An important federal appeals court has determined that a Connecticut court has jurisdiction over a Canadian citizen whose only act in Connecticut was accessing information on a computer server located in Connecticut. In MacDermid, Inc. v. Deiter, 702 F.3d 72 (Dec. 26. 2012), a Connecticut-based company, MacDermid, Inc., sued its former employee, Deiter, a Canadian citizen who worked from Canada, in federal court in Connecticut for misappropriation of MacDermid’s trade secrets. MacDermid alleged that Deiter sent confidential company information from her company email account to her personal email account. The lower court dismissed the case, saying that Connecticut courts did not have jurisdiction over Deiter because she never set foot in Connecticut and only used a computer terminal in Canada. MacDermid appealed. The U.S. Court of Appeals for the Second Circuit, in New York, reversed, holding that it was proper for a Connecticut court to exercise personal jurisdiction over a Canadian employee of a Connecticut company because, even though she was located in Canada and physically interacted only with a computer in Canada, she “used” a server in Connecticut.
MacDermid is a chemical company located in Connecticut. Dieter, a resident of Ontario, Canada, worked for MacDermid’s Canadian subsidiary. The email system for both MacDermid and its Canadian subsidiary is located on a server in Waterbury, Connecticut. Just before Dieter was about to be fired, she forwarded what MacDermid claims is confidential information from her MacDermid email account to her personal email account. In doing so, Dieter accessed MacDermid’s email server in Connecticut, even though she did so while located in Canada and physically interacting only with her computer terminal in Canada (albeit a company computer). MacDermid sued Dieter in Connecticut for trade secrets misappropriation, and Dieter moved to dismiss, arguing that Connecticut courts did not have jurisdiction over her, as she had never left Canada. The issue was whether the Connecticut “long arm” statute gave Connecticut courts jurisdiction over someone outside of Connecticut, and whether such jurisdiction would be constitutional. One section of the “long arm” statute gives Connecticut courts jurisdiction over someone who “uses a computer” or “a computer network” located in Connecticut. Therefore, the issue became whether accessing email via a server located in Connecticut constituted “using” a Connecticut computer or network.
The lower court dismissed the case because it found that Dieter had not “used” a Connecticut computer or Connecticut computer network, but had only sent email from one computer in Canada to another computer in Canada. The Second Circuit court disagreed. It concluded that “using” a computer or network may involve more than just the act of physically interacting with a computer. While Dieter had physically interacted only with her terminal in Canada, she had “used” MacDermid’s network in Connecticut by accessing it electronically when she sent an email from her company account to her personal account. The Second Circuit pointed out that the “long arm” statute does not require that user be located in Connecticut, but only that the computer or network – i.e., the thing that is “used” – be located there. In other words, the “long arm” statute extends to people who access Connecticut computers or networks remotely.
But, having determined that Connecticut’s “long arm” statute extended to Dieter, the Second Circuit still had to determine whether exercising jurisdiction over Dieter would be constitutional. It found that it was. The court found that Dieter knew that, in using MacDermid’s email system, she was accessing a server in Connecticut. Even though Dieter would have to travel from Ontario to Connecticut to defend herself in the lawsuit, that would not be an unreasonable burden on her. Furthermore, according to the court, Connecticut has a significant interest in interpreting its misappropriation laws. The Second Circuit concluded that it was proper for Dieter to be sued in Connecticut for the wrong she was alleged to have committed.
While this decision was based on Connecticut law, the Second Circuit federal appeals court covers New York, Connecticut, and Vermont. Moreover, it is considered an important authority on commercial law. So its analysis on personal jurisdiction could be persuasive in other courts.
The lesson here is that if you think you are safe from suit in a particular state in the U.S. just because you access a computer from the comfort of a faraway state – or even, as in this case, another country – you might be gravely mistaken.
Since the MacDermid case was decided, at least two courts have weighed in on jurisdiction/forum/venue issues in non-competition or trade secrets cases. In Emerson Electric Co. v. Yeo (Dec. 28, 2012) a federal court in Missouri held that defendant Yeo, an ex-employee of an Emerson subsidiary, could be sued in Missouri for violating his non-compete agreement, even though he lives in the Philippines. The basis for the court’s finding of jurisdiction was the “forum selection clause” in the stock option agreement that Yeo had signed. The “forum selection clause” provided that any litigation concerning the agreement would be conducted in Missouri courts. Yeo argued that it would be unduly burdensome for him to participate in a court case in Missouri. But the court found that Yeo was an educated person who had agreed to the forum selection clause knowingly and intelligently. It should be noted that Yeo appealed the jurisdiction issue to the federal Eighth Circuit court of appeals, but that court denied his appeal. Thus, the lower court’s decision – that Yeo must defend the case in Missouri – stands.
By contrast, in Innovation First International, Inc. v. Zuru, Inc., (Feb. 19, 2013), the federal Fifth Circuit court of appeals affirmed the lower court’s dismissal of a trade secrets misappropriation case brought in Texas by a Texas-based company (Innovation) against a company based in China (Zuru). Innovation, which had facilities in both Texas and China, alleged that Zuru obtained Innovation’s technology from a former Innovation employee in China. The dismissal of Innovation’s suit was based on the “forum non conveniens” doctrine. That doctrine holds that, although the Texas courts may in fact have jurisdiction over the defendant (Zuru), for policy-based reasons Texas is not the most appropriate forum for litigating the case. Those policy-based reasons centered on the fact that almost all of the relevant witnesses and documents are in China. In affirming the dismissal, the appeals court agreed with the lower court that it would be far more burdensome for the defendant and all of the witnesses and documents to come to Texas than it would be for Innovation to litigate its misappropriation case in China.
The difference between the Emerson and Innovation cases is that in Emerson, it was suing its own ex-employee, who had agreed in advance, in writing, to submit to the jurisdiction of Missouri courts. In the Innovation case, by contrast, Innovation was suing a China-based company that it had no prior relationship with. These cases point out the principle that, wherever possible, businesses should include a “forum selection clause” in their employment agreements with employees. However, the fact is that you will not always be able to control where you can sue (or be sued).
Walter Judge is a litigation partner at Downs Rachlin Martin PLLC who blogs on intellectual property litigation topics