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

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

2002 International Law Update, Volume 8, Number 8 (August)

ARBITRATION

Federal Circuit orders stay of district court proceedings in international patent disputes pending arbitration, highlighting federal policy in favor of arbitration, particularly in the international realm

Deprenyl Animal Health, Inc. (hereinafter DAHI) is a Louisiana corporation with its principal place of business in Kansas, and is the U.S. subsidiary of a Canadian corporation based in Ontario. The University of Toronto Innovations Foundation (UTIF) is a Canadian technical licensing corporation which assists the University of Toronto in using its academic inventions for commercial purposes. In 1992, the parties entered into a licensing agreement in Kansas that eventually resulted in a patent. The agreement contained an arbitration clause, providing for arbitration of disputes in Canada under the Ontario Arbitrations Act. The choice-of-law clause provided that Ontario law would apply to contract disputes.

This falling out began in 1998 when DAHI’s parent company announced that the FDA had approved the drug Anipryl when used to treat canine cognitive dysfunction. UTIF claimed that Anipryl was subject to the licensing agreement between the parties. In May 2000, DAHI sued UTIF in Kansas federal court seeking a declaratory judgment that the licensing agreement did not apply to sales of the drug, and that it was not infringing the patent. Two months later, DAHI filed an action in an Ontario Superior Court. It sought a declaration (1) that the dispute cannot be arbitrated in Canada because the license agreement does not apply, and (2) that neither the agreement nor the patent covered DAHI’s product. In March 2002, the Ontario Superior Court of Justice ordered the Canadian court and arbitration proceedings stayed pending the outcome of this appeal.

UTIF sought dismissal based on lack of personal jurisdiction over it or, in the alternative, to dismiss pending binding arbitration. The district court dismissed the complaint for lack of personal jurisdiction over UTIF but did not reach the arbitration issue. DAHI appealed. The U.S. Court of Appeals for the Federal Circuit reverses, staying the district court proceedings pending arbitration in Canada.

On the issue of jurisdiction, the Court makes the following comments. “UTIF purposefully directed activities at DAHI, in Kansas. Although DAHI initially contacted UTIF about the prospect of licensing certain of UTIF’s technology, UTIF responded with telephone calls and letters to negotiate, and amend, the resulting ongoing license agreement pertaining to the technology that developed into the ... patent. As the license agreement required, UTIF sent DAHI, in Kansas, copies of correspondence with the patent office and kept DAHI apprised of the prosecution status of the application that matured into the ... patent. UTIF also sent a letter contending that Anipryl is subject to the license agreement to DAHI in Kansas. These constitute sufficient minimum contacts.” [Slip op. 20]

The Court considers the cases cited by UTIF inapposite, because none of them involved an agreement to license technology protected by a U.S. patent. Obtaining such a patent and licensing it count as getting meaningful benefits from U.S. laws.

“Section 293 of Title 35 of the United States Code underscores the significance of the benefit of the patent right. Section 293 is a special long-arm statute that requires patentees residing outside the United States either to designate an agent residing somewhere within the United States for service of process or to submit to jurisdiction in the United States District Court for the District of Columbia. Although Section 293 does not directly authorize the exercise of jurisdiction over UTIF, the statute represents an important Congressional judgment that in exchange for obtaining the benefits of a United States patent, it is appropriate to require foreign patentees to submit to broader jurisdiction in United States Federal Court than that to which they would otherwise be subject.” [Slip op. 24]

For due process purposes, the inclusion of choice-of-foreign-forum and choice-of-law clauses in a license agreement for a U.S. patent does not necessarily detract from UTIF’s significant contacts with Kansas or from its purposeful availment of its U. S. patent rights. On the other hand, these clauses may govern for contract law purposes. Therefore, the Court reverses the dismissal for lack of personal jurisdiction.

The Court then turns to the issue of arbitration. As a general matter, the Court does not see any problem in having disputes over U.S. patents resolved by binding foreign arbitration. Here, UTIF argued that the Court should affirm the dismissal because the arbitration clause requires dispute resolution by Canadian arbitration. DAHI, in turn, claimed that the scope of the arbitration clause does not encompass the infringement and invalidity claims.

It is the province of the Canadian courts to determine the scope of the arbitration clause, and the Court therefore remands to the district court with instructions to stay proceedings pending the outcome of the Canadian arbitration proceedings. In this case, international comity demands that the Canadian arbitration be completed before any U.S. court action.

“[T]he Supreme Court has recognized a strong federal policy in favor of arbitration, particularly in the international realm. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628-29 (1985). In Mitsubishi Motors, the Supreme Court held enforceable an agreement to resolve an antitrust claim by foreign arbitration. ... The Court explained that international comity, respect for foreign tribunals, and the commercial system’s need for predictable dispute resolution required holding the plaintiff to its agreement to arbitrate. ... These concerns apply with vital force to the resolution of disputes regarding patent rights.”

“DAHI contends that, notwithstanding the arbitration clause in its agreement, it should not be bound to arbitrate. This is so, it maintains, because the Canadian arbitration proceedings may apply Canadian law to the issue of the validity of the ... patent, and Canadian law may estop DAHI, as a licensee, from challenging the patent’s validity. In Mitsubishi Motors, the Supreme Court rejected a similar argument. ... In response to the argument that requiring international arbitration might promote uncertainty because of the chance the arbitral tribunal would fail to adhere to the law of the United States in resolving claims arising therefore, the Court explained: ‘To be sure, the international arbitral tribunal owes no prior allegiance to the legal norms of particular states ... The tribunal, however, is bound to effectuate the intentions of the parties. Where the parties have agreed that the arbitral body is to decide a defined set of claims ... the tribunal ... should be bound to decide that dispute in accord with the national law giving rise to the claim.’” [Slip op. 37-38]

Citation: Deprenyl Animal Health, Inc. v. The University of Toronto Innovations Foundation, No. 01-1648 (Fed. Cir. July 23, 2002).

CRIMINAL LAW

United States has persuaded two individual states parties to Statute of International Criminal Court to enter into bilateral arrangements with it under Article 98(2) of Statute whereby party agrees not to turn over American service members to ICC without U.S. consent

The United States is asking various nations which have ratified the Statute of the International Criminal Court (ICC) to enter into bilateral agreements to refrain from handing over American citizens to the ICC for prosecution without U.S. consent. The U.S. has expressed two concerns: (1) that various nations might, for political purposes only, ask the ICC to prosecute U. S. peacekeepers for war crimes or crimes against humanity and (2) that the ICC prosecutors will not be accountable to any international organization or to U.S. laws or officials for the exercise of their discretion to file, or not to file, charges.

ICC Article 98 (2) authorizes bilateral arrangements of this type. It provides: “The Court may not proceed with a request for surrender which would require the requested State to act inconsistently with its obligations under international agreements pursuant to which the consent of a sending State is required to surrender a person of that State to the Court, unless the Court can first obtain the cooperation of the sending State for the giving of consent for the surrender.”

According to the U.S., many of its allies have privately suggested the use of Article 98 agreements to meet the above U.S. worries. So far Romania and Israel have signed agreements with the U.S. On the other hand, Canada, Norway, Switzerland and Yugoslavia reportedly have declined to do so.

Philip Reeker, a U.S. State Department spokesman, cited the recently enacted American Servicemembers Protection Act (ASPA) [Pub. Law 107-206, 22 U.S.C.A. Sections 7421-7433 (Aug. 2, 2002)] as authorizing the President to stop providing military aid to countries that decline to enter into Article 98 arrangements. “Military assistance” programs that could be cut off include (1) international military education programs that bring foreign officers and students here for professional military training and (2) finance deals to aid nations in buying American weapons and services. These restrictions do not apply to assistance to NATO member countries or major non‑NATO allies or others. The Act also empowers the President to waive these restrictions where a country has signed an Article 98 agreement and also in other cases where it's in the national interests.” For instance, ASPA exempts major allies such as Israel, Egypt, Australia, Japan and South Korea from the military assistance ban.

The Act also provides that the President may take “all means necessary and appropriate to release [U.S.] citizens arrested by the [ICC].” Means available to rescue U.S. citizens could presumably include military force.

During July 2002, the Bush administration unsuccessfully tried to persuade other countries at the United Nations, including its European allies, that American forces deserve blanket immunity from ICC jurisdiction because of their large numbers (about 9,000) and because of the U.S. fear that they constitute a vulnerable political target. During a series of delicate negotiations at the U.N., the U.S. indicated that it might veto Security Council authorization to continue U.N. peacekeeping missions in Bosnia and Croatia, unless the Council dealt with its concerns over immunity.

The concession was a one‑year exemption for U.S. forces, and the missions were renewed. There is no known instance where the existing war crimes tribunals, i.e., ICTY and ICTR, have tried any U.N. peacekeeper for war crimes.

Citation: The Washington Post, Final Ed., Tuesday, July 2, 2002, page A-09 (byline of Glenn Kessler); The New York Times, Late Ed., Wednesday, August 7, 2002, page A-1; Id., Late Ed., Final, Saturday, August 10, 2002; The Washington Times, Tuesday, August 13, 2002, Final Edition, page A-01; The Guardian (London), August 14, 2002, page 14 (byline of Matthew Engel); The Financial Times (London), Lond. Ed., Thursday, August 15, 2002, page 8.

ECONOMIC SANCTIONS

In response to U.S. safeguards to protect its domestic steel industry, European Union has imposed additional customs duties ranging from 8% to 100% on various U.S. products such as rice, T-shirts, flat-rolled steel products and building structures

In response to the safeguard measures in the form of tariff increases or tariff quotas that the U.S. has imposed on imports of EU steel products from March 20, 2002, the EU has responded with Regulation 1031/2002. It lays down “additional customs duties on imports of certain products originating in the United States of America.” These duties range from 8% to 100%. According to the Regulation, the EUR 626 million in duties collected will not exceed the amount of duties that the U.S. has imposed on EU exports.

The Regulation notes that the U.S. safeguards affect European Union exports worth at least EUR 2,407 million per year. Furthermore, the Regulation states that the EU notified the WTO Council for Trade in Goods on May 14, 2002, and that the Council has not notified the EU that it disapproved Regulation 1031/2002.

The Annexes to the Regulation list the U.S. products on which the EU has imposed higher duties. Among the affected U.S. products are (additional duties in parentheses): rice (100%), t-shirts (100%), flat-rolled products of iron or non-alloy steel (100%), and building structures (100%). The additional duties listed in Annex II will apply from March 20, 2005 on, or from date on which the WTO issues a finding that the U.S. safeguard measures are at war with WTO obligations. The U.S. products of Annex II include: vegetables (13%), paper (15%), and apparel items (30%).

In a related matter, on July 17, 2002, the EU Commission issued a report to the EU Council on the impact of the U.S. safeguard measures for steel. The report also describes the current state of negotiations, the EU products excluded from the U.S. by its safeguard measures, and the resulting EU export losses.

Citation: Council Regulation (EC) No 1031/2002, 2002 O.J. of the European Communities (L 157) 8, June 15, 2002; Commission Regulation (EC) No 1287/2002, 2002 O.J. of the European Communities (L 187) 25, July 16, 2002; European Union RAPID Press Release IP/02/1083 (17 July 2002); [Agence France Presse “US says EU steel retaliation flouts rules” (June 10, 2002); The New York Times “W.T.O. Loophole Allows a Surge in Protectionism” (page W1, June 13, 2002);] European Report “EU/US: EU Stand-Down in Steel Stand-Off” (No. 2702, July 20, 2002).

PATENTS

Relying in part on successful patent infringement suit against New York co-conspirator in Wisconsin federal court, plaintiff persuaded Irish Supreme Court to restore Irish co-conspirator to list of active Irish companies in aid of plaintiff’s damage suit in Bermuda courts

Orlaford Limited filed statutory proceedings in the Irish courts against the three last known directors in which it asked to have the dissolved Deauville Communications Worldwide Limited put back on the Irish Register of Companies. It also requested the court to declare that the officers of Deauville are to be liable for any debts or liabilities incurred by or on behalf of Deauville. In addition, it petitioned to have all legally required annual returns sent to the Registrar of Companies. (The Registrar and the tax authorities were “notice parties.”)

At the time Orlaford filed its Irish petition, it had an action pending against Deauville in the Bermuda courts. The Bermuda lawsuit sought damages based on claims that Deauville, with intent to injure Orlaford, conspired with other persons to bring about the breach of a license agreement. The agreement entitled Orlaford to get royalties from the use of the so-called “Rogers patent.” In the meantime, Deauville had dropped off the Irish Register of Companies. Orlaford contended that the Section 12(B)(3) action was necessary to a successful result in the Bermuda litigation.

Respondents raised the following two defenses. First, they contended that Orlaford was not a “creditor” of Deauville at the time they filed their petition within the meaning of the applicable legislation, i.e., Section 12 B(3) of the 1982 Principal Act (Companies) Act. Second, it was argued that petitioners had not brought forth enough evidence to show they were acting in good faith. The High Court ruled in Orlaford’s favor and granted the requested orders.

On appeal to the Supreme Court of Ireland, the Court dismisses the appeal. On the locus standi issue, respondents had argued that Orlaford was, at best, nothing more than Deauville’s “contingent or prospective” creditor. They pointed to other sections of the Act that expressly included such creditors and relied on the absence of such explicitness in Section 12(B)(3). The Court rejects these contentions.

“Unless there were authority to the contrary, I would be inclined to the view that the word ‘creditor’ in Section 12(B)(3) should be read as extending to contingent or prospective creditors. It would seem unjust that the question whether a person is entitled to have the company restored to the register for the purpose of recovering a judgment against them should be determined by whether their claim against the company is for a liquidated sum ‑ in which case they would unarguably be a ‘creditor’ ‑ or takes the form of a claim for unliquidated damages.” [N/A]

Quoting a leading case on point, the present Court declares. “Where one is concerned with those who might feel a legitimate grievance because a company has been struck off it seems to me that one should look somewhat generously at the word 'creditor' which precedes the phrase ‘feels aggrieved'. Put another way, I doubt very much whether in using the word 'creditor' simpliciter the legislature can have been intending thereby to differentiate between those creditors whose debts are fixed and ascertained and those whose debts are contingent or prospective, providing redress for the grievances of the former but ignoring the grievances of the latter. In short, I think it would be wrong to construe the word 'creditor' narrowly.” [N/A]

“Since the events which are claimed to give rise to the cause of action are alleged to have happened before April 18th, 1999, the day on which Deauville was struck off, it is clear, that adopting the reasoning of the English courts ..., Orlaford should be regarded as being a ‘creditor’ for the purposes of the application to restore Deauville to the register.” [N/A]

The second defense was that petitioner had not produced enough evidence before the lower court that it was prosecuting the petition below in good faith. The Supreme Court disagrees. It points to the affidavit filed below by a Canadian attorney who has been co-ordinating Orlaford’s legal affairs on a world wide basis. According to the affiant, Orlaford had at all material times the sole right to obtain royalties on U.S. and foreign sales of footwear making use of a system of footwear lights invented and patented by Nicholas A. Rogers, i.e., the “Rogers patent.” A New York company called BBC International Ltd. had gotten an exclusive license from Orlaford to exploit the Rogers patent throughout the world. The consideration was to pay the agreed upon royalties to Orlaford.

The affidavit further declares that, in 1995, Orlaford found out that BBC had wrongfully copied the Rogers patent. Aided by others, it was making and selling lighted footwear without paying Orlaford the royalties to which it was entitled under the license agreement. Orlaford brought a 1996 patent infringement action against BBC and others in a Wisconsin federal court. In the course of the litigation, Orlaford learned that Deauville had gotten a license from BBC and had conspired with BBC and others to defraud Orlaford of its proper royalty payments. The federal court ruled for Orlaford, awarding it $5,600,000.

Another attorney for Orlaford produced the original license agreement between Rogers and BBC and a copy of the patent which he averred had been duly assigned to Orlaford. A senior officer and director of BBC deposed in August 1996 that Deauville was selling lights under an agreement between BBC and Deauville.

The Supreme Court agrees with the High Court’s conclusion on this issue. “Assuming that the [chances-of-success] test ... is also appropriate where a court is deciding whether ‘it is just’ that the company should be restored to the register, I have no doubt that it was satisfied by Orlaford in this case. The lawyers who conducted inquiries on their behalf into the alleged infringement of their intellectual property rights have sworn affidavits in which they have said that Deauville were involved in such activity and they have exhibited the relevant depositions in earlier proceedings in support of those averments. It is clear that the learned High Court judge was entitled to conclude that, at the least, the claim by Orlaford might succeed and that there was nothing to indicate that the proceedings were frivolous or vexatious or were not being bona fide maintained by Orlaford.” [N/A]

Citation: In the Matter of Deauville Communications Worldwide Ltd., 2001/169 (Sup. Ct. Ire. March 15, 2002).

TORTS

House of Lords unanimously rules that employees who inhaled asbestos fibers during their jobs with two different companies can recover from both companies since current science made it impossible to detect which companies’ fibers had caused their mesotheliomas

The lower court found the following facts. Three employees or their representatives, i.e., Judith Fairchild (suing as widow and administratrix of the estate of Arthur Eric Fairchild, deceased), Doreen Fox (suing as widow and administratrix of the estate of Thomas Fox, deceased), and Edwin Matthews had been working for employers A and B at different periods of time. In each case, there was a known risk of inhaling asbestos dust in the course of their employments. Such inhalation is accepted as a cause of mesothelioma, a usually malignant and fatal tumor.

Under English tort law, both employers A and B had a duty to take reasonable care or all practicable measures to protect all employees from the dangers of inhaling this dust. A and B had breached that duty during the periods the employees were on their jobs and this resulted in each employee contracting a mesothelioma. No other cause of these mesotheliomas has been found other than inhaling asbestos dust in the course of employment.

Under the present scope of scientific knowledge, the workers could not show by a preponderance of the evidence whether their mesotheliomas resulted from breathing in asbestos dust while working for company A or company B or for both companies A and B. On these facts, the legal question became whether the worker could recover damages against either employer or both of them.

The lead House of Lords opinion outlines the etiological problem as follows. “So if [a worker] is employed successively by A and B and is exposed to asbestos dust and fibres during each employment and develops a mesothelioma, the very strong probability is that this will have been caused by inhalation of asbestos dust containing fibres. But [the worker] could have inhaled a single fibre giving rise to his condition during employment by A, in which case his exposure by B will have had no effect on his condition; or he could have inhaled a single fibre giving rise to his condition during his employment by B, in which case his exposure by A will have had no effect on his condition; or he could have inhaled fibres during his employment by A and B which together gave rise to his condition; but medical science cannot support the suggestion that any of these possibilities is to be regarded as more probable than any other.” [¶ 7]. The court of first instance ruled against plaintiffs.

The Court of Appeal (Civil Division) applied the usual “but for” test of tort liability to these unusual facts. It ruled (1) that the employees had been unable to prove that either company A or company B alone was probably liable and (2) that they had not shown that the breach of duty by both companies together had probably brought about the mesothelioma.

The House of Lords having allowed their appeal, the Lords of Appeal had to face the question of whether, on the special facts of this case, principle, authority or policy demand that the U. K. courts modify their traditional approach to proof of causation.

The House of Lords allows the appeal, ruling that, on these uncommon facts, a worker could recover damages against both companies A and B. The overall goal of tort law was to specify those cases where the law could fairly make one party liable to pay damages to another. Thus, it would be at war with principle to demand that the courts apply a rule that seemingly produced unjust results.

In addition, there are well-reasoned cases from several jurisdictions that approve exceptional departures from the classic “but for” test of causal linkage. On facts similar to those in the instant case, they have upheld evidence of a lesser degree of causal nexus, i.e., by requiring the injured party to show only that each one of two or more defendants had materially increased the risk of plaintiff’s disease or injury.

The Lords of Appeal examine not only judicial precedents and code provisions (where applicable) from the U.K., but also from the United States, Canada, Australia, Germany, Greece, The Netherlands, Norway, France and Spain. One class of cases in which similar attribution problems have arisen in Europe and in several non-European countries are those involving hunting accidents. For instance, the House of Lords refers to the classic American case of Summers v. Tice, 199 P.2d 1 (Sup. Ct. Cal. 1948). There each of two defendants shot at a quail at about the time the plaintiff came into range. One of the two shots hit plaintiff but it was impossible to tell from which defendant’s gun the injurious shot had come. The lead opinion quotes the conclusion reached by the California Supreme Court as follows.

“‘When we consider the relative position of the parties and the results that would flow if plaintiff was required to pin the injury on one of the defendants only, a requirement that the burden of proof on that subject be shifted to defendants becomes manifest. They are both wrong‑doers -‑ both negligent toward plaintiff. They brought about a situation where the negligence of one of them injured the plaintiff, hence it should rest with them each to absolve himself if he can . . . We have seen that for the reasons of policy discussed herein, the case is based upon the legal proposition that, under the circumstances here presented, each defendant is liable for the whole damage whether they are deemed to be acting in concert or independently.’” [¶ 27]

The opinion then points out that the Restatement of Torts (Second), Section 433B, subdivision (3) adopted the Summers theory of alternative liability in a substantially broader form. It provides that: “‘Where the conduct of two or more actors is tortious, and it is proved that harm has been caused to the plaintiff by only one of them, but there is uncertainty as to which one has caused it, the burden is upon each such actor to prove that he has not caused the harm.’” [Id.]

Products liability cases involving harmful drugs sometimes raise complex issues of attribution. The Lords cite Sindell v. Abbott Laboratories, 26 Cal. 3d 588 (Sup. Ct. Cal. 1980). This was a class action for personal injuries claimed to have resulted from exposure before birth to the anti-miscarriage drug diethylstilbestrol (DES) manufactured by about 200 companies. Admitting that she did not know which company’s or companies’ product she had used, plaintiff alleged that all manufacturers collaboratively made, tested and marketed DES as safe from the same mutually agreed generic formula.

The lead opinion summarizes the decision as follows. “The [California] court distinguished Summers’ case on the basis that, in that case, all the parties who were or could have been responsible for the harm to the plaintiff were joined as defendants, whereas in Sindell’s case there were approximately 200 drug companies which had made DES, any of which might have manufactured the injury‑producing drug. The court held that it would be unfair, in such circumstances, to require each defendant to exonerate itself. Further, it said that there might be a substantial likelihood that none of the five defendants joined in the action had made the DES which caused the injury, and that the offending producer, not named, would escape liability. The court surmounted this problem by adapting the Summers rule so as to apportion liability on the basis of the defendant's market share.” [¶ 29]

In the present cases, justice and common sense call for deciding that both company A and company B had subjected the employees to a danger to which they should not have been subjected. Thus the employers both materially contributed to causing the employees to contract an injurious condition from which it had been their duty to shelter them. The major injustice of denying a remedy to the injured worker substantially overcomes any degree of unfairness that might arise from fixing liability on two or more duty-breaching employers under the above circumstances.

The policy applies even if one of the tortfeasors was not before the court. A court may award full compensation to the employer before it, leaving that defendant to look for contribution from other tortious employer(s) in the usual manner.

Citation: Fairchild v. Glenhaven Funeral Services Ltd. et al., [2002] U.K.H.L. 22, [2002] 3 All E.R. 305 (House of Lords, June 20).

TRADEMARKS

In dispute over use of trademark-protected “Barbie doll” in song parody by Danish music group, Ninth Circuit rules that Paris Convention only provides for “national treatment” and does not create uniform substantive law of unfair competition

In 1997, the Danish music group “Aqua” produced a song about the Barbie doll. The lyrics of the song “Barbie Girl” include, for example, “I’m a Barbie girl, in my Barbie world, Life in plastic, it’s fantastic ... Come on Barbie, let’s go party! ... I’m a blonde bimbo girl, in a fantasy world, Dress me up, make it tight, I’m your dolly ...”

Mattel, Inc., owns the trademark to “Barbie” and sued the foreign and U.S. music companies behind the group Aqua for trademark infringement and dilution in a California district court. The music companies counter-claimed for defamation. The district court granted summary judgment in favor of the music companies as to the trademark and dilution claims, and summary judgment in favor of Mattel on the defamation claim. Both sides appealed.

The U.S. Court of Appeals for the Ninth Circuit affirms both grants of summary judgment. The Court concludes that Aqua’s use of “Barbie” was not a trademark infringement. The song title was relevant to the underlying work, and did not imply that Mattel had created it. Because the song is not purely “commercial” speech, the First Amendment protects it. The use of the “Barbie” trademark fell within the non-commercial use exemption of the Federal Trademark Dilution Act. The Paris Convention for the Protection of Industrial Property (March 20, 1883, as revised at Stockholm, July 14, 1967, art. 10 bis, 21 U.S.T. 1583, 1648, 828 U.N.T.S. 305, 337), only provides for “national treatment” of foreign parties and does not create a substantive law of unfair competition.

The Court first confirms that there is jurisdiction over the foreign music companies in this case. “All three foreign defendants are affiliated members of Universal Music Group and have an active relationship with each other and with domestic members of the Group. Defendants entered cross-licensing agreements and developed a coordinated plan to distribute the Barbie Girl song in the United States (including California), and sent promotional copies of the Barbie Girl single and the [music] album to the United States (including California).”

“This conduct was expressly aimed at, and allegedly caused harm in, California, Mattel’s principal place of business. [Cite] Mattel’s trademark claims would not have arisen ‘but for’ the conduct foreign defendants purposefully directed towards California, and jurisdiction over the foreign defendants, who are represented by the same counsel and closely associated with the domestic defendants, is reasonable. ... The district court did not err in asserting specific personal jurisdiction over the foreign defendants.”

“Sales of the [music] album worldwide had a sufficient effect on American foreign commerce, and Mattel suffered monetary injury in the United States from those sales. [Cite] Moreover, Mattel’s claim is more closely tied to interests of American foreign commerce than it is to the commercial interests of other nations: Mattel’s principal place of business is in California, the foreign defendants are closely related to the domestic defendants, and Mattel sought relief only for defendants’ sales in the United States. [Cite] The district court properly exercised extraterritorial jurisdiction under the Lanham Act.” [Slip op. 3-5]

Mattel also argued that the district court erred in giving summary judgment to the foreign music companies on the unfair competition claim under the Paris Convention. Article 10 in general terms requires the signatory states to provide effective legal protection against unfair competition. Mattel urged that this creates a federal cause of action for unfair competition in international disputes, and that Section 44 of the Lanham Act [15 U.S.C. Section 1126] makes the substantive provisions of the Paris Convention available to U.S. nationals.

The Ninth Circuit has held [Cite] that Section 44 does not create a general U. S. federal law of unfair competition. It has also held that the Paris Convention did not seek to lay down substantive unfair competition law applicable in the legal systems of the signatory countries, [Cite].

“Section 44 and the Paris Convention therefore interact as follows: A foreign national is entitled to the same ‘effective protection against unfair competition’ to which an American is entitled, Paris Convention, art. 10 bis, and in turn, the American gets the same right that the foreign national gets. We treat Mattel like a foreign national, who is treated like an American under the Paris Convention. Accordingly, Mattel is entitled to assert a cause of action under the Lanham Act for trademark infringement, 15 U.S.C. Section 1114, or for false designation of origin, 15 U.S.C. Section 1125, or it may assert state law claims for unfair competition, as it did. ...”

“But Mattel has no claim to a nonexistent federal cause of action for unfair competition. As said, the Paris Convention provides for national treatment, and does not define the substantive law of unfair competition. We therefore reject Mattel’s argument that a treaty provision providing for ‘national treatment’ gives it more protections against foreign nationals than it has against U.S. nationals.” [Slip op. 31-32]

Citation: Mattel, Inc. v. MCA Records, Inc., 296 F.3d 894 (9th Cir. 2002).

WORLD TRADE ORGANIZATION

WTO Panels issue two decisions on U.S. measures imposed on imported steel products, disapproving (1) U.S.’s failure to determine on five-year “sunset review” whether German subsidies likely to continue, and (2) omission by U.S. to determine extent of benefit, if any, received by privatized French and Italian formerly state-owned industries

The first case (WT/DS/213) involves U.S. countervailing duties imposed on corrosion-resistant carbon steel flat products from Germany. According to WTO rules, a definitive countervailing duty (CVD) should end after five years unless a “sunset review” indicates that the expiration of the duty would likely lead to the continuation or recurrence of the subsidies. Negligible subsidies are presumed not to cause injury pursuant to the de minimis rule. The Report of the Panel dated July 3, 2002, concludes, in particular, that: (1) U.S. CVD law and the implementing regulations are consistent with Article 21, paragraphs 1 and 3, and Article 10 of the WTO Agreement on Subsidies and Countervailing Measures (SCM) dealing with the application of evidentiary standards to the self-initiation of sunset reviews; (2) U.S. CVD law and its regulations are at war with Article 21.3 of the SCM Agreement as to the application of a 0.5 percent de minimis standard to sunset reviews, and therefore violate Article 32.5 of the SCM Agreement and also Article XVI:4 of the WTO Agreement; (3) U.S. CVD law and regulations and the statement of policy practices are consistent with Article 21.3 of the SCM Agreement with respect to the obligations to determine the likelihood of continuation or recurrence of subsidies in sunset reviews; and (4) by failing properly to assess the likelihood of the continuation or recurrence of subsidies in the sunset review on carbon steel, the U.S. contravened Article 21.3 of the SCM Agreement.

The second case (WT/DS212/R) involves steel products from the European Communities. Here, the U.S. had imposed countervailing duties in 12 instances against various European products that were state-owned and later privatized.

In its Report dated July 31. 2002, the Panel finds the U.S. methodology for imposing countervailing duties inconsistent with WTO obligations. In essence, the Panel states that if a company is privatized at “arm’s length” and at fair market value, the previous subsidies are eliminated.

In particular, the Panel makes two key findings. The first is that six of the U.S. countervailing duty orders involving Italian and French steel products do not square with Articles 10, 14, 19.1 and 19.4 of the SCM Agreement. The reason is that the U.S. Department of Commerce failed to look into whether the newly privatized producers obtained any benefit from financial contributions that the predecessor state-owned companies had received. Secondly, two of the U.S. countervailing duty orders involving Swedish and Italian products clash with Articles 10, 14, 19.4, 21.1, 21.2 of the SCM Agreement. Here too, the U.S. Department of Commerce failed to investigate whether the privatized producers had benefitted from the previous financial contributions.

The Panel notes that once an importing Member has determined that a privatization has taken place at arm’s-length and for fair market value, it must assume that no benefit resulting from prior financial contributions (or subsidies) continues to accrue to the privatized producer. To the extent that the U.S. Department of Commerce’s methodology does not systematically look into whether the benefits from prior financial contributions no longer accrue to the privatized producer, it prevents the U.S. from exercising a WTO-compatible discretion.

Finally, a WTO Arbitrator issued a brief report on July 26, 2002 dealing with the arbitration involving steel pipes from Korea (WT/DS202/17). In the Report, the Arbitrator notes that the U.S. and Korea have agreed on a reasonable period of time for the U.S. to carry out the Panel’s recommendation so as to bring U.S. law into compliance with WTO obligations.

Citation: United States - Countervailing Duties on Certain Corrosion-Resistant Carbon Steel Flat Products from Germany (WT/DS213/R) (3 July 2002); United States - Countervailing Measures Concerning Certain Products from European Communities (WT/DS212/R) (31 July 2002); United States - Definitive Safeguard Measures on Imports of Circular Welded Quality Line Pipe from Korea (WT/DS202/17) (26 July 2002); European Union in US News Release No. 43/02 (August 1, 2002). [WTO reports are available on WTO website: “www.wto.org”].

WORLD TRADE ORGANIZATION

WTO Panel finds that Canada’s new milk pricing plan has not, within reasonable time period, properly implemented WTO Panel’s report disapproving Canadian subsidies to dairy exports

A Panel of the World Trade Organization (WTO) has found that Canada has not yet properly implemented an earlier WTO appellate report on Canada’s subsidies to its dairy industry. (As for underlying dispute, see WTO Appellate Report WT/DS103/AB/R, corrected as of October 18, 1999; [1999 International Law Update 154]).

The dispute concerns Canada’s system of setting up different classes of milk that began on August 1, 1995. With that system, Canada replaced its subsidy payments on dairy products with a permit system that let Canadian processors buy lower-priced milk for export sales.

Upon a challenge by the U.S., the WTO held Canada’s system inconsistent with WTO trading rules. Canada, however, introduced other programs to replace the challenged export subsidy. In December 1999, Canada, New Zealand and the U.S. agreed on the reasonable period of time for putting into effect the Panel recommendations. In January 2001, the U.S. and New Zealand asked the WTO to review Canada’s new programs.

Canada’s new programs left in place the domestic price support mechanism and production quota, but did away with Special Milk Class 5(e), and confined exports of dairy products under Special Milk Class 5(d) to Canada’s export subsidy commitment levels. Canada also de-regulated milk for export processing by creating a new category of “commercial export milk” (CEM) which is free from pricing regulations (see paragraph 2.2 of WT/DS103/RW2).

In its most recent review, the WTO Panel largely agrees with the U.S. and New Zealand that Canada has not yet conformed to WTO trading rules. In particular, the Panel makes the following findings. Through the CEM scheme and the continued operation of Special Milk Class 5(d), Canada goes on breaching its obligations under Articles 3.3 and 8 of the Agreement on Agriculture. It does this by providing export subsidies within the meaning of Article 9.1(c) of the Agreement which are higher than the quantity commitment levels it specified in its Schedule for exports of cheese and “other dairy products.” As a result, Canada has nullified or impaired the benefits which New Zealand and the U.S. are entitled to under the Agreement. (See Section VI. of WT/DS103/RW2).

The WTO report affects Canadian dairy exports worth approximately $200 million. According to the U.S. Trade Representative, the Canadian dairy export subsidies cost American farmers up to $35 million in lost sales.

Citation: Canada - Measures Affecting Importation of Milk and Exportation of Dairy Products (WT/DS103/RW2) (26 July 2002); U.S. Trade Representative press release 2002-57 (June 25, 2002). [WTO Report is available at WTO website “www.wto.org”; Agence France Presse “WTO tells Canada to change its dairy export subsidies” (July 27, 2002).]

U.S. enacts new “fast-track” trade bill. On August 7 last, President Bush signed into law a so-called “fast track” measure. It gives the President wide authority until 2007 to negotiate trade arrangements with foreign nations that Congress may vote up or down as a whole but cannot amend. [See Trade Act of 2002, Pub. Law 107-210, 116 Stat. 933, 935, Aug. 6, 2002] Congress first granted the President trade promotion authority in 1974. During President Clinton’s term in 1994, the authority lapsed due to Congress’ failure to renew it. Some original opponents of the law decided to support it when negotiators agreed to include subsidized health insurance and job-training benefits for workers who forfeit their jobs to global competition. The President reported that he would promptly move to enter into trade deals with Chile, Singapore and Morocco. The U.S. is also interested in negotiating a “Free Trade Area of the Americas.” This plan first surfaced in 1994 and would integrate thirty-four nations in North and South American into one free-trade bloc similar to the NAFTA arrangements which the U.S. now has with Mexico and Canada. The enactment of fast-track authority will help to improve trade relations with the European Union and will reduce the likelihood of a trans-Atlantic trade war. It will also breathe new life into the “Doha Round” of negotiations. They seek to liberalize trade among all the 144 members of the WTO. Trade promotion authority should make more likely the integration of the poorer nations into the global system of trade, despite difficulties brought about by lower wages and other costs in those countries. Citation: The New York Times, Wednesday, August 7, 2002, Late Edition - Final, Section A, Page 5, Col. 1 (byline of Elisabeth Bumiller); Id., Monday, August 5, 2002, Late Edition - Final, Section A, Page 15, Col. 1 (byline of Walter Russell Mead, senior fellow at Council on Foreign Relations).

EU improves framework for international police and judicial cooperation in criminal matters (AGIS). With Council Decision 2002/630/JHA, the European Union has established a framework program on police and judicial cooperation in criminal matters (AGIS). Two internal purposes of the program are to develop and implement European policies in this field, and to promote cooperation among the Member States and with international organizations. Of particular interest to the United States is the plan to increase cooperation with third countries on international criminal matters. The program will finance various collaborative projects among legal practitioners, law enforcement officials, and government officers. The cooperation program will run from January 1, 2003, through December 31, 2007, and may be extended thereafter. Citation: 2002 O.J. of European Communities (L 203) 5, August 1, 2002.

Torture Victims Win U.S. Lawsuit Against Salvadoran Generals. In a federal damage suit brought under the Torture Victim Protection Act of 1991 [Pub. Law 102-256; Mar. 12, 1992; 106 Stat. 73; 28 U.S.C.A. Section 1350, note], a Florida jury found that two retired Salvadoran generals, Carlos Eugenio Vides Casanova and Jose Guillermo Garcia, were liable for a combined total of $54.6 million to three victims of torture at the hands of troops under defendants’ command. Plaintiffs had invoked the “command responsibility” doctrine. It declares that courts may, upon adequate evidence, hold high military officers responsible for misconduct and human rights violations committed by their troops. The generals were not in the courtroom when the jury handed down its verdict. According to the Associated Press, the defense attorney said that the retired generals cannot pay the damages or even afford to appeal. Both cases rekindled the horrors of El Salvador's civil war, which left as many as 70,000 people dead. One plaintiff testified that she had been eight months pregnant when the soldiers had raped and beaten her over and over again. Her baby died two months after its birth. Another plaintiff, a former surgeon, said his tormentors wrapped the tips of his fingers with a torture device known as “Dedos Chinos,” or Chinese Finger. They cut off his blood circulation and left him no longer able to practice surgery. The third plaintiff testified that he was viciously beaten. All three plaintiffs agreed that the Salvadoran soldiers had tagged them as “subversivos,” or subversives, because they taught reading, or provided medical services, to the poor. The generals did not deny that the plaintiffs were tortured, claiming that they were not aware of it and that, in any event, they would have been unable to stop it. Citation: The Washington Post, Wednesday, July 24, 2002; Page A01 (byline of Manuel Roig-Franzia, Staff Writer).

European Union ends investigation of U.S. trade practices as to mustard. The EU Commission is no longer looking into allegedly improper U.S. trade practices as to mustard following the Hormones Case. The Federation of the French Condiment Industries had complained to the Commission on June 7, 2000, pursuant to Regulation 3284/94 “laying down Community procedures in the field of the common commercial policy in order to ensure the exercise of the Community’s rights under international trade rules, in particular those established under the auspices of the World Trade Organisation.” The Commission decides that the allegedly adverse trade effects do not stem from the obstacle to trade claimed in the complaint, that is, the U.S. practice of applying withdrawal of concessions selectively against some, but not all, EU Member States. Therefore, there is no need for EU action in this case. Citation: 2002 O.J. of European Communities (L 195) 72, July 24, 2002.

Syrian court sentences political reformers to long prison terms. On July 31, 2002, the Syrian state security court sentenced prominent economist Professor Aref Dalila to 10 years imprisonment and physician Dr. Walid al‑Bunni to five years. Professor Dalila is a founding member of the Committees for the Revival of Civil Society, and Dr. al‑Bunni helped to set up the independent Syrian Human Rights Society last year. In addition to Prof. Dalila and Dr. Bunni, Syrian authorities had arrested eight others during an apparent crackdown in August and September 2001. Several of those seized were political reformers who had put together the independent civil forums which had become popular throughout Syria after president Hafez al-Asad had died in 2000. The security court had reportedly convicted the two defendants on three counts: (1) trying to change the constitution by unlawful means, (2) stirring up armed rebellion and (3) spreading false information. Citation: Human Rights Watch Press Release, New York City, August 2, 2002. [See http://www.hrw.org/press/002/08/syria080202.htm.]

U.S. and Bahrain sign trade and investment agreement. On June 18, 2002, U.S. Trade Representative and the Bahraini Minister of Finance and National Economy signed a new Trade and Investment Framework Agreement (TIFA) on behalf of their respective countries. A small Persian Gulf nation, Bahrain was, in 1932, the first Arab state to strike oil. The Agreement establishes a U.S.-Bahrain Council on Trade and Investment. The Council will include delegates from both countries and will provide a forum for ongoing dialogues looking to expand trade and investment between the two countries. – According to the U.S. Trade Representative, in the year 2001, the U.S. exported $398 million worth of goods to Bahrain, and imported $424 million worth of goods from Bahrain. Citation: U.S. Trade Representative press release 2002-54 (June 18, 2002).

U.S. sanctions Chinese and Indian entities under Iran‑Iraq and CBW Acts. Pursuant to both the Iran‑Iraq Arms Non‑Proliferation Act of 1992 (Iran‑Iraq Act) [Pub. Law 102-484; Div. A, Title XVI, Oct. 23, 1992; 106 Stat. 2571] and the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 (CBW Act) [Pub. Law 102-182, Title III, Dec. 4, 1991; 105 Stat. 1245; 22 U.S.C.A. Sections 2798; 5601-5606] the U.S. Government imposed sanctions on nine Chinese entities and one Indian individual on July 9, 2002. The U.S. alleged that these persons, by transferring goods or technology, knowingly and materially aided the bids of Iran or Iraq to get hold (1) of chemical weapons or (2) of destabilizing quantities and types of advanced conventional weapons. These sanctions do not apply to the Chinese or Indian Governments. Under the Iran‑Iraq Act, the U.S. Government must not procure, or enter into any contract to procure, any goods, services or technology from the sanctioned entities or persons, nor may it issue any license for any export by or to the sanctioned persons or entities, for a period of two years. Additionally, the CBW Sanctions Law bars the U.S. Government from procuring any goods or services from the sanctioned entities, and bans the importation into the United States of any products turned out by these entities. Citation: Press Statement by Richard Boucher, U.S. State Department Spokesman, Washington, D.C. July 24, 2002 [For all press statements,see “http://www.state.gov/r/pa/prs/ps/”].