Supreme Court Limits "Stream of Commerce" Jurisdiction Against Foreign Manufacturers.

Given the globalization of the world economy in the past several decades, there was a huge upswing in the number of products liability lawsuits filed in the U.S. against foreign manufacturers.

These foreign defendants were generally subjected to the jurisdiction of U.S. courts under the “stream of commerce” theory articulated in the seminal case Asahi Metal industry.

This theory generally holds that a court could exercise jurisdiction over a foreign manufacturer of a product so long as the manufacturer knows or reasonably should know that its products are distributed through a “stream of commerce” or national distribution system that might lead to those products being sold in any of the fifty states.

Until recently, all a plaintiff needed to allege to gain personal jurisdiction was show that a foreign manufacturer knew or should have known that its product(s) could reach the forum state.

A recently decided U.S. Supreme Court case significantly limited this analysis. In McIntyre Machinery, the Court held that the exercise of stream-of-commerce personal jurisdiction was not proper unless a party purposefully avails itself of conducting activities within the specific forum State.  It generally isn’t enough that the foreign manufacturer might have predicted that its goods would reach the forum state.

Significantly, the Court took issue with the “stream of commerce” metaphor itself.

The imprecision arising from Asahi , for the most part, results from its statement of the relation between jurisdiction and the “stream of commerce.” The stream of commerce, like other metaphors, has its deficiencies as well as its utility. It refers to the movement of goods from manufacturers through distributors to consumers, yet beyond that descriptive purpose its meaning is far from exact.

McIntyre Machinery is an important case because it will likely lead lower courts to dismiss certain cases which would otherwise have remained in court.

The case will also force plaintiffs’ attorneys to examine the jurisdictional basis of their cases more closely. Unless, they can establish that a foreign manufacturer specifically targeted the forum state in this context, it now becomes far less likely that a court would assert personal jurisdiction over the foreign manufacturer.

From the manufacturers’ standpoint, McIntyre Machinery provides foreign corporations with a better understanding of the U.S. legal landscape allowing them to more accurately assess their litigation risk. For example, foreign corporations may choose to limit their sales activities to specific U.S. states to limit their exposure to products liability lawsuits.

What do you think–did the Supreme Court get it right?