Stream of Commerce

Stream of Commerce

World-Wide Volkswagen Corp. v. Woodson said two things about products that travel, and the two pull against each other. The Court refused to treat a consumer's unilateral act of driving a product into the forum as a contact of the retailer and wholesale distributor that sold it. It rejected the argument that sellers of a mobile product can foresee being haled into court in any state their customers might drive to. It did not, however, call foreseeability wholly irrelevant: a forum state does not exceed its powers when it asserts jurisdiction over a corporation that delivers its products into the stream of commerce with the expectation that consumers in the forum will buy them.¹

The stream-of-commerce metaphor describes a product's route from the manufacturer through intermediaries to the consumer who finally buys it. It matters when a manufacturer sells to a distributor in one place and the distributor resells in many others. That manufacturer never imports the product into the forum; it sells to others who do. It may know that forum resales occur, think them highly likely, or not care where the product ends up.² The record may therefore show none of the usual contacts: no office, no advertisement, no shipment to a forum customer.

The pull runs both ways. A manufacturer that markets through a distribution chain profits from forum resales even though others complete them, and that benefit argues for holding it to account there. Yet if awareness alone were availment, every national seller would face suit wherever its products landed, and the foreseeability that World-Wide Volkswagen rejected would return under another name. The open question is how much more than awareness a defendant must show.

The Court has never answered that question with a majority rationale. Asahi Metal Industry Co. v. Superior Court and J. McIntyre Machinery, Ltd. v. Nicastro each produced a divided Court, and in neither did a single rationale command a majority on how much a manufacturer must do beyond awareness.³ You therefore cannot solve a problem here by locating a controlling test and applying it. Ask instead whether the facts show that the defendant targeted the forum, and read the opinions as competing measures of how much conduct that takes. Asahi sets out the competing positions; Nicastro applies the targeting idea to a manufacturer that sold through an independent distributor.

Asahi's Divided Court

The Court first took up the question in Asahi Metal Industry Co. v. Superior Court, where it reversed a California court's exercise of jurisdiction over a Japanese component maker. The issue was whether a foreign defendant's mere awareness that the components it made, sold, and delivered outside the United States would reach the forum in the stream of commerce amounts to minimum contacts.⁴ The Justices divided: four said awareness alone does not suffice, four said a regular and anticipated flow of goods into the forum does, and one declined to choose.⁵ Because no rationale commanded a majority, state each position with its reason and apply a set of facts under more than one of them.

Gary Zurcher, injured in a California motorcycle accident, sued in California state court. His complaint named Cheng Shin Rubber Industrial Co., the Taiwanese maker of the tire tube, and Cheng Shin cross-complained for indemnification against Asahi Metal Industry Co., the Japanese maker of the tube's valve assembly. Zurcher's claims were settled and dismissed, and only the indemnity dispute between Cheng Shin and Asahi remained.⁶

Asahi's own dealings with California were thin and indirect. It made valve assemblies in Japan and sold them to Cheng Shin and other tire makers. Its sales to Cheng Shin took place in Taiwan, and the shipments ran from Japan to Taiwan. Cheng Shin bought 150,000 assemblies in 1978, 500,000 in each of 1979 and 1980, and 100,000 in each of 1981 and 1982; those purchases made up 1.24 percent of Asahi's income in 1981 and 0.44 percent in 1982. Cheng Shin alleged that about 20 percent of its United States sales were in California.⁷

The California Supreme Court found that Asahi solicited no business in California, made no direct sales there, and did not design or control the distribution system that carried its valves in. It upheld jurisdiction anyway. Asahi knew that some assemblies sold to Cheng Shin would be incorporated into tubes sold in California and benefited indirectly from those sales, and the court treated Asahi's intentional delivery of components to Cheng Shin in Taiwan, coupled with that awareness, as enough.⁸

The Court had to choose because the stream-of-commerce sentence in World-Wide Volkswagen had split the lower courts. Some read it to allow jurisdiction on no more than the defendant's act of placing the product in the stream; others read it to require action more purposefully directed at the forum than that.⁹

Justice O'Connor, writing for four Justices, sided with the courts that demand more. In her view, the substantial connection that minimum contacts require must come from an action of the defendant purposefully directed toward the forum, and placing a product into the stream of commerce, without more, is not such an action.¹⁰ The reasoning follows World-Wide Volkswagen, which refused to rest jurisdiction on a consumer's unilateral act of bringing the product into the forum.¹¹ Awareness is a prediction about what other people will do with the product, and a contact that depends on a prediction about someone else's conduct has the same defect as a contact that depends on a driver's choice of route. A defendant's awareness that the stream may or will sweep its product into the forum therefore does not convert the act of placing the product into the stream into an act directed at the forum.¹²

She identified additional conduct that can show an intent or purpose to serve the forum market. Each item is a concrete fact that an exam stem can supply or omit:¹³

• designing the product for the market in the forum state;
• advertising in the forum state;
• establishing channels for providing regular advice to customers in the forum state; and
• marketing the product through a distributor who has agreed to serve as the sales agent in the forum state.

Asahi had none of them. It had no office, agents, employees, or property in California, did not advertise or solicit business there, did not create, control, or employ the distribution system that brought its valves to the state, and was not shown to have designed its product for California sales. Assuming that Asahi knew some valves would end up in tubes sold in California, the plurality found that awareness insufficient and held that jurisdiction exceeded the limits of due process.¹⁴

Every fact in that scene appears on the plurality's list, and none appears in Asahi's record. The same test therefore sends the two defendants to opposite results.

The stricter test has a cost. Its practical consequence is to limit suit effectively to the maker of the finished product, who can shift liability to its component suppliers through indemnification agreements. The injured consumer then has redress only against the parties with whom he dealt directly, which may mean no redress at all if the finished-product maker is insolvent.¹⁵

Justice Brennan, writing for the other four, saw no need for additional conduct. The stream of commerce, he said, refers not to unpredictable currents or eddies but to the regular and anticipated flow of products from manufacture to distribution to retail sale. A participant who is aware that the final product is being marketed in the forum cannot be surprised by a lawsuit there, and the litigation imposes no burden without a corresponding benefit.¹⁶ Warning and benefit are the two ideas behind purposeful availment, and he found both present without extra conduct. He also read World-Wide Volkswagen as preserving the stream-of-commerce theory, pointing to its approving reference to Gray v. American Radiator & Standard Sanitary Corp., which upheld jurisdiction over a component maker that sold nothing directly in the forum.¹⁷ He disagreed with the conclusion that Asahi did not purposely avail itself of the California market, yet he agreed that jurisdiction would not comport with fair play and substantial justice.¹⁸

Justice Stevens joined neither camp. He thought the plurality's discussion unnecessary, because the fairness analysis alone required reversal. Whether a defendant's conduct amounts to purposeful availment, he wrote, is a constitutional determination affected by the volume, the value, and the hazardous character of the components. In most circumstances he would conclude that a regular course of dealing delivering over 100,000 units annually for several years is purposeful availment, even when the item is a standard product marketed throughout the world.¹⁹ His position is a matter of degree where the other two are all-or-nothing, and Asahi's record of hundreds of thousands of valves in several of the years in suit fits it.²⁰

The three positions diverge on Asahi's own facts. The plurality finds no availment because nothing beyond awareness appears. Justice Brennan finds availment in Asahi's regular and extensive sales of components to a manufacturer it knew regularly sold the finished product in California.²¹ Justice Stevens's attention to volume points the same way. Asahi nonetheless prevailed, because even Justice Brennan agreed that jurisdiction would be unreasonable, and that fairness holding is taught in a later section.²²

Return now to the helmet maker. The plurality asks for something beyond bulk sales and knowledge that helmets sell nationwide, and the stem supplies nothing: no Colorado advertising, no service center, no choice of stores. Justice Brennan would likely find availment, because the maker sold under a standing contract into a distribution chain it knew carried helmets throughout the country. Justice Stevens's answer turns on the volume and value of the helmets delivered over time, which the stem leaves unstated.

Targeting the Forum State

J. McIntyre Machinery, Ltd. v. Nicastro reversed a New Jersey decision that had upheld jurisdiction over a British manufacturer.²⁷ The plurality's rule is that, in a stream-of-commerce case, a foreign manufacturer must target the forum state itself, and not just the United States market, before that state's courts may bind it. The rule carries a qualification, because no opinion commanded a majority: Justice Kennedy announced the judgment for four Justices, two Justices concurred in the result on narrower grounds, and three dissented.²⁸ The paragraphs below take each view in turn before drawing the practical rule.

Robert Nicastro sued in New Jersey, alleging that a shear machine made in England by J. McIntyre Machinery, Ltd. was defectively designed or manufactured and injured him at his workplace.²⁹ The manufacturer sold in the United States through McIntyre Machinery America, an Ohio company it retained as its exclusive distributor for the entire country. The two were separate entities with no common ownership or management.³⁰ Nicastro's case for jurisdiction rested on three facts: the distributor agreed to sell the machines in the United States, the manufacturer's officials attended trade shows in several states though never in New Jersey, and as many as four machines ended up in New Jersey.³¹ The manufacturer had no office in the state, paid no taxes and owned no property there, and neither advertised in the state nor sent employees to it.³²

The New Jersey Supreme Court upheld jurisdiction anyway. It reasoned that the manufacturer knew or reasonably should have known that its products were distributed through a nationwide system that might lead to sales in any of the fifty states, and it said that the increasingly fast-paced globalization of the world economy justified relaxing the strict limits on state jurisdiction over foreign manufacturers.³³ That is foreseeability at national scale, and it is the argument the plurality set out to reject.

The plurality began from the premise that due process protects a defendant from judgment except by a court with lawful power, and that a state acquires power over an outsider only when the outsider has submitted to it.³⁴ A defendant may submit by consent, by being served while present in the state, or by domicile. For a narrower class of disputes, it submits by purposefully availing itself of the privilege of conducting activities in the state and invoking the benefits of its laws.³⁵ Sending goods can do the same work as sending agents, but only if the defendant can be said to have targeted the forum; it is generally not enough that the defendant might have predicted its goods would arrive there.³⁶ The plurality put the point in a sentence about whose conduct counts: “it is the defendant's actions, not his expectations, that empower a State's courts to subject him to judgment.”³⁷ On that footing it rejected Justice Brennan's Asahi approach, a rule built on general notions of fairness and foreseeability, as inconsistent with the premises of lawful judicial power, and it described its own conclusion as consistent with Justice O'Connor's Asahi opinion.³⁸

Expectation cannot carry that weight because it measures what the defendant can predict about other people's decisions, which is where the foreseeability argument in World-Wide Volkswagen failed. A buyer, a distributor, or a retailer decides where a machine finally lands, and a rule that ties a manufacturer's exposure to those decisions gives the manufacturer no way to steer clear of a state. The plurality added that the rule would burden domestic producers too, since a small producer that sold to a nearby distributor could be sued in any distant state the distributor's customers reached.³⁹

The plurality's second step explains why a nationwide marketing effort does not help the plaintiff. Jurisdiction is assessed forum by forum, so the question is whether the defendant followed a course of conduct directed at the society or economy of the particular state whose court is being asked to act.⁴⁰ Because the United States is a distinct sovereign, a defendant may in principle answer to the courts of the United States without having the required relationship with any individual state.⁴¹ The plurality acknowledged that the manufacturer had directed marketing and sales efforts at the United States, but the question concerned a New Jersey court's authority, so only the manufacturer's purposeful contacts with New Jersey counted.⁴² The distributor agreement, the trade shows elsewhere, and the four machines might reveal an intent to serve the American market, but none of them showed that the manufacturer had availed itself of the New Jersey market.⁴³ The rule is no general shield for foreign companies, because foreign corporations often target or concentrate on particular states and so become subject to specific jurisdiction in those forums.⁴⁴ The plurality also set aside what Congress might do by authorizing jurisdiction in an appropriate federal court, because that question was not presented. It accepted that New Jersey's interest in protecting its residents from defective products is strong, but held that the interest cannot substitute for the defendant's own purposeful contact.⁴⁵

Justice Breyer, joined by Justice Alito, agreed that the judgment had to be reversed and declined to adopt the plurality's reasoning.⁴⁶ In his view existing precedent decided the case. None of the Court's decisions holds that a single isolated sale, even one accompanied by the kind of sales effort shown here, is sufficient, and each opinion in Asahi looked for something beyond awareness, whether a regular and anticipated flow of goods, substantial volume and value, or something more, such as state-related design, advertising, advice, or marketing.⁴⁷ The facts found by the New Jersey courts showed no regular flow or course of sales in the state and no such additional effort. The plaintiff, who bears the burden of establishing jurisdiction, had shown no specific effort by the manufacturer to sell in New Jersey.⁴⁸

The concurrence declined to say more, and it declined in both directions. It asked what the plurality's targeting standard would mean when a company targets the world through a website, sells through an intermediary that fulfills orders, or knows its pop-up advertisements will be viewed in the forum, and it called this record an unsuitable vehicle for broad pronouncements on such questions.⁴⁹ It also refused to adopt the New Jersey court's absolute rule, because that rule would expose every producer that sells to a national distributor to suit in any state, including a small potter whose single coffee mug is resold to a buyer from Hawaii.⁵⁰ The plurality and the concurrence therefore agree on the result and disagree about the reasons. The concurrence rests on the narrower ground: it requires no theory of sovereignty and holds only that one isolated sale with no regular flow and no special effort does not suffice.

Justice Ginsburg, writing for three Justices, would have upheld jurisdiction. In her account the manufacturer engaged an exclusive distributor for the whole country, and its officials regularly exhibited at industry conventions to reach customers anywhere in the nation. The machine thus reached New Jersey not randomly or fortuitously but through a distribution system the manufacturer deliberately arranged.⁵¹ She would hold that the suit was brought in a forum entirely appropriate for adjudicating the claim, because the manufacturer, by engaging its distributor to promote and sell its machines nationwide, availed itself of the market of every state its distributor served.⁵² The plurality says a defendant that sought the national market has contacted the nation, while the dissent says it has contacted every state its distributor served, and that is the whole dispute about national marketing.⁵³

A manufacturer with Nicastro's profile (an independent national distributor, trade shows in other states, and a machine or two in the forum) loses before the plurality and before the concurrence. The fact that would move the result is an act aimed at the forum itself.

The advertisement does the work that the exclusive distributor and the trade-show circuit could not do, because it is conduct directed at one state's market. It is the kind of additional effort the concurrence found missing: special state-related design, advertising, advice, or marketing.⁵⁴ A stem invites the opposite mistake when it describes a nationwide distribution network and lets the student treat it as a forum contact, although each of those facts shows only an intent to reach the country as a whole. A second route remains open. The two concurring Justices and the three dissenters together leave open whether a foreign manufacturer may be sued in states where substantial amounts of its goods are regularly resold, so facts showing a steady flow of machines into the forum belong in the analysis even when no advertisement exists.⁵⁵ Because no rationale won a majority, lower courts have largely kept applying the tests they used before the decision, and the one proposition they have uniformly drawn from it is that a single contact with a forum does not by itself establish personal jurisdiction.⁵⁶

The third step does the real work, because it removes the facts that make a manufacturer look engaged with the market while leaving the facts that show engagement with the forum. A plaintiff must build the argument on whatever remains after step three.