R & J Tool v . Manchester Tool CV-99-242-M 04/21/00 UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
R & J Tool, Inc., Plaintiff
v. Civil N o . 99-242-M Opinion N o . 2000 DNH 097 The Manchester Tool Company, Defendant
O R D E R
R & J Tool brings this action seeking a declaration that it
does not infringe a patent held by defendant, The Manchester Tool
Company (“Manchester”). See 28 U.S.C. § 2201. In the
alternative, it seeks a declaration that Manchester is barred by
the doctrine of laches from claiming it infringes the patent.
Manchester moves to dismiss, asserting that the court lacks
personal jurisdiction over it and saying that venue in this
district is improper. See Fed. R. Civ. P. 12(b)(2). See also 28
U.S.C. § 1406(a) (authorizing the court to either dismiss or
transfer a case when venue is improper). R & J Tool objects. Background
R & J Tool is a New Hampshire corporation in the business of
sharpening cutting inserts used in milling machines. As part of
that business, it says that it has been sharpening inserts
manufactured by Manchester since approximately 1991. It receives
used cutting inserts directly from their owners, sharpens them,
and sends them out to a third party for coating. The inserts are
then returned directly to their owner for re-use. One of the
inserts R & J sharpens is the “Separator,” which is manufactured
by Manchester and described and claimed in United States Patent
No. 4,629,372.
Manchester is a Delaware corporation with its principal
place of business on Manchester Road, Akron, Ohio. It is a
wholly-owned subsidiary of the Federal Signal Corporation, also a
Delaware corporation, with its principal place of business in
Illinois. Manchester does not maintain any offices in New
Hampshire, nor does it make any direct retail sales in this
2 district. It does, however, have “Dealer Agreements” with at
least two New Hampshire businesses, pursuant to which those
businesses purchase and are authorized to sell Manchester’s
products (both within and outside New Hampshire). See Exhibits 1
and 2 to Affidavit of Vandell Simpson, III (attached to document
no. 7 ) . Manchester also has entered into dealer agreements with
businesses outside of New Hampshire that apparently market and/or
distribute Manchester’s products in this district. Consequently,
Manchester’s products are readily available for purchase in New
Hampshire. See Exhibit 2 to plaintiff’s memorandum (document n o .
8 ) , Affidavit of Robert LaFlamme; Exhibit 3 , Affidavit of
Christine Lee; Exhibit 4 , Affidavit of Glenn Welch; and Exhibit
5 , Affidavit of Edward Philpot, Jr. Indeed, Manchester concedes
that in 1998, approximately $77,000 worth of its products were
sold in New Hampshire. Sales in 1999 were projected to be at a
similar level. Affidavit of Vandell Simpson, III, at para. 1 3 .
In May of 1999, Manchester notified R & J that its
“Separator” inserts were intended for single use and asserted
3 that R & J’s sharpening of those inserts constituted an
impermissible reconstruction of Manchester’s patent. Shortly
thereafter, R & J filed this declaratory judgment action.
Standard of Review
I. Personal Jurisdiction.
When personal jurisdiction is contested, the plaintiff bears
the burden of establishing that the court has such jurisdiction.
See Sawtelle v . Farrell, 70 F.3d 1381, 1387 (1st Cir. 1995);
Kowalski v . Doherty, Wallace, Pillsbury & Murphy, 787 F.2d 7 , 8
(1st Cir. 1986). Allegations of jurisdictional facts are
construed in the plaintiff’s favor, see Buckley v . Bourdon, 682
F.Supp. 9 5 , 98 (D.N.H. 1988), and, if the court proceeds based
upon the written submissions of the parties without an
evidentiary hearing, the plaintiff need only make a prima facie
showing that jurisdiction exists. See Kowalski, 787 F.2d at 8 ;
Boit v . Gar-Tec Products, Inc., 967 F.2d 671, 674-75 (1st Cir.
1992). Nevertheless, the plaintiff’s demonstration of personal
jurisdiction must be based on specific facts set forth in the
4 record in order to defeat a defendant’s motion to dismiss. See
TicketMaster-New York, Inc. v . Alioto, 26 F.3d 201, 203 (1st Cir.
1994). And, “in reviewing the record before i t , a court ‘may
consider pleadings, affidavits, and other evidentiary materials
without converting the motion to dismiss to a motion for summary
judgment.’” VDI Technologies v . Price, 781 F.Supp. 8 5 , 87
(D.N.H. 1991) (quoting Lex Computer & Management Corp. v .
Eslinger & Pelton, P.C., 676 F.Supp. 399, 402 (D.N.H. 1987)).
II. Venue.
Section 1406(a) of Title 28 authorizes the court to either
transfer or dismiss a case when venue is improper. With regard
to actions brought under the patent laws, venue is proper in any
district in which: (a) the defendant resides; or (b) the
defendant has committed acts of infringement. 28 U.S.C. §
1400(b). And, at least for purposes of venue, a defendant is
deemed to “reside” in “any judicial district in which it is
subject to personal jurisdiction at the time the action is
commenced.” 28 U.S.C. § 1391(c). Thus, if a court may properly
5 exercise personal jurisdiction over a corporate defendant, venue
is also proper. Of course, that venue is proper in a particular
forum does not necessarily resolve the question of whether the
action might be transferred to a more convenient forum under 28
U.S.C. § 1404. Here, however, Manchester does not seek a change
of venue; it simply asserts that venue is not proper in this
district and on that ground moves the court to dismiss R & J’s
complaint.
Discussion
I. Personal Jurisdiction in a Federal Question Case.
When a defendant challenges a court’s exercise of personal
jurisdiction in a federal question case, the appropriate
analytical framework is slightly different than that applied in a
diversity case. As the Court of Appeals for the First Circuit
has observed:
Because the instant case is premised on a federal question, it is distinguishable from cases that address personal jurisdiction in the context of diversity jurisdiction, 28 U.S.C. § 1332 (1988) - a context in which the focal point i s , of necessity, the Fourteenth
6 Amendment. The distinction is of potential consequence. When a district court’s subject matter jurisdiction is founded upon a federal question, the constitutional limits of the court’s personal jurisdiction are fixed, in the first instance, not by the Fourteenth Amendment but by the Due Process Clause of the Fifth Amendment. Inasmuch as the federalism concerns which hover over the jurisdictional equation in a diversity case are absent in a federal question case, a federal court’s power to assert personal jurisdiction is geographically expanded.
United Elec. Workers v . 163 Pleasant Street Corp., 960 F.2d 1080,
1085 (1st Cir. 1992) (citations omitted). See also Akro Corp. v .
Luker, 45 F.3d 1541, 1544 (Fed. Cir. 1995) (“Because subject
matter jurisdiction over [plaintiff’s] action exists by virtue of
a federal question, rather than the diversity of the parties, the
Due Process Clause that is at issue here is the Due Process
Clause of the Fifth Amendment.”) (citations and internal
quotation marks omitted).
Because this case involves questions concerning the
infringement of a patent, the court applies the law of the
Federal Circuit to determine whether it may properly exercise
personal jurisdiction over the defendant. See, e.g., 3D Systems,
7 Inc. v . Aarotech Labs., Inc., 160 F.3d 1373, 1377 (Fed. Cir.
1998) (“when analyzing personal jurisdiction for purposes of
compliance with federal due process, Federal Circuit law, rather
than regional circuit law, applies.”). Applying that law
requires the court to determine whether Manchester was properly
served under the Federal Rules of Civil Procedure. That inquiry,
in turn, requires the court to determine whether Manchester can
properly be served under New Hampshire’s long arm statute and, if
s o , whether personal jurisdiction can be exercised in a manner
consistent with due process. See Akro Corp., 45 F.3d at 1544.
See also Omni Capital Int’l, Ltd. v . Rudolf Wolff & Co., Ltd.,
484 U.S. 9 7 , 104-05 (1987); Fed. R. Civ. P. 4(e). 1
1 Parenthetically, the court notes that the jurisdictional analysis employed by the First Circuit is substantially similar to that used by the Federal Circuit. In both circuits, the ultimate focus is o n : (a) the scope of the state’s long-arm statute and whether the defendant can be served in a manner consistent with that statute; and (b) whether the exercise of personal jurisdiction over the defendant would be consistent with constitutional principles of due process and fundamental fairness. See, e.g., United Elec. Workers v . 163 Pleasant Street Corp., 960 F.2d at 1085; Lorelei Corp. v . County of Guadalupe, 940 F.2d 717, 719-20 (1st Cir. 1991).
8 II. The Scope of New Hampshire’s Long Arm Statute.
It i s , by now, well established that New Hampshire’s
corporate long arm statute authorizes service upon an out of
state defendant to the full extent permitted by the Constitution.
See, e.g., Sawtelle v . Farrell, 70 F.3d at 1388; McClary v . Erie
Engine & Mfg. Co., 856 F.Supp. 5 2 , 55 (D.N.H. 1994). And,
because New Hampshire’s corporate long-arm statute is coextensive
with the limits of due process protection under the federal
constitution, the court need only focus on whether the exercise
of jurisdiction over Manchester would comport with federal
constitutional guarantees. See, e.g., Red Wing Shoe Co., Inc. v .
Hockerson-Halberstadt, Inc., 148 F.3d 1355, 1358 (Fed. Cir. 1998)
(holding that when the state’s long-arm statute extends to the
limits permitted by the Constitution, “the two-step inquiry folds
into one: whether an exercise of personal jurisdiction over [the
defendant] would offend Due Process.”).
9 III. Constitutional Limits on Personal Jurisdiction.
Before a court may exercise personal jurisdiction over a
foreign defendant in a manner consistent with the Constitution,
the plaintiff must demonstrate that the defendant has “certain
minimum contacts with the forum such that the maintenance of the
suit does not offend traditional notions of fair play and
substantial justice.” Helicopteros Nacionales De Colombia, S.A.
v . Hall, 466 U.S. 408, 414 (1984). Additionally, the court must
be satisfied that the defendant’s conduct bears a sufficiently
“substantial connection with the forum state” that the defendant
“should reasonably anticipate being haled into court there.”
Burger King Corp. v . Rudzewicz, 471 U.S. 462, 473-75 (1985)
(citing World-Wide Volkswagen Corp. v . Woodson, 444 U.S. 286, 297
(1980)). See also Akro Corporation, 45 F.3d at 1545 (“We, like
the Seventh and Eighth Circuits, have nonetheless applied the
‘minimum contacts’ standard of International Shoe and its progeny
to questions of personal jurisdiction in federal question cases,
such as those arising under the patent laws.”).
10 A. Due Process and Minimum Contacts.
As the Supreme Court has observed, “due process requires
only that in order to subject a defendant to a judgment in
personam, . . . he have certain minimum contacts with [the forum]
such that the maintenance of the suit does not offend traditional
notions of fair play and substantial justice.” International
Shoe C o . v . Washington, 326 U.S. 310, 316 (1945) (citation and
internal quotation marks omitted). A party has “minimum
contacts” with a forum if it “purposefully avails itself of the
privilege of conducting activities within the forum State, thus
invoking the benefits and protections of its laws.” Hanson v .
Denckla, 357 U.S. 235, 253 (1958).
In assessing the nature and sufficiency of a party’s
contacts with a forum state, the Court of Appeals for the Federal
Circuit employs the so-called “stream of commerce” theory. See
generally Viam Corp. v . Iowa Export-Import Trading Co., 84 F.3d
424 (Fed. Cir. 1996); Beverly Hills Fan C o . v . Royal Sovereign
Corp., 21 F.3d 1558 (Fed. Cir. 1994). Under that theory, a
11 plaintiff may establish that a defendant has “minimum contacts”
with the forum state by showing that the defendant placed its
products into the stream of commerce, knowing that those products
would likely make their way into the economy of the forum state.
See, e.g., Beverly Hills Fan Co., 21 F.3d at 1565-67 (collecting
cases).
Here, Manchester’s contacts with New Hampshire are fairly
substantial. Perhaps most importantly, it established and
maintains business relationships with New Hampshire entities,
thereby creating a regular distribution channel through which its
products are marketed and sold in this forum. As noted above,
those local distributors generate approximately $70,000 in annual
sales for Manchester. Additionally, though certainly not
dispositive of the issue, it is worth noting that here, as in
Akro, the defendant directed its warning letters to plaintiff, in
12 the forum state.2 See Id., at 1546. See also Nova Biomedical
Corp. v . Moller, 629 F.2d 190, 195 (1st Cir. 1980).
In support of its assertion that it does not have the
requisite “minimum contacts” with New Hampshire, Manchester
points out that all products are delivered to its dealers “free
on board” (“f.o.b.”) at its plant in Ohio. Accordingly, it says
that “products ordered by an independent dealer become the
property and responsibility of the dealer upon leaving Manchester
Tool’s Akron, Ohio plant.” Defendant’s memorandum at 7 . Thus,
Manchester seems to suggest that because its dealers actually
take title to its products in Ohio, it neither sells those
products in New Hampshire nor does it purposefully direct any of
2 The Akro court was careful to distinguish the facts presented in that case from those cases in which a defendant’s only contact with the forum arose from the fact that it directed warning letters to a party in that district. Akro, 45 F.3d at 1548 (“The case at bar involves an additional activity aimed at the forum state - namely, the patentee’s exclusive licensing of one of the accused infringer’s competitors within the forum state.”). Here, Manchester has similar (albeit non-exclusive) license agreements with in-state entities, through which its products are marketed and sold in this forum.
13 its products into the New Hampshire economy. The court
disagrees. See generally North American Philips Corp. v .
American Vending Sales, Inc., 35 F.3d 1576, 1578-80 (Fed. Cir.
1994) (notwithstanding fact that infringing article was sold to
Illinois purchaser f.o.b. in Texas, “tort” of patent infringement
(for purposes of Illinois long-arm statute) occurred in
Illinois). See also Wilden Pump & Engineering C o . v . Versa-Matic
Tool, Inc., 20 U.S.P.Q.2d 1788 (C.D. Cal. 1991). And,
notwithstanding Manchester’s assertions to the contrary, that
sales of its products in New Hampshire account for only a small
portion of its total national (or even international) sales is
not dispositive. See, e.g., North American Philips, 35 F.3d at
1577 (holding that lower court had personal jurisdiction over
defendant notwithstanding defendant’s assertion that its sales in
the forum state were “modest” and “negligible”). See generally
Keeton v . Hustler Magazine, Inc., 465 U.S. 770, 774 (1984)
(holding that although defendant’s annual sales in forum state
amounted to less than one percent of its total national sales, it
is “unquestionable that New Hampshire jurisdiction over a
14 complaint based on those contacts would ordinarily satisfy the
requirement of the Due Process Clause that a State’s assertion of
personal jurisdiction over a nonresident defendant be predicated
on ‘minimum contacts’ between the defendant and the State.”).
In light of the foregoing, the court concludes that: (1)
Manchester purposefully directed activities at residents of New
Hampshire within the meaning of the due process inquiry employed
by the Court of Appeals for the Federal Circuit; and (2) this
declaratory judgment action arises out of or relates to those
activities. See generally Akro, 45 F.3d at 1546-49 (concluding,
on facts very similar to those presented here, that the pending
declaratory judgment action arose out o f , or related t o ,
defendant’s in-state activities). See also Nova Biomedical Corp.
v . Moller, 629 F.2d at 193 (concluding that where
defendant/patentee sent warning letters into the forum, entered
into licensing agreements with businesses in the forum, and sold
products to those licensees, such contacts were “extensive and
15 ongoing” and observing that “there is little dispute that the
assertion of jurisdiction would comport with due process”).
B. Reasonableness.
The second prong of the Federal Circuit’s jurisdictional
inquiry requires the court to determine whether the exercise of
jurisdiction over Manchester would be reasonable and consistent
with traditional notions of fair play and substantial justice.
In other words, while “minimum contacts” with a forum state are a
prerequisite to the exercise of personal jurisdiction, they are
not, standing alone, sufficient to vest the court with such
jurisdiction.
Once a plaintiff makes the required showing that there have been sufficient minimum contacts by the out-of- state defendant with the forum State, the defendant may still defeat jurisdiction by marshaling a compelling case against jurisdiction on the grounds that its exercise would be unreasonable, contrary to concepts of fair play and substantial justice.
16 Viam Corporation, 84 F.3d at 429. See also Beverly Hills Fan
Co., 21 F.3d at 1568.
S o , to defeat the exercise of personal jurisdiction after
the plaintiff has shown that a defendant has “minimum contacts”
with the forum state, the defendant must present evidence that
the exercise of personal jurisdiction would be unfair or
unreasonable. In resolving such a claim, the court must balance:
(1) the burden on the defendant to appear in the forum; (2) the
interests of the forum state in the underlying litigation; (3)
the plaintiff’s interest in obtaining relief; (4) the interstate
judicial system’s interest in obtaining the most efficient
resolution of the parties’ disputes; and (5) the interest of the
states in furthering their social policies. See Viam
Corporation, 84 F.3d at 429 (citing World Wide Volkswagen Corp.
v . Woodson, 444 U.S. 286 (1980)). The Federal Circuit has
observed, however, that occasions on which a defendant might
defeat the otherwise constitutional exercise of personal
jurisdiction “are limited to the rare situation in which the
17 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.” Beverly Hills Fan Co., 21 F.3d at
1568. See also Akro, 45 F.3d at 1549. Manchester has failed to
demonstrate that this is one of those “rare situations.”
Among other things, New Hampshire plainly has an interest in
providing the forum for this litigation. Here, as in Viam
Corporation, “the state has definite and well-defined interests
in commerce and scientific development. If defendant’s
connections to the forum are so strong as to impact on those
interests, as is true in this case, allowing the forum to
exercise jurisdiction cannot be said to be unfair.” Id., at 430.
Nor is it unfair to conclude that a defendant has subjected
itself to the jurisdiction of the courts in a forum in which it
reaps the financial benefits of its patent through in-state sales
conducted by its local distributors.
18 Manchester’s arguments to the contrary, and its reliance
upon Redwing Shoe, supra, while thoughtful, are ultimately
unavailing. The facts in Redwing Shoe are readily
distinguishable from those presented here. There, an alleged
infringer brought a declaratory judgment suit against an out-of-
state patent holder, seeking a declaration that it did not
infringe the patent in question. In affirming the district
court’s conclusion that personal jurisdiction was lacking, the
appellate court made two important findings. First, it rejected
the plaintiff’s assertion that the defendant had, by licensing
various entities to use its patent, created a “distribution
channel” by which it placed its product into the “stream of
commerce.” The court noted that defendant’s licensing agreement
with the in-state distributors and manufacturers was merely a
covenant not to sue. It was not a means by which any products
actually manufactured by the defendant were distributed in the
forum state. Id., at 1362 (“[Defendant’s] product is a covenant
not to sue, not a shoe incorporating the patented technology. As
such, [its] product never enters the stream of commerce.”). The
19 court also reaffirmed its view that the mere direction of a
warning letter into the forum state, without more, is
insufficient to constitute “purposeful availment” or “minimum
contacts.” Id. (“As this court has stated before, cease-and-
desist letters alone do not suffice to justify personal
jurisdiction. Specifically, such letters cannot satisfy the
second prong [i.e., fair play and substantial justice] of the Due
Process inquiry.”).
Here, however, Manchester’s contacts with this forum consist
of more than merely its having directed cease-and-desist letters
to R & J. As noted above, it maintains direct business relations
with at least two in-state entities (and several other out-of-
state entities) that distribute Manchester’s products in this
forum under non-exclusive license agreements. While those sales
do not account for a large percentage of Manchester’s total
national sales, they are not insignificant.
20 Manchester, then, has far more substantial contacts with the
forum state than did the defendant in Redwing Shoe. See
generally Motorola, Inc. v . PC-Tel, Inc., 58 F.Supp.2d 349, 353-
56 (D. Del. 1999) (providing a detailed discussion of the Federal
Circuit’s jurisdictional analysis and distinguishing the
defendant’s forum contacts in that case from those of the
defendant in Redwing). And, in light of the fact that
Manchester’s contacts with this forum were knowing and purposeful
- aimed at selling its products to New Hampshire consumers and,
thereby, increasing its overall national sales - the court
concludes that Manchester anticipated (or reasonably should have
anticipated) being haled into court in this forum. See Worldwide
Volkswagen, 444 U.S. at 297. See also North American Philips, 35
F.3d at 1580 (“In this case, [defendants] placed a substantial
quantity of infringing articles into the stream of commerce
conscious that they were destined for [the forum state]. . . .
Surely the reasonable market participant in the modern commercial
world has to expect to be haled into the courts of that state,
21 however distant, to answer for any liability based at least in
part on that importation.”).
IV. Venue.
Having concluded that the court may properly exercise
personal jurisdiction over Manchester, it necessarily concludes
that venue is proper in this district. See 28 U.S.C. §§ 1391(c)
and 1400(b). See also Hollyanne Corp., 199 F.3d at 1307 n.1
(noting that, at least under the circumstances presented in that
case, “venue and personal jurisdiction are co-extensive.”); North
American Philips, 35 F.3d at 1577 n.1 (“The venue issue is
subsumed in the personal jurisdiction issue. Venue lies ipso
facto if we hold, as we d o , that the district court has personal
jurisdiction over [defendants].”). In other words, because the
court may exercise personal jurisdiction over Manchester, section
1391(c) provides, at least for venue purposes, that Manchester
“resides” in this district. That, in turn, compels the
conclusion that venue is proper in this district under section
1400(b), which states that a “civil action for patent
22 infringement may be brought in the judicial district where the
defendant resides.”
Conclusion
In light of the foregoing, the court concludes that it may,
consistent with constitutional principles of due process and
fundamental fairness, exercise personal jurisdiction over
Manchester. It also holds that, under 28 U.S.C. §§ 1391(c) and
1400(b), venue is proper in this district. Accordingly,
Manchester’s motion to dismiss for lack of in personam
jurisdiction and improper venue (document n o . 7 ) is denied.
SO ORDERED.
Steven J. McAuliffe United States District Judge
April 2 1 , 2000
cc: Michael J. Persson, Esq. Edward D. Philpot, Jr., Esq. Marc R. Scheer, Esq.