Corporate Officers Acting in Corporate Capacity Are Shielded from Being Subject to the Jurisdiction of Courts in Other States

Authored by Forrest A. Jones, D. Brian Kacedon, and John C. Paul

In small, start-up companies, the lines between personal activities and business pursuits can blur, especially with the popularity of social-media sites like Facebook and Twitter and non-traditional funding platforms like Kickstarter. This blurring of lines can lead to interesting issues in cases involving traditional legal doctrines, such as personal jurisdiction. A recent Virginia district court case, Robinson v. Bartlow,¹ considered whether the court had personal jurisdiction over corporate officers of a company accused of patent infringement based, in part, on that company's Kickstarter ad.

Background

Defendants JoeyBra LLC and its founders reside in Washington state and sell JoeyBra, a pocketed bra that "discreetly holds a cellphone, ID, and key." After entering a business-plan competition in Washington, they used the popular website Kickstarter to find financing and began making sales through JoeyBra's website.

Plaintiff Charles Robinson believed the JoeyBra infringed his 2001 design patent on a bra with pockets and sued JoeyBra and its founders in Virginia, asking the court for a preliminary injunction to stop the defendants' sales through JoeyBra's website and other promotional activities. The defendants opposed the preliminary injunction and moved to dismiss the matter for lack of personal jurisdiction and improper venue.

Preliminary Injunction Is Denied

The district court first considered the merits of Mr. Robinson's preliminary-injunction motion. Focusing primarily on the likelihood of success on the merits, the court denied the motion and cited the Federal Circuit's Egyptian Goddess opinion, explaining that analyzing infringement of a design patent requires an "overall comparison" between two designs in light of the prior art. The idea of a bra with pockets, according to the court, is not a very novel element. And because this basic idea was not novel, the court found that the difference in size and function of the pocket was dispositive. The pocket on Mr. Robinson's design is much smaller, fit for a key, whereas the JoeyBra pocket is larger and holds a smartphone and credit cards—something not possible with Mr. Robinson's design.

The court also found that the other elements of the preliminary-injunction test weighed in favor of the defendants: (1) whether Robinson would suffer irreparable harm without the injunction; (2) whether the balance of equities was in Robinson's favor; and (3) whether an injunction is in the public's interest. The court based this conclusion largely on the lack of evidence of harm and that Robinson did not have a product for sale while the defendants did.

No Personal Jurisdiction Over Corporate Officers

The court then considered the defendants' motion to dismiss claims against the individuals as defendants for lack of personal jurisdiction; the court had earlier denied a motion to dismiss claims against JoeyBra LLC. The motion regarding the individuals was based on the lack of any connection between the founders of JoeyBra LLC and Virginia (where the court was located). Three of JoeyBra's donors from Kickstarter were located in Virginia, and Robinson relied on this fact combined with the personal nature of the Kickstarter ad to support his argument that the founders were subject to jurisdiction in Virginia.

The court disagreed, finding that the defendants' ad on Kickstarter was available equally in all states and was not targeted to Virginia. Therefore, it could not serve as the basis for personal jurisdiction. The court also found that the fiduciary-shield doctrine protected the defendants because they were acting in their official duties for JoeyBra LLC. While the contact information for the Kickstarter ad directed viewers to one of the founder's personal Facebook accounts, the ad nonetheless identified JoeyBra LLC as the party developing JoeyBra, and all Kickstarter donations went to JoeyBra LLC and not the individuals who founded and ran the company.

Strategy and Conclusion

In this case, the fiduciary shield protected the individual corporate officers from suit in a in another state because their only contact with the state was a result of official duties for the company. While advertising and sales efforts through crowd-funding services like Kickstarter may identify and promote the individuals behind a project and their personal information such as Facebook accounts, it would appear that those individuals may be shielded from personally being sued in another state so long as their efforts were a result of official duties and for the profit of the company rather than their own personal profit.

Endnotes 
¹ The Robinson order can be found here.

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.