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United States Gypsum Co. v. Level 5 Tools, LLC

United States District Court, D. Kansas

January 22, 2019

UNITED STATES GYPSUM COMPANY, Plaintiff,
v.
LEVEL 5 TOOLS, LLC, and ASIA TECH SOURCE CO., LTD., Defendants.

          MEMORANDUM AND ORDER

          John W. Lungstrum United States District Judge

         This patent infringement case comes before the Court on the motion to dismiss filed by defendant Asia Tech Source Co., Ltd. (“ATS”) (Doc. # 20). For the reasons set forth below, the motion is denied in part and remains pending in part. The motion is denied to the extent based on the failure to state a claim. The motion remains pending to the extent based on a lack of personal jurisdiction or insufficiency of service, and plaintiff shall be permitted to conduct jurisdictional discovery relating to those issues.

         I. Personal Jurisdiction

         ATS seeks dismissal for lack of personal jurisdiction pursuant to Fed.R.Civ.P. 12(b)(2). The Court “applies the law of the Federal Circuit, rather than that of the regional circuits, to determine personal jurisdiction in a patent infringement case.” See Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355, 1358 (Fed. Cir. 1998).

         Under Federal Circuit law, the district court must first determine whether the defendant may be subjected to jurisdiction under the law of the forum state. See Id. The Kansas Supreme Court has held that “[t]he Kansas long arm statute is liberally construed to assert personal jurisdiction over nonresident defendants to the full extent permitted by the due process clause of the Fourteenth Amendment to the U.S. Constitution.” See Volt Delta Resources, Inc. v. Devine, 241 Kan. 775, 777 (1987). In such case, the district court must then determine whether the exercise of personal jurisdiction over the defendant would offend due process. See Red Wing, 148 F.3d at 1358. That due process analysis has two steps: first, the court determines whether the defendant established “minimum contacts” with the forum state, such that it should reasonably anticipate being haled into court there; second, any such minimum contacts are considered in light of other factors to determine whether the exercise of jurisdiction would comport with “fair play and substantial justice.” See Id. (citations omitted). In this case, ATS has not addressed those “other factors” or argued that the exercise of jurisdiction would be unfair in this case; thus the Court considers only ATS's argument that the requisite “minimum contacts” are lacking here.

         In response to ATS's motion, plaintiff does not argue that this Court may exercise general jurisdiction over ATS; rather, plaintiff argues that the Court may exercise specific jurisdiction because plaintiff's patent infringement claims arose out of or relates to ATS's contacts with Kansas. See Id. at 1359. Specifically, plaintiff argues that ATS's shipment of infringing products to a company in Kansas provides the necessary contact with the forum. ATS does not dispute that if it did have minimum contacts with Kansas as alleged, plaintiff's claims will have arisen from those contacts, such that this Court could exercise specific jurisdiction.

         The Court then considers whether ATS did have minimum contacts with Kansas. Such contacts must have been purposefully directed at the forum or its residents. See Id. Random, fortuitous, or attenuated contacts do not count in this calculus; nor do contacts resulting from the unilateral activity of others. See Id. A single act can support specific jurisdiction so long as it creates a substantial connection with the forum and not merely an attenuated affiliation. See id.

         In making this determination concerning jurisdiction, the Court resolves all factual disputes in the plaintiff's favor. See Nuance Communications, Inc. v. Abbyy Software House, 626 F.3d 1222, 1231 (Fed. Cir. 2010). If the plaintiff's factual allegations are not directly controverted, they are taken as true, and the plaintiff need only make a prima facie showing to support jurisdiction. See Id. Thus, any conflicts in facts contained in declarations submitted by the parties must be resolved in favor of the plaintiff. See Electronics For Imaging, Inc. v. Coyle, 340 F.3d 1344, 1349 (Fed. Cir. 2003).

         Plaintiff names as defendants ATS and Level 5 Tools, LLC (“Level 5”), a Kansas LLC located in Kansas City, Kansas, that sells drywall finishing tools in competition with plaintiff and plaintiff's licensees. Plaintiff alleges that certain of Level 5's products, sold over the internet and in brick-and-mortar stores, infringe plaintiff's design patents. Plaintiff further alleges that ATS sold infringing products in Kansas to Level 5.[1]

         In moving to dismiss, ATS has submitted a declaration by Dan Cooper, ATS's owner and president, stating the following: ATS is a Taiwanese LLC with its headquarters in Taiwan. ATS owns no property in the United States, has no place of business in the United States, is not registered to do business in any state, and has no registered agent for receiving service of process in Kansas or any other state. ATS has no distributors in the United States and has no agreement with any company to distribute goods in the United States. Customers purchase drywall tools from ATS by placing orders through ATS's office in Taiwan. ATS then has the tools manufactured by third parties in China according to the customers' designs. ATS ships the finished goods to a Chinese port and has them loaded on a vessel, but ATS does not address or ship those packages; rather, customers take title to the goods in China and arrange for the shipping of the goods to their destinations. ATS does not have any control over or “advance knowledge” of the final destinations. Level 5 sometimes purchases goods from ATS pursuant to those procedures, using a “forwarder” in China to arrange for the shipment from that country.

         In response, plaintiff has submitted a declaration by its officer, William White. Mr. White states that results of a search of a trade database include 186 instances in which ATS is listed as the “Shipper Declared”, including six shipments to Level 5. Mr. White further states that he accessed a bill of lading from another trade database that gives ATS as the “Shipper Name” for a 2018 shipment to Level 5. The search results and bill of lading are attached as exhibits to the declaration.

         Plaintiff argues that it has thus controverted ATS's evidence by submitting evidence that ATS has shipped goods to the United States and specifically to Level 5. ATS objects to this evidence as improper hearsay, but the Federal Circuit “has held that there is no strict prohibition on a court's consideration of hearsay in connection with” a motion to dismiss for lack of personal jurisdiction. See Campbell Pet Co. v. Miale, 542 F.3d 879, 889 n.1 (Fed. Cir. 2008) (citing cases). The Court does agree with ATS, however, that these search results do not necessarily controvert ATS's declaration. “Shipper” is not defined with respect to the documents provided by plaintiff, and those documents do not really provide evidence concerning ATS's involvement in the shipment of the goods to Level 5. Thus, plaintiff has not controverted ATS's evidence that ATS merely places the goods at a Chinese dock and that the customer then takes title and arranges for the shipment.

         If ATS was involved in shipping the accused tools to Kansas, such conduct would appear to fit within the scope of contacts deemed sufficient by the Federal Circuit. In Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558 (Fed. Cir. 1994), which ATS describes as the seminal case from the Federal Circuit on this issue, the court held that the district court had erroneously declined to exercise jurisdiction over a Chinese defendant and its importer who had purposefully shipped the accused goods to the forum state through an established distribution channel. See Id. at 1565. The court held that the following conduct satisfied due process: “defendants, acting in consort, place the accused [item] 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.” See Id. at 1566. In noting that the presence of an established distribution channel is a significant factor, the court distinguished cases lacking such a channel, in which alien sellers had sold to American companies but had no reasonable bases for knowing that the goods would necessarily end up in the forum state. See Id. at 1565 n.15 (citing cases). In the present case, if ATS was involved in knowingly shipping the accused goods to a Kansas company, that conduct would similarly be deemed sufficient by the Beverly Hills court. ATS argues that there is no “established distribution channel” in this case, but it provides no support for that statement. In fact, if ATS repeatedly sold goods to a company that would resell those goods in Kansas, that mechanism could reasonably be considered an established channel for the distribution of ATS's goods in Kansas. ATS sold to a resident of the forum; thus, this is not a situation, as in the cases distinguished in Beverly Hills, in which the alien company merely sold to an American company that was not a resident of the forum state.

         In Polar Electro Oy v. Suunto Oy, 829 F.3d 1343 (Fed. Cir. 2016), the Federal Circuit again reversed a district court's dismissal of an alien defendant for lack of personal jurisdiction. In holding that the exercise of jurisdiction satisfied due process, the court noted that the defendant had purposefully shipped accused products to retailers located in the forum state, fully expecting that the products would then be sold there, which meant that the defendant had purposefully directed its actions to the state and indicated an intent to serve not the United States market generally but the forum state market specifically. Seeid. at 1350. The court noted that that was not a case in which a manufacturer sold its products to an independent distributor who then distributed the products across the country, such that the products fortuitously ...


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