or were neutral. The district court also denied Patent Rights’ request for jurisdictional discovery on the ground that such discovery would not affect the reasonableness analysis. The district court further determined that the venue and preclusion issues, as well as the motions to stay or transfer the case, were mooted in light of the dismissal. Patent Rights appealed the district court’s decisions.
On appeal, both sides agreed that the district court erred in applying Ninth Circuit law, as Federal Circuit law is controlling in the case. However, SPEC and VGT argued that Federal Circuit precedent led to the same conclusion, and thus the error was harmless. The Court declined to address any of the issues not addressed by the district court, and thus proceeded to analyze the personal jurisdiction issue and the request for jurisdictional discovery.
The Court first agreed that Federal Circuit precedent was controlling, and reviewed the reasonableness of the exercise of personal jurisdiction de novo. In order for a district court to exercise personal jurisdiction over a nonconsenting out−of−state defendant, the defendant first must be amenable to service of process, and second, the exercise of jurisdiction must comport with the constitutional requirements of due process. In order to determine if service of process was possible, the court must examine the particular state’s long−arm statute. Since Nevada’s long−arm statute permits courts to exercise personal jurisdiction to the extent permitted by the U.S. Constitution, the personal jurisdiction inquiry before the Court reduced to the second issue—whether the exercise of personal jurisdiction in this case satisfies due process.
In order for a court to have personal jurisdiction over a defendant, the defendant must have minimum contacts with the state in question. Slip op. at 6. If such contacts exist, the court must then look to various factors to determine if exercise of jurisdiction is reasonable. Id. Under Supreme Court precedent, if a defendant has purposefully directed its activities to the forum state, then the defendant must present a compelling case of unreasonableness. The Federal Circuit has stated that these compelling cases are limited to the rare situation in which the plaintiff and state’s interests in adjudicating the dispute in the forum are clearly outweighed by the burden of subjecting the defendant to litigation in the forum.
The district court in this case cited three factors in arguing that jurisdiction would be unreasonable: (1) limited purposeful contacts by the defendants; (2) the companies and their witnesses are located outside of Nevada, making defending a lawsuit burdensome; and (3) both companies would be subject to jurisdiction in another forum, namely, Michigan or Tennessee. The district court also determined that Nevada had no particular interest in hearing the case, that Michigan or Tennessee have an equal interest in hearing the case, and that Nevada would not be particularly convenient or efficient compared to any other court.
The Federal Circuit disagreed with this analysis. As a preliminary matter, the Court stated that modern transportation and communications make it far less burdensome for a party to defend itself outside its home state, and that defendants’ presence at trade shows contradict their claims of a serious burden. Id. at 9. The Court also stated that Nevada, much like any other state, has an interest in providing its residents with a convenient forum, and this interest extends to patent infringement actions. Finally, the Court noted that Nevada hearing the case reduced the burden on the defendants’ respective home states, and would result in a more efficient resolution of controversies, given that the same forum would hear these largely similar actions. Thus, this generally promoted the interstate interest of efficiency, as well as promoting Patent Rights’ interest in obtaining convenient and effective relief.
Weighing these factors, the Court determined that this case did not represent the rare case where Patent Rights’ and Nevada’s interests were so attenuated that they were clearly outweighed by the burden on defendants. Id. at 10. The Court therefore concluded that the district court erred in declining to exercise jurisdiction solely on the ground that to do so would be unreasonable.
Turning to the issue of jurisdictional discovery, the Court reviewed the decision for abuse of discretion and applied the law of the regional circuit—here, the Ninth Circuit. Under Ninth Circuit precedent, jurisdictional discovery should be granted where pertinent facts related to jurisdiction are controverted or a more satisfactory showing of the facts is necessary. However, the Court noted it is not an abuse of discretion where it is clear that further discovery would not demonstrate facts sufficient to constitute a basis for jurisdiction, or where the request is based on little more than a hunch that discovery may yield relevant facts. Additionally, the Court noted that decisions to deny discovery will not be disturbed except under the clearest showing of actual and substantial prejudice. Id. at 11.
The Court then determined that Patent Rights’ request was not based on a hunch, but instead was supported by a declaration of the inventor of the Gaming Patents that SPEC and VGT had used and marketed what appeared to be infringing game machines at Nevada trade shows. The Court stated that any argument that there was no commercial purpose in defendants attending the trade shows or displaying game machines strained credulity. Id. at 12. According to the Court, given that SPEC and VGT were in the business of selling gaming machines, and that Nevada was one of the largest markets for such machines, the defendants’ actions at these trade shows most likely had a commercial basis. Based on this, the Court determined that jurisdictional discovery may unearth facts that support the exercise of personal jurisdiction, and that denial of such discovery resulted in actual and substantial prejudice to Patent Rights in the form of dismissal of the case. Therefore, the Court stated that denial of discovery was an abuse of discretion. The Court thus vacated the district court’s judgment and remanded the case for further proceedings consistent with the above decisions.
Summary authored by Justin R. Lowery, Esq.