United States Court of Appeals for the Federal Circuit
October 7, 1999
DEBRA A. SCHWANGER, DANIEL J. SCHWANGER, LORI A. ROTH AND DAVID J. ROTH, PLAINTIFFS-APPELLANTS,
MUNCHKIN, INC., WAL-MART, AND MEIJER, DEFENDANTS-APPELLEES.
Before Plager, Schall, and Gajarsa, Circuit Judges.
The opinion of the court was delivered by: Per Curiam.
Schwanger et al. ("Schwanger") seek review of the decision of the United States District Court for the Northern District of Ohio. See Schwanger v. Munchkin, No. 3:97 CV 7009 (N.D. Ohio, Sept. 18, 1998). The district court granted Munchkin's motion to dismiss for lack of personal jurisdiction. That judgment was entered upon defendant's motion brought pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure. We reverse the decision of the district court and remand for further proceedings.
The district court issued its ruling based upon the following relevant facts. *fn1 Munchkin is a corporation incorporated under the laws of the state of California with its principal place of business in California. Munchkin has manufactured and sold medicine dispensers for baby bottles, the dispensers being covered by Munchkin's Patent No. 5,542,922 (the `922 patent) which issued August 6, 1996 on an application filed November 4, 1994. In 1995 and 1996, Munchkin sold its dispenser to retailers, Defendants Meijer and Wal-Mart, Inc., for resale in stores throughout the United States.
While all Munchkin activities pertaining to the sale of the medicine dispensers occurred in California, both Wal-Mart and Meijer sold Munchkin's dispensers in Ohio. Munchkin's dispenser was displayed in Wal-Mart and Meijer stores in packaging bearing Munchkin's tradename and providing a nationwide toll-free number for consumer questions. Sales records for 1995 indicate Munchkin sales to Wal-Mart totaling $68,539. No record of Munchkin's sales to Defendant Meijer nor sales for other years are provided.
Munchkin has no office, employees, telephone numbers, assets or bank accounts in Ohio, and has had no other contact, direct or indirect, with the state.
Plaintiffs, residents of Ohio, are co-inventors of a medicine dispenser for baby bottles. Their Patent No. 5,029,701 (the `701 patent) issued July 9, 1991 on an application filed May 7, 1990.
On January 8, 1997, Schwanger brought suit against Munchkin, Meijer, and Wal-Mart in the Federal District Court for the Northern District of Ohio, alleging that Munchkin's medicine dispenser infringed Schwanger's patent. Munchkin moved to dismiss or transfer the action on the ground that the District Court lacked in personam jurisdiction over it, that venue was improper, and on forum non conveniens grounds. In response, Plaintiffs' filed, inter alia, a request for an evidentiary hearing on Munchkin's motion.
The district court granted Munchkin's motion to dismiss for lack of personal jurisdiction while denying Plaintiffs' evidentiary hearing request, reasoning that:
1) Ohio's long-arm statute was not met due to Plaintiffs' failure to identify any Munchkin negotiations or business dealings directly related to Ohio or any acts or omissions committed by Munchkin within the state; and
2) even if Ohio's long-arm statutory requirements had been met, the Sixth Circuit's test for determining whether the exercise of personal jurisdiction met due process requirements would not be met due to Plaintiffs' failure to identify any act committed by Munchkin which could conceivably constitute purposeful availment of the privilege of acting in the state of Ohio.
A. Standard of Review
"We review de novo a district court's decision regarding whether it has personal jurisdiction over a defendant." Graphic Controls Corp. v. Utah Med. Prod., 149 F.3d 1382, 1384, 47 USPQ2d 1622, 1624 (Fed. Cir. 1998) (citing Genetic Implant Sys., Inc. v. Core-Vent Corp., 123 F.3d 1455, 1457, 43 USPQ2d 1786, 1788 (Fed. Cir. 1997); North Am. Philips Corp. v. American Vending Sales, Inc., 35 F.3d 1576, 1578, 32 USPQ2d 1203, 1204 (Fed. Cir. 1994)).
B. Personal Jurisdiction
"Determining whether jurisdiction exists over an out-of-state defendant involves two inquiries: whether a forum state's long-arm statute permits the assertion of jurisdiction and whether assertion of personal jurisdiction violates federal due process." Graphic Controls, 149 F.3d at 1385, 47 USPQ2d at 1385. In performing the first inquiry, this Court "defer[s] to the interpretation of a state's long-arm statute given by that state's highest court, particularly whether or not the statute is intended to reach the limit of federal due process." 3D Sys., Inc. v. Aarotech Lab., 160 F.3d 1373, 1377, 48 USPQ2d 1773, 1775 (Fed. Cir. 1998). However, in the second inquiry, the federal constitutional due process analysis, this Court analyzes the defendant's contacts with the forum state to determine if the exercise of personal jurisdiction would "violate traditional notions of fair play and substantial Justice." See Graphic Controls, 149 F.3d at 1386, 47 USPQ2d at 1625. In doing so for patent cases, this Court does not defer to the interpretations of other regional federal and state courts. See id.; Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558, 1564-65, 30 USPQ2D 1001, 1006 (Fed. Cir. 1994), cert. dismissed 115 S. Ct. 18 (1994).
1. Ohio's Long-Arm Statute
The Supreme Court of Ohio has interpreted the Ohio long-arm statute to restrict personal jurisdiction to a greater extent than that allowed under federal due process. See Goldstein v. Christiansen, 638 N.E.2d 541, 545 (Ohio 1994) (holding it error to interpret the Ohio long-arm statute as giving Ohio courts jurisdiction to the limits of the Due Process Clause, "since that interpretation would render the first part of the court's two-part analysis nugatory."). *fn2 Rather, Ohio courts must not only ask whether due process is satisfied, but whether the court has jurisdiction over a defendant under the more stringent requirements of the state statute. See Ross v. Spiegel, 373 N.E.2d 1288, 1293 (Ohio Ct. App. 1977).
The following portions of Ohio's long arm statute are at issue in this case:
(A) A court may exercise personal jurisdiction over a person who acts directly or by an agent, as to a cause of action arising from the person's:
(1) Transacting any business in this state;
(2) Contracting to supply services or goods in this state;
(3) Causing tortious injury by an act or omission in this state;
(4) Causing tortious injury in this state by an act or omission outside the state, if he regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered in this state; . . . Ohio Rev. Code Ann. § 2307.382 (West 1999).
The district court interpreted Ohio law as requiring "the actual transaction of business in-state [as] a prerequisite to the exercise of long-arm jurisdiction under § 2307.382(A)(1), (2), and (4)." Schwanger at 4 (citing Ohio State Tie & Timber, Inc. v. Paris Lumber Co., 456 N.E.2d 1309, 1312 (Ohio Ct. App. 1982); Gold Circle Stores v. Chemical Bank, 446 N.E.2d 194, 197-98 (Ohio Ct. App. 1982)). The court further determined that "Ohio Courts have rejected the argument that the court may exercise jurisdiction over a defendant merely because that defendant places a product into the stream of commerce that may foreseeably flow into Ohio." Schwanger at 5 (citing Mellot v. Dico Co., 454 N.E.2d 146, 148-9 (Ohio Ct. App. 1982)). These interpretations, coupled with the explicit requirement of "an act or omission" in the state under subsection (3), led to the court's Conclusion that it lacked personal jurisdiction due to Schwanger's failure to allege Munchkin involvement in negotiations or business dealings with anyone in Ohio, or acts or omissions committed within the state. See Schwanger at 5.
We do not agree with this interpretation of Ohio's law. While subsections (1), (2) and (3) may require direct contact with the state, our analysis of the plain meaning and application by Ohio courts of subsection (4) leads us to conclude that no such contact is required under that subsection.
We focus on the language of the statute pertinent to this case: "A court may exercise personal jurisdiction over a person . . ., as to a cause of action arising from the person's . . . [c]ausing tortious injury in this state by an act or omission outside the state if he . . . derives substantial revenue from goods used or consumed . . . in this state." § 2307.382(A)(4). This language is clearly directed toward defendants who have acted outside of Ohio causing tortious injury in Ohio. The only further requirement is that such a defendant "derives substantial revenue from goods used in th[e] state."
Ohio's courts have interpreted the long arm statute similarly. See Jackson v. State Street Bank, 674 N.E.2d 706, (Ohio Ct. App. 1996) (finding non-resident bank amenable to jurisdiction under the "derives substantial revenue from . . . services rendered in this state" language of subsection (4) regardless of whether or not bank had direct contact with Ohio, where the defendant bank allegedly mishandled an employee savings plan which it administered for an Ohio Corporation.); Cf. Ross, 373 N.E.2d at 1293-94 (finding foreign clothing manufacturer amenable to jurisdiction under "derives substantial revenue" portion of subsection (5), where (i) there was a breach of warranty clause having language parallel to that of subsection (4), and (ii) the manufacturer had no direct contact with Ohio but its allegedly faulty products were sold in Ohio and caused plaintiff's injuries there).
In assessing subsection (4)'s requirements, Ohio courts have a great deal of flexibility and latitude in determining what constitutes "substantial revenue." See Jackson, 674 N.E.2d at 712; Ross, 373 N.E.2d at 1294. The meaning of the word substantial "is to be gauged by all the circumstances surrounding the transaction with respect to which it has been used." Busch v. Service Plastics, Inc., 261 F. Supp. 136, 142 (N.D. Ohio 1966) (applying "substantial revenue" language of § 2307.382(4) to determine that personal jurisdiction was appropriate over a non-resident corporation that earned $100,000/ yr. over a five year period from Ohio sales).
The district court's reliance on Ohio State Tie & Timber and Gold Circle Stores for an interpretation of the requirements of subsection (4) is misplaced. The Ohio State Tie & Timber court stated that "Ohio has not extended long-arm jurisdiction to the limits of due process but, instead, actual transaction of business in Ohio is a prerequisite to the exercise of long-arm jurisdiction under the circumstances." Ohio State Tie & Timber, 456 N.E.2d at 1312 (emphasis added) (citing Gold Circle Stores, 446 N.E.2d at 194). Those "circumstances" were a non-resident defendant purchasing goods from Ohio; not deriving revenue from goods used in Ohio. Id. at 1313. Thus, the "substantial revenue" portion of subsection (4) was not relevant to the case. That same court, in Gold Circle Stores, explicitly stated that it was addressing subsections (1) and (2) of the long-arm statute. Gold Circle Stores, 446 N.E.2d at 195. No mention was made of subsection (4).
Further, the district court's reliance on Mellot, for the proposition that Ohio has entirely rejected the stream of commerce theory, is misplaced. In Mellot, the out of state defendant, York, had manufactured and sold boom unloaders to another out-of-state defendant, Side-O-Matic, a crane manufacturer. Side-O-Matic had, in turn, produced a crane that was eventually operated by the plaintiff in Ohio resulting in injury. There was no allegation that Side-O-Matic regularly sold in Ohio cranes having York manufactured crane parts, or that York derived substantial revenue from use of its products in Ohio. Thus, the elements of subsection (4) were not at issue in the case. In fact, the court in Mellot stated: "it [is] necessary . . . for a plaintiff to produce evidence showing that a large manufacturer or wholesaler placed such a substantial quantity of goods into the "stream of commerce" of plaintiffs' state that a trial court may properly infer that such manufacturer or wholesaler could reasonably have expected the goods to be used or consumed in Ohio." Mellot, 454 N.E.2d at 148. Thus, the Ohio court anticipated a scenario whereby Ohio's long-arm statute, presumably through subsection (4), would lead to the exercise of personal jurisdiction over a non-resident manufacturer with no direct ties to Ohio.
It is our view that any meaningful application of the "substantial revenue" requirement in an action where the plaintiff has alleged all elements of subsection (4), including sales of the defendant's goods in Ohio, requires at minimum an evidentiary hearing. Only in this manner can the plaintiff be afforded sufficient opportunity, through discovery, to present facts (if possible) meeting the court's discretionary "substantial revenue" threshold. We therefore find that the district court erred in granting defendant's motion to dismiss for lack of personal jurisdiction and denying plaintiffs' motion for an evidentiary hearing. We remand on this issue.
2. Federal Due Process
Regarding the second, federal due process inquiry of the personal jurisdiction analysis, we have repeatedly stated that Federal Circuit law applies rather than that of the regional circuit. See 3D Sys., 160 F.3d at 1377, 48 USPQ2d at 1775; Graphic Controls, 149 F.3d at 1385, 47 USPQ2d at 1625; Akro Corp. v. Luker, 45 F.3d 1541, 1543-44, 33 USPQ2d 1505, 1506 (Fed. Cir. 1995); Beverly Hills Fan Co., 21 F.3d at, 1564-65, 30 USPQ2D at 1006. The district court in this case erroneously applied Sixth Circuit law in its federal due process analysis, resulting in an alternate ground of dismissal for lack of personal jurisdiction.
Under federal due process personal jurisdiction analysis, it is necessary that a defendant not present within the territory of the forum have certain minimum contacts with the forum state such that the maintenance of the suit does not offend "traditional notions of fair play and substantial Justice." International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463 (1940)). It is also necessary that such "minimum contacts" with the forum state be purposeful on the part of the defendant. See Burger King Corp. v. Rudkewicz, 471 U.S. 462, 474 (1985). This ensures that non-residents have fair warning that a particular activity may subject them to litigation within the forum. See id. at 472.
However, "even if the requisite minimum contacts have been found, . . . 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." Beverly Hills Fan, 21 F.2d at 1568, 30 USPQ2d at 1009. "In general, these cases are limited to the rare situation in which the plaintiffs' 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." Id. (citing Burger King , 471 U.S. at 477).
In order to assure these requirements for personal jurisdiction are satisfied, this Court has developed a three-prong minimum contacts test for determining if specific jurisdiction exists under federal due process: (1) whether the defendant purposefully directed its activities at residents of the forum; (2) whether the claim arises out of or relates to those activities; and (3) whether assertion of personal jurisdiction is reasonable and fair. See 3D Sys., 160 F.3d at 1378, 48 USPQ2d at 1776; Akro, 45 F.3d at 1545-6, 33 USPQ2d at 1508-9.
This Court has previously carried out such an inquiry analyzing facts similar to those presented in this case. In Beverly Hills Fan, an out-of-state defendant's continuous shipment into the forum state (Virginia) through an established distribution channel (Builder's Square) resulted in an inference that the alleged infringer had derived substantial revenue from sales in the forum state, thus satisfying federal due process requirements. See id., 21 F.2d at 1568, 30 USPQ2d at 1009.
Similarly, the allegations here are that Munchkin purposefully shipped the accused product into Ohio through Wal-Mart, an established distribution channel. The cause of action for patent infringement is alleged to arise out of these activities. No more is required to establish the purposeful minimum contacts necessary for personal jurisdiction. See id. at 1565, 30 USPQ2d at 1007 .
Furthermore, Ohio has significant interest in discouraging patent infringement within the state and also has a substantial interest in cooperating with other states to provide a forum for efficiently litigating plaintiffs' cause of action. See id. at 1568, 30 USPQ2d at 1009. The burden on Munchkin, though not insubstantial, is not sufficiently compelling to outweigh Schwanger's and Ohio's interests, because "progress in communication and transportation has made the defense of a lawsuit in a foreign tribunal less burdensome." World-Wide Volkswagen v. Woodson, 444 U.S. 286, 294 (1980).
Based on the allegations in Schwanger's complaint, we are satisfied that the exercise of personal jurisdiction over Munchkin satisfies the requirements of federal due process.
The district court erroneously applied the Ohio long-arm statute to require Defendant activity within the state against the plain meaning of subsection (4) of the statute. The district court must reconsider its analysis and if personal jurisdiction is not found on the facts alleged by the plaintiff, the court must allow the plaintiff an opportunity to discover (if possible) and present facts in an attempt to meet the court's threshold requirements for personal jurisdiction under the long-arm statute.
We therefore reverse and remand this matter to the federal district court for further proceedings consistent with this opinion.