Applied Biosystems, Inc. v. Cruachem, Ltd.

• Decision Date: 06 September 1991
• Docket Number: Civ. A. No. 90-210-JRR.
• Citation: 772 F. Supp. 1458
• Parties: APPLIED BIOSYSTEMS, INC., Plaintiff, v. CRUACHEM, LTD. and Cruachem Holdings, Ltd., Defendants.
• Court: U.S. District Court — District of Delaware

772 F. Supp. 1458

APPLIED BIOSYSTEMS, INC., Plaintiff, v. CRUACHEM, LTD. and Cruachem Holdings, Ltd., Defendants.

Civ. A. No. 90-210-JRR.

United States District Court, D. Delaware.

September 6, 1991.

COPYRIGHT MATERIAL OMITTED

Jeffrey M. Weiner, Wilmington, Del. (Arthur M. Lieberman, David A. Kalow and Henry Pitman of Lieberman, Rudolph & Nowak, New York City, of counsel), for plaintiff.

Lawrence C. Ashby, Roderick R. McKelvie and W. Leighton Lord, III of Ashby, McKelvie & Geddes, Wilmington, Del., for defendants.

OPINION

ROTH, Circuit Judge.^*

Applied Biosystems, Inc. ("ABIO") filed this patent infringement suit against Cruachem Ltd. ("Limited") and Cruachem Holdings Ltd. ("Holdings") on May 4, 1990. On July 11, 1990 both defendants moved to dismiss this action for lack of personal jurisdiction. Following almost a year of discovery on the jurisdictional issue, briefing was completed and this Court heard oral argument on defendants' motion. For the reasons that follow, we agree with defendants that this Court lacks personal jurisdiction over Limited and Holdings, and we will grant defendants' motion to dismiss.

I. FACTS

ABIO is the assignee and owner of two patents pertaining to the chemical synthesis of DNA: U.S. Patent No. 4,415,732 for phosphoramidite compounds and processes and U.S. Patent No. 4,458,066 claiming a process for preparing polynucleotides. It filed this action alleging that certain phosphoramidite reagents and DNA synthesizers manufactured and distributed by defendants infringe these patents. The complaint asserts three counts: for direct patent infringement, for inducing patent infringement, and for contributory patent infringement.

ABIO is a California corporation with its principal place of business in Foster City, California. Limited and Holdings are both Scottish corporations with principal places of business in Glasgow, Scotland. Both defendants are related to Cruachem, Inc. ("Inc."), a Delaware corporation which has its principal place of business in Herndon, Virginia. The relationships among Limited, Holdings, and Inc. are at the heart of the present jurisdictional dispute. In an earlier filed and related patent suit in this Court, Applied Biosystems, Inc. v. Cruachem, Inc., CA 89-579-JRR, ABIO has also sued Inc. Because Inc. is a Delaware corporation, there is no question that this Court can exercise personal jurisdiction over Inc. in the related action. Limited and Holdings, however, have had almost no direct contacts with either the United States in general or Delaware in particular; essentially, their jurisdictional contacts exist through Inc.

The corporate relationships among the three members of the Cruachem Group are as follows. Holdings is an investment holding company that is not itself engaged in the manufacture or sales of any products. Holdings owns 100% of the stock of both Limited and Inc. Limited operates in Scotland, where it manufactures and sells instruments and reagents used in the chemical synthesis of DNA. These include the phosphoramidite reagents and DNA synthesizers at issue in this action. Inc. serves as the United States distributor of these products; it purchases the reagents and synthesizers from Limited in Scotland and imports them to the United States for resale. Limited's sales to other parts of the globe are accomplished through independent distributors. This corporate organization of the group has been in place since 1985. Also in that year, Inc., which was originally created in 1983, was reincorporated under Delaware law.

Since the 1985 corporate reorganization, the three corporations have shared several common officers and directors. At present, the Chief Executive Officer of both Holdings and Limited is Ian Wilkie, who also sits on the Board of Inc., and the President of Inc. is Joseph Hall, who is also a member of the Board of Holdings. Moreover, for a period of time following the corporate reorganization in 1985, Brendan Hamill served on the Boards of all three corporations. In addition, employees of each corporation have performed services for the others. For example, Limited has used an Inc. employee to perform installation services for a third party in Mexico. (Deposition of Ian Wilkie, Docket Item 35 at 351). Similarly, when Inc. was approached by a technical magazine entitled Life Science Lab Products which was seeking material for publication, the request was referred to Limited's employee, Huseyin Bozoglu, who normally writes editorials. (D.I. 35 at 225-26).

Another area in which the members of the Cruachem Group have developed an internal system of sharing resources is in financial accounting. Ordinarily, Limited manufactures products and sells them to Inc., which in turn resells them to third party customers. Inc. purchases these products from Limited at a discounted price, cheaper than that available to Limited's distributors in other parts of the world. (D.I. 35 at 334). The sales between Limited and Inc. are recorded on intercorporate accounts. When Inc. needs funding, it may defer payment to Limited, and use its resources to make payments on its other obligations. Thus, the intercorporate account is used as needed to fund the requirements of the various corporations, and the credit and debit balances of the individual corporations rise and fall over time. (D.I. 35 at 280-81). The corporations have also advertised together, holding themselves out to the public simply as Cruachem, with separately listed addresses for Inc. and Limited. (D.I. 26, Ex. B at C027231)

On the other hand, at the level of day-to-day management, Inc. and Limited are operated independently, with Ian Wilkie heading Limited, and Joseph Hall running Inc. (D.I. 35 at 53, 410-11). As Inc.'s President, Joseph Hall is responsible for such decisions as setting the prices to charge its customers, hiring and firing employees, and issuing a particular press release. He is not required to secure the approval of either Limited or Holdings for such activities. (D.I. 35 at 385-87). It is only for large scale expenditures or operations that Inc. and Limited seek the approval of Holdings' Board in its role as parent corporation. (D.I. 35 at 414). Moreover, even though there is flexibility in the timing of payments made on the intercorporate accounts, the Cruachem Group maintains strict and precise accounting records. (D.I. 35 at 204).

Cruachem products have essentially reached the United States only through Inc. Of all the countries in which the Cruachem Group's products are sold, the United States is the single largest market, and Inc., as United States distributor, was responsible for almost half the combined income of the three corporations from 1987 through 1990. (D.I. 25 at 0051378). Obviously, Inc. has had extensive contacts with the United States in general. However, neither Inc. nor Limited has ever sold any products in Delaware, and the three corporations have had only a few minimal contacts with Delaware in particular.

The first Delaware contact for the Cruachem Group was the reincorporation of Inc. in Delaware in 1985. Second, in 1986, Ian Wilkie and Brendan Hamill of Limited, and Joseph Hall and Hugh Mackie of Inc., came to Delaware to meet with representatives of DuPont, to discuss a joint venture to develop a DNA synthesis instrument. There were, however, no follow-up meetings with DuPont, and the project was never implemented. (D.I. 35 at 123-27). Third, in 1989, Inc. sent free samples of the types of phosphoramidite reagents at issue in this action to DuPont's research facility in Wilmington, Delaware. More specifically, in an unsuccessful attempt to induce DuPont to set up an account, Inc. sent samples of four reagents to the DuPont Experimental Station for their internal research use. (D.I. 35 at 152-55). Inc. did not seek Holdings approval or even inform Holdings of this shipment to DuPont. (D.I. 35 at 388). Fourth, all three corporations have advertised in national magazines, such as Nature and Science, that have some circulation in Delaware. Finally, Limited, Holdings, and Inc. have all received substantial financing from Delaware sources.

II. PERSONAL JURISDICTION

ABIO, as plaintiff, bears the burden of establishing that this Court may exercise personal jurisdiction over defendants. When personal jurisdiction is contested and no evidentiary hearing is held, the plaintiff need only establish a prima facie case with the record viewed in the light most favorable to the plaintiff. Nonetheless, if as here, the parties have taken discovery on the jurisdictional issue, "the Court need not be blind to discovered materials, and should look beyond the facade of the pleadings." Sears, Roebuck & Co. v. Sears plc, 744 F.Supp. 1297, 1301 (D.Del.1990) ("Sears II").

Our inquiry is governed by Max Daetwyler Corp. v. R. Meyer, 762 F.2d 290 (3d Cir.), cert. denied, 474 U.S. 980, 106 S.Ct. 383, 88 L.Ed.2d 336 (1985), a Third Circuit decision on personal jurisdiction in a patent suit. In general, to determine whether we may exercise personal jurisdiction over a defendant, a court must first examine whether jurisdiction is authorized by the relevant state's long-arm statute, and must then assess whether the exercise of jurisdiction would satisfy the Due Process Clause. See id. at 293. As the Third Circuit held in Max Daetwyler, the first part of this analysis must refer to state law even when, as here, the underlying legal issues involve federal patent law, because Fed.R.Civ.P. 4(e) directs that in the absence of a federal service of process statute state law governs. See id. at 295. As a result, personal jurisdiction may not be based on an alien defendant's aggregated contacts with the United States as a whole. Id. at 300.

This holding, that the relevant contacts for establishing personal jurisdiction must be with Delaware in particular, and not simply the United States in general, is critical in the present case. While ABIO has demonstrated that Limited...