Kimberly Clark IP Sub Not Subject To NY Jurisdiction

Posted on | October 20, 2008 | 2 Comments

2008-1580 Arquest v. Kimberly-Clark Wordwide
SD/NY 07-cv-11202
Judge Colleen McMahon

Arquest appeals from the order of Judge Colleen McMahon finding that Kimberly-Clark Wordwide (KCWW) is not subject to personal jurisdiction in New York, and dismissing Arquests’s DJ action.  KCWW is pursuing a later-filed infringement action again Arquest in the Northern District of Texas.  The case involves diapers and training pants–Kimberly-Clark makes Huggies® and Pull-Ups®, while Arquest manufactures  private-label diaper and trainers.

KCWW sent Arquest a general notice that Arquest might be infringing certain unspecified patents.  KCWW refused to provide any specifics or details unless and until the parties entered into a Stand-Still Agreement, which provided that neither would file any lawsuit against the other for 10-days, and thereafter KCWW would have a 3 day window in which it could initiate an action in forum of its choice.

The parties entered into a series of these Stand-Still Agreements, but ultimately stopped doing so.  KCWW did not file suit during its 3-days, so Arquest filed an action in SD/NY.  KCWW and a sister company, Kimbery-Clark Global Sales (KCGS) then filed an action in the ND/TX.

Kimberly-Clark apparently owns nearly all of its corporate IP through its subsidiary KCWW, a Delaware corporation with administrative offices in Texas, Georgia and Wisconsin.  KCWW also has manufacturing facilities in California, Washington and Utah.  KCWW is essentially a toll manufacturer for KCGS and other entities in the Kimberly-Clark family.  KCGS acquires the raw materials; KCWW manufacturers the products; and KCGS buys the finished goods and sells them.  KCWW does not have any other "customers" and has no sales force, etc.  KCWW is not licensed to do business in New York.

The court granted KCWW’s motion to dismiss (converted to a summary judgment).  Although the judge was a little put-off by KCWW’s briefing–which "was less than forthcoming" about the exact nature of KCWW’s activities and corporate relations–the court found no basis for general or specific jurisdiction under New York’s long-arm statute.

First, the court found that KCWW does not itself do business directly in New York:

KCWW does not solicit business in New York. It does not own property in New York. It does not have employees or operations in New York. Additionally, KCWW is not licensed or registered to do business in New York. In short, KCWW does nothing that the Second Circuit has identified as relevant in determining whether a party is doing business in New York.

Also, the court rejected Arquest’s argument that jurisdiction should attach because KCWW’s IP is being used in New York: 

KCWW does indeed benefit from the activities ofKCGS in New York. But a defendant will not be found to be doing business in New York simply "because an entity or person conducts activities in New York that ultimately inure to the defendant’s benefit." 2-3 Weinstein Korn & Miller, New York Civil Practice: CPLR P § 301.16. If the law were otherwise, KCWW would be subject to general jurisdiction everywhere products bearing its intellectual property are sold.

The court also reject arguments that KCWW acts in New York through an "agent," KCGS, noting that KCGS does not bind or otherwise act on behalf of KCWW in New York, analogizing it to Delagi v. Volkswagenwerk, 29 N.Y.2d 426 (1972).

The court also rejected the "mere departmental" theory, in which one corporation is a "mere department" of its parent.  Noting first that KCGS and KCWW are sister corporations rather than parent-subsidiaries, the court still found that Arquest failed to establish the necessary four factors:

1) common ownership 2) financial dependency 3) the degree to which the parent corporation interferes with the selection and assignment of the subsidiary’s executive personnel and fails to observe corporate formalities and 4) the degree of control over the marketing and operational policies of the subsidiary exercised by the parent.

At most, only the first factor is met since Kimberly-Clark owns both corporations.

Specific jurisdiction was also rejected–the only basis was "KCWW’s counsel purposefully projected itself into this district by reaching out to Arquest’s New York counsel to threaten a patent infringement lawsuit."  The court found that simply contacting a New York entity (or a New York attorney) to notify it of infringement was not enough to meet New York law on jurisdiction.

More reading:

Order

Comments