'Equalizing' the Playing Field with Foreign Manufacturers

Feb. 8, 2010
There are several obstacles to suing foreign companies or bringing them into a lawsuit as a codefendant.

In litigation, manufacturers and suppliers in the United States are often at a disadvantage compared to their foreign counterparts. There are several obstacles to suing foreign companies or bringing them into a lawsuit as a codefendant. These obstacles include the challenge of obtaining jurisdiction over the foreign entity and making sufficient "service of process" on that entity. The Foreign Manufacturers Legal Accountability Act of 2009 (S. 1606), currently before the Senate Finance Committee, is designed to "equalize" the playing field and make it easier to sue foreign manufacturers or join them in current litigation.

S. 1606 accomplishes this goal by making consent to jurisdiction and service of process a condition of importing products into the United States. The bill requires several agencies to issue regulations requiring foreign manufacturers and producers to designate a registered agent authorized to accept service of process for all civil and regulatory matters. The regulations must require the agent to "be located in a State with a substantial connection to the importation, distribution, or sale of the products of such foreign manufacturer or producer". The bill also states that any manufacturer or producer that registers an agent for service of process "thereby consents to the personal jurisdiction of the State or Federal courts of the State in which the registered agent is located." If an entity does not designate a registered agent, its products may not be imported into the United States.

The bill applies to manufacturers and "producers" but does not define producers. The bill applies to five categories of "covered products":

  1. Drugs, devices and cosmetics
  2. Biological products
  3. Consumer products
  4. Chemical substances
  5. Pesticides

The bill also requires a study be completed on the feasibility and advisability of including food products as a covered product. The service of process provisions (but not the consent to jurisdiction provision) also applies to manufacturers or producers of "component parts that will be used in the United States to manufacture such products."

Generally speaking, S. 1606 (if passed into law) would have a positive effect on domestic manufacturers and suppliers. First, expanding jurisdiction over foreign manufacturers would provide additional sources of recovery for injured persons and may thereby reduce the share of liability normally borne by domestic companies. For example, if an injury is allegedly caused by defects in two or more products, and the injured person cannot obtain jurisdiction over foreign manufacturers, the domestic manufacturer may be liable for 100% of the claimed damages. If, however, jurisdiction can be obtained over the foreign entities, the domestic manufacturer may only be liable for its fair share of liability.

Second, in some jurisdictions, innocent suppliers are statutorily protected from liability if the manufacturer is subject to jurisdiction. Delaware, Idaho, Illinois, Iowa, Kansas, Kentucky, Maryland, Minnesota, Missouri, North Carolina, North Dakota, Ohio, Tennessee and Washington all have laws that provide some level of protection for innocent suppliers. Further, even in jurisdictions that do not provide this type of protection, expanded jurisdiction would make it easier to pursue indemnity claims against foreign manufacturers.

Finally, this bill provides an avenue for suing foreign entities regardless of the subject matter of the dispute. The consent to jurisdiction applies for all civil and regulatory matters. Therefore, all domestic companies and persons could obtain jurisdiction over these entities for any disputes, whether or not related to any allegedly defective product. Contract disputes, patent infringement, misappropriation of trade secrets and other claims could all be brought in the jurisdiction where the registered agent is located, subject to any applicable contractual forum selection clauses.

There are potential longer term drawbacks to this litigation. Many countries around the world already are hesitant to enforce judgments entered in the United States, and may be more likely to refuse enforcement if the United States purports to expand its jurisdiction over foreign entities. Expanded jurisdiction and service of process may be of little significance if other countries refuse to recognize judgments entered in the United States, unless the foreign entity has assets within the United States. Second, other countries may respond with similar measures, subjecting United States manufacturers and exporters to jurisdiction in countries around the globe. There also may be some constitutional challenges to the legislation on the basis that the attempt to expand jurisdiction violates due process.

At least initially, however, U.S. manufacturers and suppliers stand to benefit if S. 1606 becomes law. We suggest that manufacturers and suppliers keep apprised of this legislation, as it may impact litigation strategy as well as business decisions when dealing with foreign entities.

Keith Whitson, a partner with Schnader Harrison Segal & Lewis LLP is a member of the firm's Litigation Department and Chair of the firm's Product Liability Practice Group.

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