United States: Fourth Circuit Affirms Personal Jurisdiction Over Non-U.S. Defendants, Upholds Extraterritorial Jurisdiction Under The Copyright Act, And Reverses It Under The Lanham Act
Tire Engineering and Distribution, LLC et al. v.
Shandong Linglong Rubber Company, Ltd. et al., No. 10-2271 (4th
Cir. 2012), addresses several issues of international
practice. The plaintiff sued non-U.S. defendant, not in
contract (where arguably there is a greater opportunity to dictate
forum for the resolution of any dispute), but for conspiracy to
steal tire blueprints, produce infringing tires, and sell them to
that had formerly purchased them from Plaintiff. The jury
awarded $26 million in damages.
Each of the three major issues addressed by the Circuit have
international practice implications:
First, the Court of Appeals affirmed the finding of personal
jurisdiction over the non-U.S. parties. Applying
Virginia's long-arm statute, the Court of Appeals considered
the three standard factors in determining personal
jurisdiction:
(1) the extent to which the defendant purposefully availed
itself of the privilege of conducting activities in the forum
state; (2) whether the plaintiff's claims arise out of those
activities; and (3) whether the exercise of personal jurisdiction
is constitutionally reasonable.
The Court relied on purposeful availment in the jurisdiction and
the absence of any "overpowering foreign nexus".
Second, the Court addressed the extraterritorial reach of the
Copyright Act claims. Observing that "[a]s a general
matter, the Copyright Act is considered to have no extraterritorial
effect", the Court of Appeals continued that a fundamental
exception existed where extraterritorial jurisdiction did in fact
exist: "'when the type of infringement permits further
reproduction abroad,' a plaintiff may collect damages flowing
from the foreign conduct". For this proposition the
Court relied on the Second Circuit's decision (Learned Hand,
J.) in Sheldon v. Metro-Goldwyn Pictures Corp., 106 F.2d 45 (2d
Cir. 1939), where "[o]nce a plaintiff demonstrates a domestic
violation of the Copyright Act, then, it may collect damages from
foreign violations that are directly linked to the U.S.
infringement". The description given by Judge Hand in
Sheldon is that
The Culver Company made the negatives in this country, or had
them made here, and shipped them abroad, where the positives were
produced and exhibited. The negatives were 'records' from
which the work could be 'reproduced,' and it was a tort to
make them in this country. The plaintiffs acquired an equitable
interest in them as soon as they were made, which attached to any
profits from their exploitation, whether in the form of money
remitted to the United States, or of increase in the value of
shares of foreign companies held by the defendants. . . . [A]s soon
as any of the profits so realized took the form of property whose
situs was in the United States, our law seized upon them and
impressed them with a constructive trust, whatever their
form.
The Fourth Circuit found this "predicate act doctrine"
followed not only in the Second Circuit but in each other Circuit
to have addressed the matter.
Third, with respect to the trademark claims under the Lanham
Act, here the Circuit held that
Although the Lanham Act applies extraterritorially in some
instances, only foreign acts having a significant effect on U.S.
commerce are brought under its compass. Nintendo, 34 F.3d at 250.
Confining the statute's scope thusly ensures that judicial
application of the Act will hew closely to its "core purposes
. . . , which are both to protect the ability of American consumers
to avoid confusion and to help assure a trademark's owner that
it will reap the financial and reputational rewards associated with
having a desirable name or product." McBee v. Delica Co., 417
F.3d 107, 120–21 (1st Cir. 2005). With these aims in
mind, we have reasoned that the archetypal injury contemplated by
the Act is harm to the plaintiff's 'trade reputation in
United States markets'.
The Court of Appeals was unwilling to adopt a doctrine applied
in other Circuits, permitting the "significant effects"
test to be satisfied by "extraterritorial conduct even when
that conduct will not cause confusion among U.S. consumers, where
"sales to foreign consmers would jeopardize the income of an
American company".
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
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Specific Questions relating to this article should be addressed directly to the author.
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