Where Can Suppliers of AI Components, Services be Sued? The Case of the Autonomous Vehicle With a Mind of Its Own

PERSONAL JURISDICTION

Two Orrick, Herrington & Sutcliffe LLP attorneys discuss the issue of personal jurisdiction involving liability issues surrounding autonomous vehicles. The authors, through a hypothetical, examine jurisdiction over the AV manufacturer, the integrated component manufacturers and software providers, and third party service providers.

Diana Rutowski Robert Reznick

By Diana Rutowski and Robert P. Reznick

The technology behind self-driving cars is stunning—in a world of human fallibility, autonomous vehicles (AVs) may quickly surpass the safety record of human drivers. Yet, with technological advances and the inevitable accidents and other issues (at least until perfection is achieved), lawsuits will result. From accident liability, to departing employee, to intellectual property infringement disputes, questions of whom to sue and where can they be sued are beginning to arise. Indeed, these questions may prove particularly vexing when legal claims involve machines like AVs whose operation depends upon the interaction of a large number of components and systems offered by companies that are part of a notably global supply chain. Familiar principles of jurisdiction will apply, but their application to AVs will undoubtedly take the law in new and uncharted directions.

The focus here is on personal jurisdiction, and for purposes of our analysis, let’s consider a scenario reminiscent of a law school hypothetical: On a rainy evening in Palo Alto, Calif., in the not too distant future, a homeowner on the way to a restaurant summons an autonomous vehicle via an app on her smartphone. She waits at the curb and sees the car turn the corner onto her street. At just that moment, a neighbor calls out to his son, who was approaching the car on bike: “Move over, you’re driving on the wrong side of the road!” Hearing this admonition, the car’s voice-activated interface begin to steer the vehicle to the other side of the street. But its collision-control sensors immediately detect an oncoming delivery van and override the voice-activated interface, making the car veer sharply to the right. The road is slick and the car cannot not stop before jumping the curb and taking out the homeowner’s mailbox. “Recalculate!” she hears through the closed windows. She watches the car accelerate and cut across her lawn at the behest of the car’s navigation system to join the cross-street, which by then is the closest road. But the route runs through our homeowner’s bushes, and when the car emerges it cannot stop before striking the fender of a parked car.

If the homeowner and owner of the parked car want to recover for their losses, they may look to the AV manufacturer, the manufacturers of component equipment such as sensors, providers of software for computer vision or voice recognition, the service providers that dispatched the car or provided cloud-based navigation, and possibly others. Setting aside the merits of a liability claim, where can this set of disparate potential defendants—some likely based in different jurisdictions—be sued?

The Basics of Personal Jurisdiction

Obtaining personal jurisdiction over manufacturers of AVs and their suppliers would involve the application of familiar, if not entirely settled, principles. A court may have “general” or “specific” personal jurisdiction over a defendant. “General” personal jurisdiction only attaches where a defendant is “at home,” meaning in the state where an individual resides or (with very limited exception) where a company is incorporated or has its principal place of business. Daimler AG v. Bauman, 134 S. Ct. 746, 761-62 (2014). If a court has general personal jurisdiction, the defendant may be liable for any claim within the forum court’s subject-matter jurisdiction. General personal jurisdiction may only rarely be exercised over foreign companies and individuals who are both citizens and residents of foreign countries.

However, foreign entities may still be freely subject to “specific” personal jurisdiction. Unlike general jurisdiction, claims based on the assertion of specific personal jurisdiction are subject to the requirement that they must “aris[e] out of or relate[] to the defendant’s contacts with the forum.” Daimler, 134 S. Ct. at 749 (2014) (quoting Helicopteros Nacionales de Colombia S.A. v. Hall, 466 U.S. 408, 414 n. 8 (1984)). The relationship required between a claim and a defendant’s forum-related contacts may be more or less demanding depending on the court. See O’Connor v. Sandy Lane Hotel Co., 496 F.3d 312, 318-320 (3d Cir. 2007) (identifying three tests found in case law, ranging from “but-for” to proximate causation).

The critical jurisdictional test is usually supplied by the Due Process Clause of the 14th Amendment, which applies even in most federal cases. This is because federal courts in diversity cases or hearing claims under federal statutes having no special jurisdictional provisions may assert personal jurisdiction to the same extent as state courts in the forum. See Daimler, 134 S. Ct. at 753. Most but not all states exercise jurisdiction to the full extent permitted by the Due Process Clause of the 14th Amendment; in other states (including New York and Florida), additional statutory or constitutional limitations may apply. However, where claims are brought under federal statutes authorizing nationwide service of process or where jurisdiction is based under Fed. R. Civ. P. 4(k)(2), the defendant’s contacts with the United States as a whole, not just with the forum state, will be relevant.

The fundamental due process limitation is that a defendant may only be bound where it has “minimum contacts” with the forum such that it could “reasonably anticipate being hauled into court” there, and where making the defendant subject to the court’s orders would not offend “traditional notions of fair play and substantial justice.” World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292, 297 (1980) (citations and quotation marks omitted). Conduct by which a defendant “purposefully avails itself of the privilege of conducting activities within the forum state” will satisfy the “minimum contacts” test. Id. at 297 (citing Hansen v. Denkla, 357 U.S. 235, 253 (1958)). The kind of contact necessary to support jurisdiction may differ depending on the nature of the claim. Where tort claims are brought (the likely focus here), courts often ask whether a defendant “purposefully directed” its conduct to the forum; in contract cases, the defendant’s “purposeful availment” of the “benefits and protections” of the forum’s laws may instead be the focus of the inquiry. See, e.g., Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 802 (9th Cir. 2004).

The precise meaning of “minimum contacts” has essentially been the subject of continuous litigation since the phrase was first used in International Shoe Co. v. Washington, 326 U.S. 310 (1945), almost 75 years ago, and remains unsettled to this day in some contexts. Physical entry into a forum may be central to an inquiry, but it is not required.

Intentional Torts

In cases involving intentional torts, for example, personal jurisdiction may be established by actions focused in some way on the forum and whose “effects” are felt there. See Calder v. Jones, 465 U.S. 783, 789 (1984). Intellectual property infringement cases, such as those involving patents, are often analyzed as torts, and courts may look for an established distribution channel of infringing goods to find purposeful direction, or look to the jurisdiction where the IP owner resides. See Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558, 30 USPQ2d 1001 (Fed. Cir. 1994), cert. dismissed, 512 U.S. 1273 (1994) (note that patent cases are further complicated by a special patent venue statute).

Stream of Commerce

Many product liability cases are analyzed under the rubric of the “stream of commerce” theory, which applies in certain circumstances where a product sold to a distributor in State A is resold to a customer in State B and is involved in an incident there giving rise to a claim. A defendant having no affirmative role in the resale and no connection with State B cannot be subject to personal jurisdiction of B’s courts. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980); see also J. McIntyre Machinery v. Nicastro, 564 U.S. 873 (2011). But for many years—the consequence of two U.S. Supreme Court decisions yielding only plurality opinions ( J. McIntyre Machinery and Asahi Metal Industry Co. v. Superior Court of California, 480 U.S. 102 (1987)), courts have been split on the extent to which a defendant will have to defend itself in State B merely from the act of placing a product into the stream of commerce knowing and expecting that it will ultimately be resold there. Most courts require evidence that the defendant at least affirmatively “targeted” State B, through direct contacts or through sales or marketing distinct from its national programs—including, for example, advertising tailored to residents of a particular State, or participation in a local distribution network generating significant sales. See, e.g., Shuker v. Smith & Nephew Corp., 2018 BL 69478, No. 16-3785 (3d Cir. March 1, 2018) (requiring “targeting”); Rio Props., Inc. v. Rio Int’l Interlink, 284 F.3d 1007, 1020–21 (9th Cir. 2002) (finding requirement of “express aiming” satisfied by allegation that the defendant targeted consumers in the forum with different kinds of advertisements); Dingeldey v. VMI-EPE-Holland B.V., No. 1:15-cv-00916, 2016 BL 326425 (W.D. N.Y. Sept. 28, 2016); Amburgey v. Atomic Ski USA Inc., No. 2:06-cv-00149, 2007 BL 211289 (D. Me. May 17, 2007); Allstate Property And Casualty Insurance Company v. Grohe Canada Inc., No. 1:17-cv-00050, 2018 BL 48328 (D.N.H. Feb. 13, 2018) (collecting cases).

But some holdouts remain, requiring only that the defendant have placed its products into the stream of commerce with the “expectation” that the products would be found in the forum. E.g., Everett v. Leading Edge Air Foils LLC, Case No. 2:14-cv-01189, 2017 BL 235176 (E.D. Wis. July 7, 2017). Other courts have limited the “stream of commerce” theory strictly to the distribution model of products flowing through a distributor—which might exclude direct sales as well as the “resale” of components included in finished products. See D’Jamoos ex rel. Estate of Weingeroff v. Pilatus Aircraft Ltd., 566 F.3d 94, 105 (3d Cir. 2009). Whether specific alleged conduct is adequate to satisfy the “minimum contacts” requirement is best addressed on a case-by-case basis.

Website and Cloud-Based Services

An evolving body of case law addresses the question whether specific personal jurisdiction may be asserted over an entity whose presence in the forum is virtual, through a website or the provision of cloud-based services. For many years Zippo Mfg. v. Zippo Dot Com Inc., 952 F. Supp. 1119 (W.D. Pa. 1997), has been the leading case on jurisdictional issues relating to websites. The Zippo “sliding scale” test principally focuses on the “interactivity” of a website, taking into account the extent to which customers use the website to effect transactions and looking at the frequency and volume of business that is done. To say that Zippo has been widely influential, however, is not to minimize the extent to which courts of appeals in different circuits have focused on different factors in particular cases. One district court, for example, recently noted seven verbally different tests employed in the various circuits. Plixer International Inc. v. Scrutinizer GmbH, Case No. 2:16-cv-00578, 2017 BL 373958 (D. Me. Oct. 18, 2017). The same court, analyzing whether a German company that sold cloud-based services via an interactive website had “purposefully availed” itself of the U.S. market, looked exclusively to the operation of the company’s website. Id. The court assumed that the defendant maintained no servers in the U.S., although in providing services it used other data tracking companies that “may” have used U.S. servers. Id.

Personal Jurisdiction
Over an AV Manufacturer

Now, turning back to our hypothetical, the analysis of personal jurisdiction over the AV manufacturer would seem generally to resemble that applicable to manufacturers of ordinary vehicles, and be highly fact-dependent. The manufacturer would be subject to general personal jurisdiction in the U.S. state (if any) where it is incorporated or maintains its principal place of business—a foreign manufacturer is unlikely to be subject to general personal jurisdiction in any U.S. state. Specific personal jurisdiction would likely depend on how the automobile in question came to be in the forum, as well as details regarding the manufacturer’s sales and marketing arrangements. Where claims arise from alleged failures to warn, as may be the case with the use of complicated technologies in AVs, more emphasis might be placed on the preparation of owner’s manuals and the like than is often the case with claims relating to traditional vehicles. Courts analyzing securities law claims based on allegedly deceptive statements or materials often conduct such analyses.

Personal Jurisdiction Over
Integrated Component Manufacturers
And Software Providers

Analyzing claims arising from the operation of AVs begins to get really interesting when manufacturers of components and subsystems are considered as defendants, as these third-party systems may play an outsize role in the claims and be a magnet for plaintiffs’ attention. While perhaps central to issues of liability, the component manufacturers’ operations may have a narrow geographic focus for jurisdictional purposes. Indeed, the equipment and software providers may limit their sales and marketing efforts to AV and other OEM manufacturers, with communications, visits, transactions, and shipments (physical or electronic) limited to a few jurisdictions where the AV manufacturer maintains its executive, R&D and manufacturing facilities. Such claims may also raise the question whether component sales should even be subject to analysis under the “steam of commerce” theory, for the reasons discussed above.

The close co-development relationship that AV manufacturers and their component manufacturers and software developers may have in the context of AVs may subject foreign component manufacturers and developers to jurisdiction in additional states. Joint development agreements could be important to defining the relationship between the two parties, ranging perhaps from supplier to independent contractor to co-venturer, and the characterization might affect the parties’ amenability to jurisdiction. While it is not possible to exempt a party from personal jurisdiction contractually, foreign defendants may find themselves at risk without a clear agreement defining the rights and responsibilities of development partners.

Personal Jurisdiction Over
Third Party Service Providers

The integration of AVs with third-party service providers, potentially including for example cloud-based navigation and traffic control services, third-party dispatchers of AV transportation and apps downloaded to cell phones or vehicle-based servers, present additional novel issues. In contrast to the manufacturers of components and subsystems, it is less clear in such cases that the putative defendants will have marketed to and dealt exclusively with the AV manufacturer. They may have promoted and made retail sales, albeit via website or Internet technology, social media, and even traditional broadcast and print advertising. Depending upon the claim and the facts, personal jurisdiction may be easy to analyze or be subject to the evolving and varying standards applicable in the different circuits to problems arising in the virtual world.

Conclusion

Litigation involving AVs promises to be as complex as the machines themselves. A defining characteristic of the cases to come may be the large number of geographically diverse manufacturers and service providers alleged to have played major roles in the activities or incidents claimed to have caused injury. Determining personal jurisdiction—whether and where these companies may be sued—could prove to be a critical gating issue, muddied further by persistently unsettled law. Multiple potential defendants also carries with it the need to make strategic judgments about where to bring litigation if there is not a single forum in which all can be sued.

Author InformationDiana Rutowski is a partner in the Silicon Valley office of Orrick, Herrington & Sutcliffe LLP. Rutowski in an intellectual property litigator and an editor-in-chief of Orrick’s IP Landscape blog.

Robert P. Reznick is a senior counsel in the Washington, D.C., office of Orrick. He is managing editor of The World in U.S. Courts, Orrick’s quarterly review of decisions applying U.S. law to global business and cross-border activities.

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