Ninth Circuit Reverses Northern California Judge in Patent Case

A drawing from Patent 6,742,161.
Courtesy of Google Patents.

Legal Blogs such as Patent Hawk are buzzing because of the Federal Circuit's reversal in Nuance Communication v. Abbyy Software House (Fed. Cir. 2010) (Rader, C.J.).

Nuance Communications owns a series of patents that cover optical character recognition (OCR) software methods and processes a drawing of which is shown to the right.  In February 2008, Nuance sued Lexmark Intl. and Abbyy USA for infringing its patents.  Chief Judge Rader explains what happened next:

On November 17, 2008, Abbyy USA responded to interrogatories seeking the identity and location of related entities. Abbyy USA identified Abbyy Software, a corporation organized under the laws of the Republic of Cyprus, as its parent corporation. Abbyy USA is a wholly-owned subsidiary of Abbyy Software. Abbyy USA also identified Abbyy Production, a corporation organized under the laws of the Russian Federation, as another wholly-owned subsidiary of Abbyy Software.

Judge Jeffery S. White ruled at the District Court.  His opinion emphasized that Nuance had not filed an amended complaint until May 2009, fifteen months after the original complaint which added Abbyy Software and Abbyy Production as defendants (collectively, the "Abbyy defendants").    On May 7, 2009 a process server served Abbyy Production.  On June 25, 2009, the Abbyy defendants filed a motion to dismiss both companies for lack of personal jurisdiction and to dismiss Abbyy Production for improper service of process.
The law regarding specific jurisdiction is not in dispute, and is the same in both California and the Federal Circuit:

The Federal Circuit applies a three prong test to determine if specific jurisdiction exists: (1) whether the defendant purposefully directed activities at residents of the forum; (2) whether the claim arises out of or relates to those activities; and (3) whether assertion of personal jurisdiction is reasonable and fair. Akro [Corp. v. Luker (Fed. Cir. 1995)]; see also Schwarzenegger [v. Fred Martin Motor Co. (9th Cir. 2004)].

Judge White granted the motion to dismiss with regard to the Abbyy Defendants ruling:

Here, because there is no showing that the Moving Defendants purposefully directed any specific activity at residents of California or within the forum state or that the plaintiffs’ claim arises out of or relates to those activities, the Court need not reach the issue whether the assertion of personal jurisdiction is reasonable and fair.

Chief Judge Rader disagreed:

[T]this case features [] an expressed desire to "win the whole US market" by issuing Abbyy [Production]'s FineReader software program in the United States, and the admitted distribution of that software to Abbyy USA, a California entity. Over ninety-five percent of the profits resulting from the sale of that software flow to Abbyy Production.

With regard to service of process the dispute appears to be over an interpretation of the the Hague Convention.  Judge White granted the motion to dismiss:

The Court finds that Plaintiff failed properly to serve Abbyy Software, Ltd. or Abbyy Production, LLC in accordance with the Hague Convention. Plaintiff admits it did not follow the Hague Convention and the process it requires, but contends, without authority, that the “Hague Convention is not an agreed-upon means for service of process in Russia because the Russian Federation has unilaterally suspended all judicial cooperation with the United States in civil matters.” [] There is no authority for this proposition and nothing before the Court indicates that the Hague Convention is not the proper vehicle for service of the foreign defendants in this matter.

Chief Judge Rader disagreed and stated that Fed. R. Civ. P. 4 provides that a defendant in a country that eschews the Hague Convention (like the Russian Federation) can be served by substitute service.

Appellees further argue that this court lacks jurisdiction to determine whether Abbyy USA may be served as Abbyy Production's general manager, since Nuance never attempted to serve Abbyy USA as the substitute for Abbyy Production. To the contrary, attempted service is not a prerequisite. "As obvious from its plain language, service under Rule 4(f)(3) must be (1) directed by the court; and (2) not prohibited by international agreement. No other limitations are evident from the text." Rio Props.[v. Rio Int'l Interlink (9th Cir. 2002)].

On remand, the district court should therefore allow alternate service as it deems appropriate, including at least substitute service, pursuant to Rule 4(f)(3), of Abbyy Production by substitute service on Abbyy USA.

The appellate court reversed and remanded the case.