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Delaware Federal Court Examines the Dual Jurisdiction/Stream-of-Commerce Analytical Framework as a Basis for Personal Jurisdiction

DNA Genotek Inc. v. Spectrum DNA, Spectrum Solutions L.L.C., and Spectrum Packaging L.L.C.
Case No. 15-661-SLR (United States District Court for the District of Delaware, February 4, 2016)
by Richard J. Medoff, Associate
Semmes, Bowen & Semmes (www.semmes.com)

Available at: http://www.ded.uscourts.gov/sites/default/files/opinions/slr/2016/february/15-661.pdf

DNA Genotek Inc. v. Spectrum DNA, Spectrum Solutions L.L.C., and Spectrum Packaging L.L.C. involved a motion to dismiss for lack of personal jurisdiction in a patent infringement lawsuit filed by a Canadian corporation against three (3) Utah limited liability companies in the United States District Court for the District of Delaware. The Court concluded that the Canadian corporation had failed to provide sufficient evidence to establish personal jurisdiction under the Court’s dual jurisdiction/stream-of-commerce analytical framework. The Court held, however, that jurisdictional discovery was warranted, and thus, denied the motion to dismiss without prejudice.

By way of factual background, Plaintiff DNA Genotek Inc. (“Plaintiff” or "DNAG") is a Canadian corporation with its principal place of business in Kanata, Ontario. DNAG is a wholly-owned subsidiary of OraSure Technologies, Inc., a Delaware corporation with its principal place of business in Bethlehem, Pennsylvania. Defendants, Spectrum DNA, Spectrum Solutions L.L.C., and Spectrum Packaging L.L.C. (collectively, “Defendant” or "Spectrum"), are Utah limited liability companies with their principal place of business in Draper, Utah.

DNAG is a leading provider of products for biological sample collection, such as saliva test kits, for DNA testing. DNAG is the owner by assignment of U.S. Patent No. 8,221,381 ("the 381 patent"), entitled "Container System for Releasably Storing a Substance," that was issued on July 17, 2012. On July 31, 2015, Spectrum launched a website offering saliva test kits (the “accused product”) to the public. In this regard, Spectrum facilitated the production and supply of the accused product to Ancestry.com DNA, LLC ("Ancestry"), a Delaware limited liability company with its principal place of business in Provo, Utah, for sale in interstate commerce, including in Delaware. After the launch of the Spectrum website, DNAG filed a lawsuit against Spectrum alleging infringement of the 381 patent. Spectrum subsequently filed a motion to dismiss for lack of personal jurisdiction pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure.

The Court began its analysis by noting that Rule 12(b)(2) directs a court to dismiss a case when the court lacks personal jurisdiction over the defendant, and that once a jurisdictional defense has been raised, the plaintiff bears the burden of establishing, with reasonable particularity, that sufficient minimum contacts have occurred between the defendant and the forum to support jurisdiction. See Provident Nat'l Bank v. Cal. Fed. Sav. & Loan Ass'n, 819 F.2d 434, 437 (3d Cir. 1987). The Court explained that to establish personal jurisdiction, Plaintiff must establish by a preponderance of the evidence that there is a statutory basis for jurisdiction under Delaware’s long-arm statute, and that the exercise of jurisdiction comports with Spectrum’s right to due process. See Reach & Assocs. v. Dencer, 269 F.Supp.2d 497, 502 (D. Del. 2003); Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).

Spectrum argued that it had no contacts with the State of Delaware, and the Court noted that the record disclosed that: (1) Spectrum had no facilities, employees, bank accounts, or other physical presence in Delaware; (2) Spectrum was not registered to do business in Delaware; and (3) Spectrum had not shipped any product to Delaware. Nevertheless, DNAG asserted that the exercise of personal jurisdiction over Spectrum fell within the scope of the Delaware long-arm statute under the "dual jurisdiction" or "stream of commerce" theory that implicate subsections (c)(1) and (c)(4) of the statute. Specifically, subsections (c)(1) and (c)(4) of the Delaware long-arm statute provide that a court may exercise personal jurisdiction over a defendant when the defendant or its agent:

(1) Transacts any business or performs any character of work or service in the State;
...
(4) Causes tortious injury in the State or outside of the State by an act or omission outside the State if the person regularly does or solicits business, engages in any other persistent course of conduct in the State or derives substantial revenue from services, or things used or consumed in the State.

10 Del. C. § 3104(c)(1)-(4).

The Court noted that it has recognized the "dual jurisdiction" or "stream-of-commerce" analytical framework as a basis for personal jurisdiction under Delaware law. See Intellectual Ventures I LLC v. Ricoh Co., Ltd., 67 F.Supp.3d 656 (D. Del. 2014); Belden Techs., Inc. v. LS Corp., 829 F.Supp.2d 260 (D. Del. 2010); Accord Robert Bosch LLC v. Alberee Products, Inc., 70 F.Supp.3d 665 (D. Del. 2014). The Court explained that under this theory, it is DNAG's burden to demonstrate that: (1) Spectrum has an intent to serve the Delaware market; (2) this intent results in the introduction of the accused product into Delaware; and (3) DNAG's cause of action arises from injuries caused by sale of the accused product in Delaware. See Belden, 829 F.Supp.2d at 267-68; Bosch, 70 F.Supp.3d at 675.

The Court noted that the “touchstone” of the analysis “is intent and purpose to serve the Delaware market,” and "a non-resident firm's intent to serve the United States market is sufficient to establish an intent to serve the Delaware market, unless there is evidence that the firm intended to exclude from its marketing and distribution efforts some portion of the country that includes Delaware." Power Integrations, Inc. v. BCD Semiconductor, 547 F.Supp.2d 365, 372-73 (D. Del. 2008). The Court further explained that under the due process analysis, however, “the placement of a product into the stream of commerce, without more, is not an act of the defendant purposefully directed toward the forum State,” but “additional conduct of the defendant may indicate an intent or purpose to serve the market in the forum State.” See Asahi Metal Industry Co., Ltd. v. Superior Court of California, Solano County, 480 U.S. 102, 112 (1987).

The linchpin of DNAG's jurisdictional argument was that Spectrum sold the accused product to Ancestry which had nationwide sales, including in Delaware. DNAG argued that it had adduced evidence of "additional conduct" sufficient to indicate "an intent or purpose" on the part of Spectrum to serve the market in Delaware. The evidence in the record cited by DNAG included the following: (1) a Manufacturing Agreement between Ancestry and Spectrum; (2) a Purchase and Sales Commission Agreement between Ancestry and Spectrum; (3) invoices for the delivery of the accused product from Spectrum to Ancestry; (4) search results demonstrating that Ancestry incorporated as a Delaware limited liability company in February 2011; and (5) samples of Spectrum's marketing materials wherein Spectrum described its relationship with Ancestry as "partnering with our largest DNA gathering customer."

Turning to the facts of the case, the Court noted that there was no dispute that Ancestry specifically targeted the Delaware market and sold the accused product to Delaware residents. The Court found, however, that there was no indication in the record that Spectrum had shipped or sold any of the accused product in Delaware, or that Spectrum had any control over what Ancestry does with the accused product once it was delivered to Ancestry. The Court further noted that the agreements between Ancestry and Spectrum cited by DNAG were not negotiated or executed in Delaware, nor governed by Delaware law. Additionally, while the Court noted that Spectrum used the internet to advertise the accused product, and that such internet advertisements could be seen in Delaware, a potential customer could not place an order over the internet.

The Court found that, aside from delivering the accused product to Ancestry (outside Delaware) who, in turn, was responsible for placing the accused product into the stream of commerce, there was no persuasive evidence of "additional conduct ... to indicate an intent or purpose [on the part of Spectrum] to serve the market" in Delaware. Asahi, 480 U.S. at 112. The Court noted that the only Delaware contacts of record were those of Ancestry, and it was Ancestry who was responsible for the distribution of the accused product into Delaware. Accordingly, the Court concluded that DNAG had failed to meet its burden to demonstrate that the Court’s exercise of personal jurisdiction over Spectrum comported with the Due Process Clause, i.e., that Spectrum had an intent or purpose to serve the Delaware market.

The Court held, however, that jurisdictional discovery was warranted given the failure of Spectrum's corporate designee to fully explore Spectrum's marketing and sales activities, and given the business relationship between Spectrum and Ancestry. Accordingly, the Court denied Spectrum's motion to dismiss without prejudice.