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A Foreign Defendant Could Not Defeat a Court's Jurisdiction Under the Federal Long Arm Statute by Subsequently Consenting to the Jurisdiction of Another Court After Final Judgment

LES Insights
August 20, 2012

Paul, John C., Kacedon, D. Brian , Roland, Daniel F.

Article

Authored by D. Brian Kacedon, John C. Paul, and Daniel F. Roland

Given the international nature of business today, U.S. patent owners often find themselves wanting to assert infringement claims against entities located outside the United States. But to sue a foreign entity in a U.S. district court, a patent owner typically must show that the foreign entity's contacts with the state in which that court is located are sufficient to allow the court to exercise "personal jurisdiction" over that entity. Occasionally, however, a foreign entity may not have such contacts with any individual state. This does not mean, however, that a patent owner will necessarily be without recourse.

Rule 4(k)(2) of the Federal Rules of Civil Procedure, commonly referred to as the federal long-arm statute, provides that for claims arising under federal law, such as a patent infringement claim, an entity can sue a foreign entity in any U.S. District Court if that defendant is not subject to the jurisdiction of the courts of any one state but its contacts with the United States as a whole are sufficient to meet the requirements of due process under U.S. law. This rule may raise difficult questions, however, about whether a defendant is, in fact, subject to jurisdiction in any particular state. In Merial Ltd., BASF Agro B.V. v. Cipla Ltd.,1 the Federal Circuit addressed whether a foreign defendant may divest a court of jurisdiction under Rule 4(k)(2) after the court has entered final judgment by consenting to jurisdiction in another forum.

Background

In November 2007, Merial sued Cipla in the U.S. District Court for the Middle District of Georgia on two patents relating to veterinary flea and tick treatment. The complaint alleged that Cipla, a pharmaceutical company incorporated and operating in India, sold infringing veterinary pesticide products throughout the U.S. and that Cipla was subject to personal jurisdiction in the district court by virtue of its contacts and conduct within Georgia. Cipla did not respond to the complaint, leading the district court to grant Merial's motion for a default judgment in March 2008, holding that the patents were not invalid and were infringed. The court then issued an injunction barring Cipla from directly or indirectly infringing those patents. Shortly after the injunction issued, Cipla filed an "informal" communication, which referenced the default proceedings and denied infringing or having any presence in the United States. The district court denied Cipla's request for "equitable informal assistance" and entered final judgment on April 15, 2008.

About the same time, Cipla also began working with Velcera, a company started by former Merial executives to develop a flea and tick treatment, PetArmor Plus, that would directly compete with Merial's product. Cipla manufactured PetArmor Plus for Velcera, and the product was ultimately imported into the U.S. by FidoPharm, one of Velcera's wholly owned subsidiaries. Having learned of Cipla's role in the launch of PetArmor Plus, Merial filed a motion for contempt in the same court that had formerly enjoined Cipla, claiming that PetArmor Plus was merely a rebranded version of Cipla's enjoined product and that the importation and sale of PetArmor Plus violated the injunction. Velcera moved to intervene as an interested party and was joined as a defendant.

In the contempt proceedings, Cipla sought to vacate the 2008 injunction as void, alleging that the district court had lacked personal jurisdiction over Cipla when it issued the default judgment contending that Rule 4(k)(2) could not have conferred jurisdiction over Cipla in Georgia because Cipla would have consented to jurisdiction in Illinois. In addition, Velcera argued that it was not subject to the injunction as a nonparty to the underlying default judgment and that it had not acted in concert with Cipla to violate the injunction. But the district court concluded that it had jurisdiction over Cipla under Rule 4(k)(2) when it issued the 2008 injunction and that Velcera had knowingly acted in concert with Cipla to violate the injunction.

The Merial Decision

On appeal, Cipla and Velcera challenged the district court's jurisdiction to enter an injunction based on Rule 4(k)(2) due to its present consent to jurisdiction in Illinois. In response, Merial argued that Rule 4(k)(2) applied when it filed suit in 2007, that Cipla had denied contacts with Illinois or any other U.S. jurisdiction at that time, and that Cipla's after-the-fact consent to jurisdiction in Illinois did not defeat Rule 4(k)(2) because there was no independent basis for jurisdiction in Illinois.

Cipla argued that when it identified Illinois as an alternate forum for suit during the contempt proceedings, this divested the district court of personal jurisdiction and rendered the default judgment void. The Federal Circuit did not agree and held that such after-the-fact consent could not undermine the district court's personal jurisdiction under Rule 4(k)(2). The court concluded that "a defendant cannot defeat Rule 4(k)(2) by simply naming another state." Rather, a defendant must identify a forum where the plaintiff could have brought suit at the time of filing, regardless of the defendant's consent. This condition was not satisfied because the Federal Circuit agreed that Cipla would not have been subject to personal jurisdiction in the Northern District of Illinois for the claims asserted in the 2007 complaint.

Cipla also contended that because the 2007 complaint did not refer to Rule 4(k)(2), the district court unfairly changed the circumstances by later relying on that rule as the basis for jurisdiction. The Court rejected these arguments because Cipla had actual notice of the original suit and chose to risk a default judgment rather than challenge personal jurisdiction; thus, retroactive application of Rule 4(k)(2) after the default judgment was appropriate.

Cipla further argued that the district court overextended U.S. law to capture conduct occurring entirely in India. Although the Federal Circuit acknowledged that "purely extraterritorial conduct cannot constitute direct infringement" under 35 U.S.C. § 271(a), it noted that § 271(b) may establish liability for extraterritorial acts that actively induce an act of direct infringement within the United States, even if the inducement is insulated through layered contractual arrangements and an elaborate distribution chain. The Court, therefore, rejected the contention that acts outside the U.S. cannot violate any provision of § 271 and affirmed the district court's finding that Cipla had induced infringement.

Finally, Velcera argued that the district court committed error by also finding Velcera-a nonparty to the 2008 default judgment-in contempt for working in "active concert" with Cipla to violate the injunction because, according to Velcera, its lack of a direct contractual relationship with Cipla indicated independent activity undertaken for purposes other than assisting Cipla in violating the injunction. Liability for working in "active concert" requires that a nonparty to an injunction act with an enjoined party to knowingly violate the injunction. The Federal Circuit held that the district court did not clearly err to find that Velcera's business relationship with Cipla was designed primarily to obfuscate illicit and intentional concerted action rather than as a bona fide business arrangement. It therefore affirmed the district court's contempt holding as applied to Velcera.

Strategy and Conclusion

1. Defendants cannot defeat the use of Rule 4(k)(2) merely by consenting to jurisdiction in a separate forum after the fact. Defendants looking to challenge a court's personal jurisdiction should keep in mind that courts may retroactively apply Rule 4(k)(2), even when plaintiffs do not rely on the rule to establish personal jurisdiction. To defeat application of the rule, defendants must be able to establish that jurisdiction in a different forum was possible at the time of the original suit.

2. 35 U.S.C. § 271(b) does not foreclose liability for extraterritorial acts that actively induce direct infringement within the United States. Defendants should be aware that insulating their conduct through layered contractual arrangements and elaborate distribution chains may not suffice to protect them from violating § 271(b). Additionally, nonparties establishing business relationships with an enjoined party should ensure that their collective conduct is not forbidden by the injunction.

Endnotes
1The Merial decision may be found here: http://www.cafc.uscourts.gov/images/stories/opinions-orders/11-1471-1472.pdf.

Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.