The “forum selection clause” may not be the most exciting one in an NDA – and parties signing an NDA don't intend to end up in a dispute. But careful consideration of the forum can save time, money, and resources in the event of a dispute. In our latest blog from partner Mari Bonthuis, consider a prime example of the sloppy neglect of drafting forum selection clauses - and the consequences that resulted.
The “forum selection clause” may not be the most exciting one in an NDA – and parties signing an NDA don't intend to end up in a dispute. But careful consideration of the forum can save time, money, and resources in the event of a dispute. Consider a prime example of the sloppy neglect of drafting forum selection clauses – and the consequences that resulted – in the case of MMT, Inc. v. Hydro International, Inc.1
MMT, a company that designed patented biofiltration devices for stormwater runoff under the business name “StormTree,” was looking to explore a strategic partnership and executed an NDA with Hydro International Inc., another seller of stormwater management products, and its affiliates, HIL Technology and Hydro International plc. After months of negotiations, the parties were close to executing a joint marketing agreement when, abruptly, Hydro pulled out.
The real trouble arose six months later when Hydro filed patent applications for a water treatment device that, to MMT, appeared to use confidential information shared under the NDA. Adding insult to injury, Hydro began marketing products under the name “StormScape” – which rather closely resembled MMT's “StormTree.” In response, MMT pursued legal action, alleging patent infringement, trademark infringement, and misappropriation of trade secrets.
Based on the NDA's forum selection clause, the case was filed in Rhode Island:
“13) This agreement shall be governed by and interpreted in accordance with Rhode Island law and the Parties irrevocably submit to the non-exclusive jurisdiction of the Court of The State of Rhode Island in respect of any claim, dispute or difference raising out of or in connection with this agreement.”
Yet, this choice of forum proved problematic as Hydro moved to dismiss on the grounds that Rhode Island was not the appropriate venue, arguing that the court lacked jurisdiction over the case since Hydro had no business activities in Rhode Island. Hydro International Inc. was incorporated in Delaware and its principal place of business was in Maine; affiliate HIL Technology was both incorporated and located in Maine; and Hydro International plc was a United Kingdom company. All of Hydro's business was conducted in Maine during the events in dispute, and none of those events had occurred in Rhode Island. The fact that Hydro had agreed to litigate in Rhode Island in the forum selection clause simply did not matter.
The Rhode Island court did not dismiss the case; instead, it was transferred to a Maine court. No harm no foul? Perhaps not to the ultimate outcome of the case. However, the fact that the parties had to argue about the forum selection being Rhode Island certainly cost them both – in the form of thousands of dollars in legal fees.
Key Takeaways:
- Ensure your NDA includes a well-defined forum selection clause to avoid unnecessary disputes over jurisdiction in the event of a disagreement.
- Select a forum that either aligns with the company's operations
Footnote
1. C.A. No. 21-027, 2021 WL 1109321 (D.R.I. March 23, 2021).
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