Can I Sue a Foreign Company Whose Only U.S. Presence Is a Well-Insulated
Subsidiary?
October 2003
What do you do if your patent is infringed
by a foreign corporation without a U.S. office? There are a couple of far-from-obvious
solutions available to the patentee. The Hague Convention treaty provides one
option; the secretary of state offers another.
by Sanford E. Warren Jr.
Winstead Sechrest
& Minick
In American justice, sometimes a very deserving plaintiff never gets his
day in court because of a legal technicality. For example, what happens when
an isolated foreign corporation ships products that infringe a U.S. patent into
the United States? Can the patentee just haul the foreign corporation into a
U.S. court when the corporation has no U.S. offices or other contacts with America?
Considering the following, you may see that the answer isn't obvious.
The Problem
GarageWorks, Inc. (GWI), a small Texas company, invents and patents a gear
that will revolutionize the auto industry. Gutten Tag, Inc. (“Parent”), a German
corporation, starts producing gears that look a lot like the GWI gears ... a lot like them! Parent distributes the
gears in America using a poorly funded, well-insulated subsidiary. GWI wants
to sue both companies for patent infringement. However, Parent has done all
it could to "isolate" itself from such litigation by using its subsidiary to
make all relevant contacts with America.
GWI could sue the poorly funded subsidiary, but that wouldn't be much fun
if the company ends up being judgment-proof—a common reality. So, can GWI sue
Parent directly, or can Parent hide behind the subsidiary claiming due process
would be violated if it were forced to stand trial in Texas? The answer isn't
easy considering Parent is based in Germany and has no contacts in the United
States besides its subsidiary. However, GWI can sue Parent by selecting among
a few legal options.
One Option
The Hague Convention treaty, a real page-turner, allows GWI to sue Parent
in Texas because Parent's country, Germany, is a signatory to the treaty. The
treaty helps protect foreign parties from suffering adverse judgments without
first having been properly served papers regarding the suit. While the treaty
has noble intentions, its mechanics are unwieldy and take months to negotiate.
A Better Option
Fortunately, GWI can bypass the treaty if it can serve papers on Parent without
having those papers sent overseas. [See Volkswagenwerk
Aktiengesellschaft v Schlunk, 486 U.S. 694, 699, 108 S Ct 2104, 2112
(1988).] GWI can do so with the Texas Long-Arm statute. [See Tex. Civ. Prac. & Rem. Code Ann. §§ 17.041 et
seq.] Most states, if not all of them, have similar statutes that allow the
long arm of, say Maine, to reach into another state, say Utah, in pursuit of
defendants that committed bad acts in Maine.
Still, how does the statute grant access to a party "isolated" in Germany?
Answer: by making the Texas Secretary of State (SOS) Parent's agent for service
of process when Parent (1) conducts a bad act in Texas (patent infringement)
(2) without having designated a person in Texas to receive papers. [See Tex. Civ. Prac. & Rem. Code Ann. § 17.044(a)(1).]
Thus, serving the SOS is the "equivalent" of serving Parent. Then, Parent is
compelled to show up for trial.
Of utmost importance, Texas law dictates that serving papers on the SOS completes
service. Even though the SOS must eventually forward the papers overseas to
Parent, the service was complete once the documents were served on the SOS.
[See Bonewitz v Bonewitz, 726 SW2d 227, 230 (Tex
App—Austin 1987).] If GWI were to pursue this tact in another state or using
another Texas statute, this might not be the case. Consequently, because the
papers did not need to be sent overseas to complete service of process, the
Hague Convention and its associated headaches could be avoided in favor of state
law.
In short, GWI will get its day in court after all ... now that could be fun!
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