Declaratory Judgment Action Dismissed for Lack of Personal Jurisdiction Where Contacts in Jurisdiction Occurred Before, and Were Unrelated to, Patent-in-Suit

by Jeffer Mangels Butler & Mitchell LLP

Digital Ally, Inc. ("Digital Ally") filed a declaratory judgment action pertaining to patent infringement against Utility Associates, Inc. ("Utility"). Utility filed a motion to dismiss for lack of subject matter and personal jurisdiction.

Digital Ally is a Nevada corporation with its principal place of business in Kansas. It sells advanced digital video systems to consumers, including law enforcement agencies, across the country. Utility, which is a competitor of Digital Ally, is incorporated in Delaware and has its principal place of business in Georgia. Utility has no offices in Kansas and none of its employees or sales agents reside in Kansas. Utility is not registered to do business in Kansas, but it does sell some products to a few customers in Kansas.

Digital Ally has been selling products which use technology similar to that used in Utility's products that are covered by a patent recently assigned to Utility (the '556 Patent). As explained by the district court, "[w]hen the '556 Patent was owned by Defendant's predecessor-in-interest, Plaintiff met with that owner to discuss Plaintiff's technology and possible joint ventures and/or acquisitions. Based on that predecessor's knowledge of Plaintiff's technology and its silence regarding any infringement, Plaintiff believed that the '556 Patent would not be asserted against its products so continued to manufacture and promote them through its nationwide sales and distribution channels." Digital Ally and Utility had contact regarding potential business ventures, but these contacts were unrelated to the '556 patent and occurred before Utility owned the '556 patent.

The district court addressed whether there was personal jurisdiction. The district court found that "the undisputed facts show that the communications between Plaintiff and Defendant in Kansas occurred long before Defendant acquired the '556 Patent, and were focused on the creation of a cooperative business arrangement to market products. Those contacts were of an entirely different nature than enforcement-related activities in the forum which could support specific jurisdiction."

The district court also found that "[t]he only other purposeful direction of Defendant's activities at residents of Kansas is Defendant's sales to five customers here, but Plaintiff does not allege that its claim arises from or relates to those activities."

As a result, the district court concluded that there was no specific jurisdiction to justify personal jurisdiction.

Turning to the issue of general jurisdiction, the district court also found insufficient evidence. "To meet its burden, Plaintiff relies in part on the fact that Defendant maintains a sales representative specifically covering Kansas. At the time this suit was filed, Defendant had one agent responsible for sales in approximately 20 states, including Kansas, in the western region of the United States. From January of 2011 through December of 2013, Defendant sold its products to five customers in Kansas, amounting to 1.7% of Defendant's total sales for that three-year period. This very small volume of sales falls short of enough to support general jurisdiction. See Campbell Pet Co. v. Miale, 542 F.3d 879, 881-884 (Fed.Cir. 2008) (finding 2% insufficient)."

Accordingly, the district court granted the motion to dismiss for lack of personal jurisdiction.

Digital Ally, Inc. v. Utility Associates, Inc., Case No. 13-2550-SAC (D. Kan. April 9, 2014)

Written by:

Jeffer Mangels Butler & Mitchell LLP

Jeffer Mangels Butler & Mitchell LLP on:

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