Summer 2015

The Global law firm Orrick, Herrington & Sutcliffe LLP takes great pride in announcing the Spring 2015 edition of The World in US Courts: Orrick’s Quarterly Review of Decisions Applying US Law To Global Business and Cross-Border Activities. This issue contains our summaries of 30 new US federal court decisions, in areas of the law including Antitrust/Competition, Patent Infringement, Foreign Corrupt Practices Act, and Securities Law.

Please take a moment to review the members of our Editorial Board, who are drawn from Orrick’s 25 offices in North America, Europe, and Asia.  Editorial Board

Decisions Discussed in This Issue: Summer 2015

Please note that Orrick may be representing parties in the cases discussed below.  Nothing in the informal summaries contained in this publication should be taken as commenting on the merits of cases, or as a binding constructions of court opinions that are discussed.

Alien Tort Statute ("ATS")/Foreign Sovereign Immunity Act (FSIA)

District Court Rejects Applicability of "Commercial Activity" Exception to FSIA Because Neither Alleged Expropriation nor Commercial Activity Was Undertaken by Sovereign

Arch Trading Corp. v. Republic of Ecuador, US District Court for the Southern District of New York, May 28, 2015

Plaintiffs, companies owned by Ecuadorean citizens, sued the Republic of Ecuador and Ecuadorean governmental agencies in federal court in New York, claiming that assets they owned had been expropriated by the government in violation of various international norms and the American Convention on Human Rights. The Court dismissed the case, finding that jurisdiction under the FSIA did not exist and that venue in New York would have been improper in any event.

The Court observed that each of the defendants is a "foreign state" under the FSIA, and as such is immune from suit absent the applicability of one of the FSIA exceptions. The plaintiffs urged the applicability of the "takings exception," which requires that they demonstrate (i) that their property was "taken in violation of international law," and (ii) that the defendants be engaged in a "commercial activity" in the US. The Court found that neither test was met. The alleged expropriation was not a violation of international law because it involved property owned by Ecuadorean entities and was made by an agency of Ecuador, not Ecuador itself, which is a critical distinction from the standpoint of international law. The second requirement was not met because the agency that holds the appropriated property is not, as the FSIA would require, itself engaged in commerce in the US. While the plaintiffs alleged that the agencies' subsidiaries are so engaged, the Court found that the complaint failed to allege that the Ecuadorean agency exercised sufficient "day to day control" over the US subsidiaries so as to be deemed "alter egos" of them. Finally, the Court noted that the FSIA permits cases to be brought only in the District of Columbia or where relevant commercial activities are occurring—in this case, not in New York.

District Court Dismisses ATS Claim Against Bank Where Alleged US Wire Transfers Were Not Connected With Alleged Attacks Outside the US

Licci v. Lebanese Canadian Bank, SAL, US District Court for the Southern District of New York, April 14, 2015.

Victims of Hezbollah rocket attacks brought suit under the ATS against a bank they allege provided financing for the attacks. The complaint alleged that the financing occurred through US dollar transactions executed through a correspondent bank located in the US.

The plaintiff alleged that the financing "aided and abetted" violations of the "law of nations," as required under the ATS. But while the complaint recited that the bank "knew" and "intended" that its wire transfers would support alleged terrorist activity, the District Court in New York found that the assertion was not supported by specific facts, and the case was dismissed. "Absent facts to plausibly connect the executed wire transfers with an express purpose of facilitating the rocket attacks, Plaintiffs have failed to plead 'factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'"

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

Full US Court of Appeals for the Second Circuit Declines in Divided Vote to Rehear Groundbreaking Decision on Extraterritorial Application of RICO Statute

European Community v. RJR Nabisco, Inc., US Court of Appeals for the Second Circuit, April 13, 2015

In the Summer 2014 Issue of The World in US Courts, we reported on a decision by a panel of the US Court of Appeals for the Second Circuit in New York establishing a third test for determining whether the RICO statute applied to conduct occurring at least partially outside the US. In this opinion, the full Court of Appeals decides, by an 8-to-5 vote and with four dissenting opinions, not to rehear the case en banc. Because of the significance of the original panel's decision, the split among the circuits as to the correct rule, and the multiple views even within the influential Second Circuit, a reasonable chance exists that the matter will ultimately be resolved by the US Supreme Court.

Intellectual Property (Copyright)

District Court Allows Claims of Infringement of Non-US Copyright Laws by Non-US Parties

Levitin v. Sony Music Entertainment, US District Court for the Southern District of New York, April 22, 2015

This copyright infringement claim was brought by the composers of a 1978 song "San Francisco Bay" against US and non-US entities that have distributed internationally the hit song, "Timber," co-written in 2013 by Pitbull, Kesha, and Lukasz Gottwald. They, and the publisher "Far Out Music" ("FOM"), co-own the copyright. FOM, but not the other copyright owners, licensed the copyright to the defendants for worldwide use.

As relevant here, the US-based defendants were first charged with copyright infringement in connection with allegedly infringing distribution of Timber outside the US. The District Court in New York stated that acts constituting copyright infringement under foreign law do not constitute a violation of the US Copyright Act, which has no extraterritorial applicability, but noted an exception where an act of infringement in the US permits further reproduction in other countries. The Court found this requirement was not met because the US acts allegedly involved in this case, including the creation of duplicate master tapes and electronic files, were not infringing because the defendants possessed a US license covering the allegedly unlawful conduct. (The Court found that the alleged "authorization" in the US of unlawful copying abroad could not support a US copyright infringement claim, but noted that courts elsewhere had reached a different conclusion as to the scope of the law.)

Claims of copyright infringement outside the US were also brought against non-US affiliates of Sony Music Entertainment ("SME"), a US company, arising out of their distribution of Timber in their home countries. A key legal question was what country's law would apply: In the US, worldwide rights can be granted by just one co-owner of a copyright (in this case, FOM). In the countries where the alleged infringement occurred, such a license, to be effective, has to be granted by all co-owners. Thus, if US law applied, the ex-US distribution would be deemed to have been lawful; otherwise, it could be infringing. The District Court observed that questions relating to the ownership of a US copyright were decided under the law of the country "with the most significant relationship to the work in question." A different rule was applied to whether there was infringement, which was to be decided under the laws of the country where the alleged infringement occurred. At issue in this case was the scope of the license, and the Court held that issue was to be judged under the laws of the country where the allegedly infringing distribution occurred. Because FOM's license was invalid in those countries, the case was allowed to proceed.

[Editor's note: The Levitin case is also discussed in the Personal Jurisdiction/Forum Non Conveniens section of this issue.]

White Collar Criminal Law

US Magistrate Upholds Prosecution of Non-US Defendant Arrested on the High Seas, and Having No Connection With the US

United States v. Reid-Varga, US District Court for the District of Puerto Rico, May 6, 2015

Defendant Reid-Varga, a non-US national, was arrested with other non-US nationals in international waters off the coast of Colombia on a speedboat they claimed was registered in Costa Rica, and which was found to be transporting significant quantities of drugs whose possession and distribution are illegal under US law. Reid-Varga was transported to the US and charged with violating the Maritime Drug Law Enforcement Act ("MDLEA"). He moved to dismiss the indictment on grounds that his alleged conduct had no relation to the US, and that he could not be prosecuted in the US consistent with the "Define and Punish" clause of the US Constitution, which specifies the power of the US Government to criminalize certain "Felonies on the high seas."

As relevant here, the MDLEA prohibits the possession and intent to distribute certain drugs while on a vessel "subject to the jurisdiction of the United States." That phrase is defined to include vessels where claims of nationality are not confirmed by the purported country of registry. The MDLEA specifically applies to conduct outside the territorial jurisdiction of the US. A magistrate judge in the US District Court for the District of Puerto Rico rejected Reid-Varga's argument that the application of the MDLEA was unconstitutional because the Define and Punish Clause should be read to require that the conduct at issue have some connection to the US. He began by noting that courts had uniformly upheld the constitutionality of the MDLEA, although some judges had dissented, and none of the decisions specifically analyzed in detail the issue presented. He agreed with the courts' decisions, however, because he found no basis to infer a limitation on Congress' general power to criminalize conduct on the high seas, especially as to stateless vessels such as the one on which Reid-Varga was arrested.

District Court Finds Bribery and Wire Fraud Statutes Have No Extraterritorial Application, and Dismisses Other Charges Where Defendants, Acts, and Impact Did Not Involve US Interests

US v. Sidorenko, US District Court for the Northern District of California, April 21, 2015

"In this case, the United States government urges the application of federal criminal statutes to prosecute foreign defendants for foreign acts involving a foreign governmental entity." The US District Court in California concluded that these facts could not support a prosecution, and so dismissed a multi-count criminal indictment on grounds of impermissible extraterritoriality and a failure to comply with the requirements of the Due Process Clause of the US Constitution.

The indictment alleged various violations of US law in connection with a scheme to corrupt the International Civil Aviation Organization ("ICAO"), a United Nations specialized agency headquartered in Montreal, Canada. Two of the defendants were citizens of Ukraine and St. Kitts & Nevis, respectively; a third held a Canadian passport but was a Venezuelan national. None resided in the US. The US claimed that US criminal laws would apply because the US provided approximately 25% of the ICAO's annual funding.

The District Court first reviewed the rule, dating from the Morrison case in 2010, that US statutes are construed not to have extraterritorial effect unless there is a "clear indication" in the legislation to the contrary. Applying this rule, the Court concluded that two of the statutes under which the defendants were charged, covering wire fraud and bribery, were to be given no extraterritorial effect. Thus, because, the indictment alleged no conduct relating to the US, no violation could be found. The Court distinguished cases that involved US citizens, events that occurred in or passed through the US, and/or events "that directly affect the territory or agencies of the United States." It also noted that there was no allegation that sums paid by the US to ICAO had been "squandered."

The defendants also argued that a prosecution under the other criminal statutes cited in the indictment where there was no significant contact with the US violated the US Constitution's Due Process Clause. The District Court observed that the Constitution required that "there must be a sufficient nexus between the defendant and the United States so that such an application of a domestic statute to the alleged conduct would not be arbitrary or fundamentally unfair." It further concluded that this requirement limits the assertion of jurisdiction to claims where a defendant "should reasonably anticipate" that he or she may be held answerable for it. The Court found that this test was not met in the case at bar, because in addition to the facts cited previously there was no allegation that the defendants intended to cause injury in the US. The Court concluded that neither the US financial contribution to ICAO, nor the fact that ICAO's work related to civil air transportation might implicate US security interests, created a sufficient "nexus" to satisfy Due Process requirements.

Warranties

District Court Holds That Magnuson-Moss Act Does Not Apply to Sale of US-Manufactured Yacht in Canada

Stein v. Marquis Yachts, LLC, US District Court for the Southern District of Florida, May 27, 2015

Plaintiff Stein, a Canadian resident, bought a 54-foot yacht in Canada that, almost immediately, began to suffer extensive mechanical and electrical problems. Although the opinion is not entirely clear, it appears that the yacht and its engines were manufactured in the US and exported for sale to Stein. At issue was Stein's effort to amend the complaint to add a claim for breach of warranty under the Magnuson-Moss Warranty Act. The District Court in Miami rejected the effort, finding that the Act would not apply to a consumer exported from the US for purchase in Canada.

The Magnuson-Moss Act applies to products that are "distributed in commerce." The statutory definition of that phrase does not expressly describe its applicability to products sold outside the US. The Federal Trade Commission, the US agency with administrative responsibility for enforcing the Act, has declined to apply the Act to exports, despite arguably ambiguous language. The District Court agreed, citing the US Supreme Court's 2012 decision in the Morrison case and its rule that a presumption against extraterritorial applicability must be overcome by clear statutory expressions to the contrary, which the court found did not exist with respect to the Act.

Personal Jurisdiction/Forum Non Conveniens

District Court Finds Personal Jurisdiction Over Four Uruguayan Citizens Who Opened Their Accounts in Uruguay But Who Maintained an Ongoing Investment Account and Conducted Securities Transactions in New York

Bank Leumi USA v. Ehrlich, US District Court for the Southern District of New York, March 23, 2015

Four Uruguayan investors who were account holders at Bank Leumi USA ("BLUSA") alleged that they had suffered losses from bond purchases. BLUSA filed suit in a US District Court in New York for a declaration that it was not liable. Both parties moved for summary judgment, with the investors arguing that the Court could not exercise personal jurisdiction over them. BLUSA argued that personal jurisdiction was established by a forum selection clause in an agreement the investors signed when they opened an account in the Uruguay branch of BLUSA's Israeli parent bank. Alternatively, they argued that jurisdiction attached under general principles of New York law.

The "International Account Application" signed by the investors to open their account at BLUSA's Uruguayan affiliate included a forum selection clause providing that any legal proceeding arising from the agreement could be brought in any state or federal court located in New York County, and that the defendants consented to personal jurisdiction in those courts

The District Court hearing the dispute did not reach the question whether the forum selection clause applied because it found jurisdiction under general principles of New York law and the Due Process Clause of the US Constitution. In the case of an alleged breach of contract, New York Law provides that specific personal jurisdiction may be asserted over anyone who "transacts any business within the state or contracts anywhere to supply goods or services in the state," and the claim arises under that contact. To determine whether this test has been met, the Court applied precedent requiring consideration of the following factors: (1) whether the defendant has an on-going contractual relationship with a New York corporation, (2) whether the contract was negotiated or executed in New York, and whether after executing a contract with a New York business, the defendant has visited New York for the purpose of meeting with parties to the contract regarding the relationship, (3) what the choice-of-law clause is in any such contract, and (4) whether the contract requires franchisees to send notices and payments into the forum state or subjects them to supervision by the corporation in the forum state.

The Court found that these requirements had been satisfied. Defendants had a decade-long contractual relationship with BLUSA, a New York bank, and purchased and sold over $11 million of securities during that time through New York-based BLUSA brokerage accounts. Although Defendants filled out the applications in Montevideo, the agreement itself was not executed until the applications were sent to New York. Moreover, the agreements contained choice-of-law provisions identifying New York law as controlling. Finally, each time Defendants entered into a securities transaction for their BLUSA accounts, the trades were executed in New York, including the trade involving the bonds at issue. The Court determined that these facts met each of the first three factors and reasoned that the final factor, which concerns the sending of notices and payment into the forum state, was inapplicable to this case and therefore a neutral factor in deciding whether Defendants transacted business in New York. The Court held more generally that the quality of a non-domiciliary's contacts with New York are sufficient to confer jurisdiction when it maintains an ongoing investment account in New York and conducts securities transactions through that account.

District Court Finds Personal Jurisdiction over Japanese Company Involved in Designing a Defective Automobile Part Prone to Failure

Falco v. Nissan North Am. Inc., US District Court for the Central District of California, April 6, 2015.

The Plaintiffs brought a consumer protection lawsuit against NML, the Japanese parent company of Nissan North America (NNA). Plaintiffs purchased four Nissan vehicles between 2005 and 2007 that shared in common a timing chain system they alleged was prone to failure and put consumers at risk. NML moved to dismiss for lack of personal jurisdiction.

The Court observed that it could assert jurisdiction over NML if that company had introduced the allegedly defective cars into the "stream of commerce," and had "purposefully directed" its activities toward California. The Court found that both requirements had been met.

First, although it was involved with the design and testing of the timing chain system, NML argued that specific personal jurisdiction should not attach because it never manufactured, distributed, sold, or warranted any of the vehicles in question and that the "stream of commerce" theory of personal jurisdiction on which Plaintiff relied only applied to an entity that actually placed the product into the stream of commerce.

The Court disagreed, finding that design was a critical portion of the manufacturing process and that NML took almost total responsibility for the relevant components up through the initial production release and conducted testing of the components. NML also had authority over the manufacturing process, because parts and vehicles could not be manufactured without NML's release. It also was involved in monitoring the manufacturing plant and had the final authority to change the manufacture of faulty parts. Thus, the Court found that NML participated in manufacturing the vehicles and had therefore placed them into the stream of commerce.

Second, the Court found that the "purposeful direction" test was satisfied. NML used NNA as a distributor to serve as the sales agent in California for the vehicles that NML helped to manufacture, intended for the components at issue to be sold in California, used NNA as its sole authorized distributor of Nissan and Infiniti vehicles in the US, and that NML and NNA worked closely together on the distribution, sale, lease, servicing, and warranting of the vehicles. Also, NML engaged in direct advertising aimed at the American market, including California, for some of the vehicles.

The Court easily found that Plaintiffs' claims under various consumer protection statutes arose out of NML's California-related activities, and thus upheld the assertion of specific personal jurisdiction.

District Court Finds No Personal Jurisdiction Over a Canadian Media Corporation with No Real Property, Offices, Bank Accounts, or other Assets in New York

F. Tv Ltd. v. Bell Media Inc., US District Court for the Southern District of New York, May 14, 2015.

Defendant Bell Media, on behalf of a New York company to which it had licensed the "Fashion Television" mark, sent a "cease and desist" letter to FTV relating to FTV's use of the "Fashion Television" mark which Bell Media claimed that it owned. FTV responded by suing Bell Media, as successor-in-interest to a company called Chum Limited, for false advertising, tortious interference, and trade libel. Bell Media moved to dismiss for lack of personal jurisdiction.

Bell Media is a Canadian media corporation with primary operations in Toronto, Ontario. It broadcasts programming in Canada and sells advertising to both Canadian and US businesses. It does not have real property, offices, bank accounts, or other assets in New York. Nor does it have any employees in New York or broadcast content or offer goods or services in New York. Bell Media's contacts with New York are limited to the following: (1) it is the successor-in-interest to Chum, and Chum initiated litigation against FTV in New York in 1998, (2) the securities of Bell Media's ultimate parent are listed on the New York Stock Exchange, and (3) Bell Media uses TeleRep, an independent media sales agency, which has offices in New York and sells advertising time to US advertisers for US and Canadian media clients.

The District Court in New York explained that personal jurisdiction over Bell Media could be asserted only if consistent with New York law and the federal Due Process Clause. New York law would allow specific jurisdiction if Bell Media, itself or through an agent, (1) transacted any business within the State or contracted anywhere to supply goods or services in the State, (2) committed a tortious act within the State or (3) committed a tortious act outside of the State that causes injury to person or property within the State, if Bell Media (i) were found to have engaged in a "persistent course of conduct" in the State or (ii) were found to have derived "substantial revenue" from operations in the State, or (iii) should reasonably have expected the tortious act to have consequences in the State. The claims at issue would also have to arise from the contacts on which jurisdiction was based.

The Court found that this standard was not satisfied. Plaintiffs alleged that specific jurisdiction over Bell Media existed because negotiations occurred in New York relating to license agreements that were the basis of the suit. But the Court found no evidence that Bell Media had negotiated the terms of those agreements in New York or that the contract was executed there. The Court also rejected claims that jurisdiction could attach because Bell Media's counterparties in the licenses had New York contacts, observing that only Bell Media's contacts were relevant. Finally, the Court rejected an argument that Bell Media was the agent of the New York entity in sending the cease and desist letter to FTV that led to the suit being filed.

The Court independently found that specific personal jurisdiction could not be asserted consistent with the federal Due Process Clause of the US Constitution. Most notably, Bell Media's predecessor, Chum, had been a plaintiff in New York 18 years previously in litigation over the "Fashion Television" mark. But the Court found that this action was too remote in time to form a basis for jurisdiction, especially under the circumstance that Bell Media had acted in this case after having itself disposed of its rights to the New York company.

FTV also argued that Bell Media was subject to the Court's general jurisdiction, a finding that would require Bell Media's contacts with New York to be so continuous and systematic as to render it "at home" in the State. Specifically, FTV pointed to the efforts of Bell Media's advertising representative in New York and other licensing efforts. The Court disagreed. It added—unusually for an analysis of general personal jurisdiction—that "the analysis might be different" if FTV had alleged claims arising from the contacts by Bell media's advertising representative.

District Court Finds Personal Jurisdiction Over Canadian Production Company with California Subsidiary

Hendricks v. New Video Channel Am., LLC, US District Court for the Central District of California, June 8, 2015.

Hendricks sued Fortier, a television producer, and Fortier's Canadian production company, Temple Street Productions, Inc. ("TSPI"), for federal copyright infringement and breach of implied contract under California law. In 2004, Hendricks submitted a screenplay to Fortier and was later informed that Fortier and TSPI had decided not to acquire rights to it. Nine years later, Hendricks' discovered that BBC America was airing a new television series produced by Fortier and TSPI, called "Orphan Black," which allegedly had "the same, unusual core copyrightable expression as [his] Screenplay." TSPI and Fortier moved to dismiss the case for lack of personal jurisdiction.

The District Court in Los Angeles observed that "general" jurisdiction could only be based on a finding that the defendant was "at home" in the district, and that this was clearly not the case as to either defendant: Fortier is a Canadian citizen and TSPI is both incorporated and had its principal place of business in Canada. However, TSPI's wholly-owned subsidiary, TSP(US), is incorporated under California law. TSPI calls TSP(US) its "LA office" and TSPI's website lists two addresses with one location in California and one in Canada. TSP(US) is also controlled by the individuals who control TSPI, and both TSP(US) and TSPI are in the same business of television and film production. The Court concluded that these facts were sufficient to indicate that TSP itself should be deemed "at home" in California and thus subject to general personal jurisdiction in the State. This is one of the few court decisions finding general personal jurisdiction through the maintenance of a US subsidiary where the subsidiary was not found to be the "alter ego" of the parent.

The Court also found that specific personal jurisdiction over the defendants existed because the claims arose out of the defendants' "purposeful contacts" with California. The Court observed that different tests for jurisdiction are used based on whether a claim sounded in breach of contract or intentional tort: For contract claims, the question is whether the defendant engaged in "purposeful availment" of a forum's laws in connection with entry into the contract; for intentional torts, the question by contrast is whether the defendant "purposefully directed" its activities towards the forum. Because breach of contract and copyright infringement claims were both presented, the Court concluded that it would apply both tests, and ultimately found both to be satisfied. In so concluding, the Court relied principally on the following allegations and evidence: Fortier, acting on behalf of TSPI, traveled specifically to California to "pitch" Orphan Black to broadcasters and discuss the series with TSPI's California agent; TSPI engaged, through subsidiaries and part-owners, in a "coordinated plan to distribute" the series in the United States, and specifically in California; and TSPI's Website lists TSP(US)'s California address and telephone number at the bottom of the page that promotes Orphan Black as "Content" of "Temple Street Productions," thus associating TSPI's "LA office" with the Series.

District Court Finds Jurisdiction To Hear Claims of Infringement of Non-US Copyright Laws by Non-US Parties

Levitin v. Sony Music Entertainment, US District Court for the Southern District of New York, April 22, 2015

This copyright infringement claim was brought by the composers of a 1978 song "San Francisco Bay" against US and non-US entities that have distributed internationally the hit song, "Timber," co-written in 2013 by Pitbull, Kesha, and Lukasz Gottwald. They, and the publisher "Far Out Music" ("FOM"), co-own the copyright. FOM, but not the other copyright owners, licensed the copyright to the defendants for worldwide use.

The District Court in New York first determined that the complaint only stated a claim against the non-US affiliates of defendant Sony Music Entertainment ("SME"), a US company, under the copyright laws of nine different countries. It then turned the question whether personal jurisdiction could be asserted over those defendants.

The plaintiffs first argued that SME was an "agent" of the non-US defendants, and that the non-US entities should be deemed to be doing business in the US themselves through SME and thus be subject to the court's general personal jurisdiction. The District Court disagreed, stating that the "agency" theory of general personal jurisdiction was "of dubious validity" following the US Supreme Court's landmark 2014 decision in the Daimler case. Regardless, the court found that facts supporting such a relationship had not been alleged.

The Court did, however, find that specific personal jurisdiction existed. First, it held that the complaint alleged facts sufficient to trigger the New York requirement for specific jurisdiction that a defendant have "transact[ed] business" in the State, and that the claims arose out of that contact. In so holding the Court noted that the non-US defendants "obtained the recording of 'Timber' from New York, agreed to the further distribution of the recording in New York, and executed contracts for the foreign exploitation of 'Timber' in New York."

The District Court also found that asserting jurisdiction over the non-US defendants was consistent with federal Due Process requirements. The actions cited above as establishing the transaction of business in New York were also found to establish that the non-US defendants had "purposely availed" themselves of the benefits and protection of New York law, and that it was "foreseeable" that they could be held accountable for the implications of their actions in a New York Court. The catch-all Due Process requirement that the assertion of jurisdiction be "reasonable" was assessed by the Court based on the factors of "the burden on the defendant, the interests of the forum state, the plaintiff's interest in obtaining relief, the judicial system's interest in obtaining the most efficient resolution of controversies, and the shared interest of the several States in furthering fundamental substantive social policies." The District Court found these factors to have been satisfied, notably adding to the list of courts increasingly unwilling to give credence to claims of undue burden of litigating in a US forum. It called the non-US defendants' citation of costs attendant to translation and foreign law expertise and non-US witnesses "an exaggeration," and added "in any event, such inconvenience as may exist constitutes the cost of affiliating with a company that does business on a global scale."

Finally, the District Court declined to dismiss the action on grounds of forum non conveniens, reviewing the factors required to be considered in assessing whether maintaining the case in New York was too "inconvenient" to be permitted. The Court first concluded that the plaintiffs were entitled to considerable deference in their choice of forum, as they are US citizens, and their choice of a New York forum seemed no less inconvenient than any other forum and did not appear to represent a tactical example of "forum shopping." The Court next found that the nine countries in which the non-US defendants were based were adequate "alternative" fora for litigation, and so this factor did not itself counsel that the case be retained. Finally, the Court weighed the "private and public" interests at stake. It concluded that the public interests weighed "slightly" in favor of dismissal, principally because of the limited interest New York has in the resolution of a dispute involving foreign copyright infringement, and the need to apply the laws of other countries. The private interests, however, weighed "heavily" in favor of retaining the case, principally because dismissal would replace one case with moderately inconvenient circumstances with the possibility of nine cases outside the US with moderately inconvenient circumstances. "The consequences of dismissal for Plaintiffs would be the likely inability to pursue their claims, in light of the insuperable obstacles that three individuals litigating in nine different countries against sophisticated entities would face."

[Editor's note: The Levitin case is also discussed in the Intellectual Property-Copyright section of this issue.]

District Court Denies Motion To Dismiss on Personal Jurisdiction Grounds Because Defendants' Evidence Was Contradictory and Required Credibility Determination that Could Only Be Made Later in the Case

Luv N Care Ltd. v. Angel Juvenile Products, US District Court for the Western District of Louisiana, June 9, 2015

Plaintiff Luv N Care, a US corporation, alleged that it entered into distribution agreements with two Chinese companies, which then breached the agreements. The distribution agreements contained a forum selection clause under which the defendants consented to suit in Louisiana for claims. Luv N Care also sued Chinese individuals and business entities that it alleged were "alter egos" of the defendants, and therefore could be sued in Louisiana because they should be deemed to be parties to the same forum selection clauses.

The District Court agreed that companies found to be "alter egos" of one another were treated as the same entity for legal purposes, and identified 16 factors that Louisiana considers in making the determination that the independence of corporate entities should not be respected. The principal factors were: "(1) common ownership, directors and officers, employees, and offices; (2) unified control; (3) inadequate capitalization; (4) noncompliance with corporate formalities; (5) centralized accounting; (6) unclear allocation of profits and losses between corporations; (7) one corporation paying the salaries, expenses, or losses of another corporation; and (8) undocumented transfers of funds between entities." The Court noted that, even if certain of these factors favored a finding that multiple individuals and entities should be treated as one, if the parties had respected corporate formalities (factor (4) above) the balance might be tipped in against an "alter ego" finding.

The Court reviewed the record evidence on the question of the separateness of the defendant entities, including deposition testimony from the defendant's representatives which the court found contradictory. Because the evidence would require a determination of credibility, the Court denied the motion to dismiss on jurisdictional grounds, and preserved the issue for further proceedings.

Court of Appeals Finds No Personal Jurisdiction Over a Brazilian Insurance Company That Contracted With Another Brazilian Company To Insure Property and Persons Situated in Brazil

Maxitrate Tratamento Termico e Controles v. Super Sys., US Court of Appeals for the Sixth Circuit, May 28, 2015

Maxitrate is a Brazilian company that makes heat-treated metal products. It purchased control panels for its industrial furnaces from Super Systems, Inc., an Ohio company. In 2008, Super Systems sent Hedman, a Super Systems employee and Ohio resident, to Brazil to work on a furnace at Maxitrate's factory. While was working on the furnace, Hedman was seriously injured when pressurized gas escaped and caused an explosion.

Maxitrate sued Super Systems and Hedman in a US District Court in Ohio, alleging that Super System's products were defective, and that Hedman had been negligent. Hedman filed a counterclaim against Maxitrate, alleging that Maxitrate's negligence caused the explosion and was therefore liable for his injuries. Maxitrate notified its insurer, Seguros, a Brazilian company that only sells insurance in Brazil, of Hedman's counterclaim. Seguros declined to defend Maxitrate. Maxitrate and Hedman ultimately settled the counterclaim, and as part of the settlement Maxitrate assigned to Hedman its claims against its insurer, Seguros.

After the settlement, Hedman filed a complaint against Seguros alleging that Seguros breached its contract with Maxitrate when it denied Maxitrate coverage for Hedman's counterclaim. Seguros moved to dismiss the complaint for lack of personal jurisdiction. The district court dismissed the case. Hedman appealed.

The Court of Appeals noted that personal jurisdiction over Seguros could be asserted if consistent with Ohio law and the Due Process Clause of the US Constitution. Since Seguros conceded that jurisdiction would be proper under the expansive Ohio law, the Court of Appeals considered only the Due Process question. Hedman conceded that Seguros was not subject to general jurisdiction in Ohio, and so the only question was specific personal jurisdiction, which required a showing that Seguros purposefully availed itself of the privilege of acting in the forum state (Ohio), and that the assertion of jurisdiction did not offend "traditional notions" of fair play and substantial justice.

The Court of Appeals determined that this standard had not been satisfied. Seguros is a Brazilian insurance company that contracted with another Brazilian company to insure property and persons situated in Brazil, and thus did not create any contacts with Ohio. Rather, the Court of Appeals found, Seguros's decision to deny coverage was an affirmative decision not to avail itself of Ohio's laws; any effects of Seguros's decision on Ohio were the result of Hedman's and Maxitrate's decisions to litigate there, which decisions could not be imputed to Seguros.

Hedman also pointed to Seguros's decision to sell an insurance policy to Maxitrate, a company that does considerable business in Ohio, and argued that Seguros should have known that the policy might require Seguros to defend Maxitrate in many places, including Ohio. The Court of Appeals disagreed, observing that the policy's "Geographical Scope" provision limits coverage to "property, liabilities, or persons situated on Brazilian territory" and provides that "[t]he competent jurisdiction to resolve litigation in relation to this contract shall be that of the domicile of the insured," which was Brazil.

Finally, Hedman cited an Ohio law allowing direct claims against a defendant's insurance company. The Court of Appeals concluded, however, that no state law could create jurisdiction if not permitted by the Due Process Clause.

Laws Discussed

We provide below alphabetically very brief summaries of key US laws addressed by cases summarized in this edition. Please note that these summaries provide a very simplified overview of the statutes and are not intended to describe fully what they may prohibit and require. They are only provided as a guide for the convenience of the reader.

Antiterrorism Act, 18 U.S.C. § 2331 et seq

The Antiterrorism Act creates criminal penalties and civil liability for various forms of terrorist activities committed against US nationals or on US soil. The statute is notable for its civil remedy allowing for the recovery of three-times damages plus attorneys’ fees, as well as an extended statute of limitations.

Alien Tort Statute (“ATS”), 28 U.S.C. § 1350 (also called the Alien Tort Claims Act)

The ATS is a jurisdictional statute that allows US courts to decide cases brought by a foreign citizen for torts committed in violation of international law or a US treaty. Much litigation under the statute involves the nature of the claims that can be brought; although treaties have specified terms, "international law" is a more general term. To support ATS jurisdiction, violations of international law "must be of a norm that is specific, universal, and obligatory."

Commodities Exchange Act (“CEA”) §§ 4o, 9(a), 22(a), 7 U.S.C. §§ 6o, 13(a), 25(a)

The CEA applies to the sale of commodities and imposes restrictions similar to those imposed on stock exchanges. Section 4o of the CEA generally makes unlawful the use of any means of fraud or deceit in connection with the sale of commodities or futures contracts involving commodities. Section 22(a) authorizes private individuals to sue for violations of Section 4o in certain limited circumstances. Finally, Section 9(a) prohibits manipulating the price of commodities or their futures contracts.

Copyright Act

US copyright law applies to any original work of authorship that is in tangible form; it protects the expression of ideas, but not the ideas itself. Copyright protection creates a right to prevent unauthorized use by others, including duplication, distribution, and performance. Copyrights are freely transferrable.

Dodd-Frank Wall Street Reform and Consumer Protection Act-Anti-Retaliation Provision, 15 U.S.C. § 78u-6(h)(1)(A)

The 2010 Dodd-Frank Act was reform legislation passed in the wake of the financial crisis. As relevant here, one provision expanded incentives for and protection of “whistleblowers” in specific circumstances. Most notably, the provision protects certain individuals from retaliation for making disclosures that are “required or protected” under previously-enacted securities laws or SEC rules. Other important limitations apply.

Foreign Corrupt Practices Act (FCPA”), 15 U.S.C. §§ 78dd-1, et seq.

The US anti-corruption statute, passed in 1977, generally makes unlawful:

• Paying, offering to pay, promising to pay, or authorizing to pay,
• Anything of value,
• Corruptly,
• To any third party (including local consultants & joint venture partners),
• Knowing that some of it will be given to a “foreign official,”
• To influence the official to confer a commercial benefit of any kind upon the payor.

Foreign Sovereign Immunities Act of 1976(FSIA), 28 U.S.C. Sec. l330, l332(a), l39l(f) and l60l-l6ll

The FSIA codifies the longstanding US rule that non-US Governments generally are immune from suit in US courts. The statute establishes a presumption against suit, and sets out a number of specific exceptions. These include:

• Explicit or implicit waiver of immunity by the foreign state;
• Commercial activity carried on in the United States or an act performed in the United States in connection with a commercial activity elsewhere, or an act in connection with a commercial activity of a foreign state elsewhere that causes a direct effect in the United States;
• Property taken in violation of international law is at issue;
• Rights in property in the United States acquired by succession or gift or rights in immovable property situated in the United States are at issue;
• Money damages are sought against a foreign state for personal injury or death, or damage to or loss of property, occurring in the United States and caused by the tortious act or omission of that foreign state;
• Action brought to enforce an agreement made by the foreign state with or for the benefit of a private party to submit to arbitration;
• Money damages are sought against a foreign state for personal injury or death that was caused by an act of torture, extrajudicial killing, aircraft sabotage, hostage taking, or the provision of material support or resources for such an act, if the foreign state is designated as a state sponsor of terrorism under section 6(j) of the Export Administration Act of 1979 (50 U.S.C. App 2405(j) or Section 620A of the Foreign Assistance Act of 1961 (22 U.S.C. 2371).
• A suit in admiralty is brought to enforce a maritime lien against a vessel or cargo of the foreign state which maritime lien is based upon a commercial activity of the foreign state. 

Foreign Trade Antitrust Improvements Act (“FTAIA”), 15 U.S.C. § 6a

The FTAIA is the principal US statute governing the applicability of US antitrust (competition) laws to foreign conduct. The statute is both complicated and unclear, and has been the subject of extensive litigation. Basically, the FTAIA provides that foreign conduct cannot be the basis of a violation of the US antitrust laws unless certain exceptions apply. These exceptions include, most significantly, foreign conduct that has a “direct, substantial, and reasonably foreseeable effect” on competition or prices in a US market, so long as the conduct also independently violates the substance of a US antitrust law. The FTAIA also permits antitrust claims to be brought where US export commerce is affected by anticompetitive acts outside the US. One important qualification is that the FATIA does not apply to claims that there has been an injury to the import trade into the US. Those claims must satisfy a different test under a different statutory regime.

Gun Control Act, 18 U.S.C. ch. 44

The Gun Control Act of 1968 restricts the sales of firearms the numerous classes of persons, including fugitives from justice, drug addicts, persons unlawfully in the US, certain persons suffering from mental illness, and persons convicted of felony crimes.

Hobbs Act, 18 U.S.C. § 1951

The Hobbs Act is a criminal statute that prohibits actual or attempted robbery or extortion affecting interstate commerce between the US and other countries. It is often used in labor disputes and cases involving commercial disputes and public corruption.

Lanham Act, 15 U.S.C. § 1051, et seq.

The Lanham Act is the principal trademark infringement statute in the US, and also creates additional remedies related to false advertising and “cybersquatting.” The statute makes unlawful the use of both registered and unregistered marks that create a “likelihood of confusion” with a pre-existing trademark. More generally, it also prohibits the use of false or misleading statements made in advertising where the effect may be the likely injury to a business. Amendments to the Lanham Act in 1999 prohibited the use of confusingly similar domain names in internet web sites. Parties that violate the Lanham Act may be subject to damages as well as injunctions.

Magnuson-Moss Warranty Act, 15 U.S.C. 2301 et seq.

The Magnuson-Moss Act governs the terms of warranties on consumer products sold in interstate commerce. It does not require that any particular warranties be offered, but provides that the terms and conditions of warranties that are offered be disclosed fully, clearly, and conspicuously. The Act places specific limitations on warranties that are "full" or "limited." Violations may give rise to claims by the US Government as well as consumers.

Maritime Drug Law Enforcement Act (“MDLEA”), 46 U.S.C. § 70501, et seq.

The MDLEA makes unlawful drug trafficking on the high seas. It provides that an individual may not “knowingly or intentionally manufacture or distribute, or possess with intent to manufacture or distribute, a controlled substance on board (1) a vessel of the United States or a vessel subject to the jurisdiction of the United States; or (2) any vessel if the individual is a citizen of the United States or a resident alien of the United States.” The statute expressly provides for application to conduct occurring outside the territorial jurisdiction of the US.

Patent Act, 35 U.S.C. § 271 (Patent Infringement)

Under US law, patent infringement occurs generally where a person, “without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor.” Prior knowledge of the patent is irrelevant for purposes of patent infringement liability. A person who “actively induces” the infringement of a patent is also liable as an infringer. Parties that commit patent infringement face monetary penalties as well as an injunction.

Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961, et seq.

RICO establishes civil and criminal liability for persons employed by or associated with an “enterprise” that has been engaging in a “pattern of racketeering.” The applicability of the statute turns on the meanings of these two terms. The term “enterprise” is broadly defined and can include formal legal entities such as corporations, as well as more informal associations-in-fact, which are “a group of persons associated together for a common purpose of engaging in a course of conduct.” A “pattern of racketeering” is defined in turn to be the commission of at least two “predicate acts” during a ten-year period, where those acts were sufficiently related to one another to be considered part of a “pattern.” The RICO statute lists 35 state and federal crimes that constitute “predicate acts,” including mail and wire fraud, bribery, obstruction of justice, embezzlement, money laundering, immigration fraud, and an assortment of crimes of violence.

Securities Act of 1933, 15 U.S.C. § 77a, et seq.

The Securities Act generally prohibits a security from being offered or sold to the public unless it is either registered with the Securities and Exchange Commission or an exemption from the registration requirement applies.

Securities Exchange Act of 1934 (“1934 Act”) §§ 10(b) & 15(a)(1), 15 U.S.C. §§ 78j(b) & 78o(a)(1) (also referred to as Exchange Act)

Section 10(b) of the 1934 Act is a broad provision prohibiting fraudulent activities with respect to securities listed on US exchanges, including American Depositary Receipts (“ADRs”). In addition, pursuant to Section 10(b), the Securities and Exchange Commission has promulgated Rule 10b-5, which extends Section 10(b)’s prohibition to fraudulent activity in connection with the purchase or sale of any security, registered or unregistered securities, publicly held or closely held companies, and any kind of entity that issues securities, including federal, state, and local government securities.

Section 15(a)(1) of the 1934 Act prohibits any person or company to from acting as a broker or dealer without first registering with the Securities and Exchange Commission.

Sherman Antitrust Act, 15 U.S.C. §§ 1 & 2

The Sherman Antitrust Act is the most generally applicable antitrust statute in US law. Section 1 of the Act makes unlawful any agreement “in restraint of trade.” For most agreements affecting commercial transactions, the statute only makes unlawful agreements that unreasonably restrain trade, meaning that they have an actual anticompetitive effect on a market for goods or services in the US that is not outweighed by precompetitive benefits. Certain narrow classes of agreements, including price-fixing, bid rigging, and agreements among competitors to divide customers or territories, are per se violations of law as to which the facts, if proved, allow for no defenses. Section 2 of the Sherman Act makes unlawful monopolization and attempted monopolization, which may be undertaken by a company acting unilaterally.

Title VI of the Civil Rights Act of 1964

This federal statute broadly prohibits discrimination by covered employers. It declares an “unlawful employment practice” for an employer to take various actions, including to discriminate against any individual with respect to compensation, terms, or conditions of employment because of such individual’s race, color, religion, sex, or national origin.

Torture Victims Protection Act of 1991 (“TVPA”), Pub. L. No. 102–256, 106 Stat. 73 (1992), codified at 28 U.S.C. § 1350

The TVPA was passed for the purpose of giving a US civil remedy to victims of torture and/or murder. The statute, however, only authorized lawsuits against individuals, not corporations or political groups. When filing suit, the plaintiff must show that he or she pursued all “adequate and available” local remedies. Plaintiffs need not be US citizens to sue.

Victims of Trafficking and Violence Protection Act, 18 U.S.C. § 1581 et seq.

The Victims of Trafficking and Violence Protection Act of 2000, Public Law 106-386, as amended, declares illegal the trafficking in persons, including forced labor, involuntary servitude, slavery and sex trafficking. 18 USC § 1595 creates a private right of action in US federal court for victims of such conduct, allowing them to collect actual damages, punitive damages, and attorneys’ fees. Section 1596 of Title 18 establishes that the remedy applies extraterritorially.

Wire Act, 18 U.S.C. § 1084

The Interstate Wire Act of 1961 prohibiting the operation of certain types of betting businesses in the United States. The statute has been construed to be limited to betting on sporting events, and not to apply to other forms of online gambling.

Wire Fraud Statute, 18 USC § 1343

Establishes as a federal crime the use of US means of interstate electronic communication in pursuit of a scheme to defraud.

42 U.S.C. § 1981 

This federal statute provides that “all persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts, to sue, be parties, give evidence, and to the full and equal benefit of all laws and proceedings for the security of persons and property as is enjoyed by white citizens, and shall be subject to like punishment, pains, penalties, taxes, licenses, and exactions of every kind, and to no other.” The statute is intended to advance the goal that all persons within its scope or equal under the law. Courts have concluded in many cases that it may be enforced by lawsuits in federal court.