Pervasive Software Inc., v. Lexware GMBH & Co. Kg., 688 F.3d 214 (5th Cir. 2012)

Defendant, a German software developer, purchased software in Germany that was manufactured by Plaintiff, a Texas based software manufacturer, and incorporated Plaintiff’s software into several of its products.  Plaintiff’s software included an off-the-shelf, out-of-the-box software licensing agreement with a Texas choice-of-law-clause.  Plaintiff sued Defendant in Texas state court, alleging breach of the licensing agreement, quantum meruit, unjust enrichment and the tort of conversion.  Specifically, Plaintiff alleged that Defendant failed to pay royalties on the software or report where it was using Plaintiff’s software and failed to return software material to Plaintiff.  Defendant removed the case to federal court which granted Defendant’s motions to dismiss for lack of personal jurisdiction, which Plaintiff appealed.

The issue on appeal was whether the federal court had specific or general personal jurisdiction over Defendant company.  The court first addressed whether it had specific personal jurisdiction over Defendant for Plaintiff’s claims, and held that it did not have such jurisdiction. 

Specific personal jurisdiction allows the court to exercise jurisdiction over a defendant based on the fact that a plaintiff’s cause of action arises out of or relates to a defendant’s contact with the forum state.  In order to establish specific personal jurisdiction over Defendant, Plaintiff had to establish that the forum state’s long-arm statute conferred jurisdiction and that the exercise of jurisdiction over Defendant was consistent with the Due Process Clause of the Fourteenth Amendment.  In Texas, however, the long-arm statute is co-extensive with the Due Process Clause.

In order to establish that specific personal jurisdiction over Defendant would be consistent with Due Process, Plaintiff had to show: 1) there were sufficient connections between non-resident Defendant and the forum; 2) Defendant purposely established the connection with the forum; and 3) Plaintiff’s cause of action arose out of or was related to Defendant’s connection with the forum.  The overall goal of this Due Process analysis was to ensure that Defendant had “certain minimum contacts with [the State] such that maintenance of the suit [would] not offend traditional notions of fair play and substantial justice.”  Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).

Turning to the breach of contract, unjust enrichment, and quantum meruit claims, the court held that Plaintiff had not made a prima facie showing of any act by Defendant whereby it purposefully availed itself of the privilege of conducting activities within Texas.  The court reasoned that Plaintiff failed to satisfy any of the above elements because none of Plaintiff’s allegations against Defendant, which gave rise to Plaintiff’s claims, took place in the forum state.  Defendant’s acts of purchasing the software, entering into and allegedly breaching the licensing agreement and incorporating the software into its products, all took place in Germany. 

The court also rejected the argument that the parties’ license agreement and the Texas choice-of-law clause conferred jurisdiction.  First, the fact that the parties entered a license agreement alone was insufficient to establish specific personal jurisdiction, absent a showing that the agreement served to tie up prior business negotiations that had taken place in the forum state or that the contract resulted in future interactions taking place in the forum state or having consequences in the forum state.  Second, a choice-of-law provision is not dispositive of the issue of specific jurisdiction, unless there are other factors present to suggested the Defendant purposely availed itself of the privilege of conducting activities within the forum state. 

Plaintiff further argued Defendant was subject to personal jurisdiction in Texas due to the sale of its products over the internet to Texas residents.  The court stated that, despite the new issues raised by new communication technologies, courts must still apply the traditional personal jurisdiction analysis.  In this case, the court determined that the twelve internet purchases that had occurred in Texas were insufficient to establish specific personal jurisdiction because the transactions were sparse, the purchases did not result in actionable harm in the forum state and Plaintiff’s claims did not arise out of any of the purchases.  The court also held that the internet sales did not constitute purposeful availment of the privilege of doing business in Texas: Defendant had no offices or sales agent in Texas and did not solicit business there through advertising directed at Texas.  Its web site was available only in the German language and its products were of little use to Texas or U.S. residents, since Defendant makes German tax software.

The court then turned to Plaintiff’s conversion claim.  Plaintiff’s allegations in support of its conversion claim was that the Defendant exercised dominion and control over the software.  However, any alleged acts by Defendant to exercise such dominion and control would have occurred in Germany, not the forum state, rendering Texas’s long-arm statute inapplicable. 

Lastly, the court addressed whether it had general personal jurisdiction over Defendant, and again held that it did not have such jurisdiction.  Unlike specific personal jurisdiction, general personal jurisdiction does not require a showing that Plaintiff’s cause of action arose out of or was related to Defendant’s contact with the forum state.  In order to establish general personal jurisdiction over Defendant, Plaintiff had to establish that Defendant’s affiliations with the state were so “continuous and systematic” as to justify suit against them.  The court reasoned that Defendant’s sporadic contact with the forum state through sparse internet sales and occasional communications with Plaintiff were not continuous and systematic for purposes of establishing general personal jurisdiction.

Consequently, the court affirmed the dismissal of Plaintiff’s complaint for lack of personal jurisdiction.