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Court Finds No Personal Jurisdiction Over Foreign Defendant Based On U.S. Subsidiary Under Stream of Commerce and Agency Theories

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In University of Massachusetts Medical School et al v. L’Oreal SA et al, 1-17-cv-00868 (DED 2018-11-13, Order) (Sherry R. Fallon), the magistrate judge recommended granting a foreign parent company defendant’s motion to dismiss plaintiffs’ patent infringement action for lack of personal jurisdiction where its American subsidiary introduced the alleged accused products into the stream of commerce and the foreign defendant’s corporate structure is not sufficient to establish personal jurisdiction because “mere ownership of a subsidiary does not justify the imposition of liability on the parent.”

The primary plaintiff in the case is the University of Massachusetts Medical School, a public institution of higher education in Massachusetts.  The University of Massachusetts is the assignee of the two patents-in-suit: U.S Patent Nos. 6,423,327 (the ‘327 patent) and 6,645,513 (the ‘513 patent).  Defendant L’Oreal USA is a wholly-owned subsidiary of Defendant L’Oreal S.A., a French corporation headquartered in France.  L’Oreal USA is Delaware Corporation with its principal place of business in New York, New York.  L’Oreal USA develops and manufactures hair care, skin care, cosmetics, and fragrances distributed globally.  L’Oreal S.A. filed a motion to dismiss for lack of personal jurisdiction, amongst other issues considered by the court.

Plaintiffs asserted that the court’s exercise of personal jurisdiction over L’Oreal S.A. comports with constitutional due process requirements under the stream of commerce and agency theories.  Under the stream of commerce theory, a foreign defendant can be subjected to a forum state’s jurisdiction if it “purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its law.”  Plaintiffs argue that personal jurisdiction is appropriate under this theory because L’Oreal S.A. intends for its products to be sold in the United States through its subsidiary L’Oreal USA.  L’Oreal S.A. does not dispute that the Accused Products are sold in Delaware and throughout the United States, but contends that it is not responsible for introducing the Accused Products, which are made and sold by L’Oreal USA in the United States, into the stream of commerce.

The Magistrate found the record does not support plaintiffs’ argument that L’Oreal S.A. introduced the Accused Products into the stream of commerce.  Instead, the court found that L’Oreal USA introduced the Accused Products into the stream of commerce, and L’Oreal S.A.’s corporate structure is not sufficient to establish personal jurisdiction under the stream of commerce theory because “mere ownership of a subsidiary does not justify the imposition of liability on the parent.”  The Magistrate reasoned Plaintiffs must present evidence showing that the parent company is responsible for introducing the Accused Products into the U.S. or Delaware markets.  And, here, the record does not indicate that L’Oreal S.A. had a role in the design, manufacture, marketing, or sale of the Accused Products.  Further, Plaintiffs do not specifically tie the development or sale of the Accused Products to L’Oreal S.A.  As such, the Magistrate found Plaintiffs cannot show that L’Oreal S.A. “placed–or otherwise influenced the placement of-the [ accused products] into either the United States market generally or the Delaware market specifically.”

Plaintiffs also contend that, by owning United States patents and suing to enforce its patents in this and other United States courts, L’Oreal S.A. has purposefully availed itself of the privilege of conducting activities in the forum state.  However, the Magistrate held that “ownership of a United States patent, without more, cannot support the assertion of personal jurisdiction over a foreign patentee in any state.” As such, the Magistrate found plaintiffs cannot prevail on their stream of commerce theory.

Plaintiffs also argued that L’Oreal S.A. is subject to the court’s jurisdiction under the agency theory as well.  Under this theory, a subsidiary corporation’s specific jurisdictional acts are imputed to its parent corporation to satisfy the jurisdictional requirements “where the subsidiary acts on the parent’s behalf or at the parent’s direction.”  The existence of an agency relationship depends on “the degree of control [ ] the parent exercises over the subsidiary.”  To determine whether the parent has the requisite control over the subsidiary to establish an agency relationship, a court will consider the following factors: “the extent of overlap of officers and directors, methods of financing, the division of responsibility for day-to-day management, and the process by which each corporation obtains its business.”

First, Plaintiffs contend that L’Oreal S.A. and its subsidiaries act as a “unified entity” because L’Oreal Group (the overarching entity consisting of L’Oreal S.A. and its subsidiaries) discloses the financial results of the entire Group in a consolidated report, which includes L’Oreal USA’s financial results. However, the Magistrate found “filings [by a parent corporation] presenting the assets, liabilities, and financial earnings of its subsidiaries as one indistinguishable whole do not prove agency.”

Next, Plaintiffs also argue that L’Oreal S.A. and L’Oreal USA “operate as a single entity, particularly for the purposes of designing, manufacturing, and selling the Accused Adenosine Products in the United States.”  However, the Magistrate found Plaintiffs failed to establish that L’Oreal S.A. had control over L’Oreal USA’s day-to-day management and matters of patent infringement.  Specifically, “L’Oreal USA maintains separate licensing and distribution contracts, manufactures and distributes its own products, has its own board of directors, issues separate financial statements, files separate tax returns, and maintains its own workforce from L’Oreal S.A.”  Moreover, L’Oreal USA’s marketing, advertising, customer relations, and “Research and Innovation” departments are separate from L’Oreal S.A.  Because plaintiffs’ allegation that L’Oreal S.A. and L’Oreal USA operate as a single entity controlled by L’Oreal S.A. is not supported by the record, the Magistrate found Plaintiffs’ agency theory also fails.  Thus, the Magistrate found Plaintiffs have failed to establish personal jurisdiction over L’Oreal S.A.

Finally, the Magistrate also found Plaintiffs have also failed to present sufficient factual allegations to justify jurisdictional discovery.  In order to justify jurisdictional discovery, the plaintiff must present “factual allegations that suggest with reasonable particularity the possible existence of the requisite contacts between [the defendant] and the forum state.”  Plaintiffs assert that jurisdiction over L’Oreal S.A. is proper under the stream of commerce and agency theories and based on L’Oreal S.A.’s own contacts with the forum.  But, the Magistrate already found Plaintiffs’ allegations fail to assert with reasonable particularity facts showing that L’Oreal S.A. might be subject to personal jurisdiction.  Therefore, the Magistrate recommended plaintiffs’ request for jurisdictional discovery also be denied.