Cases discussed in this issue

Foreign Sovereign Immunity Act (FSIA)/Political Question Doctrine

FSIA Does Not Exempt US Bank from Subpoena for Production of Records of Accounts Maintained by Central Bank of Nigeria - The World in U.S. Courts: Fall 2017 - Foreign Sovereign Immunity Act (FSIA)/Political Question Doctrine

Esso Exploration & Production Nigeria Ltd. v. Nigerian National Petroleum Corporation, US District Court for the Southern District of New York, August 15, 2017

The plaintiffs (Esso Exploration) believed they had claims against the defendant Nigerian National Petroleum Corporation (NNPC), a corporation owned by the Government of Nigeria, and served subpoenas on ten New York banks as “jurisdictional discovery.” The subpoenas sought information about NNPC accounts the banks were thought to maintain as well as accounts maintained by other Nigerian entities that NNPC allegedly controlled or benefitted from. The goal of the discovery was to show a nexus between NNPC and the US through NPCC’s “purposeful use and control” of the accounts. Among the subpoenas was one directed to JP Morgan, seeking information about accounts allegedly held by the Central Bank of Nigeria (CBN). CBN moved to quash the subpoena.

As relevant here, CBN argued that the subpoena was an invalid exercise of judicial power because the bank was immune from the Court’s jurisdiction under the FSIA. The Court disagreed, stating that the FSIA’s protections applied only to potential liability and efforts to attach property, not requests for information. Additionally, the Court refused to extend FSIA protection to JP Morgan merely because the subject of the subpoena may be an agency of a non-US government.

Antitrust/Competition/Foreign Trade Antitrust Improvements Act (FTAIA)

Claim Based on Illegal Manipulation of Securities Pricing Benchmark Allegedly Performed by Non-US Parties Outside the US May Proceed Where Limited to US Transactions in Derivatives - The World in U.S. Courts: Fall 2017 - Antitrust/Competition/Foreign Trade Antitrust Improvements Act (FTAIA)

Sonterra Capital Master Fund Ltd. v. Credit Suisse Group AG, US District Court for the Southern District of New York, September 25, 2017

The plaintiffs in this wide-ranging class-action lawsuit allege that the defendant global banks illegally manipulated CHF LIBOR—a daily benchmark designed to reflect the cost at which large banks are able to borrow Swiss francs. The plaintiffs allege they were injured in connection with transactions with the defendants and third parties in Swiss franc derivative instruments tied to the CHF LIBOR rate.

Among other claims under federal law, the plaintiffs alleged the defendants’ conduct was price-fixing under the Sherman Antitrust Act, and they were entitled to treble the damages they suffered as a result. As relevant here, the defendants argued that any injury allegedly suffered by the plaintiffs in the US was not within the scope of the antitrust laws under the FTIA because it was not the “reasonably proximate” result of the conduct alleged, which occurred almost exclusively between and among European entities in Europe. The Court disagreed, noting that the complaint was limited to transactions occurring in the US. The defendants also argued that the complaint failed to satisfy the FTAIA requirement that injuries in this context were actionable only if they resulted from conduct that had a “direct, substantial, and reasonably foreseeable” effect on US commerce. Most notably, the defendants argued that the alleged injury, rather than being “direct,” was the product of many factors, including that the allegedly manipulated benchmark was just the starting point for price negotiations. The Court again disagreed, ruling that, at the pleading stage, it was sufficient for the plaintiffs to allege that the “starting point” for negotiations was a benchmark whose value had been illegally manipulated. The Court also found that alleged manipulation of a globally-disseminated benchmark used as a component in pricing derivatives would have a “foreseeable” effect in the US.

[Editor’s note: The Sonterra Capital Master Fund case is also discussed in the Racketeer Influenced and Corrupt Organizations Act (RICO) section of this report.]

Intellectual Property – Patent

Claims of Infringement in US Support Request for Damages Arising from Sales in Other Countries - The World in U.S. Courts: Fall 2017 - Intellectual Property – Patent

Card–Monroe Corp. v. Tuftco Corp., US District Court for the Eastern District of Tennessee, September 1, 2017

The plaintiff Card-Monroe Corp. sued a competitor, Tuftco Corp., for patent infringement in connection with patents for the production of carpet-tufting machines and methods. Tuftco allegedly developed an infringing technology and then built and sold machines that practiced the technology. Among many claims addressed by the Court before trial, Tuftco sought to exclude sales outside the US from potential damages calculations, arguing that the Patent Act had no extraterritorial application.

The Court reviewed the recent appellate decision in Power Integrations, Inc. v. Fairchild Semiconductor International, Inc. that had addressed the territorial scope of patent infringement claims, and denied Tuftco’s request. The Court first observed that a defendant’s “exploitation” of a patented invention outside the US “is not infringement at all.” It then took the rule of the Fairchild Semiconductor case to mean that sales outside the US could only be subject to a US infringement suit to the extent based on the “accused infringer’s domestic activities, such as its manufacture or offers for sale” in the US.

The Court also discussed the rules of WesternGeco L.L.C. v. ION Geophysical Corp. and Carnegie Mellon University v. Marvell Technology Group, Ltd., under which damages can be based on “making or using or selling in the United States or importing into the United States, even if one or more of those activities also occur abroad.” Although Carnegie Mellon involved a method claim, the Court found it equally applicable to “machine” claims.

The Court thus found that Card-Monroe could seek damages for sales outside the US based on its allegations of US patent infringement.

Hong Kong Holding Company’s Alleged Inducement of Infringement Supports Assertion of Specific Personal Jurisdiction - The World in U.S. Courts: Fall 2017 - Intellectual Property – Patent

The Chamberlain Group, Inc. v. Techtronic Industries Co., Ltd., US District Court for the Northern District of Illinois, August 8, 2017

Plaintiff Chamberlin Group sued a number of US and non-US entities involved in the manufacture and sale of allegedly infringing garage door openers sold under the Ryobi brand. The parent entity among the defendants, Techtronic Industries Co., Ltd. (TTK-HK), a Hong Kong holding company, argued that the Court could not assert specific personal jurisdiction over it because it had no contacts with Illinois, including that it had no direct or advertising presence and had never conducted any of the following activities in the state: (i) employed anyone, (ii) maintained a registered agent, (iii) paid taxes, (iv) owned, leased, possessed, or maintained any real or personal property, or (v) manufactured, produced, marketed, imported, or sold any products. The Court stated, however, that Chamberlain Group had made an initial showing that TTK-HK approved, monitored, and oversaw both the development of the allegedly infringing products and their sale to an exclusive distributor with a heavy Illinois presence, and on this basis found that it had jurisdiction over the Chinese company.

The Court noted that it was required to apply the jurisdictional law as stated by the US Court of Appeals for the Federal Circuit, which has exclusive jurisdiction over patent infringement cases. Under that law, jurisdiction must satisfy the Illinois “long-arm” jurisdictional statute, which has been construed to apply to the full extent permitted under the Due Process Clause of the US Constitution. The applicable test thus was whether (i) TTK-HK “purposefully directed activities at forum residents,” (ii) the claim “arises out of or relates to those activities,” and (iii) asserting personal jurisdiction is “reasonable and fair.”

Among other issues, the Court considered TTK-HK’s argument that the plaintiff’s claim could not have “arisen from” or been “related to” the holding company’s alleged conduct because that conduct—which did not involve the manufacture, sale, or importation of the garage door openers—could not constitute patent infringement. The Court agreed that the conduct was not direct infringement, but found that it could constitute the inducement of patent infringement, which would make TTK-HK “liable as an infringer.”

[Editor’s note: The Chamberlain Group case is also discussed in the Personal Jurisdiction/Forum non Conveniens Section of this report.]

No Specific Personal Jurisdiction Over Italian Patentholder That Sent Cease-and-Desist Letters to Plaintiffs and Engaged in Sales Activities in Forum State - The World in U.S. Courts: Fall 2017 - Intellectual Property – Patent

P.I.C. International Inc. d/b/a H2Odyssey v. Miflex 2 S.p.A., US District Court for the Southern District of California, August 17, 2017

The plaintiffs—one US and one Taiwanese corporation—sued an Italian corporation (Miflex 2) and its Italian CEO for a declaration that their products do not infringe patents held by the Italian company. Miflex 2 sought to dismiss the case, arguing that its contacts with the California were not substantial enough to support the assertion of jurisdiction.

The plaintiffs limited their argument to specific personal jurisdiction. The Court began its analysis by noting that a plaintiff’s burden in such case is to demonstrate that the defendant has “purposefully directed” its activities at residents of the forum state and the claim “arises out of or relates to” those contacts. The assertion of jurisdiction must also be “reasonable and fair” under the circumstances. The Court surveyed the governing law specific to patent cases describing the kinds of conduct that could or could not support the assertion of jurisdiction. Examples of activities not relevant to the jurisdiction and question include:

• The sending of cease-and-desist letters;
• Unsuccessful efforts to license the patents at issue; and
• Successful efforts to license the patents at issue, even to multiple non-exclusive licensees, so long as the patentholder’s only dealings with the licensees involve the collection of royalties.

Rather, the Court stated that “other activities” directed at the forum and related to the claim must be shown for specific personal jurisdiction to exist. It identified the following as examples of such conduct:

• Initiation of “judicial or extra-judicial patent enforcement” within the forum;
• Entering into an exclusive license or “other undertaking” that imposes enforcement obligations on a party “residing in or regularly doing business in” the forum; and
• Entering into a license, exclusive or non-exclusive, that allows the patentholder to “exercise control over the licensee’s sales activities.”

In the case at bar, the plaintiff based its claim of jurisdiction on the following alleged activities of Miflex 2:

• The sale of patented hoses in California “through” its California-based North American distributor;
• The direction of product recall and service issues to that distributor;
• Threats to sue both of the plaintiffs over the subject patent, and earlier threats to sue a third party over the same patent, and one meeting in California to try to resolve the dispute; and
• Threats to sue one of the plaintiff’s customers.

Miflex 2 responded that it had no corporate offices or contacts with California other than sales to its distributor and the sending of two cease-and-desist letters (with no enforcement litigation following those letters). It also noted that it had not advertised its products through media outlets in California or otherwise targeted California residents. The Miflex 2 website does not accept orders or otherwise sell products. Miflex 2 added that it sells its products both to its distributor and to four original equipment manufacturers in California, and in every case title is transferred to the purchasers in Italy.

The Court found it had no jurisdiction over Miflex 2.  It dismissed as irrelevant the cease-and-desist letters;  gave credence to a declaration submitted by Miflex 2’s CEO that his meeting in California cited by the plaintiffs was not for the purpose of settling a patent dispute;  distinguished a recent appellate case in which jurisdiction was based, in part, on the conduct of a “frequent patent-infringement suit filer who regularly traveled to the forum of accused infringers to hold extensive, in-person patent licensing negotiations before filing a suit”;  and stated that Miflex 2’s “commercialization activity” in California could not form the basis for personal jurisdiction.

[Editor’s note: The P.I.C. International case is also discussed in the Personal Jurisdiction/Forum non Conveniens section of this report.]

Intellectual Property – Trademarks/Lanham Act

Injunction Against Infringing Sales Outside US Limited to Canada Because Plaintiff’s Sales Elsewhere Were Insufficiently Substantial to Implicate US Commerce - The World in U.S. Courts: Fall 2017 - Intellectual Property – Trademarks/Lanham Act

Blumenthal Distributing, Inc. d/b/a Office Star v. Herman Miller, Inc., US District Court for the Central District of California, August 1, 2017

Furniture manufacturer Herman Miller held registered and unregistered trade dress rights to certain chairs. It sued Office Star, a competitor, under the Lanham Act for infringing these rights in connection with Office Star chairs that resembled the Herman Miller models and were allegedly of inferior quality. After trial and extensive post-trial proceedings, the Court entered judgment for Herman Miller. One issue was whether Office Star would be enjoined from selling its infringing sales outside the US, given the Lanham act’s limited extraterritorial reach.

In deciding the issue, the Court identified a three-part test that would have to be satisfied for entry of the extraterritorial injunction: (i) whether the non-US sales had “some effect on American foreign commerce,” (ii) whether the effect was “sufficiently great to present a cognizable injury” to Herman Miller, and (iii) whether “the interests of and links to American foreign commerce [are] sufficiently strong in relation to those of other nations to justify an assertion of extraterritorial authority.”

The Court found tests (i) and (ii) satisfied. As to the first test, the critical factor was evidence that Herman Miller sold its chairs in substantial numbers outside the US—with about half in Canada—meaning that Office Star’s infringing ex-US sales “would have an effect” in the US The same information satisfied the second test. But the Court found that Herman Miller had not made a strong showing as to the relative interests of the US and other countries except for Canada, where its sales of the subject chairs were especially numerous. The Court thus enjoined Office Star from making infringing US domestic sales as well as sales to customers in Canada.

Lanham Act Claim Dismissed for Failure to Allege Facts Supporting Claim of “Substantial Effect” on US Commerce - The World in U.S. Courts: Fall 2017 - Intellectual Property – Trademarks/Lanham Act

International Diamond Importers, Inc. d/b/a I.D.I. Design, Inc. v. Med Art, Inc., US District Court for the Southern District of New York, June 29, 2017

International Diamond Importers (IDI) is a New York-based designer, manufacturer, and seller of jewelry that enjoys US trademark and copyright protection. The defendants—a New York Corporation, a Turkish Corporation, and the Turkish citizen (Emil Güzeliş) who serves as CEO of both companies—were alleged to have infringed that IP in connection with similar jewelry sold in 2016 at an international jewelry fair in Hong Kong attended by New York buyers.

After finding that it had personal jurisdiction over all the defendants, the Court addressed the plaintiff’s infringement claims. It noted that the Vanity Fair test applicable in New York made the extraterritoriality of the Lanham Act depend on the following three factors: (i) whether the defendant is a US citizen; (ii) whether there exists a conflict between the defendant’s trademark rights under non-US law and the plaintiff’s trademark rights under US law; and (iii) whether the defendant’s conduct has a “substantial effect” on US commerce. While IDI alleged that the defendants had targeted US customers and had caused consumer confusion, their allegation of a “substantial effect” on US commerce was unsupported by any allegations of fact. The Court thus dismissed IDI’s Lanham Act claim with leave to amend to make more detailed allegations of an effect on US commerce.

[Editor’s note:  The IDI case is also discussed in the Intellectual Property – Copyright and Personal Jurisdiction sections of this report.]

Bermuda Holding Company Responsible for Alleged Trademark Infringement in California - The World in U.S. Courts: Fall 2017 - Intellectual Property – Trademarks/Lanham Act

Lodestar Anstalt v. Bacardi & Co. Ltd., US District Court for the Central District of California, August 14, 2017

Plaintiff Lodestar is a Lichtenstein corporation having a principal place of business in Cyprus. It owns a US trademark for “UNTAMED,” and used that mark in connection with advertising campaigns promoting the sale of Irish whiskey and rum in the US. It sued Bacardi & Co., Ltd., a Bermuda corporation, and two of Bacardi’s subsidiaries (one US-based) for trademark infringement in connection with Bacardi’s use of an allegedly near-identical mark and similar BACARDI UNTAMED advertising campaign to promote its iconic rum brand. Lodestar alleged that Bacardi’s infringement was knowing and intentional.

Bacardi-Bermuda moved to dismiss on grounds that the court could not assert personal jurisdiction over it. The Court only considered the potential assertion of specific personal jurisdiction and, analogizing a trademark infringement claim to a tort, applied the tort-based test requiring that the defendant “have (1) committed an intentional act, (2) expressly aimed at the forum state, (3) causing harm that the defendant knows is likely to be suffered in the forum state.” Lodestar argued that this test was satisfied by evidence that Bacardi Ltd. oversaw and directed the global “BACARDI UNTAMED” marketing campaign, which included substantial spending in the US. The Court agreed that the advertising campaign could be deemed the intentional act of Bacardi-Bermuda, giving credence to disputed evidence that Bacardi had itself used at an earlier phase of the case. The Court also found that the advertising was “expressly aimed” at California, the forum state, citing images on a company website and social media account showing promotion specifically tailored its advertising to target consumers in California. The requirement that injury be “foreseeable” was satisfied because infringement inherently caused damage to a trademark holder’s reputation.

Specific personal jurisdiction also requires that the plaintiff’s claims “arise out of or result” from the defendant’s contacts with a forum, and the Court found this was the case. Applying the lenient “but for” test, it found that the claims would not have arisen had the contacts with California attributed to Bacardi-Bermuda not occurred.

Finally, the Court found that Bacardi-Bermuda had not made the “compelling case” necessary to establish that the assertion of jurisdiction was “unreasonable,” and therefore inconsistent with the Due Process Clause of the US Constitution. The Court observed that a seven-factor test is used to determine the “reasonableness” of requiring a defendant to appear, and that Bacardi-Bermuda had only addressed one of the factors.

[Editor’s note: The Lodestar Anstalt case is also discussed in the Personal Jurisdiction section of this report.]

Intellectual Property – Copyright

Failure to Allege Infringing Acts in the US Dooms Claims Arising From Alleged Copyright Infringement at Hong Kong Trade Show - The World in U.S. Courts: Fall 2017 - Intellectual Property – Copyright

International Diamond Importers, Inc. d/b/a I.D.I. Design, Inc. v. Med Art, Inc., US District Court for the Southern District of New York, June 29, 2017

International Diamond Importers (IDI) is a New York-based designer, manufacturer, and seller of jewelry that enjoys trademark and copyright protection. The defendants—a New York Corporation, a Turkish Corporation, and the Turkish citizen who serves as CEO of both companies—were alleged to have infringed that IP in connection with similar jewelry sold in 2016 at an international jewelry fair in Hong Kong attended by New York buyers.

After finding that it had personal jurisdiction over all the defendants, the Court addressed the plaintiff’s infringement claims. It noted that the US Copyright Act had no extraterritorial applicability, but that an exception exists where actions in the US constituted copyright infringement and enabled further violations to occur in other countries. In the case at bar, no such US conduct was alleged, and the claim of copyright infringement was dismissed. The Court found irrelevant that the defendants may have targeted US retailers and consumers.

[Editor’s note: The IDI case is also discussed in the Intellectual Property – Trademarks/Lanham Act and Personal Jurisdiction sections of this report.]

Copyright Infringement Claim Upheld Where Copies Made Outside US Were Distributed to US Recipients - The World in U.S. Courts: Fall 2017 - Intellectual Property – Copyright

Wilspec Technologies, Inc. v. Rugao Isen Electronic Co., Ltd., A/K/A Isen Controls, US District Court for the Western District of Oklahoma, August 25, 2017

The plaintiff Wilspec Technologies alleged that the defendants, a Chinese company and its principal, unlawfully copied pictures of the plaintiffs’ products, apparently in China, and promoted them falsely to customers in the US and elsewhere. Wilspec brought a variety of claims seeking monetary damages and injunctive relief, and the defendants moved to dismiss. A magistrate judge denied the motion in its entirety, in an opinion that did not reveal many of the facts on which the claims were based.

As pertinent here, the defendants argued that Wilspec’s copyright infringement claim was based on an impermissibly extraterritorial application of the statute, as it did not allege any misconduct in the US The magistrate disagreed, finding that the Copyright Act was implicated by Wilspec’s allegation that illegally copied photographs were “distributed” to entities in the US, including to Wilspec customers.

Racketeer Influenced and Corrupt Organizations Act (RICO)

No US Domestic RICO Injury Inflicted on Chinese Plaintiff that Overpaid for US Soybeans in China - The World in U.S. Courts: Fall 2017 - Racketeer Influenced and Corrupt Organizations Act (RICO)

Dandong Old North-East Agriculture & Animal Husbandry Co., Ltd. v. Hu, US District Court for the Southern District of New York, August 3, 2017

Plaintiff Dandong, a Chinese producer of soybean products, maintains its principal place of business is Dandong City, China, and is one of the largest purchasers of soybeans in the US. Dandong was the victim of a fraud perpetrated by one of its former executives and his relatives, all of whom at the time lived in the US. The relative was convicted of acts relating to the fraud and is presently in prison in China. Dandong sued the three relatives in federal court in New York, among other claims arguing that they had violated civil RICO provisions.

Under the US Supreme Court’s 2016 decision in the RJR Nabisco case, the provision of the RICO statute creating a private right of action has no extraterritorial effect and so a plaintiff must allege that it suffered a US “domestic injury.” The Supreme Court provided little guidance for determining where a RICO injury should be deemed to occur, and lower courts have adopted differing approaches. The District Court in New York identified two such approaches, one focused on the location of the conduct on which the claim is based and the second focused on where the plaintiff suffered the injury alleged. The Court sided with the majority rule, and for alleged injuries to a plaintiff’s “business” found they had been suffered “where substantial negative business consequences occurred”—typically, where a company is incorporated and has its principal place of business. Where there has been an alleged injury to “property,” by contrast, the loss will usually be deemed to occur “where the plaintiff parted with the property or where the property was damaged.”

Dandong argued that its alleged reputational injury in the US should be deemed to have been suffered in the US. Dandong noted that the Court, in a prior RICO opinion, stated that a US injury had been made out where a fraud had damaged the plaintiff’s “relationships with actual or prospective US customers.” In that case, copies of magazines fraudulently obtained at a discount and shipped from the US to Brazil were found to have injured the UIS business of the magazine publisher-plaintiff. The Court disagreed that the cases were analogous, noting that the present case involved alleged injury to the plaintiff’s suppliers. The Court also found the prior case to have involved a claim of a loss to property, the location of which followed a different rule from an alleged injury to a business. In the case at bar, the Court stated that Dandong had received all of the property it had contracted for; it just overpaid for it, in China. Other grounds for rejecting Dandong’s claim were noted: that an alleged injury to prospective supplier relationships in the US could not under any circumstances support a RICO claim; that Dandong’s injury was suffered in China, where the company overpaid for its US soybeans and where the loss of business resulted in reduced factory operations; and that US attorneys’ fees paid from China were not a US “domestic injury.”

[Editors’ note: On October 30, 2017, the first appellate decision addressing the extraterritorial application of the private civil RICO statute was issued, reversing in part the district court’s decision in Bascuñán v. Elsaca, which was covered in the Summer & Fall 2016 edition of The World in US Courts. Our commentary on the Court of Appeals’ decision was published by Law360 on November 3, 2017, and may be found here.]

RICO “Pattern of Racketeering Activity” Based on Alleged Wire Fraud and Mail Fraud Found not to Require Extraterritorial Application of RICO Despite Much Conduct Originating in the UK - The World in U.S. Courts: Fall 2017 - Racketeer Influenced and Corrupt Organizations Act (RICO)

In re Insurance Brokerage Antitrust Litigation MDL-1663 Tag-Along Action: Lincoln Adventures, LLC v. Certain Underwriters of Lloyd’s of London, US District Court for the District of New Jersey, August 22, 2017

This action is part of a larger purported class action claim brought by purchasers of insurance from underwriters associated with the London-based insurance marketplace, Lloyd’s of London. The underlying antitrust claim is that purchasers of insurance through Lloyd’s were overcharged because of anticompetitive agreements. This decision addresses the sufficiency of the plaintiffs’ RICO claim, which is based on an alleged failure to disclose a conspiracy between the defendants and insurance brokers to conceal the allegedly anticompetitive rates. Among other issues, the District Court in New Jersey considered whether the claim involved an impermissibly extraterritorial application of the RICO statute.

Under the US Supreme Court’s 2016 decision in the RJR Nabisco case, substantive RICO claims have extraterritorial application to the extent the plaintiffs allege a “pattern of racketeering activity” premised on violations of underlying criminal provisions (RICO “predicate statutes”) that themselves have extraterritorial reach. In the case at bar, the defendants allegedly committed wire fraud and mail fraud (both RICO predicate statutes) in representations made to US purchasers of insurance. The defendants, non-US entities who argued that their relevant actions occurred in the UK, sought to dismiss the RICO claim as outside the geographic scope of the wire and mail fraud statutes.

The Court concluded that neither the wire fraud nor the mail fraud statute applies extraterritorially, but also concluded that the complaint alleged US domestic violations of both predicate statutes. The alleged wire fraud violation consisted of electronic communications sent across US state lines and from the UK to the US The Court analyzed the mail fraud statute differently, noting first that the defendants’ alleged “scheme or artifice to defraud” “foreseeably” caused communications to be sent through the U.S Mail and/or a private interstate carrier. Alternatively, the Court found the mail fraud statute was satisfied because the alleged scheme was “directed in large part” at customers in the US, citing the fact that US customers accounted for a large percentage (44% or 70%, depending on the measure) of the gross premiums in the Lloyd’s Market.

[Editors’ note: On October 30, 2017, the first appellate decision addressing the extraterritorial application of the private civil RICO statute was issued, reversing in part the district court’s decision in Bascuñán v. Elsaca , which was covered in the Summer & Fall 2016 edition of The World in US Courts . Our commentary on the Court of Appeals’ decision was published by Law360 on November 3, 2017, and may be found here.]

Claim Based on Illegal Manipulation of Securities Pricing Benchmark Allegedly Performed by Non-US Parties Outside the US May Proceed Where Limited to U.S. Transactions in Derivatives - The World in U.S. Courts: Fall 2017 - Racketeer Influenced and Corrupt Organizations Act (RICO)

Sonterra Capital Master Fund Ltd. v. Credit Suisse Group AG, US District Court for the Southern District of New York, September 25, 2017

The plaintiffs in this wide-ranging class-action lawsuit allege that the defendant global banks illegally manipulated CHF LIBOR—a daily benchmark designed to reflect the cost at which large banks are able to borrow Swiss francs. The plaintiffs allege they were injured in connection with transactions with the defendants and third parties in Swiss franc derivative instruments tied to the CHF LIBOR rate.

Among other claims under federal law, the plaintiffs alleged the defendants’ conduct violated the RICO statute. The claim was based exclusively on the allegation that the defendants committed wire fraud by making false CHF LIBOR submissions outside the US, and sending confirmations into the US for derivatives transactions incorporating manipulated CHF LIBOR. The defendants argued that these activities were outside the geographic reach of the wire fraud statute, and so could not support a RICO claim.

The Court noted that three prior cases alleging injuries based on manipulation of the LIBOR benchmark had recently been dismissed on the ground that domestic conduct did not support a violation of the wire fraud statute, and reached the same conclusion as to the case at bar. It focused on the allegation that the allegedly manipulative communications occurred between defendants located outside the US and the allegedly manipulated LIBOR quotes were likewise submitted to a non-US organization. In so doing, the Court characterized as having a “minimal nexus” with the US conduct of the type rejected in the LIBOR cases, including:

Transmitting false quotes through servers located in the US, causing [publishers] to publish manipulated LIBOR fixes into the United States, coordinating their derivative positions with their LIBOR submissions in electronic chat rooms through servers located in the United States, and sending trade confirmations based on manipulated LIBOR rates to counterparties in the US.

In reaching its decision, the Court distinguished a more expansive interpretation of the wire fraud statute that had been applied in a criminal RICO case.

[Editor's Note:  The Sonterra Capital Master Fund case is also discussed in the Antitrust/FTAIA section of this report.  On October 30, 2017, the first appellate decision addressing the extraterritorial application of the private civil RICO statute was issued, reversing in part the district court’s decision in Bascuñán v. Elsaca, which was covered in the Summer & Fall 2016 edition of The World in US Courts. Our commentary on the Court of Appeals’ decision was published by Law360 on November 3, 2017, and may be found here.]

Competing RICO Claims Dismissed Because All Alleged Injuries Occurred Outside the US - The World in U.S. Courts: Fall 2017 - Racketeer Influenced and Corrupt Organizations Act (RICO)

Yanchukov v. Finskiy, US District Court for the Southern District of New York, August 14, 2017

Yanchukov is a Russian businessman who claimed that Finskiy, a Russian citizen holding permanent resident status in the US, defrauded him into purchasing the shares of a gold mining company whose value subsequently plummeted. None of the financial transactions was conducted by Yanchukov through US companies, nor did the mining company hold any US assets. The plaintiffs brought private RICO claims, among others, against Finskiy.  Finskiy counterclaimed, including private RICO claims of his own. Both parties moved to dismiss the other's RICO claims, arguing that they alleged no US “domestic injury” as required by the US Supreme Court’s 2016 decision in the RJR Nabisco case.

Courts seeking to apply RJR Nabisco have regularly sought to address the question how to determine the location of an injury for purposes of private RICO actions. The Court noted that decisions in district courts in New York have “consistently” held that the location of a RICO injury “depends on where the plaintiff suffered the injury—not where the injurious conduct took place.” It also noted, however, that other courts have focused on conduct, out of a concern that non-US corporations would typically be deemed to have “suffered” their injury outside the US, and therefore would be unable in the normal course to bring private RICO claims. The Court made clear that it was not adopting such a black-and-white rule, observing that non-US corporations that “hold any [US] domestic assets or maintain any operations” in the US may have a basis to sue.

In the case at bar, the plaintiffs argued that they suffered a US “domestic injury” in respect of (i) “funds processed through” US banks, (ii) the loss of [US] domestic business and the inability to access American markets, and (iii) the diversion of mining company funds that Finskiy allegedly used to purchase US real estate. The Court disagreed. It rejected claims based on conduct by Finskiy that allegedly occurred in the US, including the conduct of certain business operations and the purchase of property. It also discounted alleged injuries to the mining company’s ability to do business in the US, calling these “reputational” and by definition outside the scope of the RICO statute; a contrary result, the Court stated, would allow virtually any non-US corporation to bring a RICO suit in the US based on a claim of diminished ability to participate in US markets. Because the plaintiffs “became poorer” outside the US, the Court concluded, their injury was not US domestic.

The Court then addressed Finskiy’s RICO claim, which alleged injury to the interests of a business that he “operated” out of the US, where he resides. Finskiy’s claim was also brought by corporations he controlled, and the Court dismissed these claims for the same reason it dismissed the plaintiffs’—irrespective of where they were “managed,” the corporations suffered their alleged losses outside the US, where they were incorporated and had their principal places of business.

Finskiy also alleged personal injuries, and while the Court found this a “somewhat closer call,” it concluded that the injuries were suffered outside the US. Specifically, it concluded that, while Finskiy personally resided in the US, he had not alleged an injury to a US business or “property held” in the US. At least equally important, the Court observed that Finskiy suffered certain of his alleged injury before he applied for permanent resident status in the US. Other alleged injuries were suffered in Russia after he returned there on a visit while awaiting his permanent resident status. “That Finskiy chose to flee to the US after injury in Russia does not support a conclusion that he suffered a domestic injury in the US.”

[Editors’ note: On October 30, 2017, the first appellate decision addressing the extraterritorial application of the private civil RICO statute was issued, reversing in part the district court’s decision in Bascuñán v. Elsaca, which was covered in the Summer & Fall 2016 edition of The World in US Courts. Our commentary on the Court of Appeals’ decision was published by Law360 on November 3, 2017, and may be found here.]

Securities Law/Commodities Exchange Act (CEA)

US “Domestic” Securities Transaction Established Where “Irrevocable Liability” for Acquisitions of Securities Occurred in US, Even Though Title may Have Passed in Europe - The World in U.S. Courts: Fall 2017 - Securities Law/Commodities Exchange Act (CEA)

Atlantica Holdings, Inc. v. BTA Bank JSC, US District Court for the Southern District of New York, August 31, 2017

This opinion, though limited in scope, addresses a key recurring issue regarding the applicability of the US securities laws to cross-border transactions alleged to be fraudulent: Where “irrevocable liability” for a securities transaction will be found to have arisen.

The defendants are a Kazakhstani bank and sovereign wealth fund. Previous opinions had rejected various of their arguments that the US laws prohibiting securities could not be applied to the transactions at issue in the complaint without causing the laws to have an impermissibly extraterritorial reach. In this opinion, addressing motions for summary judgment filed after discovery had occurred, the District Court in New York concludes that the facts obtained through discovery likewise suggest that the transactions are, or may be, US “domestic,” and therefore a proper subject for trial.

As relevant here, the Court confirmed that the anti-fraud provisions of the securities laws have no extraterritorial application, and focused on one of the alternative tests under which a transaction is considered US “domestic” (and properly the subject of US litigation): if “irrevocable liability” for the transaction arose in the US Specifically, the Court noted that the plaintiffs “for all intents and purposes” became committed to the purchase of certain new debt securities when a bank’s office in Miami, Florida “submitted electronic forms” on their behalf. Likewise, purchasers of debt securities in the secondary market placed “binding” orders with the same Miami bank office, the counterparties for which were identified by the bank’s office in New Jersey. Thereafter, the transactions were booked, and funds were removed from the plaintiffs’ accounts in Miami. The Court rejected the defendants’ focus on the fact that the transactions were “cleared or settled” in Europe, observing that a transaction would be considered US “domestic” if either title changed hands in the US or “irrevocable liability” for the transaction arose in the US The Court also rejected the defendant’s argument that the securities were acquired in “Regulation S designated transactions,” which governs certain offers and sales of securities outside the United States. It found that the regulation’s definition of a US “offshore” transaction was not the same as that required for an analysis of extraterritoriality, and in any event that the defendant’s own conduct was inconsistent with Regulation S even being applicable to the facts of the case.

Class Certification Vacated Where Record Did Not Establish All Class Transactions Were US “Domestic” - The World in U.S. Courts: Fall 2017 - Securities Law/Commodities Exchange Act (CEA)

In re Petrobras Securities, US Court of Appeals for the Second Circuit, July 6, 2017

The plaintiffs in this purported class action claimed to have been defrauded in connection with the purchase of American Depository Shares and debt securities of Petrobras, the Brazilian oil and gas producer suffering through exposure of its participation in a massive global bribery scheme. This appeal considered the correctness of the district court’s order certifying classes, in part based on the definition of transactions that were considered “domestic” and therefore within the scope of the securities laws. During the course of its opinion, the Court of Appeals addressed a number of unsettled questions regarding the extraterritorial application of the securities laws.

The Supreme Court’s 2010 Morrsion decision and later cases have established that the anti-fraud provisions of the securities laws have only US domestic application. Claims may only thus be brought with respect to (i) securities bought and sold on a US exchange and (ii) other securities where either title transferred, or “irrevocable liability” for a transaction accrued, in the US Peterobas ADSs were traded on the New York Stock exchange, and the Court of Appeals easily concluded that they were properly within the case. But debt securities were not. As to these, the Court of Appeals identified many potential facts that might be relevant to the question whether they were bought or sold in a “domestic” transaction:  “The location or residency of the buyer, seller, or broker will not necessarily establish the situs of the transaction. Rather, plaintiffs demonstrate the location where irrevocable liability was incurred or legal title transferred by producing evidence including, but not limited to, facts concerning the formation of the contracts, the placement of purchase orders, or the exchange of money.” The potentially relevant facts could vary considerably from plaintiff to plaintiff, given that the purported class included “foreign and domestic entities that purchased securities from other foreign and domestic entities, possibly through foreign and domestic intermediaries, using different methods, under different circumstances, and reflected in different types of records (assuming any records of the purchases exist at all).”

The district court, by contrast, had certified a class that broadly included all purchasers of the securities at issue, without regard for the factual circumstances that would reveal whether the transactions were US “domestic.” The Court of Appeals thus vacated that ruling and returned the case for further fact-finding and consideration.

White Collar Criminal Law/Money Laundering

Criminal Statutes Found To Have Extraterritorial Application Because They Were In Furtherance Of The US Government’s Interest In Self-Protection - The World in U.S. Courts: Fall 2017 - White Collar Criminal Law/Money Laundering

US v. Alahmedalabdaloklah, US District Court for the District of Arizona, July 7, 2017

Alahmedalabdaloklah was indicted for conduct that occurred in Iraq and sought to dismiss various counts of the indictment against him on grounds that the criminal statutes in question had no extraterritorial applicability.

The Court began by reviewing the test for determining whether a statute had extraterritorial application. In the first instance, a statute must demonstrate a “clear, affirmative indication that it applies extraterritorially” for that result to attach. An exception exists for criminal statutes in which the US Government exercises its right to “defend itself,” in which case extraterritorial application will be inferred as necessary to cover relevant conduct wherever committed.

Alahmedalabdaloklah first challenged the count charging him with conspiracy to maliciously damage or destroy US government property by means of an explosive, in violation of 18 USC 844(f)(1) and (2), and (n). By its own terms, the statutory language could be satisfied by conduct in the US and gave no specific indication of extraterritorial applicability. But the Court found the exception for governmental self-protection to apply, and found the claimed violation properly within the scope of the statute.

Other counts of the indictment charged possession of a destructive device and conspiracy to possess a destructive device in furtherance of two crimes of violence, in violation of subsections of 18 USC 924. As discussed above, one of the crimes of violence had been found by the Court to have extraterritorial applicability. The second alleged was 18 U.S.C. 2332a(a)(1) and (3), which criminalizes conspiracy to use a weapon of mass destruction “against a national of the United States while such national is outside” the US and “against any property that is owned, leased or used by the US, “whether the property is within or outside” the country. The Court found this statute to apply directly to conduct outside the US Because both of the “crimes of violence” on which the violation of Section 924 was based applied to conduct outside the US, the Court found that Section 924, as applied to Alahmedalabdaloklah, had the same worldwide geographic scope.

Personal Jurisdiction/Forum Non Conveniens

Hong Kong Holding Company Subject to Specific Personal Jurisdiction Even Though it Did Not Manufacture, Sell, or Import the Allegedly Infringing Products - The World in U.S. Courts: Fall 2017 - Personal Jurisdiction/Forum Non Conveniens

The Chamberlain Group, Inc. v. Techtronic Industries Co., Ltd., US District Court for the Northern District of Illinois, August 8, 2017

Plaintiff Chamberlin Group sued a number of US and non-US entities involved in the manufacture and sale of allegedly infringing garage door openers sold under the Ryobi brand. The parent entity among the defendants, Techtronic Industries Co., Ltd. (TTK-HK), a Hong Kong holding company, argued that the Court could not assert specific personal jurisdiction over it because it had no contacts with Illinois, including that it had no direct or advertising presence and had never conducted any of the following activities in the state: (i) employed anyone, (ii) maintained a registered agent, (iii) paid taxes, (iv) owned, leased, possessed, or maintained any real or personal property, or (v) manufactured, produced, marketed, imported, or sold any products. The Court stated, however, that Chamberlain Group had made an initial showing that TTK-HK approved, monitored, and oversaw both the development of the allegedly infringing products and their sale to an exclusive distributor with a heavy Illinois presence, and on this basis found that it had jurisdiction over the Chinese company.

The Court noted that it was required to apply the jurisdictional law as stated by the US Court of Appeals for the Federal Circuit, which has exclusive jurisdiction over patent infringement cases. Under that law, jurisdiction must satisfy the Illinois “long-arm” jurisdictional statute, which has been construed to apply to the full extent permitted under the Due Process Clause of the US Constitution. The applicable test thus was whether TTK-HK “purposefully directed activities at forum residents,” the claim “arises out of or relates to those activities,” and asserting personal jurisdiction is “reasonable and fair.” The Court acknowledged that two potential rules could apply to the present facts, however. Under one formulation of the “stream of commerce” theory, specific personal jurisdiction may exist where a non-US manufacturer merely “places its product into the stream of commerce” in the US, and that product causes an injury “where there is a regular flow of its product or regular course of sales in that state.” Alternatively, a stricter rule requires “additional conduct” showing an “intent to serve the forum state’s market.”

The Court did not choose between the potentially applicable rules because it found jurisdiction appropriate even under the stricter one. Federal Circuit case law establishes that such “additional conduct” may include evidence that the defendant “to some degree selects or controls the distribution process accounting for the accused product’s presence in the forum state,” for example, through the presence of an “established distribution channel” in a State, or actual knowledge of sales into a state. It found this test satisfied through evidence that TTK-HK “approved and allocated capital necessary to develop and bring to market the allegedly infringing product, and it had at least some say in the decision to continue exploiting a longstanding distribution channel that inexorably deposits a significant number of the products at issue in Illinois.” The Court emphasized that a disproportionate share of the product’s sales were to Illinois, and that TTK-HK’s CEO received regular updates on sales to the US distributor.

TTK-HK argued further that because it did not manufacturer, sell, or import the products into the US, it could not have committed patent infringement and thus the requirement for specific personal jurisdiction that the plaintiff’s claim “arise out of or relate to” its contacts with a forum could not be satisfied. The Court disagreed, finding evidence that TTK-HK may have violated the Patent Act by inducing patent infringement by its subsidiaries—it being irrelevant that Illinois-based infringement was merely one basis for Chamberlain Group’s claims.

Finally, the Court found the assertion of jurisdiction “reasonable and fair,” applying a test that looked primarily to the burden on the defendant, the forum State’s interest in adjudicating the dispute, and the plaintiff’s interest in obtaining convenient and effective relief. (The Court found two factors (the interstate judiciary’s desire to resolve disputes efficiently and to further “fundamental social policies”) applicable only to jurisdictional disputes involving multiple state interests and thus irrelevant to the issue regarding a non-US defendant.) While it found a modest burden on TTK-HK, the Court noted that party’s preexisting retention of counsel in a related trade proceeding, and found that the other pertinent factors—most notably the interest of an Illinois company in protecting its patent with respect to sales made disproportionately to Illinois customers and the convenience to Chamberlain Group of litigating in its home state—supported the reasonableness of proceeding.

[Editor’s note: The Chamberlain Group case is also discussed in the Intellectual Property-Patent section of this report.]

No Personal Jurisdiction Over South American Entities Implicated in Bribery Scheme - The World in U.S. Courts: Fall 2017 - Personal Jurisdiction/Forum Non Conveniens

GolTV, Inc. v. Fox Sports Latin America Ltd., US District Court for the Southern District of Florida, September 19, 2017

Plaintiffs GolTV and Global Sports Partners sued the Paraguay-based Confederacion Sudamericana de Futbol (“Conmebol”), a soccer confederation, the Uruguay-based Full Play S.A., a sports media and marketing business, and Alejandro Burzaco, an Argentine citizen, among others, for civil conspiracy. Plaintiffs allege that Burzaco facilitated the payments of bribes and kickbacks to Conmebol officials to secure broadcasting rights to Conmebol’s international soccer tournaments, and laundered money through Full Play. Conmebol and Full Play moved to dismiss for lack of personal jurisdiction.

The Court explained that jurisdiction must be authorized under both the Florida Statute specifying the limits of the Court’s jurisdiction and the Due Process Clause of the US Constitution. As to the former, the Court observed that Florida’s long arm statute confers jurisdiction over a nonresident defendant if the claims asserted against the defendant arise from forum-related contacts and fall in one of nine enumerated categories, including the commission of a tortious act in Florida. A nonresident defendant additionally may be deemed to have committed a tortious act in Florida through actions performed by an agent that acts with apparent authority or by a co-conspirator. The Court rejected Plaintiffs’ contention that this rule applied under the facts of the case. Regarding Conmebol, the Court concluded that the alleged tortious activities of Conmebol’s officials could not be imputed to the organization, as their actions were directly contrary to Conmebol’ s interests. The Court further held that it could not impute Florida contacts to Conmebol through its alleged co-conspirators, as the plaintiffs failed to allege how the organization itself participated in any such conspiracy. The plaintiffs also failed to allege any corporate actions by Conmebol that occurred in or were directed at Florida. Regarding Full Play, the Court found that the plaintiffs did not sufficiently allege that the company or its agents committed any of the alleged torts in Florida.

The Court also considered whether it could exercise personal jurisdiction over Conmebol and Full play under Federal Rule of Civil Procedure 4(k)(2), which confers jurisdiction for federal claims against nonresident defendants that have minimum contacts with the United States as a whole but not with any one State. Rule 4(k)(2) also carries the requirement of the Due Process Clause of the US Constitution that the defendant “purposefully availed” itself of the privilege of conducting activities in the US and its contacts with the US relate to the plaintiffs’ cause of action or gives rise to it. Here, the Court concluded that Conmebol’s communications and business relationship with the Fox sports and Full Play’s “exploitation of the New York banking system” did not relate to claims brought, and so could not support jurisidction.

Personal Jurisdiction Over Turkish Corporation and its CEO Based on their Being “Alter Egos” of New York Company  - The World in U.S. Courts: Fall 2017 - Personal Jurisdiction/Forum Non Conveniens

International Diamond Importers, Inc. d/b/a I.D.I. Design, Inc. v. Med Art, Inc., US District Court for the Southern District of New York, June 29, 2017

International Diamond Importers (IDI) is a New York-based designer, manufacturer, and seller of jewelry that enjoys US trademark and copyright protection. The defendants—a New York Corporation (Med Art), a Turkish Corporation (Turkish Zen) , and the Turkish citizen (Emil Güzeliş) who serves as CEO of both companies—were alleged to have infringed that IP in connection with similar jewelry sold in 2016 at an international jewelry fair in Hong Kong allegedly attended by New York buyers.

The Court considered whether it had personal jurisdiction over Turkish Zen, first addressing “general” personal jurisdiction, which could support claims of any kind. The Court noted that Turkish Zen is neither incorporated nor has its principal place of business in the US—the two facts on which general personal jurisdiction typically must be based. But an exception to this principle exists where a US corporation (here, Med Art) is a “mere department” of a non-US parent or other related defendant company based elsewhere. In such case, the court’s general personal jurisdiction over the US entity is deemed to attach to its non-US relative.

The Court stated that the determination whether Med Art was a “mere department” of Turkish Zen would be based on four factors, each of which it found to be satisfied:

• Güzeliş owned 100% of Med Art and 92% of Turkish Zen’s shares, satisfying the “essential” requirement of “common ownership,” even though Turkish Zen was not the parent of Med Art.
• Med Art is “wholly dependent” on Turkish Zen and Güzeliş’s financial support to stay in business, satisfying the requirement of “financial dependence—again, even though Med Art is not a subsidiary of Turkish Zen.
• Güzeliş is the sole officer and director of Turkish Zen and has been listed as the CEO of Med Art (which has two employees), thus satisfying the requirement that the non-US corporation exercise a “degree of interference” over its US relative’s employment decisions and adherence to corporate formalities. The defendants’ assertion that Med Art observed corporate formalities and had responsibility for its own employees was dismissed as unsupported by any specific facts.
• Finally, Media Art’s social media pages are maintained by Turkish Zen and the companies’ promotional materials refer to the companies interchangeably, thus satisfying the requirement that the non-US company control its US relative’s “marketing and operational policies.”

The Court found that specific personal jurisdiction—jurisdiction only for claims arising out of a defendant’s contacts with the forum—also existed as to Turkish Zen and Güzeliş. The Court noted that the first requirement for jurisdiction was satisfaction of New York’s “long-arm” statute, which in pertinent part reaches a defendant that either “(i) regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered” in New York, or “(ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce.” The Court found the first test to be satisfied by its prior holding that Turkish Zen supplied about 99% of Med Art’s stock and used the US company essentially as a “sales office.” The second test was satisfied by the relationship among the defendants (which included a New York corporation) and their profitability.

The Court also found the assertion of jurisdiction over Turkish Zen and Güzeliş satisfied the requirements of the Due Process Clause of the US Constitution because they “purposely availed themselves of the New York forum” by doing business through Media Art, creating a reasonable anticipation that they might be sued in New York based on their US activities. The Due Process Clause has an independent requirement that jurisdiction be “reasonable,” and the Court found it to be satisfied by the defendants’ substantial New York activities and the State’s interest in resolving intellectual property disputes between New York business owners.

Targeting of California Residents in Advertising Campaign Supports Personal Jurisdiction over Bermuda Holding Company - The World in U.S. Courts: Fall 2017 - Personal Jurisdiction/Forum Non Conveniens

Lodestar Anstalt v. Bacardi & Co. Ltd., US District Court for the Central District of California, August 14, 2017

Plaintiff Lodestar is a Lichtenstein corporation having a principal place of business in Cyprus. It owns a US trademark for “UNTAMED,” and used that mark in connection with advertising campaigns promoting the sale of Irish whiskey and rum in the US.  It sued Bacardi & Co., Ltd., a Bermuda corporation, and two of Bacardi’s subsidiaries (one US-based) for trademark infringement in connection with Bacardi’s use of an allegedly near-identical mark and similar BACARDI UNTAMED advertising campaign to promote its iconic rum brand. Lodestar alleged that Bacardi’s infringement was knowing and intentional.

Bacardi-Bermuda moved to dismiss on grounds that the court could not assert personal jurisdiction over it. The Court only considered the potential assertion of specific personal jurisdiction and, analogizing a trademark infringement claim to a tort, applied the tort-based test requiring that the defendant “have (1) committed an intentional act, (2) expressly aimed at the forum state, (3) causing harm that the defendant knows is likely to be suffered in the forum state.” Lodestar argued that this test was satisfied by evidence that Bacardi Ltd. oversaw and directed the global “BACARDI UNTAMED” marketing campaign, which included substantial spending in the US. The Court agreed that the advertising campaign could be deemed the intentional act of Bacardi-Bermuda, giving credence to disputed evidence that Bacardi had itself used at an earlier phase of the case. The Court also found that the advertising was “expressly aimed” at California, the forum state, citing images on a company website and social media account showing promotion specifically tailored its advertising to target consumers in California. The requirement that injury be “foreseeable” was satisfied because infringement inherently caused damage to a trademark holder’s reputation.

Specific personal jurisdiction also requires that the plaintiff’s claims “arise out of or result” from the defendant’s contacts with a forum, and the Court found this was the case. Applying the lenient “but for” test, it found that the claims would not have arisen had the contacts with California attributed to Bacardi-Bermuda not occurred.

Finally, the Court found that Bacardi-Bermuda had not made the “compelling case” necessary to establish that the assertion of jurisdiction was “unreasonable,” and therefore inconsistent with the Due Process Clause of the US Constitution. The Court observed that a seven-factor test is used to determine the “reasonableness” of requiring a defendant to appear, and that Bacardi-Bermuda had only addressed one of the factors.

[Editor’s note: The Lodestar Anstalt case is also discussed in the Intellectual Property - Trademarks section of this report.]

No Personal Jurisdiction Over Swiss Corporations Under Stream of Commerce and Agency Theories - The World in U.S. Courts: Fall 2017 - Personal Jurisdiction/Forum Non Conveniens

Nespresso USA, Inc. v. Ethical Coffee Company SA, US District Court for the District of Delaware, July 13, 2017

Nespresso USA—a subsidiary of the Switzerland-based Nestle Corporation—sued Ethical Coffee Company, S.A. for a declaratory judgment that its coffee machines did not infringe Ethical’s patents. In turn, Ethical sued Nespresso USA, Nestle, and other Nestle subsidiaries, including Switzerland-based Nestec, for patent infringement and violation of the US antitrust laws in connection with the manufacture, sale, and distribution of Nespresso machines. The two Swiss Nestle defendants moved for dismissal, alleging a lack of personal jurisdiction.

The Court first concluded that it lacked general personal jurisdiction over the Nestle defendants, as the companies were organized and had their principal place of business in Switzerland, and otherwise lacked ties with the Delaware forum sufficient to make them “at home” in the State. The Court next considered whether the Nestle defendants were subject to specific personal jurisdiction in Delaware under the “stream of commerce” theory, which confers jurisdiction over a nonresident defendant that sold items into the US in such manner that it could be said to have “purposefully availed” itself of the privilege of conducting business in the forum state. Ethical argued this test was satisfied because the Nestle defendants (i) helped to develop and manufacture Nespresso products in the US and profited from those efforts; (ii) held Nespresso USA as a subsidiary; and (iii) owned patents for the Nespresso machines through which Nespresso allegedly infringed Ethical’s patents. The Court rejected these arguments, finding that Ethical failed to establish that Nestle placed—or influenced the placement—of Nespresso products into the US markets generally or Delaware specifically. It further reasoned that a company’s mere ownership of a subsidiary or a US patent alone does not confer personal jurisdiction.

The Court also rejected application of the “agency” theory, under which a non-US parent may be deemed itself to have taken the actions of its US subsidiary if the subsidiary was merely acting as the parent’s agent. The key issue for examination is “the degree of control which the parent exercises over the subsidiary,” as to which the Court said it would consider such factors as (i) the extent of overlap of officers and directors; (ii) methods of financing; (iii) the division of responsibility of day-to-day management; and (iv) the process by which each corporation obtains its business. Here, the Court found the overlap among directors to be minimal, and consistent with a normal parent-subsidiary relationship. It also concluded that Ethical had failed to come forward with evidence suggesting any particular control that either of the Nestle defendants exercised over their US subsidiary, Nespresso.

Finally, the Court rejected Ethical’s assertion that personal jurisdiction could be based on Federal Rule of Civil Procedure 4(k)(2), the so-called “federal long-arm statute.” Rule 4(k)(2) applies to provide personal jurisdiction for federal claims where a non-US defendant has minimum contacts with the US as a whole, but not with any particular forum state. The absence of contacts between the Nestle defendants and the US, and the failure of the “agency” theory to apply, established that the requirements of Rule 4(k)(2) could not be met.

No Specific Personal Jurisdiction Over Italian Patentholder That Sent Cease-and-Desist Letters to Plaintiffs and Engaged in Sales Activities in Forum State - The World in U.S. Courts: Fall 2017 - Personal Jurisdiction/Forum Non Conveniens

P.I.C. International Inc. d/b/a H2Odyssey v. Miflex 2 S.p.A., US District Court for the Southern District of California, August 17, 2017

The plaintiffs—one US and one Taiwanese corporation—sued an Italian corporation (Miflex 2) and its Italian CEO for a declaration that their products do not infringe patents held by the Italian company. Miflex 2 sought to dismiss the case, arguing that its contacts with the California were not substantial enough to support the assertion of jurisdiction.

The plaintiffs limited their argument to specific personal jurisdiction. The Court began its analysis by noting that a plaintiff’s burden in such case is to demonstrate that the defendant has “purposefully directed” its activities at residents of the forum state and the claim “arises out of or relates to” those contacts. The assertion of jurisdiction must also be “reasonable and fair” under the circumstances. The Court surveyed the governing law specific to patent cases describing the kinds of conduct that could or could not support the assertion of jurisdiction. Examples of activities not relevant to the jurisdictional question include:

• The sending of cease-and-desist letters;
• Unsuccessful efforts to license the patents at issue; and
• Successful efforts to license the patents at issue, even to multiple non-exclusive licensees, so long as the patentholder’s only dealings with the licensees involve the collection of royalties.

Rather, the Court stated that “other activities” directed at the forum and related to the claim must be shown for specific personal jurisdiction to exist. It identified the following as examples of such conduct:

• Initiation of “judicial or extra-judicial patent enforcement” within the forum;
• Entering into an exclusive license or “other undertaking” that imposes enforcement obligations on a party “residing in or regularly doing business in” the forum; and
• Entering into a license, exclusive or non-exclusive, that allows the patentholder to “exercise control over the licensee’s sales activities.”

In the case at bar, the plaintiff based its claim of jurisdiction on the following alleged activities of Miflex 2:

• The sale of patented hoses in California “through” its California-based North American distributor;
• The direction of product recall and service issues to that distributor;
• Threats to sue both of the plaintiffs over the subject patent, and earlier threats to sue a third party over the same patent, and one meeting in California to try to resolve the dispute; and
• Threats to sue one of the plaintiff’s customers.

Miflex 2 responded that it had no corporate offices or contacts with California other than sales to its distributor and the sending of two cease-and-desist letters (with no enforcement litigation following those letters). It also noted that it had not advertised its products through media outlets in California or otherwise targeted California residents. The Miflex 2 website does not accept orders or otherwise sell products. Miflex 2 added that it sells its products both to its distributor and to four original equipment manufacturers in California, and in every case title is transferred to the purchasers in Italy.

The Court found it had no jurisdiction over Miflex 2.  It dismissed as irrelevant the cease-and-desist letters;  gave credence to a declaration submitted by Miflex 2’s CEO that his meeting in California cited by the plaintiffs was not for the purpose of settling a patent dispute;  distinguished a recent appellate case in which jurisdiction was based, in part, on the conduct of a “frequent patent-infringement suit filer who regularly traveled to the forum of accused infringers to hold extensive, in-person patent licensing negotiations before filing a suit”;  and stated that Miflex 2’s “commercialization activity” in California could not form the basis for personal jurisdiction.

[Editor’s note: The P.I.C. International case is also discussed in the Intellectual Property-Patents section of this report.]

No Personal Jurisdiction Over Saudi, UAE, and British Banks that had No Contacts with the US - The World in U.S. Courts: Fall 2017 - Personal Jurisdiction/Forum Non Conveniens

Siegel v. HSBC Holdings, plc, US District Court for the Northern District of Illinois, August 14, 2017

Victims of an ISIS terrorist attack in Jordan sued financial institutions from Saudi Arabia, the UAE, the UK, and the US, alleging that the banks aided and abetted ISIS by facilitating the terrorists’ access to American financial markets.

The Court first addressed the question whether it could exercise personal jurisdiction over the Saudi, Emirati, and British defendants. It applied a special provision of the US procedural rules (Rule 4(k)(2)) applicable to claims under federal law where a defendant’s contacts with the US as a whole establish "minimum contacts" to support personal jurisdiction, but where those contacts are insufficient to support jurisdiction in any one particular state. The Court found that the first part of this test had not been satisfied. Unrebutted evidence showed that the banks did not conduct business in the US and did not direct their business activities to the US. Additionally, the plaintiffs could not satisfy the second requirement of Rule 4(k)(2) that a claim arise out of the contacts with the US. Indeed, the Complaint alleged that the banks were culpable for conduct having nothing to do with any US activities. The only potential exception was the Saudi bank, which was alleged to have engaged in a scheme outside the US to make it "possible" for the bank to transfer US dollars through the US in a way that "circumvented" monitoring by US regulators. The Court found this alleged connection with the US too indirect to support jurisdiction.

Personal Jurisdiction Over Chinese Defendants That Allegedly Infringed Plaintiff’s Copyrighted Photographs in China Based on Promotion to US Customer of the Plaintiff - The World in U.S. Courts: Fall 2017 - Personal Jurisdiction/Forum Non Conveniens

Wilspec Technologies, Inc. v. Rugao Isen Electronic Co., Ltd., A/K/A Isen Controls, US District Court for the Western District of Oklahoma, August 25, 2017

The plaintiff Wilspec Technologies alleged that the defendants, a Chinese company and its principal, unlawfully copied pictures of the plaintiff’s products, apparently in China, and promoted them falsely to customers in the US and elsewhere. Wilspec brought a variety of claims, seeking monetary damages and injunctive relief, and the defendants moved to dismiss. A magistrate judge denied the motion in its entirety, in an opinion that did not reveal many of the facts on which the claims were based.

Among other claims, Wilspec alleged that the defendants reproduced, in China, copyrighted photographs of Wilspec products in violation of the Copyright Act. The magistrate found that the defendants had “purposefully directed their actions at Oklahoma residents and that plaintiff’s claims arise out of these actions,” and on this basis found that the Court could assert specific personal jurisdiction over the defendants. The finding was based on Wilspec’s allegation that the defendants included allegedly infringing copies of Wilspec photographs in promotional materials sent to US recipients, including a Wilspec customer based in Oklahoma.