Celgard, LLC v. SK Innovation Co., Ltd.

In the most recent decision addressing the “purposeful-direction” and “stream-of-commerce” theories used to establish personal jurisdiction over a foreign defendant, the U.S. Court of Appeals for the Federal Circuit upheld dismissal of a patent infringement claim against a South Korean company for lack of personal jurisdiction. Celgard, LLC v. SK Innovation Co., Ltd., Case No. 14-1807 (Fed. Cir., July 6, 2015) (Reyna, J.).

Celgard develops and manufactures ceramic-coated battery membranes that are used in lithium-ion batteries found in electronic vehicles and consumer electronics to separate chemical cell components and prevent electrical shorting. Celgard holds a patent on its ceramic-coated separator technology. SKI, a South Korean company, manufactures separators used in lithium-ion batteries and supplies the separators to third-party manufacturers. All of SKI’s design, manufacturing and sales operations are based in Korea.

Celgard sued SKI in a district court in North Carolina, where Celgard is located. SKI moved to dismiss the complaint for lack of personal jurisdiction. Celgard argued that SKI was subject to personal jurisdiction because SKI placed its separators into the “stream of commerce” and “purposefully directed” them to third-party manufacturers of consumer electronic devices who, in turn, offered the devices for sale in North Carolina. After the district court granted SKI’s motion, Celgard appealed.

The Federal Circuit first analyzed Celgard’s “purposeful-direction” argument. The Court acknowledged SKI’s joint venture with Kia to develop batteries for a Kia electric vehicle (EV) and the fact that two Kia dealerships in North Carolina had advertised that the EV would be coming soon. But the Court found greater weight in the fact that it was the dealers, not SKI or Kia, that made the statements contained in the advertisements. Celgard presented no evidence that those dealers were SKI’s alter egos or its agents for purposes of establishing personal jurisdiction. Indeed, Celgard had not shown the requisite control by SKI over the activities of the dealers in North Carolina, nor did it show that any profits flowed from SKI to the Kia dealers. As the Court stated: “Put simply, there is no evidence of any relationship between SKI and the North Carolina Kia dealers.” Accordingly, the Court held that personal jurisdiction could not be established on the “purposeful-direction” theory because there was no record evidence that SKI purposefully directed its activities, related to the Kia EV or otherwise, toward North Carolina.

The Court then addressed Celgard’s “stream-of-commerce” argument. The Court acknowledged that the Supreme Court had not made a clear determination of whether the “stream-of-commerce” theory requires mere foreseeability that the defendant’s products would end up in the forum, or whether it requires foreseeability and a substantial connection between the defendant and the forum state. The Federal Circuit declined to resolve the question under either formulation of the “stream-of-commerce” test because Celgard provided no evidence that SKI’s products had actually entered North Carolina, much less that the company could foresee that its separators would make their way to the state when it placed them into the market. The Court went further, noting that Celgard also failed to demonstrate that its own separators were present in North Carolina. Consequently, the Court held that the district court did not err in declining to exercise personal jurisdiction over SKI under the stream-of-commerce theory.