Personal Jurisdiction Uncertain Based on Stream of Commerce: Part I

By Suzanne Lecocke

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Standards to establish specific jurisdiction over a non-resident or foreign defendant have been around for decades.  Yet today, what tests may be applied to support those standards are uncertain.  How should a court determine whether a defendant’s activities in or related to the forum are sufficiently related to the plaintiff’s claim to permit the exercise of specific jurisdiction?  The answer to this question will have important implications in patent infringement cases, and is especially pertinent for non-U.S. entities sued in American courts.  The answer determines whether a forum state may exercise jurisdiction over a non-forum entity and whether a non-U.S. defendant may be sued in the United States at all.

“Personal Jurisdiction Uncertain Based on Stream of Commerce” is a three-part article.  This Part I discusses the definition of “stream of commerce,” the Federal Circuit’s Beverly Hills decision, and whether the stream-of-commerce test will remain a viable path to establishing personal jurisdiction in patent infringement cases after the United States Supreme Court’s 2017 Bristol Meyers Squibb (“BMS”) decision. Part II (to be published in the July issue of Monthly Insights) generally discusses personal jurisdiction, due process, and the origin of the stream-of-commerce theory as it relates to personal jurisdiction.  Finally, Part III (to be published in the August issue) discusses the Supreme Court’s BMS decision and whether the stream-of-commerce tests used in cases prior to BMS remains applicable to establish personal jurisdiction, whether the ambivalent status quo will continue, or whether the stream-of-commerce test may become case or subject matter specific.

This 3-part article was sparked by a conversation between the author and Osha Liang Partner Peter Schechter.

Meaning of “Stream of Commerce”

First referred to as “current of commerce” by the United States Supreme Court in Swift v. United States, 196 U.S. 375 (1905), to signify that commercial markets extend beyond state boundaries, the label for interstate commerce changed to “stream of commerce” in Stafford v. Wallace, 258 U.S. 495 (1922).

‘Commerce among the states is not a technical legal conception, but a practical one, drawn from the course of business. When cattle are sent for sale from a place in one state, with the expectation that they will end their transit, after purchase, in another, and when in effect they do so, with only the interruption necessary to find a purchaser at the stockyards, and when this is a typical, constantly recurring course, the current thus existing is a current of commerce among the states, and the purchase of the cattle is a part and incident of such commerce.’

Id. 258 U.S. at 403 (citing Swift, 196 U.S. at 399).

The application of the commerce clause of the Constitution in the Swift Case was the result of the natural development of interstate commerce under modern conditions. It was the inevitable recognition of the great central fact that such streams of commerce from one part of the country to another, which are ever flowing, are in their very essence the commerce among the states and with foreign nations, which historically it was one of the chief purposes of the Constitution to bring under national protection and control.

Swift, 196 U.S. at 518-19.  “Stream of commerce” has been used by American courts ever since.  The intersection between stream of commerce and personal jurisdiction came in World-Wide Volkswagen v. Woodson, 444 U.S. 286 (1980), which became the landmark case for establishing specific personal jurisdiction over a non-resident defendant.

The forum State does not exceed its powers under the Due Process Clause if it asserts personal jurisdiction over a corporation that delivers its products into the stream of commerce with the expectation that they will be purchased by consumers in the forum State.

Id. at 297-98.  Further discussion of the case law origins of “stream of commerce” will be presented in Part II of this article.

Beverly Hills

In 1994, several years after World-Wide Volkswagen, a few years after Asahi Metal Indus. Co., Ltd. v. Superior Court of California, 480 U.S. 102 (1987),[1] just prior to Akro Corp. v. Luker, 45 F.3d 1541, 1545 (Fed. Cir. 1995), and long before Bristol-Myers Squibb Co. v. Superior Court, __ U.S. __, 137 S. Ct. 1773 (2017) (“BMS”),[2] the Court of Appeals for the Federal Circuit considered the stream-of-commerce theory as applied to personal jurisdiction in a patent infringement case.  Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558 (Fed. Cir. 1994).  At that time, Asahi had split, with 4 justices in favor of a stream-of-commerce test and 4 justices in favor of a stream-of-commerce-plus-intent test.  Operating under this framework, different federal circuit courts of appeal throughout the country, and even different district courts within individual judicial circuits, applied different tests.  The differences among the district courts caused varying standards to be applied in patent cases, which contravened the purpose and desirability of nationwide patent law uniformity.

In Beverly Hills, Beverly (the patent owner) sued Royal (a U.S. non-forum-resident distributor of the accused ceiling fan) and Ultec (the Chinese manufacturer of the fan) for patent infringement.  The trial court had relied on Asahi precedent as interpreted by the Fourth Circuit in Chung v. NANA Development Corp., 783 F.2d 1124 (4th Cir.), cert. denied, 479 U.S. 948 (1986), in which the defendant’s only purposeful contact – a one-time shipment of goods into the forum – was insufficient to establish personal jurisdiction.  The Chung defendant had not established a regular and systematic distribution channel, but rather had sent the goods to Virginia merely to accommodate the plaintiff.

The Federal Circuit distinguished patent infringement from a one-time tort, though, saying infringement “involve[s] the continuous infliction of injury upon the victim.”  Id. at 1563.   The Court also determined that it was not bound by regional circuit procedural law because the jurisdictional issue in patent cases was not merely procedural, but rather intertwined with substantive patent law, and patent law needed to be consistent across the country.  Id. at 1564.  Noting that Asahi left stream-of-commerce personal jurisdiction unsettled, the Federal Circuit sidestepped Asahi, saying in this case:

plaintiff has stated all of the necessary ingredients for an exercise of jurisdiction consonant with due process: defendants, acting in consort, placed the accused fan in the stream of commerce, they knew the likely destination of the products, and their conduct and connections with the forum state were such that they should reasonably have anticipated being brought into court there.

Id. at 1566.  Requirements under both of the Asahi tests having been met – i.e., the defendants had purposefully shipped the fan into Virginia through an established distribution channel – the Federal Circuit did not decide which of the two Asahi tests it thought correct and instead relied on the wording of World-Wide Volkswagen.

The Court further noted: “even if the requisite minimum contacts have been found through an application of the stream of commerce theory or otherwise, if it would be unreasonable for the forum to assert jurisdiction under all the facts and circumstances, then due process requires that jurisdiction be denied.”  Id. at 1567.  That situation exists when “the plaintiff’s interest and the state’s interest in adjudicating the dispute in the forum are so attenuated that they are clearly outweighed by the burden of subjecting the defendant to litigation within the forum.”  Burger King, 471 U.S. 462, 477 (1985).  Because Virginia had an interest in patent infringement actions and in cooperating with other states for efficient litigation, and the defendant in Beverly Hills was not unduly burdened in Virginia, the Federal Circuit affirmed personal jurisdiction in Virginia over the defendant for patent infringement based on sales that occurred both in and outside of the forum state.

Particularly relevant to the area of patent law, the Federal Circuit noted, is the nature of the patent holder’s right to exclude, that right being nationwide.  Analyzing that right in the context of the forum state’s long-arm statute, the court concluded: “the situs of the injury is the location, or locations, at which the infringing activity directly impacts on the interests of the patentee, here the place of infringing sales in Virginia.”   Id. at 1571.

The Federal Circuit has followed Beverly Hills for the last quarter century.  Now, although not in a patent context, under BMS the U.S. Supreme Court reasserted that a state may exercise personal jurisdiction over a non-resident defendant consistent with due process only when the plaintiff’s claim “aris[es] out of or relat[es] to defendant’s contacts with the forum.”  BMS, 137 S. Ct. at 1780.  Lower courts, however, remain inconsistent when interpreting and applying the phrase “arises out of or relates to conduct with the forum state.”  No Supreme Court authority yet exists as to whether Beverly Hills complies with the BMS “arising out of or relating to contacts with the forum.”  Various district courts have interpreted BMS as requiring conduct in the forum, conduct directed at the forum, or merely conduct related to the forum.  Some courts even distinguish between conduct and contacts.  When talking about the defendant’s contacts, BMS itself uses both “relates to” the forum and “in” the forum.  Is this inconsistency correctable or is the question answerable only on a case-specific basis?  What will the Federal Circuit do now, if anything, after BMS, and what has it done so far?  From the abundance of attention this issue has received and the uncertainty BMS has caused, The Supreme Court needs to clearly guide the courts on this issue.

Beverly Hills v. BMS

At first glance, it seems apparent that Beverly Hills cannot stand; after all, in BMS, the Supreme Court forced each of the multitude of plaintiffs to sue in the state in which each of them was prescribed, bought, and ingested the prescription pill that caused injury, so that the defendant need not defend against out-of-state injuries in the forum state.  It seems logical then to say that, because the site of injury in a patent infringement case is where the sale/use of the infringing product occurred, a patentee would need to either sue the defendant in each state in which an infringing product was sold/used (the result being that the defendant would not need to defend against out-of-state injuries (sales/uses) in the forum state) or sue in a single jurisdiction in which general jurisdiction over the defendant was proper.

But consider the distinctions between patent infringement cases and product liability torts.  As the Patent Act provides, patent rights are federal nationwide rights.  Unless pre-empted, product liability concerns state law, constrained to state boundaries.  Also consider that in BMS there were hundreds of plaintiffs, each with their own situs of injury.  It was not a class action with a representative plaintiff.  Different pills injured different plaintiffs in different places, with each plaintiff having their own claim.  The Court in BMS was not forcing the plaintiffs to sue in multiple states, but rather only in the forum where they were injured.  It made jurisdictional sense there that the non-resident plaintiffs should not be allowed to maintain suit against a non-resident defendant in a forum state court for a non-forum injury.

In a patent infringement case, there is only “one” plaintiff – the patent holder or joint patent holders.  Every sale/use of the infringing product, whether in the forum state or not, injures the same patentee.  Will the Supreme Court force a patentee to sue the same defendant in every state where sales were made or the product was used?  Cf. Daimler, 571 U.S. 117.  This seems unlikely.  To the contrary, it seems reasonable that if one sale/use of an infringing product in the state constitutes sufficient conduct, then the patentee should be able to sue the defendant for all infringing products in a forum where at least one sale/use occurred.  Moreover, even under BMS, the third prong of the personal jurisdiction test is reasonableness; although the burden on the defendant is of primary concern, the convenience to the plaintiff and judicial efficiency are relevant.

Patent law being a federal question, too, there is no concern that different state laws apply, as they would in a state tort case like the underlying BMS case.  In patent cases, the same federal Patent Act applies regardless of the state in which the suit is brought.  Thus, no state’s authority or sovereignty would be usurped if the case in a forum state included non-forum-state sales.

Some observers have argued that the Supreme Court’s rejection of Keeton v. Hustler Magazine, Inc., 465 U.S. 770 (1984) in BMS provided the basis for its holding, but BMS distinguished Keeton, not because Keeton was wrong or overruled, but because the defendant in BMS had no contacts in the forum state with non-resident plaintiffs who were injured in different forums.  Keeton, involving a libel matter, applies to jurisdiction as to the scope of the allowed claim for an in-state plaintiff, allowing the resident plaintiff to sue a defendant in a single forum over a nationwide course of conduct.  The Supreme Court noted:

Where [respondent] has continuously and deliberately exploited the [forum state] market, it must reasonably anticipate being haled into court there in a libel action based on the contents of its magazine.  [World-Wide Volkswagen 444 U.S. at 297–298.  And, since respondent can be charged with knowledge of the “single publication rule,” it must anticipate that such a suit will seek nationwide damages.  Respondent produces a national publication aimed at a nationwide audience.  There is no unfairness in calling it to answer for the contents of that publication wherever a substantial number of copies are regularly sold and distributed.

Keeton, 465 U.S. at 781; see also Calder v. Jones, 465 U.S. 783 (1984).[3]  Unless overruled, which BMS did not do, Keeton then might be applicable to the nationwide conduct of patent infringement, as it was to the nationwide libelous conduct.  The question then raised is whether the Federal Circuit’s prior holding that a single sale establishes jurisdiction will stand or whether, as with Keeton’s requirement for a substantial number of circulated libelous copies, a substantial number of infringing products must be regularly sold and distributed in the forum. Further, in a Nicastro[4] concurring opinion, two Justices stated that “a single sale of a product in a state does not constitute an adequate basis for asserting jurisdiction over an out-of-state defendant …” Nicastro, 564. U.S. at 888-89 (Breyer, J. concurring).

To distinguish a patent infringement case from the facts of BMS, if a patentee is a resident of the state in which it sues and there are infringing sales in that forum, as well as other forums, by a foreign accused infringer, the foreign accused infringer has contacts with the forum.  For example, a defendant manufacturer who sells infringing products in Texas and Tennessee could be made to defend suit in Texas for both sales because the patentee-plaintiff was injured by defendant’s contacts with the forum state of Texas (even if the defendant also caused injury in Tennessee).  Contrary to what some commentators on BMS have suggested, each sale of an infringing device as a separate cause of action under patent law does not translate into each such sale having or requiring different jurisdictional bases.  Similar to the Keeton/Calder libel cases, individual sales in other forums are relevant only to the issue of damages, not jurisdiction.  Reasonableness remains a viable consideration and judicial economy would not be promoted if patentees were forced to sue in multiple states for each separate infringing act.

Now suppose a plaintiff-patentee sued both a distributor who sold an infringing product in the forum state and an out-of state manufacturer.  Int’l Shoe/BMS mandates each defendant’s purposeful availment of the forum.  In light of Keeton, Calder, and World-Wide Volkswagen, if the manufacturer purposefully intended for its distributor to go into the forum to sell the infringing product, or specifically targeted the forum in some other way, the manufacturer’s minimum contacts would be met.  Purposeful availment need not equate to physical presence.  The requirement of purposeful availment under Int’l Shoe was to preclude a party from having to defend against random, fortuitous, or attenuated acts that occurred in the forum, but a suit defending against continuous and systematic acts, or induced or controlled placement of products in the distribution chain, or directed acts in or against the forum, has always been proper, even without the stream-of-commerce label.

Whether specific personal jurisdiction exists, then, over an alleged infringer, may depend on the intent of the specific defendants.  For example, a manufacturer that continuously and systematically sends its products via a distribution chain from New York to California, for example, may be subject to suit in California, but if, by accident, the products end up in Oregon and cause injury, the manufacturer may not be forced to defend a suit in Oregon, even though the product was in the stream of commerce.  If this turns out to be the case, Justice O’Connor’s stream-of-commerce-plus-intent test in Asahi may see the light of day.  (Again, the Supreme Court did not address this scenario in BMS.)  Similarly, the relationship between the manufacturer and distributor or ultimate reseller will be an important consideration.

The question has been raised, too, as to parts manufacturers, as opposed to manufacturers of an entire device or product.  Take the following example: a component-parts manufacturer intends for its component to be used on a device and knows the device manufacturer distributes the device to various states across the country.  The parts manufacturer, though, has no direct relationship with the distributor for the device.  A patentee is allowed to sue any party or all parties in the distribution chain, for infringement.  After BMS, though, the entire distribution chain may not be amenable to suit in a single forum, except where general jurisdiction may be exercised over all defendants simultaneously.  Merely placing a product into the stream of commerce, absent other influencing factors, is likely not sufficient to establish specific personal jurisdiction over all parties in the same forum.  The patentee may be expected to sue in multiple forums or choose which party to sue in a single forum.  A patentee may need to undertake early jurisdictional discovery to establish those other influencing factors.

What happens if the manufacturer is a foreign (non-U.S.) entity without substantial presence in any state?  This situation happens frequently, as more manufacturing continues outside the U.S. and supply chains become multifaceted.  Here, Rule 4(k)(2) applies, regardless of whether there is stream-of-commerce personal jurisdiction.  Personal jurisdiction over the non-U.S. manufacturer could be exercised in any state in which it has other sufficient minimum contacts, even if none of those contacts bear any relationship to the accused products or to the cause of action.  Importantly, after BMS, if the foreign entity has no other contacts at all with the U.S., it is conceivable that it will not be subject to suit in any state in the United States and the patentee will be able to sue only the U.S. distributor in the U.S.  (In some circumstances, however, the patentee could initiate an ITC action to prevent importation of the infringing product.)

Needing clarification by the Supreme Court is whether its decision in World-wide Volkswagen (that a forum state may exercise jurisdiction over a non-resident corporation “that delivers its products into the stream of commerce with the expectation that they will be purchased by consumers in the forum State”) applies to non-U.S. entities who, in today’s commercial world, place their products in the stream of commerce with the expectation that, because of the ease of distribution throughout the world, their products may end up anywhere.  How will the Supreme Court reconcile World-Wide Volkswagen with its pronouncement in BMS that “a defendant’s relationship with a third party . . . standing alone, is an insufficient basis for jurisdiction.”  BMS, Will patent cases be treated differently than products liability cases?

Federal Circuit’s Citations to BMS

The Federal Circuit has referenced BMS four times since 2017.[5]  None of the cases were true stream of commerce cases, so it remains to be seen whether the Federal Circuit will adhere to or distinguish BMS in patent infringement stream of commerce cases, analogize to Keeton, or follow one of the Asahi/Nicastro stream of commerce tests.  The patent bar awaits an explicit application by the Federal Circuit of stream-of-commerce jurisdiction in a patent case on which the Supreme Court will grant certiorari to clarify the requirements for specific jurisdiction in a patent infringement case.

District Courts Still Rely on Stream of Commerce

Since BMS, several courts have considered stream of commerce in the context of specific personal jurisdiction.  A few have said that BMS eradicated the stream-of-commerce test from a specific personal jurisdiction analysis. See, e.g., Shuker v. Smith & Nephew, PLC, 85 F.3d 760 (3d Cir. 2018); A.T. Through Travis v. Hahn, No. 18-01139 (SNLJ), 341 F.Supp.3d 1031 (E.D. Miss. Oct. 24, 2018).  Yet others continue to rely on stream of commerce.   In particular, Judge Albright stated “the stream of commerce theory is still a valid basis for personal jurisdiction.”  Slyce Acquisition, Inc. v. Syte-Visual Conception, Inc.. 422 F.Supp.3d 1191, 1201 (E.D. Tex, Oct. 22, 2019); see also Semcon IP Inc. v. TCT Mobile Int’l Ltd., No. 2:18-CV-00194-JRG, 2019 WL 2774362, at *2–3 (E.D. Tex. July 2, 2019) (“The Court finds nothing in the Supreme Court’s opinion to indicate a shift in the Supreme Court’s stream of commerce jurisprudence.  . . .  Absent a clear statement to the contrary from the Supreme Court or the Federal Circuit, this Court will continue to apply the existing stream of commerce jurisprudence.”); Plixer Int’l, Inc. v. Scrutinizer GmbH, 905 F.3d 1, 8 (1st Cir. 2018); In re DePuy Orthopaedics, Inc., Pinnacle Hip Implant Prod. Litig., 888 F.3d 753, 778–81 (5th Cir. 2018); Shuker v. Smith & Nephew, PLC, 885 F.3d 760, 780 (3d Cir. 2018) (approving of Justice O’Connor’s stream-of-commerce-plus-intent test); American GNC Corp. v. GoPro, Inc., No. 18-cv-00968, 2018 WL 6074395 (S.D. Cal, Nov. 6, 2018) (not mentioning BMS and relying on the Federal Circuit’s Beverly Hills case and Rule 4(k)(2), and analyzing stream of commerce as it relates to the United States, to establish personal jurisdiction over a German entity who manufactured the accused product in Asia).

“The division of labor between manufacturing, marketing, and sales” amongst the related Bosch corporate entities concerning the accused Bosch products “is organized association” which provides the necessary basis to exercise personal jurisdiction under a stream of commerce theory consistent with due process.

American GNC, 2018 WL at *10.  See also Carl Zeiss AG v. Nikon Corp., No. 2:17–CV–03221, 2017 WL 7859075, at *3; Fox Factory, Inc. v. SRAM, LLC, Nos. 3:16-cv-00506; 3:16-cv-03716, 2017 WL 4551486, at *5–6 (N.D. Cal. Oct. 11, 2017) (finding that the presence of two intermediaries did not overcome conclusion that defendant acted in consort with other defendants to place products into the stream of commerce).

Extra Mention

The Supreme Court has, in other contexts, limited where a patent owner may sue an alleged infringer.  In TC Heartland LLC v. Kraft Foods Group Brands LLC, __ U.S. __, 137 S. Ct. 1514 (2017), the Court abrogated VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, (Fed. Cir. 1990), instead holding that a domestic corporation “resides” only in its state of incorporation for purposes of the patent venue statute, 28 U.S.C. § 1400(b).  Earlier broadening congressional amendments to the general venue statute, 28 U.S.C. § 1391(c), do not apply to the patent venue statue, which has remained unchanged since 1948.  There is no explicit patent personal jurisdiction statute, however.  Additionally, the Court has expanded the scope of patent exhaustion, holding that a patentee cannot sue for infringement of products sold in a foreign jurisdiction and then imported into the U.S.  Impression Products Inc. v. Lexmark International, Inc., __ U.S. __, 137 S.Ct. 1523, 1536 (2017).   Regardless of considerations posited in this article and others, it may be that the Supreme Court will continue this trend by limiting which forums may exercise personal jurisdiction over a defendant.[6]

It remains to be seen what further restrictions the U.S. Supreme Court will place on plaintiffs/patent owners and whether the Supreme Court will set down clear guidelines by which a forum state may exercise specific personal jurisdiction over non-resident and non-U.S. defendants.  Remember too that the defense of lack of personal jurisdiction is waived if not asserted.

For more analysis of this important issue, look for upcoming Part II & Part III to be published in the July and August issues of Osha Liang LLP’s Monthly Insights.

[1] See upcoming Part II for additional discussions of World-Wide Volkswagen and Asahi.

[2] See upcoming Part III for a further discussion of BMS.

[3] The Supreme Court has held that if a defendant’s action in one state is “calculated to cause injury” in another state, that other state may exercise jurisdiction over the defendant.  Calder, 465 U.S. 783 (libelous article written in Florida that targeted a California resident and which was circulated in California constituted intentional tortious contact in California). Consider then whether writing and circulating the libelous article might equate to placing an infringing article in the stream of commerce.  By analogy, it might be argued that an alleged willful patent infringer making a sale in one state could be deemed to target the patent holder who is a resident in another forum, giving the second forum jurisdiction over the alleged infringer.

[4] Part II of this article discusses J. McIntyre Machinery Ltd. v. Nicastro, 564 U.S. 873 (2011).

[5] See, e.g., M-I Drilling Fluids UK Ltd. v. Dynamic Air Ltda., 890 F.3d 995 (Fed. Cir. 2018) (relying on Int’l Shoe to establish personal jurisdiction over a Brazilian entity, and noting that in patent infringement cases “precedent makes clear that ‘the jurisdictional inquiry is relatively easily discerned from the nature and extent of the commercialization of the accused products or services by the defendant in the forum.’”  Id. at 1001 (citing Avocent Huntsville Corp. v. Aten Int’l Co., 552 F.3d 1324, 1332 (Fed. Cir. 2008) (cert. denied)) (emphasis in original); Maxchief Investments Limited v. Wok and Pan, Ind., Inc., 909 F.3d 1134 1139-40 (Fed. Cir. 2018) (Chinese entity’s demand letter sent to the forum state insufficient to establish personal jurisdiction).

[6] Ms. Lecocke has also written articles on the TC Heartland and Impression Products cases; we invite you to look at this article and at this article.