Wading through the stream of commerce: when can foreign manufacturers expect to be subject to specific jurisdiction in United States courts?

Author:Schwartz, Alan G.
 
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THE QUESTION of whether a court may exercise personal jurisdiction over foreign product manufacturers on the basis of introducing goods into the "stream of commerce" has produced much litigation and confusion since that phrase was introduced in World-Wide Volkswagen Corp. v. Woodson. (1) Recently, after two decades of relative silence, the United States Supreme Court attempted to clarify the stream-of-commerce doctrine in J. McIntyre Machinery, Ltd. v. Nicastro (2) and Goodyear Dunlop Tires Operations, S.A. v. Brown. (3) Unfortunately, although Goodyear articulated some helpful limits on general jurisdiction, neither decision clarified the stream-of-commerce theory of specific jurisdiction. As a result, foreign manufacturers continue to face uncertainty about when they can expect to be haled into a particular United States court under that theory.

This article discusses the origins of the stream-of-commerce doctrine and its development through the years, including the Supreme Court's most recent decisions on the issue--McIntyre and Goodyear. Despite the confusion left intact after McIntyre and Goodyear, as a practical matter, courts have tended to focus on three broad factors in deciding whether to assert specific jurisdiction over foreign manufacturers. Those factors are: a manufacturer's awareness of or control over downstream distribution, the volume of product that enters the market, and the manufacturer's contacts with the United States overall as compared to the forum where suit is brought. This article discusses a number of representative post-McIntyre cases that consider these factors in their analyses of stream-of-commerce jurisdiction and provides a list of specific facts that may inform a court's analysis of these three factors in a given case.

  1. The Origins and Development of the Stream-of-Commerce Doctrine

    A. Origins of, and Confusion Over, the Doctrine

    In addition to any restrictions that a state's particular long-arm statute may provide, federal constitutional due process requires that the defendant have "certain minimum contacts with [the forum state] such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.'" (4) "Minimum contacts" requires the defendant to have "purposefully avail[ed] itself of the privilege of conducting activities within the forum State." (5)

    "Purposeful availment" may arise when a manufacturer introduces goods into the "stream of commerce," a phrase introduced by the Supreme Court in World-Wide Volkswagen. In that case, the Court said, in dicta, that "[t]he forum State does not exceed its powers under the Due Process Clause if it asserts personal jurisdiction over a [foreign] corporation that delivers its products into the stream of commerce with the expectation that they will be purchased by consumers in the forum State." (6) Seizing upon this language, some lower courts asserted that a manufacturer can be subject to jurisdiction simply by introducing goods into the stream of commerce. (7)

    The Supreme Court again addressed the stream-of-commerce theory in Asahi Metal Industry Co., Ltd. v. Superior Court of California. (8) Asahi was a product liability action arising out of a motorcycle accident. The rider of the motorcycle asserted that he was injured and that his passenger was killed because the motorcycle's rear tire exploded. The rider brought suit in California state court against both the Taiwanese manufacturer of the tire tube and the Japanese manufacturer of the tube's valve assembly. The Taiwanese manufacturer filed a crossclaim seeking indemnification from the Japanese manufacturer. The injured rider eventually settled his own claims, leaving only the crossclaim by the Taiwanese manufacturer against the Japanese manufacturer, and the Japanese manufacturer moved to dismiss on the basis of a lack of personal jurisdiction.

    Ultimately, the Supreme Court held, in a part of an opinion authored by Justice O'Connor and joined by seven other Justices, that jurisdiction over the Japanese manufacturer would be "unreasonable and unfair." (9) For purposes of the stream-of-commerce doctrine, Asahi's dicta has proven to be as confusing as it is important. The dicta appeared in two opinions--in Justice O'Connor's plurality opinion and in a concurrence written by Justice Brennan, which constituted a different plurality.

    Justice O'Connor's plurality endorsed the view that the "Due Process Clause ... require[s] something more than that the defendant was aware of its product's entry into the forum State through the stream of commerce." (10) In other words, merely being able to foresee that one's product would end up in a forum is insufficient for jurisdiction, which requires instead that one's action be "purposefully directed" toward the forum. (11) Justice O'Connor provided examples of acts that "may indicate" an intent to serve the forum market, such as "designing the product for the market in the forum State, advertising in the forum State, establishing channels for providing regular advice to customers in the forum State, or marketing the product through a distributor who has agreed to serve as the sales agent in the forum State." (12)

    Justice Brennan's concurrence opined that the "purposeful availment" requirement was easier to satisfy than the standard put forward by Justice O'Connor. Justice Brennan defined the stream of commerce as "the regular and anticipated flow of products from manufacture to distribution to retail sale," such that putting one's products into this "stream" was enough for jurisdiction, even apparently without "additional conduct" directed to the forum state. (13) Under Justice Brennan's view, so long as there is a regular flow of the product into the forum, then the defendant should reasonably anticipate being haled into court there, and the Constitution permits bringing suit against the manufacturer in that forum.

    Because neither Justice O'Connor's nor Justice Brennan's stream-of-commerce theories commanded a majority, substantial confusion ensued as to whether merely placing a product into the stream of commerce is enough for jurisdiction (as Justice Brennan opined) or rather whether actual intent to target the forum, which could be evidenced by "additional conduct" (as Justice O'Connor opined) is required. (14)

    B. Goodyear and McIntyre

    In Goodyear and McIntyre, the Court sought to address questions that Asahi left unresolved. Both cases dealt with manufacturers based outside the United States whose products ended up in the United States through the stream of commerce. Although Goodyear clarified general jurisdiction principles, McIntyre, which addressed the issue of specific jurisdiction, failed to resolve the confusion created by Asahi.

    Goodyear arose out of a bus accident in France. Two North Carolina children were killed in the accident, and their parents brought suit in North Carolina against Goodyear, an Ohio-based tire manufacturer. Goodyear was licensed to do business in North Carolina and accordingly did not contest jurisdiction. The suit also named as defendants three indirect Goodyear subsidiaries, each incorporated and doing business, respectively, in France, Turkey, and Luxembourg. The three subsidiaries manufactured tires mainly for the European and Asian markets, although "a small percentage of [the subsidiaries'] tires (tens of thousands out of tens of millions manufactured between 2004 and 2007)" were distributed in North Carolina. (15) The subsidiaries did "not ... themselves sell or ship tires to North Carolina customers." (16)

    A unanimous Supreme Court held that there was no jurisdiction over the subsidiaries in North Carolina. The Court explained that specific jurisdiction is only appropriate when "the suit "aris[es] out of or relate[s] to the defendant's contacts with the forum." (17) By contrast, general jurisdiction, which is a court's authority to hear "any and all claims" against a defendant, requires that the defendant's "affiliations with the [forum] State [be] so 'continuous and systematic' as to render [the defendant] essentially at home in the forum State." (18)

    There was no specific jurisdiction because the "episode-in-suit, the bus accident" occurred in France and the tire that allegedly caused the accident was made in France. (19) The suit, in other words, did not "arise out of the defendant's contact with North Carolina.

    There was also no general jurisdiction because the foreign manufacturers' connection to North Carolina was too attenuated to meet the high "continuous and systematic" standard. In reversing the North Carolina court's "stream-of-commerce analysis [which] elided the essential difference between case-specific and all-purpose (general) jurisdiction," the Court clarified that the stream-of-commerce theory was irrelevant for the general-jurisdiction inquiry. (20) "Flow of a manufacturer's products into the forum ... may bolster an affiliation germane to specific jurisdiction ... But ties serving to bolster the exercise of specific jurisdiction do not warrant a determination that, based on those ties, the forum has general jurisdiction over a defendant." (21)

    Goodyear thus clarified that the stream of commerce cannot be invoked as a basis for general jurisdiction, which in all cases requires "continuous and systematic" contact. Goodyear did not, however, speak to the application of the stream-of-commerce theory in a specific-jurisdiction case--that is, in a case that "arises" from the fact that the injury-causing product has been introduced into the forum.

    McIntyre was such a case. McIntyre referred to the "decades-old questions left open in Asahi," and noted the opportunity to...

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