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Oticon, Inc v. Sebotek Hearing Systems

August 22, 2011

OTICON, INC., PLAINTIFF,
v.
SEBOTEK HEARING SYSTEMS, LLC., GENNUM CORPORATION, AND SOUND
DESIGN TECHNOLOGIES, LTD., DEFENDANTS.



The opinion of the court was delivered by: Wolfson, United States District Judge:

*FOR PUBLICATION*

OPINION

Presently before the Court is a motion to dismiss by Defendant Sound Design Technologies, Ltd. ("SDT") pursuant to Fed. R. Civ. P. 12(b)(2) for lack of personal jurisdiction. Plaintiff Oticon Inc. ("Plaintiff") brings this action against SDT and other defendants for patent infringement. SDT argues that the Court lacks jurisdiction over SDT because it does not have the minimum contacts with this forum required by Int'l Shoe Co. v. Washington, 326 U.S. 310 (1945), to assert personal jurisdiction. For the reasons that follow, the Court grants SDT's motion, and Plaintiff's claims against SDT are hereby dismissed.

I. Background

Plaintiff, a California corporation with its principal place of business in New Jersey, is the owner by assignment of U.S. Patent # 5,365,233 ("Patent"). Am. Compl., ¶ 1, 16.*fn1 The patent embodies a method for creating an "analog-digital processing unit including an amplifier with amplification that is adjustable in stages." Id., Exh. A (Abstract). The patented method is "directed toward the processing of analog voice signals, as for digital operating hearing aids ...." Id., Exh. A at 1:19-20.

In light of the arduous path this litigation has forged, I first explain the procedural history before recounting the relevant jurisdictional facts. Plaintiff initially filed this patent infringement suit on November 7, 2008, against Defendant Sebotek Hearing Systems, LLC. ("Sebotek"), an Oklahoma corporation that manufactures Voice-Q hearing aids, Am. Compl. at ¶ 2, 20, and Vivatone Hearing Systems, LLC ("Vivatone"). The following spring, on March 3, 2009, the parties agreed to, and then-presiding Magistrate Judge Tonianne J. Bongiovanni entered, a Discovery Confidentiality Order ("Confidentiality Order") that governs the disclosure of confidential information by "[a]ny party to this litigation ...." Confidentiality Order dated March 3, 2009 at ¶ 1.

Once the Confidentiality Order was entered, the parties engaged in discovery. Thereafter, Plaintiff sought an Order from Magistrate Judge Lois H. Goodman*fn2 directing issuance of Letters Rogatory and/or Letters of Request in aid of discovery abroad pursuant to 28 U.S.C. § 1781(b)(2), permitting Plaintiff to obtain discovery from Gennum Corporation ("Gennum") and SDT- two Canadian companies that manufacture component parts of hearing aids. That request was granted on May 28, 2009, and Letters Rogatory issued on that same date.

After reviewing discovery provided by Vivatone, which discovery suggested that Vivatone's products did not infringe on Plaintiff's patent, Plaintiff moved to voluntarily dismiss Vivatone from the suit on July 16, 2009. See Chasin Afft. dated July 16, 2009 at ¶ 3. This Court granted that motion, leaving Defendant Sebotek as the sole remaining defendant at that time. The parties then filed their respective claim construction briefs with the Court, over the course of several months.

Thereafter, Plaintiff moved for leave to file an amended complaint, with the consent of Sebotek, in order to add Gennum and SDT as defendants. That motion was granted on February 23, 2010. Plaintiff filed its Amended Complaint on March 3, 2010. In the Amended Complaint, Plaintiff describes Gennum as a Canadian corporation that sold digital signal processors ("DSP") and other electronic components used in manufacturing hearing aids. Id. at ¶ 3, 11. It describes SDT as another Canadian corporation with its principal place of business in Ontario, Canada, that also sells DSPs along with other hearing-aid component parts. Id. at ¶ 4.

Generally, Plaintiff's Amended Complaint alleges that all three defendants infringed on Plaintiff's patent by making and selling hearing aids and DSPs that utilize "methods covered by one or more claims of the '233 patent without Plaintiff Oticon's authorization ...." Id. at ¶ 19. According to the complaint, the infringing products include the Voice-Q hearing aids sold by Sebotek, and the Paragon and Voyager DSPs sold by both Gennum and SDT. The Amended Complaint alleges that all defendants engaged in both direct infringement and inducement to infringe, though it contains no allegations regarding the dates of infringement or inducement. Id. at ¶ 22-23. There are no non-patent claims asserted by the Amended Complaint.

A few months after the Amended Complaint was filed, SDT moved to dismiss for lack of jurisdiction on May 12, 2010. Plaintiff, in response, requested permission from Magistrate Judge Lois H. Goodman to engage in jurisdictional discovery, and to stay SDT's motion until that discovery was completed. Magistrate Judge Goodman granted Plaintiff's request, and entered an Amended Scheduling Order, on June 18, 2010, that granted SDT the right to refile its motion to dismiss at the conclusion of jurisdictional discovery.

Through the jurisdictional discovery, it became apparent that SDT did not exist before 2007. Rather, it was formed, on September 7, 2007, through the purchase of Gennum's digital signal processor-related assets. Pl. Opp. Br., Ex. 33. Prior to that date, Gennum manufactured its own DSPs that were used in hearing aids. Id. Following SDT's creation, however, SDT now manufactures the DSPs formerly manufactured by Gennum. Id.

Once the jurisdictional discovery was completed, SDT ultimately refiled its motion to dismiss in early 2011. While the refiled motion was pending before this Court, both Plaintiff and SDT filed motions to seal their motion to dismiss papers, and exhibits relating to that motion, to the extent they contained information covered by the Confidentiality Order. These motions were granted. Thereafter, since the original briefs were sealed, the parties filed redacted versions of their papers and exhibits, with the last document being filed August 1, 2011.

Plaintiff also sought leave to file a Second Amended Complaint while the motion to dismiss was pending, which leave was granted on April 21, 2011. The Second Amended Complaint names specific Sebotek models that allegedly violate Plaintiff's patent, such as the Voice-Q 410 and Voice-Q 510, and adds that, Gennum's and SDT's Foundation products, as well as their Paragon and Voyager products, infringe the patent. See Second Am. Compl., ¶ 20.

Returning now to Plaintiff's jurisdictional allegations and evidence, Plaintiff asserts that the Court has personal jurisdiction over SDT because SDT has: solicited business in the State of New Jersey, regularly introduced articles in to the stream of commerce that have been sold in the State of New Jersey, and have attempted to derive financial benefit from residents of the State of New Jersey, including benefits directly related to the instant cause of action set forth herein.

Am. Compl., ¶ 10. More specifically, Plaintiff asserts that SDT engaged in two types of contacts.*fn3 First, Plaintiff asserts a set of contacts pertaining to actions taken directly by SDT. This includes a strategic alliance agreement between SDT and Sebotek; an email from SDT describing sales to one of its hearing aid manufacturer-customers, Zounds, in which SDT and Zounds employees discuss the prospect of conducting business in New Jersey; and sales by Starkey, another of SDT's customers, of over 4,000 hearing aids in New Jersey.

Second, Plaintiff asserts a set of contacts pertaining to actions take by Gennum, which Plaintiff argues gives rise to personal jurisdiction over SDT through the theory of successor liability. These contacts include Gennum's intentional targeting of sales to a New Jersey manufacturer; trips, emails, and sales to New Jersey residents; millions of dollars of sales in New Jersey; taxes paid in New Jersey; and Gennum's maintenance of a lockbox in New Jersey. SDT's motion to dismiss is now ripe for decision.

II. Standard of Review

In patent infringement cases, the Federal Circuit applies its own law regarding the issue of personal jurisdiction "because the jurisdictional issue is intimately involved with the substance of the patent laws." Autogenomics, Inc. v. Oxford Gene Tech. Ltd., 566 F.3d 1012, 1016 (Fed. Cir. 2009). For all nonpatent issues, regional circuit law applies. Fujifilm Corp. v. Benum, 605 F.3d 1366, 1370 (Fed. Cir. 2010). Accordingly, this Court will look first to Federal Circuit law, and where there is no relevant Federal Circuit law, the Court will turn to Third Circuit law and the law of the regional circuits for guidance.

"Personal jurisdiction over an out-of-state defendant is appropriate if the relevant state's long-arm statute permits the assertion of jurisdiction without violating federal due process." Nuance Communications, Inc. v. Abbyy Software House, 626 F.3d 1222, 1230 (Fed. Cir. 2010). In this instance, the New Jersey long-arm statute establishes New Jersey's jurisdictional reach conterminous with that allowed under the U.S. Constitution, subject only to due process of law. Id. at 96; Wilson v. Paradise Village Beach Resort and Spa, 395 N.J. Super. 520, 527 (App. Div. 2007) (citing Charles Gendler & Co., Inc. v. Telecom Equip. Corp., 102 N.J. 460, 469 (1986)). Thus, the central inquiry is whether the defendant has "certain minimum contacts with . . . [New Jersey] such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice." See Int'l Shoe, 326 U.S. at 316 (internal quotation omitted).

Once a defendant mounts a personal jurisdiction challenge, the plaintiff bears the burden of establishing jurisdiction. Synthes (U.S.A.) v. G.M. Dos Reis Jr. Ind. Com. De Equip. Medico, 563 F.3d 1285, 1294 (Fed. Cir. 2009). In ruling on such a challenge, the court is not required to hold an evidentiary hearing. Touchcom, Inc. v. Bereskin & Parr, 574 F.3d 1403, 1410 (Fed. Cir. 2009). Where, as here, no such hearing is conducted, the plaintiff must establish a prima facie case of personal jurisdiction. To establish a prima facie case, the plaintiff must show that the nonresident defendant has minimum contacts with the forum state, as will potentially allow exercise of personal jurisdiction over the defendant. See Inamed Corp. v. Kuzmak, 249 F.3d 1356, 1360 (Fed. Cir. 2001). After the plaintiff establishes a prima facie case, "the burden of proof shifts to the defendant, which must 'present a compelling case that the presence of some other considerations would render jurisdiction unreasonable." Breckenridge Pharmaceutical, Inc. v. Metabolite Laboratories, Inc., 444 F.3d 1356, 1362 (Fed. Cir. 2006).

Where no jurisdictional discovery has been taken, the court must accept the plaintiff's complaint's allegations as true and resolve all factual disputes in the plaintiff's favor in ruling on the motion to dismiss. Silent Drive, Inc. v. Strong Indus., Inc., 326 F.3d 1194, 1201 (Fed. Cir. 2003). However, once the plaintiff has been granted discovery, the plaintiff "cannot rely on the allegations of its complaint." The Russian Am. Spirits Co. v. Heublein, Inc., 936 F.Supp. 177, 192 (D. Del. 1996) (citing Stranahan Gear Co. v. NL Indus. Inc., 800 F.2d 53, 58 (3d Cir. 1986)).*fn4 Rather, Plaintiff "must sustain its burden of proof in establishing jurisdictional facts through sworn affidavits or other competent evidence." Id. (quoting Time Share Vacation Club v. Atlantic Resorts, Ltd., 735 F.2d 61, 66 n. 9 (3d Cir. 1984)). In essence, plaintiff must point to evidence of specific facts in the record in support of its contention that jurisdiction exists. Id. With such a ...


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