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.

1998 International Law Update, Volume 4, Number 8 (August).

COMPETITION

U.S. Federal Trade Commission issues rules that increase foreign governments' access to confidential business records in antitrust investigations pursuant to mutual assistance agree­ments

The U.S. Federal Trade Commission (FTC) has amended its Rules of Practice as to confidentiali­ty protections for materials that the FTC obtains during business practice investigations. One goal is to conform FTC rules to the Internation­al Antitrust Enforcement Assistance Act (IAEA­A) [15 U.S.C. 6201], which provides mutual en­forcement assistance to other countries.

[Under the IAEAA, the FTC and the U.S. Department of Justice may enter into mutual assistance agreements with foreign antitrust authorities to provide reciprocal assistance in antitrust investi­gations. U.S. authorities may collect information on behalf of foreign antitrust enforcers and may provide information already in their regulatory files.]

In particular, the FTC has amended Rule 4.10(d) of its Rules of Practice [16 C.F.R. 4.10(d)]. This deals with materials that the FTC obtains based on compulsory process in a law enforcement investigation as well as with data designated "confidential" and submitted volun­tarily. The amended Rule generally allows disclosure of this information only to FTC officers, em­ploy­ees, contractors or consultants.

The Commission also revised Rule 4.10(e). As amended, it bars disclosure of materials marked "confi­dential" unless the FTC (1) determines that they are neither trade secrets nor confidential, com­mercial information, and (2) provides 10 days' pre-disclosure notice to the submitter.

The rule amendments went into effect on July 17, 1998.

Citation:  63 Federal Register 38472 (July 17, 1998). [The first proposed Agreement on Mutual Antitrust Enforcement Assistance is with Austra­lia, see 62 Federal Register 20022 (April 24, 1997).]

FORUM NON CONVENIENS

Ninth Circuit affirms dismissal of federal lawsuit in Hawaii against Mi­cronesian parties on forum non conve­niens grounds though parties had agreed to arbitrate in Hawaii

Various California defendants sued their former business partners and government agencies over a failed international tuna fishing venture. In 1990, the plaintiffs negotiated with government agencies in the State of Yap, a member of the Federated States of Micronesia, and jointly established a fishing company, Yap Fisheries Corp. (YFC). The agreement designated Yap as the forum for litigation and its law as control­ling. The parties, however, agreed to arbitrate all contract disputes in Hawaii.

The Attorney General of Yap later obtained an order of receivership over YFC. Court actions ensued in Hawaii federal court, in Micronesia, and in the District of Columbia federal court.

The Hawaii district court dismissed the action on grounds of forum non conveniens in favor of Yap as the appropriate forum. The U.S. Court of Appeals for the Ninth Circuit affirms.

Plaintiffs argued that their forum choice is entitled to greater deference because the alterna­tive forum is foreign. The Court disagrees. Nothing in Piper Aircraft v. Reyno, 454 U.S. 235 (1981), suggests that there is a general pre­sumption for or against a foreign forum. Instead, movants must show that, considering the private and public interests involved, the balance of conve­nience is in favor of their forum choice.

Neither is it decisive that the agreements had designated Hawaii as the place for arbitration. A district court may dismiss for forum non conveni­ens notwithstanding an agreement to arbitrate in the selected forum, particularly in light of coun­tervailing factors.

Nor does this case implicate any U.S. law that the parties could more suitably litigate in a U.S. tribunal. For instance, plaintiffs' inability to assert a RICO cause of action under Yap or Micronesia law does not preclude forum non conveniens dismissal.

The private interest factors, in the Court's view, weigh in favor of Yap. None of the plain­tiffs reside in Hawaii and only two of the indi­vidual defendants live there. Moreover, there is no meaningful difference between flying witness­es from mainland U.S. to Hawaii versus to Yap. As for the relative ability of the parties to litigate in a foreign forum, plaintiffs have not come up with reasons why they are unable to litigate in Yap.

As for the public interest factors, the Hawaii district court, being in the same Pacific region, was uniquely qualified to determine which venue had the greater interest in the litigation. The district court had analyzed the issues and deter­mined that it was Yap. That decision is entitled to appellate deference.

Citation:  Gemini Capital Group, Inc. v. Yap Fishing Corp., No. 96-15261 (9th Cir. July 20, 1998).

HUMAN RIGHTS

In review of defendant's death sen­tences for murders done while sixteen years old, majority of Nevada Su­pr­eme Court rules that, due to U.S. reservation, Convention on Civil and Political Rights does not invalidate such sentences

In his sixteenth year, Michael Domingues murdered a woman and her four-year-old son at their home in October 1993. The following year a Nevada trial court sentenced him to two death sentences. The state's highest court affirmed in May of 1996.

Six months later, Domingues filed a motion to correct his sentence as illegal. He contended that his death sentence violated Article 6, ¶ 5 of the International Covenant on Civil and Political Rights (ICCPR) [Sen. Treaty Doc. No. 95-2, 999 U.N.T.S. 171], to which the U.S. became a party in 1992. Article 6 provides in part, "Sen­tence of death shall not be imposed for crimes committed by persons below eighteen years of age ..."

The Senate gave its consent and the President then ratified the Convention. There was, howev­er, a relevant Reservation plus a Declaration. The U.S. reserved the right, subject to Constitutional impediments, to execute persons under 18 if U.S. law so provides. It also declared that the first 27 Articles of the ICCPR "are not self-executing."

The court of first instance denied the motion. It found that it lacked power to correct the sentence because it was not facially illegal. Upon Domingues' appeal, the Nevada Supreme Court affirms the convictions and sentences 3 to 2.

The majority finds that Nevada law authorized Domingues' sentence and that such statutes have passed Constitutional muster. "We conclude that the Senate's express reservation of the United States' right to impose a penalty of death on juvenile offenders negates Domingues' claim that he was illegally sentenced." [Slip op. 2]

The first dissenter relies directly upon Article 6 of the ICCPR. "International treaties of this kind ordinarily become the 'supreme law of the land.'  Under the majority's interpretation of the treaty, the United States, at least with regard to executing children, is a 'party' to the treaty, while at the same time rejecting one of its most vital terms. ... [T]he United States will be joining hands with such countries as Iran, Iraq, Bangla­desh, Nigeria and Pakistan in approving death sentences for children." [id.]

The second dissenting justice objects to the summary treatment the lower court had given to the complex and unsettled issues concern­ing the status of the ICCPR in the U.S. For example, the judge did not analyze whether the Senate reser­vation was valid in light of Article 4(2) that bars derogation from Article 6.

"If the reservation was not valid, then the district court should determine whether the United States is still a party to the treaty. If the reservation was a 'sine qua non' of the accep­tance of the whole treaty by the United States, then the United State's ratification of the treaty could be considered a nullity. ... But, if the United States has shown an intent to accept the treaty as a whole, the result could be that the United States is bound by all of the provisions of the treaty, notwithstanding the reservation." [Slip op. 3]

Citation: Domingues v. State, No. 29896 (Nev. Sup. Ct. July 31, 1998).

JUDGMENTS (FAMILY LAW)

Australian Family Court of Appeal estops wife from contesting allocation of Australian property in final litigat­ed divorce judgment from New Jersey tribunal; Court retains jurisdiction over unresolved spousal maintenance ques­tion

Peter Kameny (Peter) married Anna Veronica Kameny (Anna) in 1956 in Hungary. In 1969 they came to live in Australia and they moved to the U.S. in 1982. Seven years later, Anna and Peter separated. Between 1990 ‑ 1995 they litigated in the Superior Court of New Jersey over rights to property some of which lay in Australia.

The New Jersey court handed down a final judgment of divorce in 1992, allocating the property between the former spouses. Two years later, the Appellate Division of the court af­firmed.

After Anna failed to obey the trial court's judgment, it entered further decrees. Among these were orders reserving Peter's application to vacate the provisions of the final divorce judg­ment. The court also enjoined Anna from pursu­ing or defending court actions in Australia concerning the distribution of any of the assets apportioned under the New Jersey divorce de­cree.

In April 1996, Peter filed a response to Anna's suit in the Family Court of Australia. He sought declara­tions under Australian law that his share of cash investments located in Australia were as appor­tioned by the New Jersey court. In an amended response, Anna sought similar declara­tions about this property that differed from those granted in New Jersey.

She also asked the Australian Court to order Peter to pay her spousal maintenance. [The New Jersey court had granted this relief but had later dismissed Anna's claim after she had quit the jurisdiction.]

The Family Court judge ruled that the property allocation orders made by the New Jersey court were final and binding on Anna. The property cause of action had merged into the divorce judgment and thus Australian law estopped Anna from seeking inconsistent relief.

Peter also has a distinct claim for remedial action arising from Anna's failure to comply with the original judgment. On the other hand, the Court found that Anna had chosen a clearly inappropriate forum for all issues other than spousal maintenance. Anna noted an appeal.

The Family Court of Appeal rules for Peter and dismisses the appeal. It holds that the modifiability of the New Jersey judgment did not impair its finality under the doctrine of cause-of-action estoppel. In any event, later orders that the American trial court had made dealt with Peter's distinct claim against Anna for breaching Peter's rights under the affirmed judgment.

Finally, even in the absence of an estoppel, the inappropriate forum argument could stand on its own two feet. Both parties had litigated at length in the New Jersey courts. Allowing relitigation of issues already determined abroad would put Peter to considerable expense and inconvenience. While the anti-suit injunction from the New Jersey court does not deprive an Australian court of its jurisdiction, it does constitute a factor in the balance-of-convenience equation.

Citation: Kameny v. Kameny, App. No. EA 91 [1997], (Fam. Ct. App. April 15, 1998).

JUDICIAL ASSISTANCE (EVIDENCE)

Second Circuit rejects U.K. partnersh­ip's argument that plaintiffs should have resorted to Hague Evidence Con­vention to obtain documents from it rather than use Fed. R. Civ. P. 45 subpoena directed to defendant's New York partner

This is yet another case in the long line of cases surrounding the demise of the Bank of Commerce and Credit International (BCCI). In the years before BCCI's collapse, PW-UK, along with other Price Waterhouse offices, was its worldwide auditor. Two companies claimed that BCCI had acquired them secretly. These were First American Corp. and First American Banks­hares (jointly First American).

First American brought suit in U.S. district court in Washington D.C. against Sheikh Zayed Bin Sultan Al-Nahyan. It then sought a subpoena from a New York district court to obtain numer­ous documents from PW-UK. First American alleged that the court could exercise personal jurisdiction over PW-UK because one of its partners worked at a Price Waterhouse office in New York (PW-US).

PW-UK unsuccessfully objected to the subpoe­na and then sought expedited appellate review. The U.S. Court of Appeals for the Second Circuit affirms.

The Court rejects PW-UK's argument that First American should resort to the Hague Evidence Convention so that British courts could rule on the propriety of the subpoena. [The U.K. decla­ration under Convention Article 23 requires specific descriptions of any documents requested rather than broader "American-style" discov­ery]. Under the Aerospatiale doctrine, however, the Hague Conven­tion is not the exclu­sive means for obtaining documents from other member states. Therefore, there is no primacy for the Hague Convention over Rule 45 and the Rule does not distinguish between parties and non-party wit­nesses.

To respect international comity, certain factors determine the reasonableness of requests for documents located abroad. They are (i) the competing interests of the nations whose laws are in conflict, (ii) the hardship that compliance would impose on the party or witness from whom discovery is sought, (iii) the impor­tance to the litigation of the information and documents requested, and (iv) the good faith of the party resisting discovery. The lower court had duly applied these factors.

Citation:  First American Corp. v. Price Water­house LLP, No. 98-7500(L) (2d Cir. July 14, 1998).

JURISDICTION (PERSONAL)

In federal wrongful death action relat­ed to Newport-Bermuda yacht race, Second Circuit concludes that either Rhode Island or federal law would support personal jurisdiction over German yacht owner

Bent Dietrich, a German citizen and resident, entered his yacht S/V RAINBOW in the Rhode Island-to-Bermuda race during the summer of 1994. After Robert Sharkey, the "boatman," had finished supervising her repairs in Florida and the Chesapeake Bay, he, Dietrich and some friends sailed the ship to Newport. On Dietrich's behalf, Sharkey as boatman advertised the need for added crew members. Daren Chew, a local resident and an experienced sailor, joined up.

After Sharkey had skippered the RAINBOW to Bermuda, he decided to return by plane. Dietrich then persuaded Chew to take his place on the voyage back. En route to Newport on the high seas, heavy weather swept Chew over the side to his death.

Chew's parents sued Dietrich in a New York federal court. They claimed federal subject matter jurisdiction under the Jones Act, the Death on the High Seas Act (DOHSA), and general federal maritime law. Though moving to dismiss for lack of personal jurisdiction, defen­dant conceded that the suit could go forward if he was subject to the jurisdiction of the Rhode Island courts.

Focussing on First Circuit precedents, the district court dismissed the action. It concluded that jurisdiction was lacking in this case because the defendant's acts within Rhode Island were not the "proximate cause" of Chew's death. Plaintiffs appealed and the U.S. Court of Ap­peals for the Second Circuit reverses and re­mands.

The Court first notes that there is a possible disagreement among some of the federal circuits on the test for figuring out whether a tort claim "relates" to intrastate activities. Where contacts are borderline, the First Circuit seems to favor the "proximate cause" approach. The Sixth, Seventh and Ninth Circuits, however, say that more substantial activities need only be a "but for" cause of plaintiff's injuries.

In the Court's view, defendant's contacts with Rhode Island were enough under either test for personal jurisdiction pursuant to both the Rhode Island "long-arm" statute and 14th Amendment law. "Dietrich entered Rhode Island intending to assemble a crew for a round‑trip voyage to Bermuda. While he may not have recruited Chew personally, the person who did was acting on his behalf. At the time the yacht left Rhode Island for Bermuda, Dietrich intended to return to Rhode Island with many of the same crew members. ... Dietrich could reasonably anticipate that he might be 'haled into court' in Rhode Island to respond to a suit to recover damages for injuries that crew members recruited in Rhode Island might suffer during the round‑trip voyage." [30] 

Alternatively, the 1993 provision in Fed. R. Civ. Pro. 4(k)(2) allows the Court to aggregate defendant's contacts with the entire United States in actions brought under federal law like this one. "Since the accident at issue arose from the operation of a yacht that had been maintained and used in the United States exclusively for several months prior to the race, it is not unfair to Dietrich to require him to respond to a suit in the United States that relates to the operation of the yacht and concerns injuries to a crew mem­ber recruited in the United States." [id.]

Citation: Chew v. Dietrich, 143 F.3d 24 (2d Cir. 1998).

JURISDICTION (PERSONAL)

For the purpose of subpoenaing docu­ments from U.K., Second Circuit up­holds personal jurisdiction over UK office of world-wide accounting firm based on presence of UK partner in New York

[For background facts, see JUDICIAL ASSIS­TANCE (EVIDENCE) above]

The Second Circuit also finds that service on a partner of PW-UK who was working in New York is enough of a basis for personal jurisdic­tion. Under N.Y.C.P.L.R. § 310(a), "Personal service upon persons conducting a business as a partnership may be made by personally serving the summons upon any one of them."  Therefore, if the service on one partner within the U.S. is valid, the court has the power to subpoena partnership documents located in the U.K.

Here, the exercise of jurisdiction would not violate due process. PW-UK knew or should have known that it was risking submission to New York jurisdiction by having one of its partners work at the New York office.

Citation:  First American Corp. v. Price Water­house LLP, No. 98-7500(L) (2d Cir. July 14, 1998).

JURISDICTION (PRE­SCRIP­TIVE)

In action by Caribbean broadcaster against competitor, D.C. Circuit af­firms that showing of adverse effect of monopoly on U.S. commerce invokes Sherman Act and thus supports sub­ject matter jurisdiction

Caribbean Broadcasting System (CBS) and Caribbean Communica­tions Company (CCC) have competing FM radio stations in the Eastern Caribbean (including Puerto Rico and the Virgin Islands). Cable & Wireless (C&W) entered into a joint venture to have CCC develop a Caribbe­an-wide FM broadcasting system that C&W would use for an FM paging service.

When CBS ran into problems trying to sell advertising for its FM broadcast station, it sued CCC and C&W in the District of Columbia federal court. It claimed, inter alia, that the defendants had tried to monopolize the Caribbe­an market, thus breaching the Sherman Act [15 U.S.C. §§ 1-2].

The district court held that it lacked subject matter jurisdiction over the alleged violations. In particular, the court held that CBS had failed to plead enough facts to show that the defendants' conduct had an adverse effect on U.S. com­merce.

The U.S. Court of Appeals for the D.C. Circuit reverses and remands. CBS' monopolization allegations were sufficient to validate subject matter jurisdiction.

A court must use the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA) standard [15 U.S.C. § 6a] to analyze whether conduct related to international trade has had an effect in the U.S. so as to invoke subject matter jurisdic­tion. Here, CBS' complaint meets the standard.

"The complaint filed by CBS is sufficient to survive a motion to dismiss ... as long as its makes allegations that, if proven, would show that the challenged conduct had a 'direct, sub­stantial, and reasonably foreseeable effect' upon an aspect of commerce to which the Sherman Act, as qualified by the FTAIA, applies. The complaint does make such allegations. First, CBS alleges ... that there is a significant market for the sale of English-language radio advertis­ing in the Eastern Caribbean, which includes Puerto Rico and the U.S. Virgin Islands." [Slip op. 15]

In addition, CBS claimed "that many compa­nies based in the United States are customers, and that CCC and CBS are competing sellers, in that market. Finally, CBS alleges ... that there are substantial barriers to entry into the market: both a broadcast license and a large capital investment are necessary; in addition, CCC has 'locked up' the available advertising contracts. Under the circumstances it is quite plausible that the plaintiffs' alleged conduct would have a significant effect upon U.S. commerce." [Slip op. 16]

For example, the complaint specifically alleges that U.S. customers suffered antitrust injury by paying higher prices for advertising because of CCC's and C&W's allegedly unlawful actions.  Therefore, the district court should not have dismissed the monopolization claims for lack of subject matter jurisdiction.

Citation:  Caribbean Broadcasting System, Ltd. v. Cable & Wireless Plc, No. 96-7246 (D.C. Cir. July 17, 1998).

JURISDICTION (PRE­SCRIP­TIVE)

In dispute between Malaysian investor and U.S. officers of bankrupt telecom­munications company in Pacific Rim region, Seventh Circuit finds that antifraud securities statutes do not apply

This is another case in the dispute involving Rimsat, Ltd., a bankrupt telecommunications company [see 1996 Int'l Law Update 139]. Kauthar SDN BHD, a Malaysian corporation, had invested $38 million in Rimsat. Rimsat was a Nevis corporation with its principal place of business is Fort Wayne, Indiana.  Its business is to provide satellite communications in the Pacific Rim region.

Several of Rimsat's creditors, however, forced it into involuntary bankruptcy.  With its invest­ment having become worthless, Kauthar sued numerous individual defendants in district court, alleging securities laws and RICO violations.

The district court dismissed the complaint and granted the defendants' motion for summary judgment. Kauthar appealed.

The U.S. Court of Appeals for the Seventh Circuit affirms. As for the extraterritorial appli­cation of antifraud securities statutes, the Court disagrees with the district court. It concludes that the transactions had enough of a connection to the U.S.. On the other hand, the Court finds that Kauthar had waived the issue.

The Circuits have developed different ap­proac­hes to determine whether certain acts have had a sufficient impact on, or relation to, the U.S. to bring them within the reach of U.S. regulation. The Seventh Circuit will henceforth apply a "conduct" approach:  "We believe ... that federal courts have jurisdiction over an alleged violation of the antifraud provisions of the securities laws when the conduct occurring in the United States directly causes the plaintiff's alleged loss in that the conduct forms a substan­tial part of the alleged fraud and is material to its success." [Slip op. 21-22]

Applying this approach to the facts of the case, the Court finds the test was met. "... Kauthar has alleged that the defen­dants conceived and planned a scheme to defraud Kauthar in the United States, that they prepared materials in support of the scheme to solicit the payment in the United States and sent those materials from the United States via the United States mail, and that they received in the United States the fraud­ulently solicited payment for the securities -- the final step in the alleged fraud." [Slip op. 23]

Kauthar, however, failed to properly plead a primary violation of the securities laws, so that there can be no derivative control-person liabili­ty. Consequently, Kauthar had waived those claims.

Citation: Kauthar SDN BHD v. Sternberg, No. 97-2795 (7th Cir. July 14, 1998).

PATENTS

EU issues directive to Member States to coordinate domestic law on scope of patent protection for biotech products

Effective on July 30, 1998, the European Union (EU) has issued a directive to protect inventors' rights in certain biotechnologi­cal products, Directive 98/44/EC. [A EU "directive" is not directly applicable law; the EU Member States must implement it into national law for it to be effective.]

According to the Directive, the Member States must protect such inventions under their national patent laws (Article 1). It permits the patent protection of new inventions "which involve an inventive step and which are susceptible of industrial application ... even if they concern a product consisting of or containing biological material or a process by means of which biologi­cal material is produced, processed or used. ... Biological material which is isolated from its natural environment or produced by means of a technical process may be the subject of an invention even if it previously occurred in na­ture." (Article 3) 

Protection, however, cannot reach certain items. These include plant and animal varieties, and biological processes for the production of plants or animals (Article 4). Neither can the human body and its gene sequence receive patent protection, unless the someone can isolate the patentable element from the human body (Article 5). Inventions may also be unpatentable on grounds of public order or morality. Examples include human cloning and the use of human embryos for commercial purposes (Article 6).

Under certain circumstances, there may be compulsory cross-licensing if necessary for the effective exploitation of another patent (Article 12).

The EU Member States have until July 30, 2000 to make domestic law conform.

Citation:  Directive 98/44/EC of the European Parliament and of the Council of 6 July 1998 on the legal protection of biotechnological inven­tions, 1998 O.J. of the European Communities (L 213) 13, 30 July 1998.

TAXATION

U.S. Treasury Department issues regu­lations to ease impact on U.S. taxes of new European currency

  The EU is currently implementing a single common currency called "Euro."  For 11 of the 15 EU Member States, the Euro will become the official currency on January 1, 1999. The Euro will replace national currencies according to fixed conversion rates. The Member States will phase out local currencies by July 1, 2002.

The U.S. Department of the Treasury, Internal Revenue Service (IRS), has issued temporary and final regulations [26 C.F.R. Part 1] for U.S. taxpayers who are conducting business in the European Union (EU). The new regulations allow companies who do business in the EU and who are subject to taxation in the U.S. to make certain adjustments for contracts and transactions conducted in Euros. The purpose is to minimize the impact of the Euro on U.S. federal income taxation.

For example, the regulations address the gains and losses from currency conversions ("Section 988 transactions"). They also show how to account for the initial conversion from the current European currency to the Euro.

The regulations do not, however, address the deductibility of losses due to the Euro conver­sion. Nor do they deal with foreign tax credit mismatches that may occur because of account­ing differences between the U.S. and European countries.

The effective date of the regulations was July 29, 1998.

Citation:  63 Federal Register 40366 (July 29, 1998).

TRADE

WTO Dispute Settlement Panel issues report in case brought by U.S., EU and Japan challenging measures taken by Indonesia to protect its automobile industry; Panel finds several GATT viola­tions

In 1993 and 1996, Indonesia enacted legisla­tion to boost its local automobile industry as against imports. The 1993 program imposed, inter alia, a progressive import duty on passen­ger car parts according to their "local content."  For example, the February 1996 program favored vehicles which were manufactured domestically, or used an Indonesian brand name, or were based on national technology. For instance, if the Indonesian content was less than 20%, the import duty rate was 100%. If the local content was more than 60%, the import duty rate was 0%.

In response, the United States, the European Communities, and Japan [jointly complainants] brought independent WTO complaints in October and November of 1997. They claimed that Indonesia was unlawfully discriminating against foreign automobile and automobile parts manu­facturers.

The complainants alleged, in particular, that Indonesia's protec­tionist measures violated Indonesia's obligations under Articles I:1, III:2, III:4 and X:3(a) of GATT 1994, as well as Articles 2 and 5.4 of the Trade-Related Invest­ment Measures (TRIMs) Agreement. Further­more, the complainants claimed that Indonesia violated Articles 3, 6 and 28 of the Agreement on Subsidies and Countervail­ing Measures (SCM) Agreement, and Articles 3, 20, and 65 of the TRIPS Agreement. Because all complaints were based on the same facts, the WTO Dispute Settlement Body consolidated the cases and issued a single decision.

On July 2, 1998, the Panel issued a Report of almost 400 pages. It found that Indone­sia was violating Articles I and III:2 of GATT 1994, Article 2 of the TRIMs Agree­ment, and Article 5(c) of the SCM Agreement. Indonesia was not, however, breach­ing Articles 3 and 65.5 of the TRIPS Agreement.

In particular, the Panel held that [see XV. Conclusions and Recommendations]:

- The Indonesian "local content" requirements of the 1993 and February 1996 car programs which provided (i) sales tax benefits on finished motor vehicles with a certain percentage of domestic products or those used in Indonesian cars, and (ii) customs duty benefits for imported parts and components used in finished motor vehicles with a certain percentage of domestic products or those used in Indonesian cars, violate Article 2 of the TRIMs Agreement [investment measures not to be inconsistent with GATT].

- The sales tax discrimination aspects of the 1993 and the February and June 1996 car pro­grams in favor of national vehicles with a certain domestic content transgress Article III:2 [no special taxes/charges on imported goods] of GATT.

- The customs duty and sales tax benefits of the June 1996 car program in favor of imported "national cars" and the customs duty benefits of the February 1996 car program in favor of imported parts and components for national cars assembled in Indonesia, does not comply with GATT Article I [equal tariff treatment for im­ported and domestic products].

Citation: Indonesia -- Certain Measures Affect­ing the Automobile Industry, Report of the WTO Dispute Settlement Body in cases WT/DS54, WT/DS55, WT/DS59, WT/DS64 (circulated on July 2, 1998). [The Report is available on the WTO website at www.wto.org].

TRADEMARKS

In milestone case, European Court of Justice rules that, whatever Member State law may provide, EU trademark directive declares that owner does not exhaust its EU trademark by selling it outside EU

Silhouette International Schmied GmbH is an Austrian company that makes sunglasses of superior quality. When Hartlauer Handelsgesells­chaft mbH, an Austrian discount retail chain, offered to buy these glasses, Silhouette allegedly declined to sell to Hartlauer, presumably to preserve its upper class appeal.

After it opens a new line of sunglasses, Silhou­ette's practice is to sell its excess stock to other companies outside of Austria. In one instance, it sold some older models to a Bulgarian company without any apparent restrictions on further resales.

Harlauer proceeded to buy some of the older sunglasses from this company and to reintroduce them into the Austrian market. The prices were typically less than Silhouette was charging for its models.

Silhouette sued Hartlauer in an Austrian court for trademark infringement. That court agreed with Silhouette and issued an order blocking further sales by Hartlauer. Claiming that Austrian law brought about exhaustion, Harlauer appealed.

The appellate court perceived an important issue of EU law and resorted to the Article 177 reference procedure. It asked the European Court of Justice to rule on whether Silhouette's unre­stricted sale of glasses to the Bulgarian company outside the EU had "exhausted" its EU trademark rights, thus allowing Hartlauer to market Silhou­ette products lawfully within the EU.

The Court holds that the law of the Member States cannot bring it about that putting trade­marked goods on the market outside the EU exhausts an EU trademark. Community legisla­tion completely harmonizes the rules that confer trademark rights including the rule of exhaustion. Because the directive's purpose is to safeguard the workings of the EU's internal market, it provides for exhaus­tion in terms only when the trademark owner markets the product within the EU.

Citation: Silhouette International Schmied GmbH v. Hartlauer Handelsgesellschaft mbH, No. C‑355/96 (E.C.J. 16 July 1998) [Readers may find the text of the opinion on the Court's Inter­net address: http//:www.curia.eu.int].

TRADEMARKS

Second Circuit rules that mere U.S. promotion of Milanese "Fashion Ca­fe" did not constitute use of mark "in commerce" within meaning of Section 45 of the Lanham Act

In 1987, Impressa Perosa, S.R.L. (IP) opened a bar/cafeteria in Milan that its principal, Giorgio Santambrogio, called the "Fashion Cafe."  IP registered the trademark in Italy and Santam­bro­gio claims he later bought it from IP so that he could set up similar places around the world.

IP indisputably never opened a Fashion Cafe in the U.S. nor did it formally advertise for the Milano version. Santambrogio claimed, however, that he had passed out thousands of T-shirts and key chains with the name of the Milan cafe on them to persons in the modeling and fashion industry. The possessor was entitled to a free meal in Milan.

In May 1993, Tommaso Buti opened a "Fash­ion Cafe" in Florida. Later, he engaged a law firm to do a trademark search. Finding nothing, Buti applied to register the mark with the U.S. Patent and Trademark Office. In April 1995, he opened a similar cafe in New York and launched plans to open others in New Orleans and else­where.

When IP found out in December 1994 about Buti's planned New York opening, it tried to register that name in the U.S. Patent and Trade­mark Office. In May 1995, Buti filed the instant suit against IP. It asked for a judgment declaring that IP has no rights in the trademark "Fashion Cafe."  IP answered and filed six counterclaims, three under the Lanham Act and three under state law.

The lower court's main conclusion was that Santambrogio's U.S. efforts to promote the Milan Fashion Cafe did not constitute "use" of the trademark "in commerce" under § 45 of the Lanham Act. It therefore gave Buti his declarato­ry judgment, dismissed IP's federal counter­claims with prejudice and the state claims with­out prejudice.

Whereupon IP appealed. The U.S. Court of Appeals for the Second Circuit, however, af­firms. "[I]t is undisputed that Impressa rendered no restaurant services, nor operated any other busi­ness, under [the Fashion Cafe] name in the United States. ... The Supreme Court explained long ago that the right to a particular mark grows out of its use, not its mere adoption; its function is simply to designate the goods as the product of a particular trader and to protect his good will against the sale of another's product as his;  and it is not the subject of property except in connection with an existing business." [103]

As a matter of first impression in the federal courts, the Second Circuit concludes that Santambrogio's promotional activi­ties in the United States did not merit Lanham Act protection for Impress­a's mark merely because of the ongoing business of IP's Fashion Cafe in Milan. He clearly was not engaged in a "test market use" of the name leading up to opening an American cafe with that name. Instead, Santambrogio was mainly trying to promote the cafe in Milan.

Citation: Buti v. Perosa, S.R.L., 139 F.3d 98 (3rd Cir. 1998).

- U.S. Department of Commerce bars arms exports to Yugoslavia. Because of the use of excessive force by Serbian police forces against civilians in Kosovo and violent acts by Kosovar Albanian extremists, the U.S. Department of Commerce has barred the sale and supply of arms and related materials to the Federal Repub­lic of Yugoslavia (Serbia and Montenegro). The Bureau of Export Adminis­tration has placed the embargoed items on the Commerce Control List. The effective date was July 1, 1998. This final rule implements the United Nations Securi­ty Council arms embargo (Resolution 1160 of March 31, 1998). Citation:  63 Federal Register 37767 (July 14, 1998).

- European Union bars all new investments in Republic of Serbia. In a related matter, the EU has taken similar steps and barred all new invest­ments in the Republic of Serbia. Council Regula­tion 1607/98 prohibits the transfer of financial assets to Yugoslavia and Serbia. The prohibition, however, does not affect trade con­tracts con­cluded before the effective date of the Regula­tion. The Regulation entered into force on July 25, 1998. Citation: EU Regulation No. 1607/98 (barring new investments in Serbia), 1998 O.J. of the European Communities (L 209) 16, 25 July 1998.

- U.S. Trade Representative restores GSP and CBI trade preferences to Honduras. On March 30, 1998, the U.S. Trade Representative had suspended certain trade preferences for Honduras under the Generalized System of Preferences (GSP) and Caribbean Basin Initiative (CBI) because of continuing copyright violations in Honduras such as broadcasting of pirated U.S. videos [see 1998 Int'l Law Update 48]. Effec­tive June 30, 1998, however, the U.S. Trade Repre­sentative restored Honduras' trade prefer­ences because the Honduran Government has taken affirmative steps to prevent further copy­right piracy. Also, the U.S. and Honduras are prepar­ing an intellectual property agreement. Citation: U.S. Trade Represen­tative press release 98-65 (July 1, 1998).

- U.S. and UK sign Maritime Counter-Drug Agreement. On July 13, 1998, the Counselor for the U.S. State Department, Wendy Sherman, and the United Kingdom Minister of State for North American and Caribbean issues, Baroness Symo­ns, signed a U.S.-UK Maritime Counter-Drug Agreement to combat drug trafficking at sea. The Agreement provides a framework for cooperation in the waters of the Caribbean and Bermuda. In particular, it regulates the presence of U.S. Coast Guard personnel on British naval ships, the pursuit of suspect vessels and aircraft into territo­rial waters, the entry into territorial waters to investigate suspect vessels and aircraft, over­flights of territorial airspace to track suspect vessels and aircraft, and the boarding of suspect vessels in international waters. Citation:  U.S. Department of State, Office of the Spokesman, Press Statement (July 13, 1998).