Antitrust Law Daily Wrap Up, ANTITRUST—7th Cir.: Seventh Circuit ties Clayton Act’s nationwide service-of-process and venue provisions, (Aug 5, 2013)

By Tobias J. Gillett, J.D., LL.M.

A plaintiff pursuing a claim under the federal antitrust laws who relies on the service of process provision in Section 12 of the Clayton Act for personal jurisdiction must also rely on Section 12 for venue, and cannot base venue on 28 U.S.C. § 1391’s general venue provision, the U.S. Court of Appeals in Chicago has ruled (KM Enterprises, Inc. v. Global Traffic Technologies, Inc., August 2, 2013, Wood, D.). In so deciding, the Seventh Circuit has aligned itself with the Second and D.C. Circuits in a split with the Ninth and Third Circuits.

KM Enterprises, Inc. (KME) and Global Traffic Technologies, Inc. (GTT) compete in the market for devices that permit emergency vehicles to send signals that preempts ordinary traffic lights. In 2010, GTT filed a patent infringement action against KME in the District of Minnesota, and in 2012 KME filed an action in the Southern District of Illinois alleging that GTT violated the federal antitrust laws by improperly interfering with competitive bidding on public contract and engaging in monopolistic activity.

KME alleged that GTT persuades government agencies to specify GTT’s optical-signal-based technology when drafting public contract requirements, but then falsely informs the agencies that the optical-signal-based product is no longer available, instead offering a product combining GPS and optical technology. KME alleged that this conduct adversely affected competition in the GPS market. However, although 71 GTT traffic interrupters were installed in the Southern District of Illinois, none of the interrupters were the combination units challenged by KME.

The district court dismissed KME’s case, finding that GTT’s contacts with the district could not support venue under 28 U.S.C. § 1391. KME appealed, contending that GTT’s contacts were sufficient to support venue under Section 1391, and in any case that venue was proper under Section 12 of the Clayton Act, which provides that “[a]ny suit, action, or proceeding under the antitrust laws against a corporation may be brought not only in the judicial district whereof it is an inhabitant, but also in any district wherein it may be found or transacts business; and all process in such cases may be served in the district of which it is an inhabitant, or wherever it may be found.”

Circuit split. The court observed that its decision would require it to take sides in a circuit split regarding whether a plaintiff who took advantage of Section 12’s nationwide service of process must also rely on Section 12’s venue provision, or could use Section 12 for service of process but rely on Section 1391 for venue. The court noted that the latter option would provide essentially universal venue in every judicial district in the United States. Although Section 12’s venue provision is “not restrictive,” it does provide that “venue is proper only in the district(s) the corporation inhabits, is found, or transacts business.” On the other hand, Section 1391 provides for personal jurisdiction in any district in which a corporation is subject to personal jurisdiction, and combined with Section 12’s nationwide service of process would permit a plaintiff to “drag an alien into court anywhere in the United States.” The court noted that “[t]he effect of combining Section 12 service of process with Section 1391 venue is more complicated when a plaintiff sues in a state, such as Illinois, that has more than one judicial district.”

The circuit split is divided between the Third and Ninth Circuits, which hold that Section 12’s clauses may be “decoupled,” and the D.C. and Second Circuits, which hold that they must be applied together, the court explained. The Ninth Circuit found that special venue statutes are generally found to “supplement, rather than supplant, the general venue rules,” and that this principle “was in tension with the integrated view of Section 12 because, in its view, reading the clauses together renders Section 12 venue at least partially exclusive.” Moreover, the Ninth Circuit found that the legislative history of Section 12 and “the Clayton Act’s general aim of expanding venue in antitrust actions” supported this view. The Third Circuit later adopted the Ninth Circuit’s reasoning.

On the other hand, the D.C. Circuit found the “plain language” of Section 12 compelled adopting the integrated view, because “the term ‘in such cases’ must refer back to the entire clause preceding the semicolon; to read the statute otherwise is effectively to jettison the first clause.” Similarly, the Second Circuit found the term “such” meant “having a quality already or just specified,” and that the quality of the case “just specified” was those cases that met the venue provisions of the first clause. The Second Circuit also disputed the Ninth Circuit’s reading of the legislative history, and pointed out that, although Section 12 was intended to expand venue, “Congress was not willing to give plaintiffs free rein to haul defendants hither and yon at their caprice.” Since the general venue provision was narrower when Section12 was enacted, reading the section as a whole did not “contradict Congress’s intent in enacting Section 12.” The Second Circuit also placed little value on analogies between Section 12 and other special venue provisions, because those provisions must be analyzed in a manner specific to the statute, and because their structure and wording were different from Section 12.

The Seventh Circuit chose to follow the reasoning of the D.C. and Second Circuits. The court noted that, since “Section 12’s venue provision is not plainly structured as a characteristic of the cases described, it is not apparent that these provisions specify the ‘quality’ of the cases referred to in clause two,” and therefore the Second Circuit’s interpretation of the term “such” did not compel its decision.

However, the court observed that reading Section 12’s clauses independently also “create[d] textual problems.” Reading the clauses separately would render the venue language “superfluous,” according to the court. Moreover, permitting venue in every judicial district would run counter to “Congress’s apparent intent in passing Sections 12 and 1391 that there be some limits on venue, in antitrust cases specifically and in general.” Further, decoupling the clauses would raise “the possibility of selectively reintroducing the minimum contacts analysis based on the happenstance of whether the state has multiple judicial districts.”

The court was “not persuaded” by the Ninth Circuit’s contrary reasoning. Although courts did generally read special venue statutes as supplementing general venue, plaintiffs were not required to use Section 12. Section 12 merely “provides an additional option, but one that requires use of the service and venue rules as a package.” Moreover, the court found the legislative history of Section 12 to be “inconclusive,” and noted that Congress’s intent to expand venue with Section 12 did not “indicate that that Congress wanted nationwide venue.” Instead, the court observed that Congress had “created specific limits on venue.”

Section 12 venue. Having decided to follow the “integrated” approach to Section 12, the court turned to the facts of the present case. The court found that GTT had sufficient minimum contacts with the United States to permit personal jurisdiction in the federal courts, but that GTT’s activities in the Southern District of Illinois “must be characterized as de minimis for purposes of the transacting-business inquiry.” The 71 traffic intersections in the district in which GTT’s products had been installed were “a drop in the bucket,” according to the court. GTT generally did not make sales in the district, as the technology was selected through a public procurement process in Springfield, Illinois, in the Central District of Illinois. GTT’s $2,327.25 in direct sales, .002% of GTT’s total sales in that period, were “negligible.” Moreover, GTT had not offices or employees in the district, GTT’s equipment other than that purchased through direct sales was purchased from and installed by third-party distributors, and GTT did not provide maintenance or customer service through agents in the district.

Section 1391 venue. Venue was also improper under Section 1391, according to the court. Under Section 1391(b)(1), venue would be proper in any district in which the corporation would be subject to personal jurisdiction were that district a state. Venue would not be proper under the principles of specific jurisdiction, requiring “that the plaintiff’s cause of action relate to the defendant’s contacts with the forum,” because KME’s claims related to a patent infringement lawsuit filed in Minnesota and alleged bid-rigging occurring in states other than Illinois. As previously discussed, general jurisdiction, based on “continuous and systematic general business contacts with the forum,” would also not apply due to “GTT’s minimal contacts with the Southern District of Illinois.”

Finally, the court rejected KME’s argument that Global Traffic Technologies, Inc. had waived its objections to venue in the Southern District of Illinois because its subsidiary Global Traffic Technologies, LLC had conceded that it was subject to personal jurisdiction in Illinois. The court observed that, although Global Traffic Technologies, LLC had conceded personal jurisdiction in Illinois, it had nonetheless “actively contested venue in the Southern District,” contending that its contacts with the district were to minimal to support venue under Section 1391.Moreover, Global Traffic Technologies, LLC’s conduct could only be used to assert jurisdiction over Global Traffic Technologies, Inc. if there was a basis for piercing the corporate veil between them, and the court found nothing in their relationship that would allow it to exercise jurisdiction over Global Traffic Technologies, Inc. “solely on the basis of the activities of its subsidiary.”

The case is No. 12-3406.

Attorneys: Jana Lynn Yocom for KM Enterprises, Inc. Emily E. Chow (Faegre Baker Daniels LLP) for Global Traffic Technologies Inc.

Companies: KM Enterprises, Inc.; Global Traffic Technologies, Inc.

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