When Patent Jurisdiction Gets Personal

When Patent Jurisdiction Gets PersonalMerial Ltd. v. Cipla Ltd., Nos. 2011-1471, -1472 (Fed. Cir. May 31, 2012) (Judges Lourie, Schall, and Reyna)

Jurisdiction questions at the Federal Circuit usually relate to subject matter jurisdiction—whether the case encompasses issues that court has the authority to decide. In Merial, however, the jurisdiction question gets personal: how does the court determine if it has authority over a particular defendant?

There are several issues at play in this case, but I’m going to focus on the personal jurisdiction question since that’s the issue that caused some disagreement on the panel.

No U.S. Sales for You, Patent Violator

Cipla is an Indian company. In 2007, Merial and BASF Agro sued Cipla for infringing its patent for flea/tick pills for pets. Merial filed the lawsuit in the district court for the Middle District of Georgia, claiming that Cipla had enough contacts with the state of Georgia to establish personal jurisdiction over it. Cipla never responded to the complaint.

In April 2008, the district court entered an injunction barring Cipla from infringing or inducing infringement of the patents in question. Shortly after the injunction order was entered, Cipla submitted an “informal communication” to the court, claiming that it didn’t have any presence in the U.S. or in Georgia, and asking the court to dismiss of the suit. The district court said “Too bad,” and entered final judgment for Merial.

In 2011, Merial discovered that Cipla was involved in selling a rebranded version of Cipla’s original infringing product. Merial filed a motion for contempt of the 2008 injunction. Cipla responded this time, arguing that the 2008 judgment was void because the Georgia court never had personal jurisdiction over Cipla. The district court disagreed, determined that it had jurisdiction under Rule 4(k)(2) of the Federal Rules of Civil Procedure, and held Cipla in contempt. Cipla appealed the contempt order to the Federal Circuit.

Existing Nowhere and Everywhere

The general rule of personal jurisdiction is this: a defendant has to have enough contacts with the state in which it’s sued that the defendant could foresee that it would be sued in that state, and that the location of the suit doesn’t “offend the traditional notions of fair play and substantial justice.” Unlike subject matter jurisdiction, defendants can waive their rights to claim a lack of personal jurisdiction by appearing in court or consenting to a particular jurisdiction.

Rule 4(k)(2) is an interesting provision. It says that, in cases involving federal claims, personal jurisdiction exists over foreign defendants who have sufficient contacts with the U.S. generally but not with any particular state in the U.S. In fact, for Rule 4(k)(2) to apply, the defendant cannot be subject to personal jurisdiction in any court in any state. The idea is that foreign defendants can’t escape getting sued in the U.S. by doing just a little business in each state, but a lot of business collectively in the U.S.

Since it would be hard for plaintiffs to prove that no court in any of the 50 states has jurisdiction over a defendant, the defendant has to identify an alternate forum in which the case could proceed. If the defendant refuses to identify an alternate forum, a court can rely on Rule 4(k)(2) to establish personal jurisdiction over the defendant in that state.

Pick a State, Any State, for the Patent Suit

In this case, Merial never mentioned Rule 4(k)(2) in its 2007 complaint—it relied solely on the Georgia long-arm statute and alleged that Cipla had enough contacts with the state of Georgia to establish personal jurisdiction. During the contempt proceedings based on the 2008 decision, Cipla offered the Northern District of Illinois as an appropriate alternate forum in which it could have been sued in 2007.

The district court said that Rule 4(k)(2) could confer jurisdiction on the Georgia court even if Merial didn’t rely on that rule in its original complaint. It then analyzed whether Merial could have sued Cipla in Illinois in the first place. The district court determined that Cipla didn’t have enough contacts with Illinois to establish personal jurisdiction there, so Rule 4(k)(2) is a proper basis for jurisdiction.

On appeal, the majority of the Federal Circuit panel agreed with the district court’s analysis. The majority, like the district court, focused on language from the Federal Circuit’s Touchcom opinion that says a defendant must identify an alternate forum where the plaintiff “could have brought suit” to avoid the application of Rule 4(k)(2) In the majority’s view, a defendant can’t simply point to a state and say, “You should have sued me here.” The alternative forum should be a “more appropriate state”—the majority thinks it would be unfair for a defendant to get to throw out a default judgment and uproot an action to any forum that would be convenient for the defendant after another court has spent substantial time considering the issues.

In dissent, Judge Schall disagreed. He thought that the district court didn’t need to determine whether Cipla could establish personal jurisdiction in Illinois; Cipla consented to jurisdiction in Illinois by naming it as a possible forum. Judge Schall also believed that allowing the case to proceed in Illinois would allow Merial to fully litigate its case.

Timing is Everything in Patent Cases

The other Rule 4(k)(2) issue that arose involved timing. Merial first brought up Rule 4(k)(2) in its response to Cipla’s naming of an alternate forum. Cipla argued that it was entitled to rely on the grounds for jurisdiction that Merial alleged in its complaint. Since Merial didn’t raise Rule 4(K)(2) in the complaint, Cipla said so it shouldn’t be required to anticipate that Rule 4(k)(2) could apply.

The Federal Circuit majority was unsympathetic to Cipla’s situation. Basically, the majority said that Cipla’s decision to ignore Merial’s 2007 complaint was risky, and Cipla had to bear the consequences of its own strategic decision. If Cipla believed the Georgia court didn’t have personal jurisdiction over it, Cipla could have used other procedural methods, like a Rule 12(b)(2) motion, to contest the original complaint in 2007. The majority concluded that Cipla shouldn’t get a second bite at the jurisdictional apple just because it lost the first time around.

Judge Schall also dissented on this point. He argued that Rule 4(k)(2) applies only when no court in any state has personal jurisdiction over a foreign defendant. Merial claimed that Cipla had enough contacts with Georgia to establish personal jurisdiction. If that’s true, he said, then Rule 4(k)(2) couldn’t apply: “I do not believe Cipla should have been on notice of the application of Rule 4(k)(2) when the allegations in the complaint precluded the application of Rule 4(k)(2).” Although he agreed that Merial could rely on Rule 4(k)(2) for the first time in the contempt proceeding, he believed the district court should have let Cipla designate an alternate forum.

I think this jurisdiction issue is a difficult one, because it’s hard to reconcile the legal issues with the practical ones. On the one hand, Judge Schall is correct that a defendant’s consent to participate in a suit in a particular place can confer personal jurisdiction on that court. On the other hand, allowing a defendant to defeat Rule 4(k)(2) jurisdiction and a default judgment in one court simply by picking a different court after a default judgment against it seems to invite forum shopping and efforts that upset settled judicial decisions after the court has spent resources dealing with a particular set of claims. Since Rule 4(k)(2) can only apply when no state has personal jurisdiction, it makes sense to me that the trial court should determine if a defendant has sufficient contacts with the alternate forum to establish jurisdiction.

Who do you think is right?

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