Enterprise-Wide Contracts as a Basis for Personal Jurisdiction Over Foreign Parent Companies

A couple of weeks ago, I wrote about a case in which certain enterprise-wide contracts executed by a (U.S.) corporate plaintiff figured in the analysis of legislative jurisdiction. Today, I want to focus on VMware LLC v. Siemens AG, a case in which certain enterprise-wide contracts executed by a (foreign) corporate defendant figure in the analysis of personal jurisdiction. Like the first case, this one indicates that contractual arrangements, not just entity structure, are salient factors in jurisdictional determinations involving affiliated companies.

Background

VMware, a Delaware LLC headquartered in California (and now owned by Broadcom) produces virtualization and cloud computing software. In 2012, it entered into a Master Software License Agreement with Siemens AG, a German corporation. That Agreement was amended in 2021, and the parties also entered into a separate Enterprise License Agreement. Pursuant to these contracts, the Siemens group obtained licenses and support services for certain VMware products.

In the course of a license renewal negotiation beginning in 2024, a dispute arose between the parties. VMware took the position that Siemens’s deployment of its products exceeded the number of licenses Siemens had contracted for. The companies were unable to resolve this dispute and VMware ultimately sued Siemens AG, along with its U.S. subsidiaries, for copyright infringement in the U.S. District Court for the District of Delaware.

Preliminary Issue: Forum Selection

The Master Software License Agreement (MSLA) included a forum selection clause reading as follows: “The parties hereby consent to the exclusive jurisdiction of the courts of Munich for resolution of any dispute arising out of this Agreement.” It also included a carve-out providing that either party was permitted to seek injunctions in any forum “to prevent and/or stop any breach of, and otherwise enforce, its intellectual property rights.”

Based on the forum selection agreement, Siemens moved for dismissal pursuant to forum non conveniens. Following a thorough analysis of the contract language, Magistrate Judge Laura D. Hatcher recommended denial of that motion.

Judge Hatcher noted that the forum selection clause covered disputes “arising out of” the MSLA rather than disputes “regarding” the MSLA—the latter being a broader formulation that would more clearly encompass VMware’s copyright claims. Moreover, the carve-out specifically referencing intellectual property rights bolstered VMware’s argument that copyright infringement claims fell outside the scope of the forum selection agreement. Were Siemens to raise the MSLA as an affirmative defense to those claims, that might bring the dispute within the scope of the clause. However, Judge Hatcher observed, in both supplemental briefing and oral argument on the forum non conveniens motion, they had “ducked multiple invitations to confirm” that they intended to do so.

Personal Jurisdiction

VMware sought to establish personal jurisdiction over Siemens AG, the German parent corporation, under Rule 4(k)(2). That rule provides a basis for personal jurisdiction in claims arising under federal law. The exercise of jurisdiction under Rule 4(k)(2) must be consistent with Constitutional due process requirements. However, it also requires the plaintiff to establish that “the defendant is not subject to jurisdiction in any state’s courts of general jurisdiction.”

The parties disagreed over who bore the burden of proving that Siemens was not subject to jurisdiction in any U.S. state. In the end, though, Judge Hatcher noted that neither VMware’s complaint nor its brief in opposition of Siemens’s motion to dismiss included “any allegations that could be read to state that Siemens AG is not subject to any state’s courts of general jurisdiction.” Concluding that VMware had failed to make out even a prima facie case on that requirement, she recommended that Siemens AG’s motion to dismiss for lack of personal jurisdiction be granted without further analyzing the question of due process. That is the issue I want to focus on, though, looking at VMware’s arguments regarding Siemens’s enterprise-wide licensing arrangements.

Establishing Jurisdiction Over Affiliated Entities

As noted above, the exercise of jurisdiction under Rule 4(k)(2) must meet due process requirements—meaning that there must be forum contacts sufficient to support jurisdiction over the defendant. That analysis tracks due process requirements for jurisdiction in a specific state, but accepts aggregate contacts with the United States as a whole rather than insisting on contacts with the forum state in particular. Thus, courts ask whether (1) the defendant has purposefully directed activities at the United States; (2) the claim relates to those activities; and (3) assertion of jurisdiction would be reasonable and fair.

Siemens argued that the requisite contacts were absent: it had not engaged in any conduct relevant to alleged copyright infringement in the United States. Rather, its U.S. subsidiaries would have been responsible for any such conduct.

In cases like this, the usual argument for jurisdiction over a non-resident parent company is that the jurisdictional contacts of U.S. subsidiaries should be attributed to the parent. Attribution is possible under alter ego theory, for instance, if a subsidiary is held to lack a corporate identity separate from that of its parent. It is also available if the subsidiary is proven to be acting as an agent on behalf of the non-resident principal. Absent such arguments, though, the entity theory of corporate law generally shields the non-resident parent from jurisdiction in U.S. courts.

In this case, though, VMware argued that Siemens AG was subject to specific jurisdiction due to the control it exercised over the licensing agreements in question. The complaint included allegations that

[W]hen VMware software products have been delivered to and deployed by Siemens entities and operations in the United States, it is because Siemens AG has obtained the VMware software (and the license keys needed to activate it) from VMware and has in turn copied, distributed, or transferred the VMware software products to its affiliates and operations in the United States or because Siemens AG has directed and permitted the Siemens entities and operations in the United States to download, copy, distribute, and use such products. Such downloading, copying, distribution, and use in the United States, and distribution to the United States, without a license infringes VMware’s U.S. copyrights; and Siemens AG is responsible for directing, permitting, and materially contributing to those activities.

This is not an argument that Siemens AG controlled or directed the day-to-day operations of its U.S. affiliates to the degree necessary to pierce the corporate veil. Rather, it is an argument that under the enterprise-level license agreement, Siemens controlled this particular aspect of operations group-wide. As a consequence, VMware asserted, Siemens AG had itself established the requisite minimum contacts in the United States via the “effects test” for specific jurisdiction. Under that test, jurisdiction may be based on acts taken outside the forum that aim at causing effects within it—at least in circumstances in which it is the defendant’s own conduct that creates the necessary forum contacts.

VMware’s line of argumentation addresses a perennial challenge in transnational litigation: how to account for the scale of economic activity within multinational corporate groups. Academic proposals to shift entirely to an enterprise rather than entity theory of jurisdiction, in circumstances where a group of firms operates as a unified economic enterprise, have borne little fruit (although, as I’ve argued, there may be circumstances in which such a shift would be appropriate). Here, VMware proposes a more limited shift, based on Siemens’s choice to control its licensing agreements at the enterprise level. It seems appropriate to consider whether that control justifies a finding of minimum contacts—and, if so, how the “reasonableness” prong of the due process analysis would be deployed to address case-specific fairness factors.

Conclusion

Because Judge Hatcher based her recommendation regarding Siemens’s motion to dismiss on other grounds, she did not reach the due process questions invoked by the licensing agreement. Future cases may involve similar fact patterns regarding enterprise-wide contractual arrangements. If so, there will be other opportunities to consider the effect of such arrangements on personal jurisdiction over foreign parent companies.