Litigation Alert: No Business Dealings in US? You Can End Up in US Federal Courts

Date: Sep 11, 2009

A federal court recently found that it had jurisdiction over a British corporation based, in part, on that corporation's non-compete agreement with an American company. The case is Decon Laboratories, Inc. v. Decon Laboratories, Ltd., Case No. 09-1241 (E.D. Pa. Aug. 18, 2009). This case establishes that a company that is not doing business in the U.S. may be forced to defend itself in a U.S. court based on very minimal contacts with the U.S.

The plaintiff Decon Laboratories, Inc. (Decon USA), an American company, and the defendant, Decon Laboratories, Ltd. (Decon UK), a British corporation, were previously under common ownership of UK President Robert Taylor. In 1987, Mr. Taylor divested ownership of Decon USA to his brother Peter Taylor. As part of the divestiture, the companies entered into a non-compete agreement (Agreement) preventing Decon UK from doing business in North or South America and preventing Decon USA from doing business outside of those areas.

Decon USA, wishing to expand its business outside North and South America, brought an antitrust action against Decon UK in federal court in Pennsylvania to have the Agreement declared invalid. Decon UK moved to dismiss the action claiming that the court had no authority (personal jurisdiction) because it was a foreign company and that it did not have sufficient ties with the U.S. to provide a basis for jurisdiction. The court disagreed.

First, the court found that since the claims against Decon UK were brought under a federal antitrust statute that permits nationwide service of process, the court would assess personal jurisdiction based on Decon UK's national contacts. In doing so, the court found that Decon UK had three major national contacts that permit it to be sued in the United States:

(1) Decon UK has held a registered trademark in the United States since 1990. The fact that Decon UK had sold only four units of the trademarked product in the United States since 1993 did not dilute this "contact."

(2) According to the court, Decon UK reached into the United States via the Agreement to prevent Decon USA from competing outside North and South America. Decon UK derived a benefit from those restrictions, which directly affected Decon USA in the United States.

(3) Decon UK had sent two pieces of correspondence to the United States pertaining to the terms of the Agreement. In the first correspondence, Decon UK sent a letter to a third party seeking assurance that the third party's catalog, which sells Decon USA products, would not be distributed outside North and South America. In the second correspondence, Decon UK declined an offer by Decon USA to purchase Decon UK.

The court finally noted that nothing in the record indicates an undue burden to Decon UK in litigating the matter in the United States.