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 consumers would jeopardize the income of an American company”.

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