Recent Developments in U.S. Personal Jurisdiction Law May Make It More Difficult for Taiwan Companies to Be Sued in the United States

Authored by Gary C. Ma

Introduction

"You are telling me that I can be sued in the United States even though I am a Taiwan company who only sells products in Taiwan?!" Taiwan companies that manufacture products eventually imported into the United States may not know that even if they do not have offices or other type of physical presence in the United States, they can still be sued there, typically in products liability or patent infringement actions. Two recent decisions by the U.S. Supreme Court, however, have altered the landscape of personal jurisdiction law in favor of companies that do not have a physical presence in the United States. In J. McIntyre Machinery, Ltd. v. Nicastro, 131 S. Ct. 2780 (2011), the Supreme Court held in a plurality opinion*, that it was not enough for a foreign defendant to generally target the United States or expect that its products would reach a particular state. Rather, the defendant must "target or concentrate on particular [s]tates," in order to "subject[] them to specific jurisdiction in those forums."  In Goodyear Dunlop Tires Operations, SA v. Brown, 131 S. Ct. 2846 (2011), the Supreme Court found that occasional sales of products into a U.S. state were not enough to subject foreign subsidiaries of an American company to general jurisdiction in that state.

A fundamental concept of U.S. law is that a court can only hear disputes involving parties over which it has personal jurisdiction – the right to haul the defendant into court. There are two types of personal jurisdiction - specific and general. A court can exercise specific personal jurisdiction over a party where the party’s contacts or acts within the state give rise to the lawsuit. A court has general personal jurisdiction over a party for any lawsuit when the party’s contacts with the state are frequent and continuous. The J. McIntyre decision addressed specific jurisdiction while the Goodyear decision dealt with general jurisdiction.

J. McIntyre

In J. McIntyre, a New Jersey plaintiff filed a suit in a New Jersey court, for injuries to his hand suffered while operating a machine manufactured by J. McIntyre Machinery, Ltd.  J. McIntyre is a British company with no offices or physical presence in the United States. The machine at issue (the only one ever sold in New Jersey) was manufactured in England. As is often the case with Taiwan companies, J. McIntyre’s products were imported into and sold in the United States through a third-party distributor. J. McIntyre did not market products in New Jersey itself or ship any products into New Jersey, but did attend annual conventions in the United States and advertised at the conventions. J. McIntyre worked with its U.S. distributor in marketing products, but it did not have any control over where the distributor sold its machines. 

A plurality of the Supreme Court held that the New Jersey trial court did not have personal jurisdiction over J. McIntyre. The Supreme Court explained that it is not enough that the defendant might have predicted that its goods will reach the forum state. Rather, the defendant must "target or concentrate on particular States," in order to "subject[] them to specific jurisdiction in those forums." Additionally, even though J. McIntyre may have had "an intent to serve the U. S. market, [that does] not show that J. McIntyre purposefully availed itself of the New Jersey market."

Goodyear

While the J. McIntyre case represents a shift in the law for specific personal jurisdiction, the Goodyear case narrows the law for general personal jurisdiction. In Goodyear, the Supreme Court held that "mere purchases [made in the forum State], even if occurring at regular intervals, are not enough to warrant a State’s assertion of [general] jurisdiction over a nonresident corporation in a cause of action not related to those purchase transactions." 

The Effect of the J. McIntyre and Goodyear Cases and What They Mean to Your Company

Courts following the J. McIntyre and Goodyear cases have generally raised the bar for exercising personal jurisdiction over a non-U.S. defendant. Some courts have held that putting products into the stream of commerce is not enough to establish personal jurisdiction and have specifically looked for activities directed to the forum state.

In light of these two decisions, Taiwan companies should consider the following to minimize their risk of being hauled into U.S. courts:

1) Sell products to the United States through distributors without targeting any specific U.S. state and leverage third-party distribution channels whenever possible.

2) Websites should have limited interactive features and bar U.S. visitors from purchasing products directly on the website. 

3) Websites and marketing material should avoid identifying or addressing any specific U.S. state. 

4) Address potential U.S. liability issues with distributors, partners, and retailers, by entering into indemnification agreements or including indemnification clauses in purchase orders or supplier agreements. 

5) If your company has a U.S. subsidiary, make sure the subsidiary is self-sufficient and operates independently. Ideally, the subsidiary should have separate officers and directors that act independent of the parent, should keep and report its own financial information, generate its own revenue, and be sufficiently capitalized. 

Since these two decisions, Taiwan companies have successfully been dismissed from cases based on personal jurisdiction. When named as a party in a suit, it is important to immediately seek counsel from a U.S. attorney to ensure that potential opportunity for dismissal based on personal jurisdiction is not lost.

*Plurality opinion means that a majority of the nine U.S. Supreme Court justices did not adopt the reasoning stated in the controlling opinion, but only a majority of the majority. In the J. McIntyre case, four justices supported the controlling opinion, with two additional justices agreeing with the ultimate outcome, but not the reasoning stated in the controlling opinion. Three other justices disagreed with the ultimate outcome. 

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.