Issue 05/9 | February 22, 2005
Personal Jurisdiction, Once Properly Raised, Is Not Waived Even After Objecting Party Files Permissive Counterclaims

A Canadian defendant who sought dismissal of an action in New York based on lack of personal jurisdiction did not waive that defense even after it filed permissive counterclaims against the patentee in an amended answer. Litigants contemplanting a Rule 12(b)(2) motion are reminded to preserve their right to seek dismissal by properly raising the jurisdictional issue by motion or answer in accordance with Rule 12(h)(1).

In Rates Technology, Inc. v. Nortel Networks Corp., No. 04-1212 (Fed. Cir. Feb. 17, 2005), the federal circuit affirmed the dismissal of a patent infringement complaint based on lack of personal jurisdiction, even where defendant had filed permissive counterclaims in its answer.

Rates Technology Inc. (RTI) sued Nortel Networks Corp. (NNC) in New York, alleging infringement of its '688 patent. NNC, a Canadian corporation, answered the complaint raising lack of personal jurisdiction as a defense, and filing permissive counterclaims seeking declarations of e.g., noninfringement and invalidity. In an amended answer, NNC sought declarations of noninfringement of two additional RTI patents. NNC timely moved to dismiss the action under Rule 12(b)(2), establishing both through declaration and deposition testimony that while NNC wholly owned Nortel Networks, Ltd., which wholly owned Nortel Networks, Inc. (NNI) (a U.S. subsidiary that may have manufactured some of the accused products in the relevant time period), NNC was a holding company that never made any of the accused products. RTI never sought to join NNI as a party by the court-imposed deadline, but rather, submitted a counterclaim-in-reply directed to NNC and NNI along with its opposition to NNC's motion to dismiss. RTI never served its counterclaim-in-reply on NNI, and the district court dismissed the complaint for lack of personal jurisdiction.

On appeal, RTI argued that NNC waived its objection to personal jurisdiction by filing permissive counterclaims with its answer and that the district court's dismissal of its counterclaim-in-reply constituted a violation of due process. But the federal circuit disagreed, holding that the filing of a counterclaim, compulsory or permissive, did not waive a party's objections to personal jurisdiction so long as the requirements of Rule 12(h)(1) were satisfied. To hold otherwise "would effectively eliminate the unqualified right provided by Rule 12(b) of raising jurisdictional defenses by either motion or answer." Here, because NNC timely preserved its contest to personal jurisdiction in its answer, it did not thereafter waive its jurisdictional objection by filing a counterclaim.

Nor did the court's dismissal of RTI's counterclaim-in-reply constitute a violation of due process; Because NNC's permissive counterclaims did not submit it to jurisdiction in E.D.N.Y., the district court had no more authority to entertain RTI's counterclaim-in-reply than it did to hear the amended complaint in the first place.

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To discuss these topics further, please feel free to contact the author Michael R. Dzwonczyk, (mdzwonczyk@sughrue.com), at Sughrue Mion, PLLC in Washington DC, USA.

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