A recent decision by a U.S. district court seems to ignore the realities of international contract negotiations and imposed unwanted jurisdiction over a foreign corporation. The case involved a negotiation for a license under foreign, non-U.S. patents, between 3M Company of Minneapolis and Nippon Cable Industries of Japan. All of 3M's U.S. patents had expired, but counterparts in France, Italy, Germany and Japan were still unexpired.
A dispute arose after Nippon Cable bought the infringing product line from a company which had been earlier successfully sued by 3M in France, Australia, Canada, China, and the U.K. Nippon Cable then sought to negotiate a settlement with 3M to resolve the infringement claims. Meetings discussing that proposed agreement took place in Los Angeles, Honolulu, and Tokyo, with related phone calls to and from St. Paul, Minnesota, (3M's headquarters) and Tokyo (Nippon Cable's headquarters), as well as extensive correspondence and exchanges of draft agreements. Nippon ultimately agreed it would no longer sell the infringing product in any country with an unexpired 3M patent and 3M agreed to withdraw all pending foreign litigation. The final agreement became effective under U.S. law when 3M signed it in April of 1992.
A few months later, Nippon Cable developed a new product and sought acknowledgement from 3M that this new product would not infringe the foreign patents. In the course of further discussions, over a year and a half, with some eight meetings in St. Paul and three in Tokyo, an unsuccessful effort was made to negotiate a new agreement. Certain joint technical testing also took place in St. Paul, with, again, numerous phone calls, correspondence exchanges, and fax transmissions between the two companies respective places of businesses. During these events, 3M learned that Nippon Cable had in fact been selling out its acquired inventory of the earlier accused product, all in violation of the 1992 agreement as 3M alleged.
No resolution of Nippon Cable's claim that 3M had agreed to the disposal of the inventory could be reached and consequently 3M sued Nippon Cable in Minnesota for breach of the 1992 contract, and also alleging infringement of unexpired patents in France, Germany and Japan. Nippon Cable then successfully dismissed the lawsuit at the district court level, on grounds of lack of jurisdiction, but 3M appealed. On 3M's appeal of that ruling, the U.S. Eighth Circuit Court of Appeals reversed.
Even though it was acknowledged that Nippon Cable had no office or mailing address in Minnesota, was not licensed to do business there, had no bank account nor any property, and no employees in Minnesota, and had only visited Minnesota for purposes of the above negotiations, and that only disputes relating to non-U.S. patents were involved, the appellate court held that the suit was properly brought in Minnesota, and Nippon Cable must appear to defend its conduct. The court gave no weight in this regard to the fact that the dispute was essentially foreign and involved no U.S. rights or assets at all. It simply considered the contract as being a contract "made in Minnesota" and held that by entering Minnesota to negotiate the contract Nippon Cable had "purposefully availed itself of the privilege of conducting activities within the forum and has made a contract in that forum." Therefore, there was U.S. jurisdiction. The Court of Appeals held out only a minor hope that if, on remand, Nippon Cable moved to dismiss on grounds of forum non conveniens, the district court could consider such motion within its "sound discretion."
It is difficult to imagine how two companies could have negotiated their dispute except by communicating with each other at and from their respective headquarters. How else does one do business in an international environment and involving international intellectual property rights? Does this conduct really support the notion that, in so negotiating, the foreign company was either seeking or exercising a "privilege" to conduct business in a U.S. jurisdiction? There is no evidence that this was Nippon Cable's intent. Note that the only breach of "contract" was as to the original settlement and that the patent infringement claim was also as to the original product. No agreement had been made as to the new product, even though it was as to that product that the major contacts with Minnesota were involved.
How can multi-national disputes involving a U.S. company now be resolved without the unattractive risk that the foreign company may thereby be hauled into a U.S. court, especially if they have no other presence in the U.S. Clearly, this case stands as a warning that if U.S. court jurisdiction is to be avoided, care must be exercised by corporate representatives as to where they hold meetings and with whom and how they correspond. Perhaps, at the outset of any negotiation it would be prudent and wise to have an up-front agreement between the parties that in the event of any future disagreement or controversy, the mere activity of negotiating, corresponding, having telephone conferences, etc., in a given geographical venue, will not be later asserted by either party as a basis for asserting personal jurisdiction over the other party in that venue. In addition, if an agreement is ultimately reached, extra care should be exercised with respect to the usual clause reciting the controlling national law for contract interpretation. This clause is also very important in determining whether a given court will take jurisdiction of a later case of breach of contract. Indeed, these warnings also apply to a domestic U.S. corporation which actually has its business operations in only one or a few states. It too, like Nippon Cable, could be surprised by being subjected to jurisdiction of a remote state merely as a result of a "negotiating presence" therein.