On November 19th, the Court of Appeals for the Fifth Circuit issued a decision in Diece-Lisa Industries, Inc. v. Disney Store USA, LLC, et al. rejecting the plaintiff’s “franchise theory” and “licensee theory” of specific jurisdiction. Specifically, the Fifth Circuit concluded that personal jurisdiction could not be exercised over related but independent entities in a franchise based upon a company’s public presentation as a singular company absent evidence of the failure to observe corporate formalities. The court also concluded that the mere existence of a licensor-licensee relationship is insufficient to impute the contacts of a licensee on the licensor for purposes of establishing personal jurisdiction.
Background of the District Court Case
The history of this case is rather complex. In 2008, plaintiff Diece-Lisa obtained a trademark registration for “Lots of Hugs” for use in connection with toys, and had been selling stuffed toy bears under that name. Two years later, Disney released the movie Toy Story 3, which included a character named “Lots O’ Huggin’ Bear,” or “Lotso” for short. After the movie came out, Disney began selling “Lotso” bears and merchandise online and in its stores. In 2012, Diece-Lisa filed suit against two Disney subsidiaries, Disney Store USA, LLC (“DSU”) and Disney Shopping, Inc. (“DSI”), for trademark infringement, arising from DSU and DSI’s sale of “Lotso” merchandise and bears.
In 2014, Diece-Lisa filed a separate lawsuit, in the same court, against Disney subsidiaries Disney Enterprises, Inc., (“DEI”) and Disney Consumers Products, Inc. (“DCP”) for trademark infringement based on their licensing of the “Lotso” character to third-parties who manufactured and sold “Lotso” merchandise. DEI and DCP own IP rights in Disney characters and grant licenses to third parties, as well as DSU and DSI, to manufacture merchandise based on Disney characters. The Disney subsidiaries DEI and DCP thereafter filed a motion to dismiss, arguing that the district court lacked personal jurisdiction over them based merely on licensing activities, which the district court granted.
As a result of this order, and several other decisions of the district court, Diece-Lisa filed three appeals, including a challenge to the district court’s finding that it lacked personal jurisdiction over the DEI and DCP defendants.
Fifth Circuit Decision
On appeal, Diece-Lisa argued that the district court erred in dismissing the case against DEI and DCP for lack of personal jurisdiction. Diece-Lisa asserted that DEI’s licensing activities with third-parties who conduct business in the forum was enough to establish personal jurisdiction over DEI. Diece-Lisa reasoned that this connection, along with the fact that DEI asserted quality control measures over the licensees, was sufficient to confer personal jurisdiction over DEI (the “licensing theory” of jurisdiction). Diece-Lisa also argued separately that because the district court had jurisdiction over some of the Disney subsidiaries in the case, it would also have jurisdiction over DEI and DCP based on a theory that all of the Disney subsidiaries are part of a “unified Disney company” (the “franchise theory” of jurisdiction). The appeals court rejected both theories.
After succinctly holding that the district court could not assert general personal jurisdiction over DEI and DCP, the Fifth Circuit turned to analyzing whether the district court could assert specific personal jurisdiction over DEI and DCP. Regarding Diece-Lisa’s theory that DEI’s licensing activity conferred personal jurisdiction, the court stated that “[n]either this nor any other circuit has held that specific personal jurisdiction may arise solely from a defendant licensor’s non-exclusive licenses to third parties who sell allegedly infringing products in the forum state.” In reviewing the case law of other jurisdictions, the court noted that the Federal Circuit had explicitly rejected Diece-Lisa’s theory of personal jurisdiction in Breckenridge Pharm., Inc. v. Metabolite Labs., Inc., emphasizing that for a licensing agreement to confer jurisdiction, it must “contemplate a relationship beyond royalty or cross-licensing payment.” Therefore, the Fifth Circuit held that the third-party licensing, which “directed and authorized licensees to use the infringing marks in Texas,” was not sufficient activity to confer specific personal jurisdiction over DEI.
The Fifth Circuit also rejected Diece-Lisa’s “franchise theory” that, because the district court has jurisdiction over some Disney subsidiaries in the case, and “Disney presents itself in essence as one company,” that these contacts “support jurisdiction over the other ‘segments’ engaging in the overall infringing activity.” Noting that there is a “presumption of institutional independence” among corporate entities with which the defendant may be affiliated which can be rebutted, it requires “something beyond the mere existence of a corporate relationship…”. (internal citations omitted). Noting that Diece-Lisa had alleged no facts supporting a finding that the Disney subsidiaries were effectively “alter egos” of one another, nor that DEI and DCP controlled the activities of the Disney subsidiaries over which the district court had personal jurisdiction, the Fifth Circuit concluded that the district court did not have personal jurisdiction over DEI or DCP under this theory.
The decision of the Fifth Circuit is available under 'Additional Resources'.
Authored by Julia Matheson and David Brzozowski
