2007 International Law Update, Volume 13, Number 5 (May)

2007 International Law Update, Volume 13, Number 5 (May)

Legal Analyses published by Mike Meier, Attorney at Law. Copyright 2017 Mike Meier. www.internationallawinfo.com. 

ARBITRATION

District of Columbia Circuit holds that, if Country where arbitration award was made lawfully nullifies it, this makes award unenforceable in the U.S. under the Federal Arbitration Act or New York Arbitration Convention

TermoRio S.A. E.S.P. (Plaintiff) entered into a Power Purchase Agreement (PPA) with Electrificadora del Atlantico S.A. E.S.P. (Defendant). Plaintiff generally agreed to generate electricity and Defendant, a state‑owned public utility, agreed to buy it. When a dispute arose, the parties submitted it to arbitration in Colombia, pursuant to the terms of the PPA. The arbitration

tribunal eventually awarded Plaintiff more than $60 million.

Thanks to its excellent connections, Defendant obtained an “extraordinary writ” in a Colombian court to overturn the award. Later on, Colombia’s highest administrative court, the Council of State (Consejo de Estado), nullified the award because the PPA’s arbitration clause violated Colombian law.

Plaintiff and one of its investors filed the present case in the District of Columbia to enforce the Colombian award under the Federal Arbitration Act (FAA), 9 U.S.C. Section 201. The FAA implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, [in force for U.S. Dec. 29, 1970; 21 U.S.T. 2517; T.I.A.S. 6997; 330 U.N.T.S. 3] (“New York

Convention”). The U.S. has ratified another pertinent convention on the enforcement of foreign arbitral awards. This is the Inter‑American Convention on International Commercial Arbitration [in force for U.S., Oct. 27, 1990, O.A.S.T.S. No. 42, 1438 U.N.T.S. 245] (“Panama Convention”). Because the U.S. codification of the Panama Convention contains by reference the relevant sections of the New York Convention, the Court only refers to the New York Convention.

The district court dismissed for failure to state a claim and, alternatively, on forum non conveniens grounds. Plaintiff appealed. The U.S. Court of Appeals for the District of Columbia Circuit, however, affirms.

The Court finds that the Colombian Council of State had the power to set aside the arbitration award as contrary to Colombian law. See Art. V(1)(e) of the New York Convention. It provides that “Recognition and enforcement of the award may be refused ... if ... [t]he award ... has been set aside ... by a competent authority of the country in which, or under the law of which,

that award was made.”. Thus, Plaintiffs have no U.S. cause of action to seek enforcement of the award under either the FAA or the New York Convention. Colombia, too, is a party to both Conventions. If, for example, the competent authority in the country where the award was made sets it aside, Article V(1)(e) of the New York Convention permits a fellow state party to refuse to enforce that award.

“... [H]ere, where appellants seek to enforce an arbitration award that has been vacated by Colombia’s Consejo de Estado. For us to endorse what appellants seek would seriously undermine a principal precept of the New York Convention: ... This principle controls the disposition of this case.” [Slip op. 10‑11]

Citation: Termorio S.A. E.S.P. v. Electranta S.P., 2007 WL 1515069, No. 06‑7058 (D.C. Cir. May 25, 2007).

COPYRIGHTS

In action under Australian Copyright Act, High Court rules that model of “sportboat” designed by Plaintiff and marketed in United States and elsewhere did not constitute “work of artistic craftsmanship” under Act but mainly involved naval engineering skill

The respondent in the High Court of Australia is Mr. J. H. Swarbrick (Plaintiff below); he is a naval architect who has designed many yachts. He controls Swarbrick Yachts International Pty. Ltd.(SYI) which manufactures a yacht sold as the “JS 9000” in Australia, Europe, the United States and elsewhere. The Plaintiff named the first JS 9000 built Bateau Rouge. At the time Plaintiff filed the present copyright infringement case against the Defendants in 2003, SYI had built 32 of the JS 9000 boats and delivered 20 of them to customers. The prices ranged from $A50,000 to $A65,000.

In June 2003, the fourth Defendant, Boldgold Investments Pty. Ltd. (Boldgold) hired the first Defendant, B. J. Burge, as operations manager of its factories. He supervised work on the hull and deck of a JS 9000 yacht using a hull and deck molding that Boldgold had obtained from the second Defendant, T. Rogers, for $7,500. Boldgold hired Rogers and the third Defendant, B. Warren, to work at its factory; previously, they had worked for SYI in the molding of hulls and decks.

Late in 2002, Plaintiff had given Rogers the hull and deck molding which he later sold to Boldgold. The trial being in the future, there is an as yet unresolved dispute as to the circumstances under which Plaintiff had given the molding to Rogers. The fifth and sixth Defendants, G. P. Bosman and S. E. Zaza, are directors of Boldgold.

The litigation turns upon a legal question, that is, whether the Australian Copyright Act of 1968 (Cth) (ACA) applies to Plaintiff’s work product. Specifically, the case focuses on the phrase “a work of artistic craftsmanship” which appears in the definition of “artistic work” in Section 10 and in Section 77(1) of the ACA. (The reference to the ACA is to that statute in its form before its recent amendment—after the filing of this case—by the Designs (Consequential Amendments) Act 2003 (Cth) (the 2003 Act).

In the first instance court, Plaintiff offered, inter alia, evidence such as journal articles promoting the advantages of the JS 9000 as, for example, “this remarkable 30 footer from down under”. Yachting magazines published in the United States and the United Kingdom carried these articles. Their content sets the stage for the issues that arise on this appeal, especially

the key indicia of “a work of artistic craftsmanship” and its application to the JS 9000. In the U.S. publication, Sailing World, an article entitled “Three New Inexpensive Imports” spelled out the key advantages of the JS 9000.

It contains, inter alia, the following sentence: “Add to that the pedigree of designer [Plaintiff], the brains behind the 12‑Meters Kookaburra I and II and Chris Dickson’s Whitbread 60 Tokio, and it’s easy to get excited about a $26,500 speedster that comes fully rigged with Spectra running rigging, die‑form standing rigging, aluminum mast and boom, and Dacron mainsail and jib.” An SYI business plan dated April 2003, described the underlying concept of the craft and included this phrase: “all yachts produced by [SYI] are protected by T[r]ademark and copyright laws of the state of Western Australia, and the Commonwealth of Australia.”

Thus, the present case concerns the distinction between copyright law and design law. As background, the High Court points out that, while title to a design “derives from statutory registration, and a publicly accessible register, there is no registration system for copyright. Further, copyright subsists for a much longer period than the maximum period of protection

under the Designs Act of 16 years from the priority date,(6) now reduced to a maximum of 10 years protection from the filing date under the New Designs Act.”

“In cases of possible dual protection, the legislative policy manifested since 1911 in the United Kingdom and then in Australia has been to encourage design registration and to limit or remove copyright protection for artistic works which are applied to industrial products. But, ... the means adopted to that end have varied and successive legislative schemes have sought to overcome the shortcomings of their predecessors.” [¶ 10].

Plaintiff does not rely upon any design registration; it is the absence of any utilization of the protection offered by the Designs Act which is central to this appeal. The ultimate issue is whether the JS 9000 embodies ‘a work of artistic craftsmanship’ as used in the ACA. If so, Plaintiff may take his claim of copyright infringement to trial and the absence of a design registration is not a defense. The Defendants in this Court challenge Plaintiff’s success to date. For the reasons that follow, Australia’s highest court unanimously allows the Defendants’ appeal.

On September 13, 2003, upon Plaintiff’s application, the service of an ex parte interlocutory injunction from the federal court stopped JS9000 work at the Boldgold factory. The injunction as modified still remains in force.

Relevantly, the lower court enjoined Defendants from reproducing or authorizing the reproduction in a material form of an object identified as “the Plug” and from manufacturing, or procuring the manufacture of, any mold using the JS 9000 hull and deck molding. The Plug was a hand‑crafted full scale model of the hull and deck sections of what became the finished JS 9000 yacht. Plaintiff produced the hull and deck molding from molds taken separately of the hull and deck sections, the molds themselves being exact, although inverted, copies of the Plug.

Although the Plug was destroyed, Plaintiff asserts an incorporeal right under copyright law, whose continued subsistence does not turn upon the fate of its first material embodiment.

The re‑amended defenses dated January 28, 2004 filed on behalf of each of the present Defendants included the assertion that, in the absence of registrations under the Designs Act, Section 77 of the Copyright Act applies and there is no copyright infringement by the Defendants. On November 6, 2003, by consent, the judge ordered that it would decide questions of liability for infringement separately and expeditiously.

In this Court, Plaintiff’s counsel conceded that the only relevant artistic works which could be works of “artistic craftsmanship” under the ACA were the Plug and the final hull and deck molding for the Bateau Rouge; Plaintiff could seek no wider injunctive relief under the ACA.

The question of “overlapping” between the law of designs and the copyright law became critical for the new legislative scheme. The 1911 Act required no formalities such as registration of copyrights and adopted a lengthy period of protection, generally, for published works, the life of the author plus 50 years. The 1911 Act also [Section 1(2)] so defined the copyright monopoly in

terms to include the reproduction of the work or of a substantial part thereof “in any material form whatsoever”, thereby encompassing three‑dimensional reproductions of two‑dimensional works.

A distinguished English judge has paraphrased the awkwardly worded Section 22 of the 1911 Act as follows: “This Act shall apply to designs capable of being registered under [the 1907 UK Act], which are not used or intended to be used as models or patterns to be multiplied by any industrial process. With that exception, this Act shall not apply to designs capable of being registered under [the 1907 UK Act].”

What is relevant for present purposes is the statement in Mackie Designs Inc. v. Behringer Specialised Studio Equipment (UK) Ltd., [1999] R.P.C. 717 at 723 that: “[i]t was clearly the intention of the framers of [the 1988 UK Act] that copyright protection was no longer to be available to what can be compendiously described as ordinary functional commercial articles.”

Kevlacat Pty. Ltd. v. Trailcraft Marine Pty. Ltd., (1987) 79 A.L.R. 534 is an important case. It was an unsuccessful effort in the Federal Court to restrain the copying of a Catamaran marketed as the Kevlacat where there was no design registration. The Court held that, even if copyright subsisted in drawings from which the prototype of the Kevlacat had been made, the production of the Catamarans was an industrial application of the “corresponding design” and denied copyright protection under Section 77 of the ACA.

As with Section 10 of the 1956 UK Act, the Australian legislation proved unsatisfactory in various respects. In 1989, the Copyright Amendment Act 1989 (Cth) (the 1989 Act) made further changes. It is the text of the 1989 Act which governs the outcome of the present appeal. Paragraph (a) of Section 77(1) provided a further exception from the operation of the limitation imposed by Section 77 and it is this which is critical for the present appeal. “The paragraph provides that Section 77 may be engaged where copyright subsists in artistic work ‘other than a building or a model of a building, or a work of artistic craftsmanship’. ... The effect of that special provision is that buildings or models of buildings or works of artistic craftsmanship retained copyright protection, but only if they were not registered as designs. This is not, speaking strictly, overlapping or dual protection.” [¶ 42].

“... Hence the defence under Section 77 in this case that there was no copyright infringement because the Plug and the final hull and deck molding were not works of artistic craftsmanship. This then invites consideration of the part played since 1911 by the work of ‘artistic craftsmanship’ as a species of artistic work under the Copyright Act.” [¶ 44].

“In Australia on the day that Plaintiff filed the present litigation, Section 10 of the [ACA] contained the following relevant definition: “artistic work means: (a) a painting, sculpture, drawing, engraving or photograph, whether the work is of artistic quality or not; (b) a building or a model of a building, whether the building or model is of artistic quality or not; or (c) a work of artistic craftsmanship to which neither of the last two preceding paragraphs applies.....” [¶ 46]

“This appeal immediately concerns the expression in ¶ (c) of the definition of ‘artistic work’ in Section 10 of the [ACA]. Paragraph (c) of the definition in Section 3(1) of the 1956 UK Act is in terms essentially indistinguishable from Section 10 of the [ACA]. ” [¶ 49]. The evidence of the marketing of the JS 9000 class of racing yacht illustrates these constraints. It is these constraints which make it difficult to support the Plug as “a work of artistic craftsmanship”.

“The 1989 Act places some check upon entire acceptance of what had been said earlier with respect to the 1956 UK Act in the most significant judicial treatment of the scope and purpose of the special treatment given the phrase ‘a work of artistic craftsmanship’. This was the speech of Lord Simon of Glaisdale in George Hensher Ltd. v. Restawile Upholstery (Lancashire) Ltd.

(1987) 79 A.L.R. 534.” [¶ 53]

This Court should adopt Lord Simon’s approach in dealing with the present appeal. “In Australia, thus, there will be no occasion to attempt from all five speeches in Hensher a distillation of what can be regarded as the ratio decidendi.” [¶¶ 53, 56].

The Court adds several observations on statutory construction. “First, the statutory expression is ‘artistic craftsmanship’, not ‘artistic handicraft’, notwithstanding that the aesthetic of the “Arts and Crafts” movement [see works of leader William Morris (1834‑96) and supporter John Ruskin (1819‑1900)] may have been that of the living artisan in his workshop. ... Some leaders of the “Arts and Crafts” movement recognised that they would have to come to terms with the machine, and referred to a lecture by Frank Lloyd Wright, ‘The Art and Craft of the Machine’. Lord Simon concluded that: “The Central School of Arts and Crafts, though foremost a school of handicrafts, had, as a declared aim, to encourage ‘the industrial application of decorative design.’ So, although ‘works of artistic craftsmanship’ cannot be adequately construed without bearing in mind the aims and achievements of the ‘Arts and Crafts’ movement, ‘craftsmanship’ in the statutory phrase cannot be limited to handicraft; nor is the word ‘artistic’ incompatible with machine production....” [¶ 59]

“Whilst not denying an enduring distinction between fine arts and useful or applied arts, in dealing with artistic craftsmanship there is no antithesis between utility and beauty, between function and art. In that regard, Lord Simon said in Hensher: ‘A work of craftsmanship, even though it cannot be confined to handicraft, at least presupposes special training, skill and

knowledge for its production ... ‘Craftsmanship’, particularly when considered in its historical context, implies a manifestation of pride in sound workmanship—a rejection of the shoddy, the meretricious, the facile.” [¶ 61].

“Finally, it may be noted that the course of the statutory and case law in the United States respecting works of artistic craftsmanship requires separate identification of pictorial, graphic or sculptural features from utilitarian aspects of the article concerned; the former features must be

capable of ‘existing independently’ of utilitarian aspects. See [U.S.] Copyright Act 1976, 17 U.S. C. Section 101; Pivot Point International Inc. v. Charlene Products Inc., 372 F. 3d 913 (7th Cir. 2004). In the United States, the Vessel Hull Design Protection Act of 1998, 17 U.S. C. Sections 1301, 1302, conferred a sui generis form of protection upon designs for vessel hulls, including ‘plugs’ and ‘molds’: Nimmer on Copyright, vol 2, Section 8A.13 – Section 8A.21.

However, ... such an approach should not be adopted in construing the Australian legislation. This is derived from the 1911 Act, which must be understood in the light of what was said in Hensher respecting the ‘Arts and Crafts’ movement and because the language of the 1911 Act is apt to carry forward the objects of that movement.” [¶ 62 & note 80].

“The statute does not give to the opinion of the person who claims to be the author of ‘a work of artistic craftsmanship’ the determination of whether that result was obtained; still less, whether it was obtained because he or she intended that result. Given the long period of copyright protection [for published works, the author’s life plus 50 years], the author, at the stage when there is litigation, may be unavailable. Indeed, ... the author may be dead. Again, intentions may fail to be realised. Further, just as few alleged inventors are heard to deny the presence of an inventive step on their part, so, it may be expected, will few alleged authors of works of artistic craftsmanship be heard readily to admit the absence of any necessary aesthetic element in their endeavours.” [¶ 64].

“The primary judge started his analysis of the evidence from the proposition that the evidence of intention of the author of the alleged work was important, albeit not essential. Whilst allowing that [Plaintiff] was ‘scarcely a disinterested person’, the primary judge gave very great weight to his evidence as to that intention. His Honour accepted that [Plaintiff] had intended to design and build a yacht of ‘great aesthetic appeal’, that the JS 9000 had ‘a high level of aesthetic appeal’ and that this was the outcome intended by Plaintiff.” [¶ 67].

“His Honour did give much attention to the steps by which the Plug came into existence in its final form. There were disputes between witnesses on these matters. But, as a whole, that evidence is equivocal; it suggests that yacht design requires engineering skills and that the problems overcome as [Plaintiff] progressed had been predominantly to do with matters of

function.” [¶ 70].

“Taken as a whole and considered objectively, the evidence, at best, shows that matters of visual and aesthetic appeal were but one of a range of considerations in the design of the Plug. Matters of visual and aesthetic appeal necessarily were subordinated to achievement of the purely functional aspects required for a successfully marketed ‘sports boat’ and thus for the

commercial objective in view.” [¶ 73].

“During his cross‑examination, Plaintiff agreed that yacht design was a very specialised branch of naval architecture and that a naval architect was ‘basically an engineer’. [An expert witness] referred to a number of works on the practice of naval architecture and the design of yachts. He described as the main and essential requirements of yacht design the application of mathematical and engineering principles together with the relevant principles of physics.”

“This evidence adds force to the further statement by Professor Denicola in his [influential] article: ‘Applied Art and Industrial Design: A Suggested Approach to Copyright in Useful Articles, 67 Minn. L. Rev.707, 739 (1982‑83): ‘The designer cannot follow wherever aesthetic interests might lead. Utilitarian concerns influence, and at times dictate, available choices. Indeed, aesthetic success is often measured in terms of the harmony achieved between competing interests.’”

“After referring to what he describes as ‘utilitarian considerations’, including ease of operation, maintenance and cost of manufacture, Professor Denicola concludes that the cumulative influence of such matters ‘can render the designer’s task quite unlike that confronting the painter or sculptor’. Id. at 740. That was true of the design of the Plug for the JS 9000.” (N. B. The Seventh Circuit majority accepted the thesis of the article in Pivot Point International Inc. supra, at 927). In Hensher, above, Lord Simon asked whether the work in question was ‘the work of one who was, in this respect, an artist‑craftsman?’. ... “Lord Simon went on: [Hensher at 91] ‘In between lie a host of crafts some of whose practitioners can claim artistic craftsmanship, some not—or whose practitioners sometimes exercise artistic craftsmanship, sometimes not. In the former class, for example, are glaziers. The ordinary glazier is a craftsman, but he could not properly claim that his craftsmanship is artistic in the common acceptation.”

“But the maker of stained glass windows could properly make such a claim; and, indeed, the revival of stained glass work was one of the high achievements of the “Arts and Crafts” movement. In the latter class is the blacksmith—a craftsman in all his business, and exercising artistic craftsmanship perhaps in making wrought‑iron gates, but certainly not in shoeing a horse or repairing a ploughshare. In these intermediate—or rather, straddling—classes come, too, the woodworkers, ranging from carpenters to cabinet‑makers: some of their work would be generally accepted as artistic craftsmanship, most not.” [¶¶ 77‑81].

“It may be impossible, and certainly would be unwise, to attempt any exhaustive and fully predictive identification of what can and cannot amount to ‘a work of artistic craftsmanship’ within the meaning of the ACA as it stood after the 1989 Act. However, determining whether a work is ‘a work of artistic craftsmanship’ does not turn on assessing the beauty or aesthetic

appeal of work or on assessing any harmony between its visual appeal and its utility. The determination turns on assessing the extent to which the particular work’s artistic expression, in its form, is unconstrained by functional considerations. To decide the appeal it is sufficient to indicate the following.”

“The more substantial the requirements in a design brief to satisfy utilitarian considerations of the kind indicated with the design of the JS 9000, the less the scope for that encouragement of real or substantial artistic effort. It is that encouragement which underpins the favourable

treatment by the 1989 Act of certain artistic works which are applied as industrial designs but without design registration. Questions of fact and degree inevitably arise.”

“In the present case, notwithstanding what [Plaintiff] later said on the matter after litigation was on foot, the earlier statements in the promotional material and in the business plan, with the evidence of the expert should have led the primary judge to conclude that the Plug was not

‘a work of artistic craftsmanship’ because the work of [Plaintiff] in designing it was not that of an artist‑craftsman.” [¶¶ 83‑85].

The bottom line is that the Full Court should have set aside all of the orders made by [the court below]. “This Court should now so provide. In place of the orders of [the trial judge], an order should now be made dismissing the present Plaintiff’s application to the Federal Court with

consequential orders as set out above.” [¶ 106].

Citation: Burge v. Swarbrick, [2007] H. C. A. 17; 2007 WL 1207121 (High Ct. of Australia, April 26, 2007).

FOREIGN ASSET SEIZURE

In case of U.S.’s seizure of funds from interbank account held by Jordanian bank because forfeited checks had been deposited into accounts in Jordan, First Circuit finds that owners of forfeited deposits own interbank account funds to extent that, at time of seizure, bank owed any obligations to forfeited deposit owners

The United States (Plaintiff) seized over $2.8 million from an interbank account held by Union Bank for Savings & Investment (Jordan) (Defendant) at the Bank of New York. The $2.8 million corresponded to cashier’s checks drawn on U.S. banks and deposited into customer accounts with Defendant. The checks were allegedly subject to forfeiture as the proceeds of a Canadian telemarketing scheme which defrauded American citizens.

Mohammed Ghaleb Esseileh and his brothers Samir and Talal and other family members ran a money exchange business in East Jerusalem. They deposited each check into one of two business accounts. Although the first account in the name of Samir Esseileh was closed on the seizure date, the second account in the name of Mohammed Ghaleb Esseileh was still open on that date. After the seizure, Defendant transferred about $2.4 million from the Esseilehs’ accounts into a restricted trust account.

The U.S. filed a complaint against the seized funds in federal district court in New Hampshire seeking forfeiture in rem. Defendant also filed claims in the proceeding, asserting an “innocent owner” defense, and raising constitutional challenges to the forfeiture. The District Court rejected Defendant’s innocent owner defense . It ruled that 18 U.S.C. Section 981 (k) treats the depositor (and not the bank) as owner of all “amounts that remain on deposit in the prior owner’s ... accounts on the date of the seizure.” [Slip op. 7].

Defendant moved for reconsideration. It pressed two points: (1) that, based on the relevant exchange rate, the seizure exceeded the balance of Mohammed Ghaleb’s accounts by at least $450,000; and (2) that the court should not consider Talal’s account because no one had used it for money‑changing purposes. The District Court granted the motion.

Both parties appealed. The U.S. Court of Appeals for the First Circuit affirms in part and reverses in part. It held “that for the purposes of Section 981(k), obligations include amounts in any account held at the time of the seizure by anyone who was an owner of the funds at the time they were deposited.” [Slip op. 3].

The Court first addresses the issue of ownership under Section 983 (d)(6)(A). This section defines “owner” as “a person with an ownership interest in the specific property sought to be forfeited, including a leasehold, lien, mortgage, recorded security interest, or valid assignment of an ownership interest.” The Court also takes into account “Congress’s instruction that, absent contrary statutory language, ‘the term owner should be broadly interpreted to include any person with a recognizable legal or equitable interest in the property seized. United States v. 221 Dana Ave., 261 F.3d 65, 71 n.5 (1st Cir. 2001) ...”

The Appellate Court finds the Esseilehs to be the owners because “any reasonable fact‑finder would be compelled to find that the Esseilehs’ money‑changing business was a joint venture or partnership among them and that the cashier’s checks at issue had been acquired and deposited in the normal course of that business.” [Slip op. 12]

The Court then turns to the central issue on appeal, whether Defendant had “discharged all or part of its obligation to the prior owner of the funds” under subsection 981(k)(4)(B)(ii)(II). The Court determines that Defendant had not done so. In the context of bank deposits, “such an obligation to a depositor is measured by that depositor’s account balances. In this case, it

is undisputed that, on the dates of the seizure, the Esseilehs together had funds on deposit exceeding the amount of the seizures.”

The Court rejects Defendant’s argument “that the bank’s ‘obligation’ should be tied to its ability to obtain recourse for the seizure from its depositor, through setoff or otherwise.” The Court concludes that neither the statutory language nor the congressional intent supported this contention. [Slip op. 13].

“Recourse available to the bank is hardly an ‘obligation’; it is in the nature of a legal right or a contingency on an obligation. If a bank is left without recourse, then its obligation remains in full force, rather than being discharged. Nothing in the language of the statute ties the definition

of ‘obligation’ to the foreign bank’s rights of recourse or setoff.” [Slip op. 13–14].

“Section 981(k)(1)(B) provides that the Attorney General may suspend or terminate a forfeiture under this section if the Attorney General determines that a conflict of law exists between the laws of the jurisdiction in which the foreign financial institution¼is located and the laws of the United States with respect to liabilities arising from the restraint, seizure, or arrest of such funds, and that such suspension or termination would be in the interest of justice and would not harm the national interests of the United States.” [Slip op. 14].

The Court reasons that Defendant’s theories rest on a conception of Section 981(k) as reaching through the foreign bank to seize amounts in particular accounts, whereas the statute’s language and structure indicate that Congress intended to use the ownership provisions to reach through the bank to particular depositors. The obligation at issue in Section 981(k)(4)(B) is the bank’s ‘obligation to the prior owner of the funds,’... not the obligation under a specific account or the obligation ‘arising’ from the deposit of forfeitable funds.” [Slip op. 16].

Citation: United States v. Union Bank For Savings & Investment, 2007 WL 1453925; No. 06‑1187 (1st Cir. May 18, 2007).

SOVEREIGN IMMUNITY

Ninth Circuit decides that Plaintiff may not attach default judgment against third party Iran had obtained in California federal court as unblocked asset under TRIA or under Foreign Sovereign Immunities Act where judgment assets had gone into Iranian treasury and where assets not used for commercial activity in United States; repatriation into a ministry’s budget does not constitute commercial activity

In October 1977, the Iranian Ministry of Defense (MOD) entered into two contracts with Cubic Defense Systems (Cubic), an American defense contractor, for the sale and service of an Air Combat Maneuvering Range (ACMR). Iran made partial payment on the ACMR. After the Iranian Revolution of 1979, however, Cubic breached its contract with the MOD and sold the ACMR to a third party. After an arbitration, the International Chamber of Commerce (ICC) ordered Cubic to pay MOD $2.8 million in damages. MOD reduced the ICC award to a judgment in a California federal court.

On October 23, 1990, an alleged Iranian agent shot and killed Dr. Cyrus Elahi in Paris. The decedent’s brother, Dariush (Plaintiff), brought a wrongful death action in the District of Columbia federal court against the state of Iran and the Iranian Ministry of Information and Security (MOIS).

When Defendants failed to appear, the District Court entered a default judgment against them for $311.7 million in compensatory and punitive damages. Plaintiff next sought to have a lien imposed on the Cubic judgment in the California federal court. MOD filed a motion seeking immunity from attachment. The district court, however, ruled that “in waiving its immunity

from jurisdiction by submitting to ICC arbitration and seeking confirmation of the arbitration award in district court, MOD had also waived its immunity from attachment of its property.” [Slip op. 3].

MOD appealed. The U.S. Court of Appeals for the Ninth Circuit affirms the ruling on other grounds. MOD sought review in the U.S. Supreme Court. It granted certiorari limited to whether MOD was a “foreign state or an agency or instrumentality of a foreign state” under the Foreign Sovereign Immunities Act of 1976. The Supreme Court held that the Circuit Court had

not properly determined this question and remanded for reconsideration. On the remand two additional issues arose. First, Plaintiff had signed a declaration giving up some, but not all, of his rights to pursue the remainder of his default judgment against Defendant. Second, Plaintiff

contends that he may attach the Cubic judgment under the Terrorism Risk Insurance Act of 2002 (Pub. L. 107‑297, 116 Stat. 2322) (TRIA), Section 201.

First, the Ninth Circuit addresses the issue of Plaintiff’s waiver under the Victims of Trafficking and Violence Protection Act of 2000 (Public Law 106‑386)] “The statute requires a person who accepts a pro rata payment to relinquish certain rights, including the right to execute against or attach ‘property that is at issue in claims against the United States before an international tribunal’ or that is the subject of awards by such tribunal. Id. Section 2002(a)(2)(D) (as amended by TRIA Section 201(c)(4)).” [Slip op. 5].

“Iran has brought a claim against the United States in the Iran‑U.S. Claims Tribunal, Claim B/61, for damages based on the non‑export of contracted‑for goods (including the ACMR that was the subject of the Cubic contract) by United States companies who breached contracts following the Iranian Revolution.”

“Iran argues that the Cubic judgment is ‘at issue’ before the Claims Tribunal because Iran has offered to offset from its demand against the United States in Tribunal Case B/61 any proceeds it receives from the Cubic judgment.”

The Court rejects this argument, reasoning that, “having arbitrated this dispute before the ICC and secured a judgment against Cubic for its breach, Iran has fully adjudicated its claim against Cubic for non‑delivery of the ACMR. Further, as noted supra, the Tribunal has no jurisdiction over claims against private parties.” [Slip op. 6].

The Court held first that the “Cubic judgment is not ‘at issue’ before the Claims Tribunal and therefore that Plaintiff did not waive his rights to attach the Cubic judgment by accepting a pro rata payment under the Victims Protection Act.” [Slip op. 6‑7]. Second, the court assessed Plaintiff’s alternative claim under TRIA Section 201 (a). The Court held that “Congress created, in passing TRIA, a method of attachment for creditors such as [Plaintiff] who hold final Judgments for harms caused by terrorism. See TRIA Section 201(a) (incorporating by reference 28 U.S.C. Section 1605 (a)(7))”

“[Plaintiff’s] claim for relief under TRIA Section 201(a) turns on two factors: (1) whether Iran is a ‘terrorist party’ under that statute and (2) whether the Cubic judgment is a ‘blocked asset.’ The first factor is easily answered. TRIA includes within its definition of ‘terrorist party’ a foreign state ‘designated as a state sponsor of terrorism’ by the [U.S.] Secretary of State. TRIA Section 201(d)(4). Iran is subject to this definition, having been designated by Secretary of State George Shultz as a state sponsor of terrorism... on January 23, 1984).” [Slip op. 7]

The Court rejects MOD’s argument that “that the Cubic judgment is not a blocked asset under TRIA because Executive Order No. 12,282 unblocked certain Iranian assets. In support of its argument, MOD cites two cases in which district courts found that TRIA did not permit the attachment of Iranian property because the assets at issue did not fall within TRIA’s definition of ‘blocked assets.’ See Bank of New York v. Rubin, 2006 WL 633315 (S. D. N. Y. Mar. 15, 2006); [Weinstein v. Islamic Republic of Iran, 299 F. Supp. 2d 63 (E.D.N.Y. 2004)].” [Slip op. 8]

“However, the reasoning in those cases is inapplicable here. Iran’s interest in the properties in question in Rubin and Weinstein arose after January 19, 1981, so Executive Order No. 12,282 unblocked those assets. In contrast, Iran’s interest in the ACMR arose in October 1977 when Iran executed the contracts with Cubic or at the latest by October 4, 1978 when Iran made a payment of approximately $12,900,000 on the contracts. See [Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran v. Cubic Defense Systems, Inc., 29 F. Supp. 2d 1168, 1170 (S.D. Cal. 1998)].

Indeed, as both Rubin and Weinstein acknowledge, no action by the executive branch has ever unblocked the assets in which Iran has an interest that antedates the Revolution, as its interest in the Cubic judgment does in this case. See, e.g., Weinstein, supra at 67 (noting that assets pre‑dating January 19, 1981 continue to be blocked by 31 C. F. R. Section 535.201, ‘which the parties concede ha[s] never been expressly revoked or repealed’).” [Slip op. 8‑9].

The Court held that “the Cubic judgment is a ‘blocked asset’ under TRIA because it represents Iran’s interest in an asset ‘seized or frozen by the United States . . . under sections 202 and 203 of the International Emergency Economic Powers Act.’ TRIA Section 201(d)(2)(A). Because TRIA Section 201(a) waives attachment immunity for such blocked assets¼ [Plaintiff] may attach the Cubic judgment.”

Finally, the Court addresses the issue of MOD’s status under FSIA. The Court adopted a “core functions test, asking whether the defendant is ‘an integral part of a foreign state’s political structure’ or, by contrast, ‘an entity whose structure and function is predominantly commercial.’ Transaero, Inc. v. La Fuerza Aerea Boliviana, 30 F.3d 148, 151 (D.C. Cir. 1994).” [Slip op.

9].

“As the D.C. Circuit observed in Transaero, ‘the powers to declare and wage war’ are so intimately connected to a state’s sovereignty that it is hard to see what would count as the ‘foreign state’ if its armed forces do not.’ Id. at 153.” [Slip op. 11].

Under FSIA Section 1610(a)(7), “[Plaintiff] must satisfy two conditions. First, his judgment against Iran must ‘relate[ ] to a claim’ brought ‘against a foreign state for personal injury or death that was caused by an act of . . . extra‑judicial killing.’ See id. [Plaintiff] asserts, and MOD has no choice but to concede, that he has satisfied this requirement. Second, the property in dispute, i.e., the Cubic judgment, must be ‘property ... used for a commercial activity in the United States.’ Id. Section 1610(a). The parties dispute whether [Plaintiff] has satisfied this second requirement.” [Slip op. 11‑12].

“To satisfy Section 1610(a), MOD must have used the Cubic judgment for a commercial activity in the United States, and this it has not done ¼ Iran intends to send the proceeds back to Iran for assimilation into MOD’s general budget. Because repatriation into a ministry’s budget does not constitute commercial activity, we hold that the Cubic judgment is not subject to attachment under Section 1610(a). Thus,“[Plaintiff] may not attach the Cubic judgment under [FSIA] Section 1610(a), [but] he may do so under TRIA.” [Slip op. 12‑13]

Citation: Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran v. Cubic Defense Systems, Inc., 2007 WL 1544584; No. 03‑55015 (9th Cir. May 30, 2007).

EXPORT CONTROLS

In case of foreign government seeking to bring breach of contract suit against U.S. Contractor under third‑party beneficiary theory pursuant to Foreign Military Sales (FMS) agreement under Arms Export Control Act, Fourth Circuit holds that, unlike Direct Commercial Sales (DCS) process, FMS method of procurement does not place foreign buyer in privity with manufacturer

The U.K. Ministry of Defense (UK MOD) entered into a Letter of Agreement (LOA) with the United States to buy auxiliary output chips (AOC) manufactured by Trimble Navigation Limited (Trimble). The U.S. entered into separate agreements with Trimble for the production and delivery of the AOCs. AOCs were purchased through the two‑step Foreign Military Sales (FMS) method rather than the Direct Commercial Sales (DCS) method where UK MOD would have dealt directly with the manufacturer.

The first delivery of AOC’s to UK MOD did not fit specifications. Trimble attempted to repair or replace the AOC’s but UK MOD was not satisfied with the result. UK MOD requested help from the U.S. to recover it’s costs from Trimble, however, after an investigation the U.S. decided it would take no action against Trimble.

UK MOD sued Trimble in a Virginia federal court claiming that Trimble had breached its contract with the U.S. and that UK MOD was harmed as a third‑party beneficiary. On remand from a determination that subject matter jurisdiction was proper, the District Court dismissed, ruling that UK MOD was not a third‑party beneficiary, and could not enforce rights under the

U.S.‑Trimble contracts. UK MOD appealed. The U.S. Court of Appeals for the Fourth Circuit affirms, based [mainly] on Montana v. United States, 124 F.3d 1269 (Fed. Cir. 1997).

The Arms Export Control Act (AECA) authorizes this type of contract. Affording third‑party standing to UK MOD would grant the advantages of a DCS purchase to FMS purchases and destroy the statutory distinction. Because the purpose of the governing statute is contrary to third party standing, the circumstances surrounding the formation of the contract do not reflect any intent to benefit the third party. Thus, UK MOD is not entitled to recognition as a third‑party beneficiary.

“Foreign governments generally may choose to acquire military goods through either FMS or DCS. Each method has its advantages and disadvantages ¼in most cases, then, the choice between proceeding via FMS or DCS is a strategic decision based upon the needs of the foreign purchaser or defense contractor. In exchange for some of the advantages of proceeding via FMS,

however, the foreign purchaser must relinquish some benefits. One concession is that the United States ‘selects the source and manages the contract¼thus, a foreign purchaser proceeding via FMS necessarily delegates the ability to negotiate and service the contract to the United States.” [Slip op. 7].

“There is no dispute that, in a DCS transaction, a foreign government directly contracts with the domestic manufacturer and can sue that manufacturer on the direct agreement ¼ it is also without dispute that the FMS program requires the intermediation of the United Sates and a

back‑to‑back contract structure. Because the choice of this structure reflects the national security interests of the United States, it would be contrary to the statutory scheme to imply a direct relationship between the domestic contractor and the foreign purchaser by affording third‑party

beneficiary status to the foreign purchaser on the contractors agreement with the United States.”

“To recognize such a right of action would allow the foreign purchaser to hold the contractor directly liable for the purchased goods, a level of accountability that may be achieved through a DCS arrangement. Accordingly, the recognition of UK MOD as a third‑party beneficiary of the U.S.‑Trimble agreements would be contrary to the AECA because it would afford UK MOD a

right exclusive to DCS transactions ¼ because recognition of third‑party beneficiary status in a contract made under a statutory scheme must accord with that scheme, the recognition of such status in this case is barred as a matter of law.” [Slip op. 8].

Citation: Secretary of State for Defence v. Trimble Navigation Limited,484 F.3d 700 (4th Cir. 2007).

PATENTS

Where Plaintiff operator of London Futures Exchange employed Defendant in position involving innovation, English Court of Appeal, Civil Division, holds that, under English patent statute, Plaintiff owned Defendant’s inventions dealing with electronic trading of various forms of futures contracts so that Defendant was unable to obtain U.S. patents on his system

The Plaintiff below was LIFFE Administration and Management, the operator of the London Futures Exchange. In July 2001, it had hired Dr. Pavel Pinkava (Defendant) as a manager in its Interest Rate Product (IRP) Management Team. By July 2004, Defendant had come up with a system which enabled the trading on an electronic exchange of various financial instruments not previously traded. Plaintiff promoted Defendant to senior manager in September 2004.

In January 2005, Defendant notified Plaintiff that he, not Plaintiff, was entitled to own the system and related inventions. The usual rule under English common and statutory law was that the development of inventions in the course of an employment normally lodged the patent rights in the employer, see Section 1(2)(c) Patents Act 1977. On April 23, 2005, Defendant filed four applications for United States Patents. The employment of Defendant by Plaintiff ended on July 13, 2005.

On July 20, 2005, Plaintiff filed proceedings in Chancery Division (Patents Court) claiming to be entitled to the confidential information relating to the system devised by Defendant and the patent applications based on it. On August 18, 2005, Defendant applied to the U.K. Patent Office pursuant to Section 12(1)(a) Patents Act 1997 claiming to own the four inventions referred to in

his U.S. patent applications and seeking a declaration that he was entitled to apply for the U.S. patents. The first instance court heard both sets of proceedings in January and February 2006.

In essence, the court ruled that (a) the inventions did not arise in the course of Defendant’s normal duties with Plaintiff, but that (b) Defendant had developed them in the course of duties specifically assigned by Plaintiff in December 2003. In his order of April 7, 2006, the court thus

declared that Plaintiff owned the inventions claimed in Defendant’s four U.S. Patent Applications. Defendant appealed, contending that the Judge was right as to conclusion (a) but wrong on conclusion (b). The English Court of Appeal (Civil Division), however, dismisses the appeal.

In the lead opinion, the Chancellor outlines the context of this controversy. “First, this appeal concerns the financial markets, as opposed to the commodity markets, comprising the foreign exchange, money, bond and equity markets. Each of them has an associated derivative market. As the lower court explained: ‘Derivatives are bilateral contracts, the financial value of which is directly dependent upon the magnitude or value of one or more underlying assets such as stocks, bonds, commodities or currencies. The design of derivatives makes them particularly attractive for speculators and those who wish to hedge against risk. Amongst the most common types of derivatives are swaps, futures and options.’”

“... [A] ‘swap’ is a contract whereunder two counter‑parties agree to exchange one asset or instrument for another. They have only ever (sic) been traded on the Over the Counter Market (OTC), overseen by the International Swaps Derivatives Association (ISDA). Relevant to this appeal are interest rate swaps (IRS), overnight index swaps (OIS), credit default swaps (CDS)

and credit index swaps (CIS).”

“[A] future, in its simplest form, is an agreement whereby on a particular date (‘the trade date’) one party agrees to buy from, or sell to, another party a particular asset or instrument at a predetermined price at some point in the future (‘the settlement date’). Such a contract is settled by reference to one ‘fixing’, requires no payment of periodic premiums from one party to the other and cannot be brought to a premature end via a credit event.”

“Other relevant features are that a future may be settled by reference to an index, such as the FTSE 100. Futures are only traded on an exchange. Options are similar to futures but give a right to buy or sell rather than imposing an obligation to do so and may be traded on or off exchange.”

“The essential structure of a futures contract remains the same whatever the particular fixing chosen. The principal challenge in designing a new futures contract is deciding what the market is interested in as a contract standard and making sure that the fixing is sufficiently robust, that is to say that it will be present at the settlement date and reasonably invulnerable to market manipulation. That is not to say that fixings are always straightforward.’”

“[The lower court] described the features of an exchange as a means of buying or selling a commodity or financial product. He pointed out the need for liquidity and, in the case of derivatives, for standardised contracts and credit risk protection. He described how exchanges such as Plaintiff have standardised contracts and have addressed the problems of credit risk

by the system of ‘margining’ whereby the contracts are split into pairs with the clearing house becoming a party to every trade.”

“Swaps, however, pose additional problems. Notably, they involve the making of periodic coupon payments and, in the case of CDSs and CISs, must cater for the possibility of credit events. As a practical matter, swaps were considered too complicated and too varied to be traded on exchange.”

“Plaintiff commenced business in 1982 as the London International Financial Futures Exchange [LIFFE]. Initially, it traded in seven financial futures. In 1984, it added futures based on the FTSE 100 Index. In 1992, it acquired the traded options business formerly carried on in the London Stock Exchange. In 1996, it acquired the business of the London Commodity Exchange which included trading in futures contracts based on sugar, coffee, cocoa and other commodities. In January 1999, Plaintiff developed futures contracts based on the Euro. In 2000, Plaintiff closed its trading floor having moved its markets on to the electronic trading system known as LIFE CONNECT in 1998.”

“Plaintiff’s products are divided into three categories, namely Commodities, Equity Derivatives and Interest Rates. For each category it has a Marketing and Product Management team. The function of each team is to develop new products or enhancements to existing products, launch the products and provide educational and support services to Plaintiff’s customers and other employees.”

“In the period material to this appeal, Plaintiff listed six types of future contract, with a parallel series of options, namely short term interest rate (STIR) futures, bond futures, individual equity futures, equity index futures, commodity futures, and swapnote futures. All of them are electronically traded on variations of a standard template.” [One of Plaintiff’s directors also testified]. “He explained that the continued commercial success of Plaintiff depends upon two factors, the maintenance of industry‑leading trading technology and the development of

new products. He also explained, ... that the importance of these two factors has increased dramatically during the last six or seven years as a result of a number of events which have transformed the exchange‑traded derivatives industry.”

“It has become progressively accepted that computer‑based markets are viable and offer advantages over floor‑based markets.... Exchanges are now able to compete more effectively with each other and without the protection previously provided by physical location. Market participants demand that exchanges offer them services on a competitive basis, especially in terms of cost, and product and market quality.”

“As a result of the shifts in the industry, the profitability of established products has been squeezed and it has become increasingly important to develop new products and achieve patent protection where possible. ... [T]he derivatives business (both on and off exchange) has one of the fastest growth rates of any business in the world.”

Defendant Pinkava has an interesting background. “He has a Ph.D. in Physics from Imperial College, London. In addition, he is highly competent in mathematics and computer technology. Plaintiff engaged Defendant on July 21, 2001 as a product manager in the Interest Rate Team of the Plaintiff’s Marketing and Product Management department. The head of that team and his

supervisor was Ms. Amanda Sudworth.”

“The document relating to Employee Confidentiality, Intellectual Property and Inventions provided [in part] that: ‘documents, and other confidential information developed or created by or with your assistance during your employment in the course of carrying out your duties are [Plaintiff’s] property and such rights or interest in any such property or information that you may have are prescribed by the law.’”

About a year after Defendant began working for Plaintiff, he wrote a Job Description in consultation with Ms. Sudworth. ... The job title was stated to be Manager – Interest Rate Products, Product Management. The Job Purpose was [partially] described: “As part of the Interest Rate Product Management Team [IRPM], [Defendant] will be jointly responsible for the development of Euronext.liffe, Plaintiff’s interest rate product derivative range.”

“Under the heading “Key Accountabilities” it is stated, inter alia, that the Manager “will assist the IRPM team with all aspects of the IRP business at Euronext.liffe, from initial product development and maintenance through to marketing strategy and implementation.” [¶¶ 5‑16]

Between 2001 and 2003, the OTC market in credit derivatives was burgeoning because of the standardization of contracts effected through ISDA and the introduction of two indices. First, J. P. Morgan and Morgan Stanley with Dow Jones created TRAC‑X. Secondly, Deutsche Börse and a group of investment banks devised iBoxx. Each index was to facilitate trade in credit derivatives as a tool to limit or increase credit risk exposure. As a result, Plaintiff, its members and competitors looked forward to an exchange tradeable contract.

The Defendant had a three‑hour meeting with a J. P. Morgan representative on January 5, 2004 ... “J. P. Morgan explained to Defendant the basic principles of CDSs and CISs. [Defendant] was also told that TRAC‑X was an index designed by J. P. Morgan and Morgan Stanley. In 2003, rights had been given to Dow Jones. J. P. Morgan explained that they wanted a futures contract which could expand the market to new customers that could not trade CDSs and they also wanted to create a hedging tool. ...”

“J. P. Morgan identified a number of problems in designing a future. These included the following. First, the spread (that is to say the price) of the TRAC‑X would be hard to use as a basis of any index product as it was discontinuous from one CIS generation to the next. Secondly, a future based on a total return index would be easier to construct but less intuitive to

use.” [¶ 21].

Defendant then left for the U.S. to help launch Plaintiff’s Eurodollar interest rate future. In his absence, Ms. Sudworth made a presentation to Plaintiff’s Executive Committee on the subject of a TRAC‑X future based on a document largely prepared by Defendant.” [¶ 23].

On July 1, 2004, Defendant attended a conference called the Futures and Options World Conference (FOWC). “Defendant was struck by one slide that the speaker from Eurex presented. After the seminar was over, and on the way home, Defendant came up with his first inventive insights. He appreciated that something the conference speaker had said in connection with the

problem of bringing credit derivatives on exchange was plainly wrong, and he realised how the problem could be overcome.” [¶ 25].

On September 13, 2004, Plaintiff promoted Defendant to Senior Manager. While Plaintiff did give Defendant a raise, all other terms and conditions of his employment remained unchanged. His responsibilities were described as: “Pricing analysis, Development of Credit Derivatives Products, Development of Pari‑mutuel technology, Development of OTC markets on Exchange, Strategic development of Margining. Some educational projects.” [¶ 27].

Defendant’s four U.S. Patent office applications state that “The inventions have the effect of making available new classes of derivatives over the pre‑existing legal and distributional channels of a futures exchange that can currently only accommodate futures and options.” [¶ 32].

In Patchett v Stirling Engineering Co. Ltd ., (1955) 72 R. P. C. 50, 56. Viscount Simonds succinctly expressed the common law principle in these words: “It is elementary that, where the employee in the course of his employment (i.e. in his employer’s time and with his materials) makes an invention which falls within his duty to make ... he holds his interest in the invention, and in any resulting patent, as trustee for the employer unless he can show that he has a beneficial interest which the law recognises.”

“The common law position may, however, be varied by contract. Banks recommended that it should no longer be possible for employers so to impair the legal position of employee inventors. This means that an employer may not require his employees to assign to him any inventions which they may make in the future outside the course of their employment.” Patents Act 1977 Section 42(2) invalidates any contractual provision which diminishes the employee’s rights in inventions of any description. But the Act preserved the employee’s duty of confidentiality. Section 43(4) confirms that any right of Defendant to statutory compensation exists notwithstanding that patent protection for his inventions is obtainable in the United States but not in the U.K. [¶ 37].

The Chancellor rejects the notion that Defendant’s invention fell within his normal duties. “Defendant’s normal responsibilities included the design of new futures and options based upon financial products of these kinds. As his job description stated, he was responsible for the development of the interest rate product derivative range. That range did not extend to new

futures and options in other categories; nor did it extend to the development of products of altogether different kinds, such as swaps, which had never been traded on exchange before.”

“Secondly, it is correct that Defendant was not employed at a high strategic level or to design ‘blue sky’ products. Nevertheless his normal duties, ... did include an obligation to develop new products and be creative in the area of the business in which he worked. He was recognised as a person who could come up with innovative ideas. He was known to have considerable academic and technical abilities. He was also known to be an ‘ideas’ man.” The task that Defendant was set was [not] at all straightforward. There was no obvious solution to it. There was a need to deal with credit events but no understanding as to how this was to be achieved. It was a matter of considerable debate in the industry as to the best way to proceed. Accordingly, it [was] likely that any solution that Defendant devised was likely to be innovative.”

“... [N]o one anticipated that Defendant would come up with the radical inventions which he did. I rather think that the expression ‘quantum leap’ is something of an exaggeration. Nevertheless, I accept that Defendant’s inventions are ground breaking and very clever. However, in my judgment, the application of Section 39(1) is not determined by the size of the invention.” [¶ 48].

“Defendant was throughout engaged in seeking to devise a product comparable to a future in respect of credit derivatives such as swaps and the project was ongoing in July 2004 when, as part of it, Defendant attended the FOWC, following which he had the creative insight which led to the inventions. For all these reasons, I respectfully disagree with the conclusion of [the court

below] that the normal duties of Defendant did not extend to the design of an exchange tradeable credit derivative.” [¶ 68].

“Thus, the Chancellor agrees with the lower court’s conclusion. First, ... the collection of sections in the Patents Act 1977 dealing with Employees’ Inventions is more favorable to the employee than the previous common law rules. It introduced in Section 40 a statutory right to compensation for inventions made by an employee but which in accordance with Section 39 belong to the employer. It invalidated by Section 42(2) any contractual term by which the rights of an employee in inventions of any description are diminished. It is also true that the Act as a whole ... was an Act ‘to establish a new law of patents’. But the Banks Committee considered that the common law test as to ownership was fair.”

“In these circumstances, there is no reason to interpret Section 39(1)(a) by reference to any assumption of an intention (a) to enact either a test substantially more favorable to the employee than the old common law test or (b) to reproduce exactly the old common law test. ... The [statutory] test is an objective test. It is to be applied in the light of, and in consequence of, the prior conclusion that the invention was made in the course of the normal or specifically assigned duties of the employee. ... ”

“The [Defendant’s] second submission ... was that in ascertaining whether an invention might reasonably be expected to result from the carrying out by an employee of his duties the qualities of the particular employee, whether positive or negative, are not relevant. I would reject this submission. The statutory test is an objective one but it is to be applied to the circumstances of the particular case. ... [T]he expectation must arise from the carrying out of his duties by Defendant not just from the fact that it was Defendant, an intelligent and inventive man, who was to carry them out.”

“Thus the fact, if it be one, that someone of Defendant’s ability was likely to recognise that a departure from merely carrying out his duties, whether normal or specifically assigned, might reasonably be expected to lead to the invention in question would not satisfy the statutory test. But the reason ... would be that there was no reasonable expectation that an invention might result from the performance of his duties, not that the abilities of Defendant were irrelevant.” [¶¶ 76‑78].

“ ... Plaintiff has established that, in accordance with the terms of Section 39(1)(a) Patents Act 1977, it is the owner of the inventions [which are] the subject matter of the four U.S. Patent Applications. ... [T]he inventions were made in the course of the normal duties of Defendant as an employee of Plaintiff rather than the specifically assigned duties on which [the judge below] founded his conclusion. ... [I]n either case it was reasonably to be expected that an invention might result from the carrying out of those duties by Defendant. In those circumstances, I would dismiss this appeal.” [¶ 84].

The two other judges agreed but on somewhat different reasoning.

Citation: Liffe Administration & Management v. Pinkava, [2007] E.W.C.A. Civ. 217, 2007 WL 711497 (Ct. App. Civ. Div., March 15, 2007).

TREATIES

In case of alleged whistleblower discrimination by Japanese employer doing business in United States, Ninth Circuit finds that U.S.–Japan Treaty of Friendship, Commerce and Navigation does not preempt state employment laws, unless latter conflict with limited Treaty right to discriminate in favor of hiring Japanese citizens

Martin Ventress, a flight engineer, and Jack Crawford, a commercial pilot (Plaintiffs), complained of an incident in which JAL required a seriously ill pilot to fly in violation of American and Japanese aviation laws. Ventress and Crawford were employed by Hawaii Aviation Contract Services, Inc. (HACS) to perform services for Japan Airlines and its subsidiary

Jalways Co., Ltd. (collectively “JAL”). Crawford suffered harassment from superiors after expressing concern about the incident. Ventress was likewise harassed after reporting the incident to JAL, HACS and aviation regulators. Plaintiffs sued Japan Airlines and others [Defendants] in California federal court seeking damages for Defendants’ violation of California’s whistle blower statute, wrongful termination in violation of the public policy

protecting whistle blowers and emotional distress. The district court granted Defendants’ motion to transfer the case to the district of Hawaii.

The Hawaii district court gave Defendants judgment on the pleadings on the ground that the Friendship, Commerce, and Navigation Treaty, U.S.‑Japan, in force, October 30, 1953; 4 U.S.T. 2063; T.I.A.S. 2863; 206 U.N.T.S. 143 (FCN Treaty) preempted all of the Plaintiffs’ claims. When Plaintiffs appealed, however, The U.S. Court of Appeals for the Ninth Circuit reverses. The Court rules that the FCN Treaty does not preempt state employment laws.

The Treaty’s language conferring on Japan the right to engage specialists “of their choice”, grants “only the limited right to discriminate in favor of their fellow citizens.” [Slip op. 8]. Thus, the Treaty does not conflict with State whistleblower protection laws.

The purpose of the “of their choice” clause of the FCN Treaty was to “ensure the foreign company’s ability to control its overseas investments without interference from local‑hiring quotas. The legislative history of the post‑war treaties suggests that both parties deemed the right to utilize the services of their own nationals in managerial, technical, and confidential capacities to be critical.” [Slip op. 5].

“Given the purpose and history of the FCN treaties, our sister circuits have consistently held that foreign employers do not enjoy immunity from domestic employment laws that do not interfere with the employers’ ability to hire their fellow citizens.” [Slip op. 6].

“We hold that the district court erred [in ruling] that JAL has a treaty right to ignore domestic employment law even for personnel decisions that involved only non‑Japanese citizens. ... California’s whistle‑blower protection laws in no way conflict with JAL’s limited treaty right to discriminate in favor of Japanese citizens. In the absence of conflict, there can be no preemption.” [Slip op. 6‑7].

Citation: Ventress v. Japan Airlines, 2007 WL 1192010; No. 04‑17353 (9th Cir. April 24, 2007).

United States adds new Middle East nations to human trafficking blacklist. The U.S. Department of State (DOS) has newly placed four Middle East allies on its blacklist of countries that have not tried hard enough to prevent trafficking in people. Listed nations are subject to sanctions for not doing enough to stop the yearly flow of 800,000 human beings, across international borders for the commercial sex trade and other types of coerced and indentured labor. Of these unfortunates, 8 out of 10 are female and almost 5 out of 10 are children. Many of these victims are trying to escape poverty in either Eastern Europe or in South and Southeast Asia. Among U.S. friends getting a failing grade in the latest listing, were Bahrain, Kuwait, Oman and Qatar. For the first time, Algeria, Equatorial Guinea and Malaysia joined regular offenders such as Burma (Myanmar), Cuba, Iran, North Korea and Syria in the DOS’s 236‑page document called the “Trafficking in Persons Report” (TPR), published annually. The TPR downgraded 16 states in all—33% more than in 2006—into so‑called “Tier 3” status. Despite the new additions, Secretary of State Rice said “more and more countries are coming to see human trafficking for what it is—a modern‑day form of slavery that devastates families and communities around the world.” Citation: The Associated Press (online), Washington, D.C., Wednesday, June 13, 2007 at 00:55:01Z (byline of Matthew Lee, AP Writer).

Australian court has convicted American Movie Star for unpermitted possession of performance‑enhancing drug. Actor Sylvester Stallone has pleaded guilty in an Australian state court to importing restricted muscle‑building hormones into Australia and the court ordered him to pay more than $9,870 in fines and court costs. According to local police, “Sly” had been unable to produce a valid prescription for vials of Jintropin, a human growth hormone (HGH), which authorities had found in his luggage when he arrived for a promotional tour last February. HGH is a naturally occurring substance which can be duplicated synthetically and is used to build muscle mass. Australia treats HGH as a performance‑enhancing drug which cannot be imported without a permit from the Therapeutic Goods Administration. As Stallone told reporters: “They were just doing their jobs. I just didn’t understand some of the rules here.” Sly came to Australia on a three‑day tour to publicize his latest movie, “Rocky Balboa.” Citation: The Associated Press (online), Sydney, Australia; Monday, May 21, 2007 at 00:47:26Z (byline of Meraiah Foley, AP Writer).

Court of First Instance rules for Budweiser in EU trademark dispute. The European Union’s Court of First Instance (CFI) upheld several Anheuser‑Busch (Defendant) trademarks, while dismissing a challenge from Czech brewing rival, Budejovicky Budvar NP (Plaintiff). This is the latest ruling in one‑hundred years of disputes in the courts of many nations over who is entitled to the name “Budweiser.” Plaintiff had asked the CFI to overturn EU trademarks Defendant has for products other than beer (such as stationery, cleaning products, clothing, pastry and confectionary) alleging that they infringe on Plaintiff’s right under French law to the term Budweiser. Defendant had applied for the trademarks in April 1996 at the Portugal‑based Office for Harmonization in the Internal Market (OHIM), the agency for EU‑wide trademarks. In October 2006, Plaintiff was able to get its trademark registered in China despite Defendant’s legal challenge there. Citation: The Associated Press (online), Brussels, Belgium; Tuesday, June 12, at 08:55:10Z (byline of Raf Casert, AP writer). See also 2007 International Law Update 78 [related decision by European Court of Human Rights].