Opinion
Civil Action No. SA-99-CA-0817-EP
October 29, 1999
ORDER
On this date the Court considered the Defendant's motion to dismiss this action for want of personal jurisdiction. After careful consideration, the Court will order limited discovery and further briefing before ruling on the motion.
El Duque is a Florida corporation and the holder of a registered trademark and design for Alamo Cigars. Plaintiff, Finck, a resident of Texas, opposed El Duque's application for the trademark and design, but his opposition was dismissed with prejudice. When an El Duque representative noticed an advertisement by Finck for cigars bearing the Alamo name, El Duque asked its attorney to write a letter to Finck demanding that he cease use of the name. Finck then filed this declaratory action, requesting this Court to find that it had not infringed on El Duque's patent and that the patent was, in fact, invalid. El Duque now asks this Court to dismiss the claim for lack of personal jurisdiction.
A court must conduct a two-step analysis to establish whether it may exert personal jurisdiction over a nonresident defendant. First, the court must determine that nonresident defendants can be served under the law of the forum state. Then the court must examine whether the grant of jurisdiction under state law comports with the due process clause of the Fourteenth Amendment. Stuart v. Spademan, 772 F.2d 1185, 1889 (5th Cir. 1985). In Texas, federal courts must only examine the second step because the Texas long-arm statute extends as far as constitutionally permissible. See U-Anchor Advertising, Inc. v. Burt, 553 S.W.2d 760, 762 (Tex. 1977), cert. denied, 434 U.S. 1063 (1978); Stuart, 772 F.2d at 1189.
Due process analysis for personal jurisdiction also requires a two-step analysis. As the Fifth Circuit stated in Stuart:
(a) the nonresident must have some minimum contact with the forum which results from an affirmative act on his part; (b) it must be fair and reasonable to require the nonresident to defend the suit in the forum state.Id. To be amenable to suit in a forum, the nonresident defendant must have purposely conducted activities in the state, and those activities must invoke the benefits and protections of the forum state's laws. The contacts with the state must put the defendant on notice "that he should reasonably anticipate being haled into court there." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980).
Minimum contacts analysis takes two forms. Jurisdiction can be specific or general. Specific jurisdiction focuses the minimum contacts analysis on the relationship between the defendant, the forum, and the litigation. A court has specific jurisdiction when a cause of action arises out of a defendant's contact with the forum. In such cases, a single act can support jurisdiction. Bearry v. Beech Aircraft Corporation, 818 F.2d 370, 374 (5th Cir. 1987). When the cause of action is not predicated on the defendant's contacts with the forum, the court may exercise general jurisdiction. Unlike specific jurisdiction, general jurisdiction requires more than one contact. General jurisdiction requires a set of continuous and systematic contacts between the defendant and the forum state. Id.
When a defendant challenges personal jurisdiction, the plaintiff bears the burden of proof on the issue. D.J. Investments v. Metzeler Motorcycle Tire Agent Gregg, Inc., 754 F.2d 542, 545 (5th Cir. 1985). However, the plaintiff does not need to prove personal jurisdiction by a preponderance of the evidence. The plaintiff need only establish a prima facie case for personal jurisdiction. Furthermore, the court must accept uncontroverted allegations in the plaintiff's complaint as true, and all factual disputes in the parties' affidavits must be resolved in favor of the plaintiff. Id. at 545-46. In deciding the issue of personal jurisdiction in a patent case, the court should apply the law of the Federal Circuit. Adell Corp. v. Elco Textron, Inc., 51 F. Supp. 752, 754 (N.D. Tex. 1999).
Finck argues that the Court may exert personal jurisdiction over El Duque under either specific or general principles. First, Finck argues that this lawsuit arises out of El Duque's cease and desist letter and, therefore, the Court has specific jurisdiction. In support of this decision, Finck cites Bounty-Full Entertainment v. Forever Blue Entertainment, 923 F. Supp. 950, 957 (S.D. Tex. 1996). The Court disagrees with the holding in that case, however, finding that it is against the weight of other case law and in conflict with decisions by the United States Court of Appeals for the Fifth Circuit and the United States Court of Appeals for the Federal Circuit. See Red Wing Show Co. v. Hockerson-Halbustadt, Inc., 148 F.3d 1355 (Fed. Cir. 1998); Ham v. La Cienega Music Co., 4 F.3d 413, 416 n. 14 (5th Cir. 1993). In Ham, the plaintiff sued for a declaratory judgment that it had not infringed on the defendant's copyright. The defendant asserted lack of personal jurisdiction, and the plaintiff supported jurisdiction, in part, by arguing that the defendant had sent him a demand letter in the forum state. The court rejected this basis of jurisdiction. See Ham, 4 F.3d at 416 n. 14.
Perhaps the best discussion of the rationale for rejecting Finck's argument is found in Red Wing. In that case, the United States Court of Appeals for the Federal Circuit held that it did not comport with traditional notions of fair play to subject a patentee to personal jurisdiction in a forum solely for informing a party who happens to be located there of suspected infringement. Red Wing, 148 F.3d at 1360. The Court noted that a cease-and-desist letter might be seen as an offer of settlement, and it is neither fair, nor efficient, to provide disincentives to settlement. Id. at 1361. The Court agrees with and adopts this reasoning.
Finck next argues that this Court may exert personal jurisdiction over El Duque on the basis of its "continuous and systematic" contacts with Texas, or under general jurisdiction principles. Finck notes that one of his attorneys, Luis A. Garcia, a resident of Texas, purchased El Duque cigars in several places in Texas. By selling cigars in Texas, according to Finck, El Duque has invoked the benefits and protections of Texas law. Again, the Court disagrees.
The Federal Circuit has adopted the "stream of commerce" theory for evaluating personal jurisdiction issues in patent cases. See Viam Corp. v. Iowa Export-Import Trading Co., 84 F.3d 424, 427 (Fed. Cir. 1996). That court has held that the analysis in a case where the foreign defendant is the patentee, rather than the alleged infringer, is the same analysis as where the defendant is the alleged infringer. Id. at 428. However, the Federal Circuit has ruled that it is not enough to show that some of the defendant's products have been sold in the forum state. Instead, the plaintiff must show that the defendant's activities were purposefully directed at the forum state. See id. In Viam, the Court found such purposeful action where the defendant had established a regular distribution channel through which it purposefully directed its activities into the forum. Id.
As another court has put it, "in order to establish personal jurisdiction based on a stream of commerce theory, plaintiff must show at a minimum that [the defendant] knew that its products were headed for [the forum state]." Allen-Bradley Co., Inc. v. Datalink Tech., Inc., 55 F. Supp.2d 958, 960 (E.D. Wis. 1999). Finck has made no such showing here. Finck's argument that El Duque has not contested the claim that its cigars are sold in Texas is of no avail. The burden remains on the plaintiff invoking the court's jurisdiction to prove that such jurisdiction comports with due process. Finck has not met this burden.
The Court is skeptical that Finck can meet his burden, in light of his poor showing at this stage of the litigation. However, the Court finds that the Defendant's motion does at least raise a factual question — whether Defendant has subjected itself to jurisdiction by entering its cigars into the stream of commerce with the knowledge and intent that they should reach Texas consumers. Therefore, the Court will allow brief discovery on the sole issue of whether a stream of commerce theory can subject El Duque to personal jurisdiction in this Court. The discovery period shall end Friday, December 3, 1999. Supplemental briefing shall be filed with this Court on or before December 17, 1999.
ACCORDINGLY, it is ORDERED that the parties shall conduct discovery on the limited issue raised in this Order up to and including December 3, 1999, and that the parties shall supply supplemental briefing on that issue by December 17, 1999. The Defendant's motion shall remain pending on this Court's docket.