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Litecubes v. Northern Lights Products: Extending the Extraterritorial Reach of Subject Matter Jurisdiction
Litecubes, L.L.C. and Carl R. Vanderschuit v. Northern Lights Products, Inc.
Posted: 05/13/2008
By: Araceli Campos, Esq.
Companies Mentioned: Litecubes, LLC, Northern Lights Products, Inc. d.b.a. GlowProducts.com
Introduction
The Court of Appeals for the Federal Circuit’s decision in Litecubes LLC v. Northern Light Products clarified some critical elements of IP litigation jurisprudence. Litecubes LLC v. Northern Light Products, ___ F3d ___, 2008 WL 1848659 (C.A. Fed. (Mo.)) The Litecubes Court took the opportunity to clarify a few issues that have been the source of confusion in the IP arena, particularly regarding infringement claims with extraterritorial aspects. Specifically, the Litecubes Court addressed the fact that proof that the infringing activity takes place in the United States is proof of an element of infringement, but it is not relevant to the question of subject matter jurisdiction.
Detailed Commentary
Background
In Litecubes, the American plaintiffs (the patent/copyright owner and his company/licensee, collectively “Litecubes”) own the rights to an artificially illuminated faux ice cube. Litecubes claimed that the Canadian defendant company (operating under the name “GlowProducts”) committed both patent and copyright infringement by selling a nearly identical faux ice cube product directly to American consumers, shipping the product manufactured in China from Canada to American buyers. GlowProducts did ship its products “f.o.b.” the seller’s location, technically, allowing title to the product to change hands from seller to buyer in Canada, before it was shipped to the buyer.
There was no dispute that Litecubes had filed a well-pled complaint in federal district court against GlowProducts, alleging violation of each of the required elements for its claims. Part-way through the trial, GlowProducts moved for dismissal of the entire case on the grounds that the court did not have subject matter jurisdiction, since GlowProducts technically did not “sell” in the United States because the sales were technically complete in Canada.
The district court denied GlowProducts’ motion, finding that there was adequate evidence that GlowProducts sold the infringing products in the United States and therefore the court had subject matter jurisdiction. After the jury found in favor of Litecubes, GlowProducts filed a JMOL motion, asking the court to overturn the jury verdict, again because it did not technically sell its products in the U.S., and the court denied that motion as well. GlowProducts appealed the denial of both its subject matter jurisdiction motion and its JMOL motion to the Litecubes Court which affirmed the district court’s rulings, as set forth below.
Location of the sale goes to the merits of the claim, not to subject matter jurisdiction
While the Litecubes Court did affirm the district court’s denial of GlowProducts’ motion to dismiss for lack of subject matter jurisdiction, it did so based on different grounds than those reached by the district court. The Litecubes Court stated that the parties and the district court misconstrued the law; the Court acknowledged that this issue had become a source of great confusion.
In opening its opinion, the court wrote,“[this case] requires that we clarify the often-confused boundary between elements of a federal claim, which must be established before relief can be granted, and the requirements for establishing subject matter jurisdiction.” 2008 WL 1848659, at *1.
The court’s explanation of the “often-confused boundary” can be summarized in the premise that federal law (28 USC §1338(a)) gives federal district courts the original jurisdiction to hear any case arising under the federal Patent, Trademark, and Copyright acts passed by Congress. So long as a plaintiff’s well-pled complaint alleges a violation of those federal acts or depends significantly on those federal acts, the plaintiff can bring the complaint in federal district court, because she has established federal question jurisdiction. It doesn’t matter whether the plaintiff will ultimately be able to win her case or prove the requisite elements of her claims – those factors are irrelevant to determining subject matter jurisdiction. 2008 WL 1848659, at *4.
The Court noted that the Patent Act, 35 USC §271(a), specifically sets forth the elements that a plaintiff must prove in order to prevail on her claim of patent infringement: “[e]xcept as otherwise provided… whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefore, infringes the patent.”
The Litecubes Court points to this language, saying that, clearly, the “territorial” element (i.e. that infringer sold or imported the infringing product in the U.S.) is a required element of the underlying claim of infringement. 2008 WL 1848659, at *4. In order to prevail in an infringement action, a plaintiff must prove this element along with the other requisite elements of infringement. Whether or not plaintiff can in fact prove all of the requisite elements, including the territorial element, determines whether the plaintiff can ultimately succeed on the merits, but it has nothing to do with the court’s power to hear the case in the first place based on federal question jurisdiction.
In clarifying this delineation, the Court reiterated and relied heavily upon the findings in two U.S. Supreme Court decisions: Arbaugh v. Y&H Corp., 546 US 500 (2006) and Laurentzin v. Larsen, 345 US 571 (1953). The court noted that before the Arbaugh holding, there was a “particular tendency among courts and litigants to label limitations on extraterritorial reach of a statute as ‘jurisdictional.’” 2008 WL 1848659, at *6. But Arbaugh stands for the “bright line rule” that “limitations on the extraterritorial reach of statutes… should be considered elements of the claim unless Congress has clearly labeled the limitation jurisdictional.” Id. Cases that hold otherwise, particularly pre-Arbaugh cases, are to have “no precedential effect” going forward. 2008 WL 1848659, at *8.
The Litecubes Court held that because the Litecubes plaintiff filed a well-pled complaint properly setting forth all of the elements of infringement, it properly invoked federal question subject matter jurisdiction, and GlowProducts’ motion to dismiss for lack of subject matter jurisdiction was thus properly denied. According to the Court, the district court erred in even making an inquiry into whether GlowProducts actually sold its products in the U.S. in deciding this motion, even though it got the right result.
The patent law analysis also applies to copyright law
In its motion to dismiss, GlowProducts had argued that the district court had no subject matter jurisdiction over Litecubes’ copyright claims because the Copyright Act does not explicitly include an extraterritorial reach like the Patent Act does. Neither the Litecubes district court nor the Litecubes Court had previously decided this issue.
Ultimately, the court decided that its treatment of the issue for the Copyright Act should be consistent with its treatment of issue regarding the Patent Act, because a territorial limitation is still “implied” in the Copyright Act. 2008 WL 1848659, at *9. This implied limitation is based on the presumption that Congress does not intend its acts to have extraterritorial effect. Therefore, under Arbaugh, whether an accused act of copyright infringement takes place within the extraterritorial limitation should be treated as an element of the claim, not a factor of subject matter jurisdiction.
“Location of the sale” should not be subject to a formal, mechanical test
GlowProducts argued that Litecubes could not establish the territorial element of its infringement claims because no sale technically took place in the U.S., due to GlowProducts’ “f.o.b.” shipping term. GlowProducts moved the court for a JMOL after the jury ruled in Litecubes’ favor, stating that the jury could not have found this element as a matter of law.
But the district court overruled GlowProducts’ motion, and the Litecubes Court affirmed. Both courts determined that the jury’s factual findings were supported by substantial evidence. Interestingly, the Litecubes Court looked to cases that addressed location of the sale for the purpose of determining personal jurisdiction for guidance on this issue. Those cases, particularly North American Philips Corp. v. American Vending Sales, 35 F3d 1576 (Fed. Cir. 1994), take a less formal, less technical approach to determining the location of the sale – regardless of whether a product is shipped “f.o.b.,” if an infringing product is shipped into the U.S., it commits a tort here and is subject to personal jurisdiction here.
The Litecubes Court translated those personal jurisdiction holdings to the facts of the Litecubes case, stating, “We see no basis for construing the location of a ‘sale’ differently when the issue is whether the plaintiff has established that the sale took place with the United States for the purposes of infringement.” 2008 WL 1848659, at *13.
The court applied a similar analysis to the copyright infringement claim, using a less formal analysis of what it means to “distribute” copies of copyrighted work “to the public by sale.” The court noted that “the term ‘sale’ should be interpreted consistently in copyright and patent law.” 2008 WL 1848659, at *14.
The jurisprudence lesson for infringement cases involving an extraterritorial party
The Litecubes decision offers guidance for parties in infringement cases that have an extraterritorial element. First, the plaintiff must make sure to file a well-pled complaint, properly alleging all elements of infringement, including the territorial element. If the complaint fails to set forth all of the elements, it may fail to invoke federal question subject matter jurisdiction and be subject to dismissal.
Second, if the plaintiff does set forth a well-plead complaint and therefore subject matter jurisdiction is proper, a foreign defendant claiming to do business exclusively outside of the U.S. should argue that the court lacks personal jurisdiction to hear the case.
Third, if a personal jurisdiction argument fails, a defendant should attack the elements of the complaint on its merits through motions to dismiss and summary judgment motions, claiming that the plaintiff cannot establish the territorial element of infringement.
Fourth, parties should not rely exclusively on shipping terms to define the sales element of infringement claims.
Finally, it is proper to extend the court’s analysis of patent law issues to similar copyright law issues, even if the copyright laws and precedent are less clear.
The author, Araceli Campos, Esq., is an associate in the transactional department of Zuber & Taillieu LLP, focusing on entertainment law and intellectual property law.
Copyright Law Summary
Read the related Copyright Law summary: Federal Circuit Affirms District Court’s Findings Against GlowProducts on LiteCubes’ Ice Cube
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