T.S. ELLIS, III, District Judge.
Defendant in this trademark infringement action has moved pursuant to Rule 12(b)(2), Fed. R. Civ. P., to dismiss plaintiff's complaint for lack of personal jurisdiction or, in the alternative, to transfer venue pursuant to 28 U.S.C. § 1404. Thus, at issue is the threshold question of personal jurisdiction, namely, whether defendant's distribution of allegedly infringing smart phone and tablet applications through third-party, online stores constitutes a sufficient basis for the exercise of personal jurisdiction over defendant in this forum.
Plaintiff, Michael Zaletel, a software developer, resides and works in North Carolina where, in 1999, he founded "i4software," a sole proprietorship, through which plaintiff has been developing and selling applications ("apps") for smart phones. In the course of developing and selling apps, plaintiff registered the "Prizmia" mark with the United States Patent and Trademark Office, which mark plaintiff uses in connection with his "Prizmia" app.
Defendant, Prisma Labs, Inc., is a software company that is incorporated in Delaware but based in Moscow, Russia. Indeed, most of defendant's employees live in Russia. Defendant also has a recently-opened office in Sunnyvale, California, in the Bay Area, populated by two recently-hired software developers. The record is unclear whether defendant hired these software developers as employees or independent contractors, but there is no question that defendant hired one of these developers one month before plaintiff filed suit, and hired the other developer two months after plaintiff brought this action. Although defendant contends that its United States headquarters are in Sunnyvale, California, the record suggests that defendant is not registered to do business in California.
In June 2016, defendant launched a photo-filtering app, called "Prisma," which is available for download without charge on the Apple App Store and the Google Play Store. This app is designed for devices using Apple's iOS and Google's Android operating systems. From June 2016 to October 2016, defendant's app has been downloaded approximately 70 million times. Plaintiff alleges that defendant, through defendant's use of the "Prisma" mark, infringes on plaintiff's registered "Prizmia" mark.
Pertinent to the jurisdictional analysis, the record reflects that individuals, by using defendant's "Prisma" app, occasionally send their photographs or videos to one of defendant's servers located outside of Virginia. In such instances, defendant's server processes and filters the user's photographs or videos, and then returns the images to the user's device.
In addition, defendant operates a website, http://prisma-ai.com, which contains information about defendant's "Prisma" app. This app is not available for download directly on defendant's website; rather, defendant's website includes links to the Apple App Store and the Google Play Store. If a user clicks through these links, that user could then download defendant's app from the third-party distributor. Defendant's website also includes links to various news articles about defendant's app, articles in which defendant's CEO and other employees have been quoted, as well as an email address for defendant. It is worth noting too, that defendant's website is passive and simply displays information. For instance, the website does not permit visitors to create an account to use the site (or to use defendant's app), nor does the website provide any sort of forms that a user could fill out, such as warranty forms. Nor is there anything on the website specifically targeting or singling out Virginia.
Finally, it is worth noting the following:
Because defendant has timely filed a Rule 12(b)(2) motion, analysis properly begins with the question of personal jurisdiction. Once a defendant has raised a timely Rule 12(b)(2) motion, a plaintiff "bears the burden of demonstrating personal jurisdiction at every stage following such a challenge." Grayson v. Anderson, 816 F.3d 262, 267 (4th Cir. 2016). Yet, a plaintiff's burden of persuasion depends on the case's procedural posture. For instance, a plaintiff must satisfy a prima facie standard "when the court addresses the personal jurisdiction question by reviewing only the parties' motion papers, affidavits attached to the motion, supporting legal memoranda, and the allegations in the complaint[.]" Id. at 268. In such circumstances, "the court must take the allegations and available evidence relating to personal jurisdiction in the light most favorable to the plaintiff." Id.
Under Fourth Circuit law, resolution of a personal jurisdiction challenge involves a two-step inquiry. See Universal Leather, LLC v. Koro AR, S.A., 773 F.3d 553, 558 (4th Cir. 2014). The first step is to determine whether Virginia's long-arm statute, Va. Code § 8.01-328.1, by its terms, reaches defendant's conduct. If the long-arm statute does not reach defendant's conduct, the inquiry ends; there is no personal jurisdiction over defendant. See id. But if the long-arm statute, by its terms, reaches defendant's conduct, then analysis turns to the second step—the due process inquiry—to determine whether the long-arm's reach exceeds its constitutional grasp. Id.; see also AESP, Inc. v. Signamax, LLC, 29 F.Supp.3d 683, 688 (E.D. Va. 2014) (describing this two-step process). Moreover, when a provision of the Virginia long-arm statute is held to permit the exercise of personal jurisdiction over a defendant to the outer limits allowable under federal due process, this two-prong test merges into the constitutional inquiry. See Tire Eng'g v. Shandong Linglong Rubber Co., 682 F.3d 292, 301 (4th Cir. 2012) ("Because Virginia's long-arm statute extends personal jurisdiction to the outer bounds of due process, the two-prong test collapses into a single inquiry when Virginia is the forum state.").
The Virginia long-arm statute provides for in personam jurisdiction over any person who "transact[s] any business" in Virginia, or who causes "tortious injury" in Virginia by an act or omission outside of Virginia if that person (i) regularly does or solicits business in Virginia, (ii) engages in any other persistent course of conduct in Virginia, or (iii) derives substantial revenue from goods used or consumed or services rendered in Virginia. Va. Code. §§ 8.01-32.1(A)(1) & (4).
As the Fourth Circuit has recently noted, "[p]ersonal jurisdiction over persons conducting business on the Internet is determined under a [constitutional] standard that has evolved as necessary to accommodate the nature of the Internet." Unspam Techs., Inc. v. Chernuk, 716 F.3d 322, 328 (4th Cir. 2013). That constitutional standard starts with the well-entrenched principle that a defendant must "have certain minimum contacts with [the forum] such that the maintenance of a suit does not offend traditional notions of fair play and substantial justice." Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (quotation marks omitted). Personal jurisdiction can be established under either general or specific jurisdiction.
This first prong—"purposeful availment"—is "grounded on the traditional due process concept of `minimum contacts,' which itself is premised on the basis that `a corporation that enjoys the privilege of conducting business within a state bears the reciprocal obligation of answering to legal proceedings there.'" Universal Leather, 773 F.3d at 559 (quoting Tire Eng'g, 682 F.3d at 301). Therefore, "in determining whether a foreign defendant has purposefully availed itself of the privilege of conducting business in a forum state, [courts] ask whether `the defendant's conduct and connection with the forum [s]tate are such that he should reasonably anticipate being haled into court there.'" Id. (quoting Fed. Ins. Co. v. Lake Shore Inc., 886 F.2d 654, 658 (4th Cir. 1989). Crucially, to satisfy this standard, "a defendant outside the forum State must have at least `aimed' its challenged conduct at the forum State." Chernuk, 716 F. 3d at 328 (quoting Calder v. Jones, 465 U.S. 783, 789 (1984)).
Moreover, where, as here, defendant is a foreign corporation that (i) "has no presence in Virginia" and (ii) "did not itself sell products into Virginia," then "plaintiff[,] to establish personal jurisdiction over defendant, must rely on the `stream of commerce' theory[.]'" AESP, 29 F. Supp. 3d at 689.
Lesnick v. Hollingsworth & Vose Co., 35 F.3d 939, 945 (4th Cir. 1994) (citations omitted). Indeed, the Fourth Circuit has reaffirmed that placing products into the stream of commerce "with the expectation that they would be purchased in [the forum state]" is not enough to constitute "activity purposefully directed" at that forum state. In re Celotex Corp., 124 F.3d 619, 629 (4th Cir. 1997). As the Fourth Circuit has put it, this approach is necessary to "ensure that a defendant will not be haled into a jurisdiction solely as a result of `random,' `fortuitous,' or `attenuated' contacts." Chernuk, 716 F.3d at 328 (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985)).
The Fourth Circuit's approach to the stream of commerce theory is essentially the same with respect to a defendant's internet contacts. See ALS, 293 F.3d at 714-15.
Relatedly, the Supreme Court recently underscored that a defendant's relationship to the forum state "must arise out of contacts that `the defendant himself' creates with the forum state." Walden v. Fiore, 134 S.Ct. 1115, 1122 (2014) (quoting Burger King, 471 U.S. at 475). The Walden Court further emphasized that the "minimum contacts analysis looks to the defendant's contacts with the forum State itself, not the defendant's contacts with persons who reside there." Id. (emphasis added). Thus, "[d]ue process requires that a defendant be haled into court in a forum State based on his own affiliation with the State, not based on the `random, fortuitous, or attenuated' contacts he makes by interacting with other persons affiliated with the State." Id. (quoting Burger King, 471 U.S. at 475).
These principles, applied here, point persuasively to the conclusion that defendant has not "purposefully availed" itself of the privilege of conducting business in Virginia, and thus defendant is not subject to specific personal in this forum.
Distilled to its essence, plaintiff's argument for jurisdiction is (i) that defendant distributes its Prisma app to Virginia users via downloads through Apple and Google's online app stores; (ii) that defendant distributes its Prisma app through defendant's website, http://prisma-ai.com, which links individuals directly to the Apple and Google stores; and (iii) that defendant processes images on servers outside of Virginia and sends the processed images (via defendant's Prisma app) to a Virginia user's device.
In response, defendant contends that plaintiff cannot make a prima facie showing that defendant purposefully availed itself of the privilege of conducting business in Virginia. Specifically, defendant argues (i) that defendant's website is passive and does not target or focus on Virginia consumers, (ii) that defendant's app is indirectly distributed through third-party app stores, not defendant, and (iii) that the alleged electronic communications between defendant's servers and Prisma app users is not "purposefully directed" at Virginia, but rather these are random, attenuated, and fortuitous user-initiated contacts. In this last respect, defendant stresses that defendant's servers are unaware of the user's physical address, and that the user has unilateral control over where the user is located when communicating with the server; put differently, the user determines whether the contact will occur in Virginia or any other state, and thus these communications are not directed at the forum State, specifically.
To begin with, the case most apposite to the parties' lawsuit—Intercarrier Commc'ns LLC v. WhatsApp Inc.—supports the conclusion that Virginia lacks personal jurisdiction over defendant. See No. 3:12-cv-776, 2013 WL 5230631 (E.D. Va. Sept. 13, 2013) (holding that plaintiff failed to make a prima facie showing of personal jurisdiction).
The WhatsApp plaintiff claimed that the defendant had purposefully availed itself of the privilege of conducting business in Virginia, contending (i) that the WhatsApp defendant had introduced its infringing product into the stream of commerce "knowing that [the product] would be sold in [the Eastern District of Virginia] and elsewhere in the United States," id. at *1; (ii) that the defendant "`consciously" or "deliberately" targeted Virginia because Virginia users downloaded or used the defendant's software within that forum, id. at *4; and (iii) that individuals in Virginia could "share" their location while using that defendant's app, id.
In addition, although the WhatsApp defendant had no offices, employees, contracts, or advertisements in Virginia, that defendant admitted (i) that users of certain smartphone operating systems could download the defendant's app directly from the defendant's website; (ii) that the defendant's servers stored information on its users' telephone numbers, (iii) that the defendant's servers may have "store[d] undelivered messages which may contain a user's location if the user actively elects to send such a message with their user location, but such information [wa]s held only as long as necessary to deliver the message," (iv) that the defendant stored non-user telephone numbers obtained from its users' address books in a way that defendant was "unable to retrieve them in their original form," (v) that the defendant "store[d] minimal identifying data about its customers"; and (vi) that some individuals had ordered and used the defendant's app while in Virginia. Id. at *1.
Crucially, the WhatsApp court held that the plaintiff failed to make a prima facie showing that the defendant had "purposefully availed" itself of the privilege of conducting business in Virginia. Id. at *5. In reaching this conclusion, the WhatsApp court explicitly rejected plaintiff's argument "that a company `consciously' or `deliberately' targets a forum if a user unilaterally downloads or uses its software within that forum[.]" Id. at *4. This was so even though a Virginian could download defendant's product directly from defendant's website, and that the defendant stored identifying data about its customers.
The WhatsApp reasoning, applied here, points persuasively to the conclusion that there is no personal jurisdiction over defendant Prisma Labs. In fact, defendant in this case has even fewer contacts with Virginia than did the defendant in WhatsApp; unlike the defendant in WhatsApp, Prisma Labs (i) does not know the location of its app users, (ii) does not make its app available for download directly on defendant's website, (iii) does not charge customers (either through a third-party app store or directly) to download the app, and (iv) does not store information about its users or permit users to "share" locations. Thus, if there was no prima facie showing of purposeful availment in WhatsApp, it follows a fortiori that there is no prima facie showing in the instant case.
Seeking to avoid this result, plaintiff contends that WhatsApp is distinguishable from the instant case because, unlike the defendant in WhatsApp, Prisma Labs has a "real time relationship [with] its users by which Prisma processes and returns [users'] images from [defendant's] remote servers." P. Br. (Doc. 38) at 17. Even when all reviewable documents are viewed in the light most favorable to plaintiff, it is pellucid that defendant's servers do not target Virginia, because the users who initiate contact with the server unilaterally control the location where the server's response will wind up.
This result finds further support in another recent case, AESP, Inc. v. Signamax, LLC, where a plaintiff's suit against a Czech LLC for trademark and copyright infringement was dismissed for lack of personal jurisdiction. See 29 F.Supp.3d 683 (E.D. Va. 2014). The defendant in AESP was in the business of selling network connection components and cabling products. Plaintiff asserted that jurisdiction existed over the defendant based on four transactions in which defendant's authorized agent sold the allegedly infringing products to a Pennsylvania corporation, which subsequently sold those products to two customers in Virginia. Id. at 690. On these facts, the application of Fourth Circuit law and the "stream of commerce" theory required the conclusion that no personal jurisdiction existed over that defendant. Id. at 691. This was so because the defendant "did not direct the sales of its products to Virginia or any Virginia customers, nor did it require [its authorized agent] to sell the products to Virginia customers." Id. at 690 (emphasis added). Rather, "the record reflect[ed] no more than that defendant might expect that the products would eventually be sold somewhere in the United States, including Virginia." Id. at 690-91. In this regard, "no evidence in the record . . . reflect[ed] that defendant specifically structured its relationship with . . . its U.S. distributor, in order to facilitate the sale of the allegedly infringing products in Virginia." Id. (emphasis added). Nor was there "any evidence that defendant marketed the allegedly infringing products in Virginia or advertised in Virginia." Id. at 691 (emphasis added). Indeed, "[d]efendant's only contact with Virginia appear[ed] to be its sales to a nationwide distributor." Id. Importantly, however, personal jurisdiction could not be exercised based on "the mere presence of defendant's product in Virginia . . . when it was [defendant's distributor], not defendant, that sold the products into Virginia." Id.
Although AESP involved substantially fewer sales than the instant case does downloads, the logic in AESP directly maps onto the case at bar. Indeed, the record here reflects no more than that defendant might expect its "Prisma" app would eventually be downloaded in the United States, including Virginia. There is nothing in the record plausibly to suggest that defendant structured its relationship with its third-party distributors to require—or even facilitate—app downloads specifically in Virginia. And defendant's distributor, not defendant, makes the app available for download to a user's device. Put simply, defendant has merely used nationwide app stores to place defendant's product in the stream of commerce, without targeting or directing its activity toward Virginia in particular. Cf. id. at 690-91.
Thus, given Fourth Circuit precedent and the logic elucidated in apposite cases, there is no personal jurisdiction over defendant.
Seeking to avoid this result, plaintiff relies primarily on two decisions, both of which involved crucially different facts from those presented here. First, plaintiff points to Match.com, L.L.C. v. Fiesta Catering Int'l, Inc., No. 1:12-cv-368, 2013 WL 428056 (E.D. Va. Jan. 31, 2013). But that case does not aid plaintiff. The court in Match.com concluded that jurisdiction existed over a defendant that (i) maintained an interactive dating website that would "match" users with each other, (ii) required users to register accounts, agree to Terms and Conditions, and pay a monthly fee to use the website, (iii) had an ongoing relationship with paid subscribers residing in Virginia by, inter alia, offering commissions to Virginia residents to refer new subscribers to the defendant's website, and (v) specifically targeted the Virginia market by "prominently advertising the number of members it has in a given geographic area within Virginia." Id. at *1, *4. Thus, plaintiff's reliance on Match.com is misplaced, as defendant Prisma Labs' internet contacts with Virginia are far more attenuated; indeed, defendant's contacts with Virginia are entirely fortuitous.
Second, plaintiff relies on Jones v. Boto, 498 F.Supp.2d 822 (E.D. Va. 2007), but that case is also inapposite. In Boto, the defendant sold artificial trees to Wal-Mart and Target stores throughout the U.S., including Virginia. Id. at 829. To begin with, the Boto court noted that the defendant's sales to Virginia Wal-Mart and Target branches would have been insufficient to confer personal jurisdiction under the stream of commerce theory. Id. at 828-29. Importantly, however, the defendant in Boto also maintained a website accessible in Virginia where consumers could (i) retrieve information about the trees those consumers bought, and, (ii) complete warranty registration forms. Id. Indeed, the Boto court noted that the defendant's website was designed to provide services to consumers in Virginia. Id. The court in Boto also noted that the record supported a prima facie finding of jurisdiction in light of the defendant's "regular course of dealing that resulted in deliveries of substantial quantities and dollar amounts of products into Virginia on an annual basis over a period of at least several years." Id. at 830 n.10.
In these respects, Boto is distinguishable from the case at bar. Here, defendant's website does not provide a service to app users, nor does defendant's website contain anything similar to the warranty registration forms present in Boto. Moreover, the Boto defendant's contacts with the forum were far less attenuated, fortuitous, and unilateral than those in the instant case. Indeed, in Boto, the defendant's trees necessarily were physically in Virginia when purchased at Virginia Wal-Mart and Target branches—thus, a purchaser, in order to buy a tree from a Virginia Wal-Mart or Target, necessarily had to engage in a transaction with a Virginia store in Virginia. Put differently, the purchasers in Boto did not have unilateral control over where the transactions with the defendant occurred. By contrast, defendant's "Prisma" app, which has been available for fewer than six months, is purchased in Virginia only when a user elects to download defendant's app while that user happens to be located in Virginia.
In sum, plaintiff has not made a prima facie showing that defendant purposefully availed itself of the privilege of conducting business in Virginia, and thus there is no personal jurisdiction over defendant in this forum.
Analysis thus turns to the issue of transfer. Although defendant moved to transfer the matter to the Northern District of California pursuant to 28 U.S.C. § 1404(a), which permits transfer "[f]or the convenience of the parties and witnesses,"
Specifically, § 1406 provides for transfer of "a case laying venue in the wrong division or district" to "any district or division in which [the case] could have been brought" if transfer is "in the interest of justice." 28 U.S.C. § 1406(a). Although § 1406 speaks only of transfer on the ground of improper venue, § 1406 may be implemented in the Fourth Circuit to effect transfer of a case for lack of personal jurisdiction.
It is also important to note that "district courts `generally favor transfer over dismissal, unless there is evidence that a case was brought in an improper venue in bad faith or to harass defendants.'" Cont'l Cas. Co. v. Argentine Republic, 893 F.Supp.2d 747, 754 (E.D. Va. 2012) (quoting Gov't of Egypt Procurement Office v. M/V Robert E. Lee, 216 F.Supp.2d 468, 473 (D. Md. 2002)). This is so because "[t]ransfer would facilitate a more expeditious resolution of the merits of the controversy in a concededly proper forum and would avoid the costs and delay that would result from dismissal and refiling[.]" Id. (quoting Verosol B.V. v. Hunter Douglas, Inc., 806 F.Supp. 582, 594 (E.D. Va. 1992)).
Here, it is appropriate, pursuant to 28 U.S.C. §§ 1406 and 1631, to transfer this matter to the United States District Court for the District of Delaware. To begin with, the District of Delaware has general jurisdiction over defendant because defendant is incorporated under the laws of Delaware. See Daimler AG v. Bauman, 134 S.Ct. 746, 760 (2014) (noting that an entity's state of incorporation is the "paradigm" forum for general jurisdiction). And because defendant is subject to general personal jurisdiction in Delaware, venue is proper there. See 28 U.S.C. § 1391(b)(1) (venue is proper where defendant is a resident); id. § 1391(c) (for venue purposes, "an entity with the capacity to sue and be sued in its common name under applicable law . . . shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court's personal jurisdiction"). Thus, there is no question that plaintiff could have originally filed this action in the District of Delaware.
Moreover, transfer to the District of Delaware is in the interest of justice because (i) plaintiff appears to have filed this suit in good faith and with a reasonable basis for believing that the Eastern District of Virginia was a proper forum, and because the parties have an interest in a swift resolution of plaintiff's infringement claims and motion for preliminary injunction,
In conclusion, in the interests of justice, the matter is appropriatly transferred to the District of Delaware pursuant to 28 U.S.C. §§ 1406 and 1631.
In sum, because the record reflects a lack of personal jurisdiction over defendant, and because the interests of justice counsel in favor of transfer to Delaware pursuant to §§ 1406 and 1631, the matter is appropriately transferred to the United States District Court for the District of Delaware.
An appropriate Order has already issued.
Notably, the Fourth Circuit in ALS "adopt[ed] and adapt[ed]" the well-known Zippo "sliding scale" approach for determining when a defendant's internet contacts with a State could confer personal jurisdiction over that defendant. Specifically, the Zippo model focused on a spectrum of activities involving, on one end, situations where "the defendant enters into contracts with residents of a foreign jurisdiction that involve the knowing and repeated transmission of computer files over the Internet" and, on the other end, "passive" websites on which defendants merely "post[] information . . . accessible to users in foreign jurisdictions." Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F.Supp. 1119, 1124 (W.D. Pa. 1997). Importantly, the Fourth Circuit placed even greater emphasis on a defendant's intent to engage in business within the forum State than did the Zippo court. Thus, it is appropriate to note that
Graduate Mgmt. Admission Council v. Raju, 241 F.Supp.2d 589, 595 (E.D. Va. 2003) (emphasis in original).
