Dainippon Screen Mfg. Co., Ltd. v. CFMT, Inc.

• Decision Date: 29 April 1998
• Docket Number: No. 97-1569,97-1569
• Citation: 46 USPQ2d 1616,142 F.3d 1266
• Parties: , 46 U.S.P.Q.2d 1616 DAINIPPON SCREEN MANUFACTURING CO., LTD. and DNS Electronics, LLC, Plaintiffs-Appellants, v. CFMT, INC. and CFM Technologies, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1266

142 F.3d 1266

40 Fed.R.Serv.3d 700, 46 U.S.P.Q.2d 1616

DAINIPPON SCREEN MANUFACTURING CO., LTD. and DNS Electronics, LLC, Plaintiffs-Appellants, v. CFMT, INC. and CFM Technologies, Inc., Defendants-Appellees.

No. 97-1569.

United States Court of Appeals Federal Circuit.

April 29, 1998.

Roderick M. Thompson, Pillsbury Madison & Sutro LLP, San Francisco, CA, argued, for plaintiffs-appellants. With him on the brief were Michael A. Conley and Tricia L. Greenberg.

Thomas B. Kenworthy, Morgan, Lewis & Bockius, LLP, Philadelphia, PA, argued, for defendants-appellees.

Before MAYER, Chief Judge, MICHEL and LOURIE, Circuit Judges.

LOURIE, Circuit Judge.

Dainippon Screen Manufacturing Co., Ltd. and DNS Electronics, LLC (collectively "Dainippon") appeal from the final decision of the United States District Court for the Northern District of California dismissing its declaratory judgment action against CFM Technologies, Inc. (CFM) and CFMT, Inc. (CFMT) (collectively "defendants") for lack of personal jurisdiction over CFMT, a necessary and indispensable party. See Dainippon Screen Mfg., Ltd. v. CFMT, Inc., No. C-97-20270-JW (N.D.Cal. Aug. 6, 1997). Because the court erred in concluding that it lacked personal jurisdiction over CFMT and in the alternative erred in concluding that CFMT was an indispensable party under Fed.R.Civ.P. 19(b), we reverse.

BACKGROUND

CFM, a Pennsylvania corporation, competes with Dainippon in the semiconductor manufacturing equipment market. CFM, like Dainippon, sells its wares throughout the United States and maintains sales representatives in and derives revenues from the state of California.

In 1992, CFM incorporated CFMT under Delaware law as a holding company for its intellectual property. Accordingly, CFM assigned all of its patents to CFMT, and CFMT granted back to CFM exclusive licenses to those patents in return for a ten percent royalty based on CFM's net sales. CFMT is not an operating company and at all relevant times has been a wholly-owned subsidiary of CFM. Under the above arrangement, CFMT acquired title to U.S. Patent 4,911,761 and granted CFM an exclusive license thereunder. The license agreement provides that CFMT alone is authorized to sublicense the '761 patent and to "take appropriate legal action" with respect to infringement.

As related by Dainippon, Dainippon wished to exhibit its FL-820L wafer cleaning apparatus at the July 1995 SEMICON West trade show in San Francisco, but was concerned about possible infringement of the '761 patent. Dainippon contacted CFM and scheduled a meeting for its representatives on June 19, 1995 with Christopher McConnell, President of CFMT and Chairman of CFM, and Roger Carolin, President of CFM, to discuss the matter, including a possible licensing arrangement. At the meeting, Dainippon presented information relating to its FL-820L apparatus, after which McConnell and Carolin asserted that there was an "infringement problem." Shortly thereafter, Heinrich Parker, outside counsel for both CFM and CFMT, telephoned Roderick Thompson, Dainippon's outside counsel, in San Francisco and left a message which stated in relevant part:

We believe that we've got good, strong, multiple patents in this field. I have been told that [Dainippon] has known about them for years. We are a well-funded/capitalized company and we intend to protect our rights.... We do not think your client should be proceeding unilaterally to show at this show and if they do of course we're going to have to consider how we will handle that. We will not be afraid to protect our rights.

Thompson's Transcription of Parker's Voice Mail Message, June 23, 1995. Parker thereafter reiterated that his clients would not agree to refrain from suing Dainippon and that Dainippon would exhibit the FL-820L "at its peril." Dainippon did not display the FL-820L at SEMICON West.

McConnell and Carolin again met with Dainippon's representatives at SEMICON West to negotiate a possible sublicense. McConnell and Carolin again stressed their interest in "protecting" their patents and stated that "you will see in the near future that we will take action" to protect those patents. A few days later, Dainippon learned that CFMT and CFM had filed suit against two of its competitors alleging infringement of the '761 patent.

Negotiations between the parties broke down by mid-1996, at which time Dainippon decided to continue with its plans to market the FL-820L and shipped one FL-820L to a customer in California in December 1996. Dainippon also filed a declaratory judgment suit against defendants, although it did not serve the complaint. Upon learning of the suit, McConnell, writing as president of CFMT, expressed a renewed interest in negotiating a license with Dainippon and retained Kenneth Clark to negotiate a possible sublicense under the '761 patent. Clark and Thompson met in California to exchange proposals, but ultimately reached no agreement. Dainippon then withdrew its first complaint and filed the instant complaint in the United States District Court for the Northern District of California seeking, inter alia, a declaration that CFMT's '761 patent was invalid and not infringed by Dainippon. See 28 U.S.C. § 2201(a) (1994).

The defendants moved to dismiss Dainippon's complaint on the grounds that (1) no justiciable controversy existed between the parties and (2) the district court lacked jurisdiction over CFMT, a party that defendants contended was necessary and indispensable under Rule 19 of the Federal Rules of Civil Procedure. The court rejected defendants' first ground, finding that defendants' overall conduct created a reasonable apprehension of suit on behalf of Dainippon and therefore that an actual controversy existed between the parties.

The court, however, agreed with defendants that it lacked personal jurisdiction over CFMT. The court noted that CFMT was merely a holding company with no employees, agents, or offices in California, and that CFMT was neither incorporated in California nor registered to conduct business there. The court rejected Dainippon's argument that CFMT had sufficient "minimum contacts" with California by virtue of its receipt of licensing revenues from the sales activities of CFM, its licensee, in that state. The court similarly did not find compelling CFMT's contacts with California consisting of sending threats of infringement to Dainippon in California or negotiating a license with Dainippon in that state, and determined that these activities "were indisputably taken by CFM, not by CFMT." Accordingly, the court concluded that it would "violate the due process rights of CFMT to permit the exercise of personal jurisdiction over it in this case."

Because in its view CFMT could not be made a defendant, the court next addressed whether Dainippon's suit could proceed against CFM in the absence of CFMT, an inquiry requiring the application of Fed.R.Civ.P. 19. The court first determined that CFMT, as the holder of the '761 patent and the only party under the CFMT-CFM license authorized to take legal action with respect thereto, was a necessary party to the suit under Fed.R.Civ.P. 19(a). The court then proceeded to determine whether CFMT was an indispensable party under Rule 19(b) by analyzing the four factors enumerated by that rule. Most relevant here, the court opined that it would be highly prejudicial to CFMT to allow the case to proceed in its absence because the gravamen of Dainippon's suit was to invalidate the '761 patent. It also stated that Dainippon would have an adequate remedy if the case were dismissed because it could sue defendants in a forum in which jurisdiction over CFMT would be proper. Accordingly, the court determined that CFMT was an indispensable party and granted defendants' motion to dismiss.

Dainippon appealed the dismissal to this court. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1) (1994).

DISCUSSION

Whether a court has personal jurisdiction over a defendant is a question of law that we review de novo. See Viam Corp. v. Iowa Export-Import Trading Co., 84 F.3d 424, 427, 38 USPQ2d 1833, 1834 (Fed.Cir.1996). Disputed facts underlying this legal determination, however, are reviewed for clear error. See 2 James Wm. Moore, Moore's Federal Practice § 12.31 (3d ed.1997) [hereinafter "Moore's"]. Furthermore, we apply the law of our circuit, rather than that of the regional circuit in which the case arose, when we determine whether the district court properly declined jurisdiction over an out-of-state patentee. See Akro Corp. v. Luker, 45 F.3d 1541, 1543, 33 USPQ2d 1505, 1506-07 (Fed.Cir.1995); see also Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558, 1564, 30 USPQ2d 1001, 1006 (Fed.Cir.1994). Whether a party is indispensable under Rule 19(b) is a matter of regional circuit law, see Katz v. Lear Siegler, Inc., 909 F.2d 1459, 1461, 15 USPQ2d 1554, 1556 (Fed.Cir.1990), a determination which is reviewed for abuse of discretion in the Ninth Circuit, see Bakia v. County of Los Angeles, 687 F.2d 299, 301 (9th Cir.1982).

Dainippon argues that our case law, in particular, Akro Corp. v. Luker, 45 F.3d 1541, 33 USPQ2d 1505 (Fed.Cir.1995), and Genetic Implant Systems, Inc. v. Core-Vent Corp., 123 F.3d 1455, 43 USPQ2d 1786 (Fed.Cir.1997), mandates a conclusion that personal jurisdiction exists over CFMT in California. Dainippon opines that this conclusion is even more compelling than in the cited cases because CFMT is CFM's wholly-owned subsidiary. Dainippon also contends that the district court's finding that the litigation threats and licensing negotiations exclusively involved CFM is clearly erroneous because the individuals who were engaged in those activities were agents of both CFM and CFMT. Dainippon supports this contention by noting that only CFMT had the authority under the license agreement to take action with respect to litigation and to negotiate sublicenses, and therefore that defendants cannot now...