United States District Court, D. Kansas
Bart Alan Starr, Lynn C. Herndon, B. Trent Webb, Shook, Hardy & Bacon LLP, Kansas City, MO, for Plaintiff.
David S. Bloch, Winston & Strawn, San Francisco, CA, Jay F. Fowler, Foulston Siefkin LLP, Wichita, KS, Michael L. Brody, Winston & Strawn, LLP, Chicago, IL, for Defendants.
MEMORANDUM AND ORDER
JULIE A. ROBINSON, District Judge.
Before the Court is Defendant Cox Communications Inc.'s (" CCI" ) Motion to Dismiss under Rule 12(b)(2) and 12(b)(3) for Lack of Personal Jurisdiction and Improper Venue (Doc. 31) and Defendants CCI, Cox Communications Kansas, LLC, Cox Kansas Telcom, LLC, and CoxCom, LLC's Motion to Transfer (Doc. 33). The Court granted Sprint's request to conduct jurisdictional discovery and the Court held an evidentiary hearing on August 9, 2012. The Court has considered the briefs, as well as the evidence submitted with the
briefs and at the evidentiary hearing, and is prepared to rule. As described more fully below, the Court finds CCI is not subject to personal jurisdiction, but rather than grant the motion to dismiss, the Court grants Defendants' motion to transfer this case to the United States District Court for the District of Delaware.
Plaintiff Sprint Communications Company L.P. (" Sprint" ) is a telecommunications company incorporated in Delaware with its principal place of business in Overland Park, Kansas. Among its patent portfolio is a series of patents relating to voice-over-packet (" VoP" ) telecommunications technology. Sprint alleges in the Amended Complaint that Defendants made, used, offered to sell, and/or sold (and continue to make, use, offer to sell, and/or sell) broadband and/or packet-based telephony products and services that infringe Sprint's Asserted Patents without Sprint's permission.
On April 16, 2012, Defendants filed a declaratory judgment action for noninfringement in the United States District Court for the District of Delaware, along with several other Cox entities not named in this suit. Sprint notified this Court that on July 9, 2012, it filed a motion to sever and transfer the declaratory judgment action from Delaware to this Court (Doc. 45). CCI contends that it is not amenable to suit in the District of Kansas and that any adjudication of patent infringement by the Cox companies must include CCI and therefore should be consolidated in one action in the District of Delaware, where all of the Cox entities, including CCI and the Cox subsidiaries not named in this action, are subject to suit.
It is uncontroverted that CCI is incorporated in Delaware and maintains its principal place of business in Atlanta, Georgia. All Defendants are incorporated in Delaware. CCI is a subsidiary of Cox Enterprises, Inc. and acts as a holding company, providing certain corporate services to the Cox subsidiaries in the communications industry. Cox Enterprises, Inc. is not a party to this action. CCI in turn owns Co-Defendant CoxCom but does not directly own or finance Co-Defendants Cox Kansas Telcom or Cox Communications Kansas. CCI is not registered to do business in Kansas and it does not maintain an office here. CCI is a separate legal entity from the other Defendants. CCI concedes that it hosts the cox.com website and that it owns all copyrights, trade and service marks, and patents for its affiliates. CCI also admits that it provides a marketing platform and administrative infrastructure to Cox Kansas Telcom and Cox Communications Kansas, providing " back office functions" for all of its subsidiaries.
Sprint's Jurisdictional Evidence
Sprint alleges the following jurisdictional facts in the Amended Complaint to support its contention that CCI is subject to specific jurisdiction: (1) CCI makes, uses, or offers for sale infringing products and/or services in Kansas, including the " Cox Digital Telephone," Cox's " SIP Trunking" service, and " other related telephony services" ; (2) CCI receives revenues from the sale of telephony services in Kansas, including those services offered for sale by the Cox subsidiaries; (3) CCI is the registered owner of the " cox.com" domain, which hosts Cox websites that advertise, market, sell, and offer to sell the allegedly infringing products or services in Kansas; (4) one of the Kansas subsidiaries' websites includes a copyright notice identifying CCI as the owner of the copyrighted website; (5) current or former employees of CCI participated in the design, development, funding, testing, and use of Cox's nationwide telephone network; (6) CCI directs,
controls, and issues Cox's nationwide telephony tariffing, including tariffs submitted by CCI and the Kansas subsidiaries to Kansas regulatory authorities; (7) CCI instructs users of its telephony services in Kansas on how to use the network in an infringing manner; (8) and CCI leads, manages, and controls the marketing and advertising efforts of the allegedly infringing products to Kansas residents.
Sprint has also submitted evidence on the briefs to support this Court's jurisdiction. First, Sprint submits the declaration of Bruce McLeod, who is the Executive Director of Service and Enterprise Architecture for CCI. His declaration was filed in support of a successful motion to transfer filed by CCI in a different patent infringement case in the Eastern District of Virginia. Like this case, Bear Creek alleged claims of patent infringement related to VoP enabling technologies. Cox moved to transfer to the Northern District of Georgia, citing its ties to Atlanta, Georgia and both sides' lack of ties to the Eastern District of Virginia. McLeod declared in support of that motion:
The Cox telephony system was designed and is managed on the national level. In each region of operation, Cox offers its telephony service to customers through local affiliates that operate in each local market Cox serves. Similar to a hub and spoke system, Cox operates as the hub in Atlanta, Georgia, connecting to all of its local affiliates, which are the spokes. All of the research, design, and development work to implement Cox's telephony system have been handled at the hub level in Atlanta, Georgia, not at the local level (such as Virginia). The local affiliates (the spokes) merely provide local marketing, sales, installation and repair work in each local market.
McLeod also asserts that " Cox's Digital Telephone service was developed and designed by Cox employees located at Cox's headquarters in Atlanta, Georgia"  and that " Cox coordinates the nationwide sale, marketing, and financial operations of the Cox Digital Telephone service at its business offices in Atlanta, Georgia." 
Sprint alleges that CCI's website advertises and markets products and services to Kansas residents, allowing them to purchase products and services that include the Cox Digital Telephone. The Cox Customer Service Agreement, available through the cox.com website, identifies the parties to the agreement as the customer and " Cox," which it defines as " Cox Communications and any Cox affiliate authorized to provide you with our services."
Sprint has submitted three white papers regarding Cox's transition to a VoP architecture and its network configurations issued by " Cox Communications."  They highlight Cox's centralized operations.
Plaintiff submitted evidence on the briefs and at the hearing that CCI owns equipment in Kansas that is used in Cox's telecommunications system. This evidence consists of Sedgwick County-created tax
records. These records show that CCI pays personal property and real estate taxes in Kansas for Cox business property. The personal property tax statements are signed by CCI's tax manager in the " Owner" signature block.
Sprint also submits evidence that " Cox Communications" has employees in Kansas, including executives, that it posts jobs on its website to be performed in Kansas, and that CCI has applied to the Kansas Corporation Commission for tariffs.
CCI's Jurisdictional Evidence
At the August 13th hearing, Robin Sangston, Esq., the Vice President and Chief Compliance Officer for CCI in Atlanta, Georgia, testified about the issues related to the motion to dismiss, including Cox's corporate organization and CCI's contacts with the State of Kansas.
Sangston testified that the Cox family consists of seventy separate franchises with CoxCom as the operating business. Cox made a deliberate decision to form " drop down subsidiaries" to hold the telecommunications licenses so that the parent corporations are not engaged in the day-to-day operation of cable business.
Cox Communications Kansas manages the network and has a shared services agreement with Cox Kansas Telcom to provide cable services. Accordingly, Sangston testified that CCI conducts no business in Kansas, either directly or through a d/b/a. CCI neither owns nor operates any telecommunications or cable systems. Sangston also testified that a certificate of public convenience and necessity is required in each state to authorize a provider to sell telephone services to the public. Typically, a franchise applies to the Secretary of State's office and must show that the entity is financially, technically, and managerially capable of providing that service. Sangston testified that Cox's certificate in Kansas was granted largely to have phone offering competitive to Southwestern Bell and Sprint. Kansas requires that Cox submit tariffs that lay out prices and terms of sale; they are filed under the name " Cox Communications Kansas, LLC." Kansas Telcom has interconnection agreements with Sprint and Southwestern Bell to permit the traffic of Cox customers to ride over their networks.
Sangston testified that Cox Communications Kansas owns the equipment and property used in Kansas and that it employs all 400 of the Kansas employees. Sangston addressed the Personal Property and Asset Detail Listing that Sprint relied on in its motion, showing that CCI is the owner of certain equipment used to provide digital telephone services. She spoke to an individual in CCI's tax department, who explained that it received this document from Sedgwick County and that the indication on that form that CCI owns the property is incorrect; she attributes the error to the fact that the taxing authority receives checks from CCI. Sangston testified that Cox Communications Kansas actually owns this property, based on CCI's internal documents and ledgers. CCI submitted Exhibit 2 at the hearing, which is the general ledger for Cox Communications Kansas, showing that it is the corporate entity responsible for paying taxes on equipment. Sangston maintains that CCI owns no personal property in Kansas.
Sangston responded to Sprint's evidence that Sedgwick County considers CCI to be the owner of certain real property in the County. She testified that the tax statement submitted by Sprint pertains to an office building in Wichita, Kansas that CoxCom acquired in 2000. She testified that the owner's name on this statement is incorrect. Exhibit 4 produced by CCI at the hearing is the warranty deed supporting this testimony and the title records confirm that Cox Communications Kansas currently owns the property.
Sangston further testified that CCI conducts all " back office" functions for the Cox Com subsidiaries, including issuing tax checks. CCI issues the checks and the funds are then charged back to the applicable subsidiary. The charge is reflected on the financial statements of the subsidiary. She testified that no income from the Kansas subsidiaries flows up to CCI. She explained that it would be too cumbersome to have twenty-four different financial statements, so Cox rolls up the local market revenues for purposes of preparing the financial statements, but then they are charged back. She stated that the revenues actually do " hit" Cox Com, but only for purposes of preparing the consolidated " look" for reporting purposes. CCI submitted the consolidated Kansas corporate income tax return for Cox Enterprises, Inc. and its subsidiaries. Sangston explained that the parent company completes a consolidated return and then each separate entity charges back the tax. The return for 2010 shows no reportable income and no corporate income tax owed for CCI in Kansas in 2010.
Cox Communications Kansas employs about 400 individuals and has a completely separate management team from CCI; it pays its own employees.
With respect to telephony equipment, Sangston testified that CCI provides a " consultative and supply line service." She explained that the local markets must purchase and pay for their own equipment, relying on a consultative role provided by CCI. She explained that certain purchases may allow for a volume discount, in which case CCI may buy in volume and allow the subsidiaries to purchase from that inventory.
CCI provides technical and engineering support to the subsidiaries. Like McLeod, Sangston characterized the relationship between CCI and the local affiliates as a " hub and spoke" system with respect to the design and architecture of the telephone system. Local teams of technicians are the spokes that draw support from the hub in Atlanta. Cox Communications Kansas employs a regional Vice President of Field Operations, who along with a 100-person team, is responsible for installing, maintaining, and servicing equipment in the region. There is a regional operations center (the " ROC" ) in Oklahoma that is able to determine network problems on a regional scale and notify the Vice President of Field Operations and his team. CCI also has a network operations center (the " NOC" ), consisting of CCI employees in Atlanta, that provides service if there is a network problem that exceeds a regional scope. The NOC " looks out" on the Cox network and notifies local teams about network problems such as congestion, or hacking issues that local technicians would not be able to identify as readily.
Sangston testified about the marketing structure between the Cox entities. She testified about local marketing efforts that are required based on the different competitors in the various local markets. These efforts include customer care centers,
retail solution stores, call center phone numbers, door to door sales, and e-commerce marketing strategies. The marketing team in Kansas is supported by a corporate marketing and sales department in Atlanta that ...