Bell Helicopter Textron, Inc. v. Islamic Republic of Iran ( 2013 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 16, 2013 Decided November 1, 2013
No. 12-7103
BELL HELICOPTER TEXTRON, INC.,
A DELAWARE CORPORATION AND BELL HELICOPTER
TEXTRON CANADA, LTD., A CANADIAN CORPORATION,
APPELLANTS
v.
ISLAMIC REPUBLIC OF IRAN, A FOREIGN NATION, ET AL.,
APPELLEES
Appeal from the United States District Court
for the District of Columbia
(No. 1:06-cv-01694)
Kannon K. Shanmugam argued the cause for appellants.
With him on the briefs were John K. Villa, Charles Davant IV,
and Matthew H. Blumenstein.
Christopher J. Wright argued the cause for appellees. With
him on the brief was Charles T. Kimmett. Thomas G. Corcoran
Jr. and Laina Lopez entered appearances.
Before: ROGERS and TATEL, Circuit Judges, and SENTELLE,
Senior Circuit Judge.
Opinion for the Court by Circuit Judge ROGERS.
2
ROGERS, Circuit Judge: Bell Helicopter Textron Inc. and
Bell Helicopter Textron Canada Ltd. (together “Bell”) appeal
the vacatur of a default judgment as void in connection with the
manufacture and marketing by the Islamic Republic of Iran
(“Iran”) of a helicopter that resembles Bell’s Jet Ranger 206 in
appearance. Bell contends the district court made three errors in
granting Iran’s motion to vacate, pursuant to Federal Rule of
Civil Procedure 60(b)(4), for lack of subject matter jurisdiction
because: (1) the motion was subject to a reasonable time limit
and thus untimely; (2) a deferential standard should have been
applied whereby the default judgment could have been vacated
only if there had been no arguable basis for jurisdiction; and (3)
the commercial activity exception in the Foreign Sovereign
Immunities Act (“FSIA”), 28 U.S.C. § 1605(a)(2), applies.
Bell’s first two claims of error are contrary to this court’s
precedent, which we must apply, see LaShawn A. v. Barry, 87
F.3d 1389, 1395 (D.C. Cir. 1996), and its third claim of error
fails for lack of evidence that Iran’s commercial activity caused
a “direct effect” in the United States. Accordingly, we affirm.
I.
In the 1970s, Bell operated a helicopter plant in Iran, which
it abandoned after the Iranian revolution of 1979. In December
2002, Bell became aware that the Iran Aircraft Manufacturing
Industrial Company (“HESA”), a company wholly owned and
controlled by the Iranian government, was using the plant to
manufacture helicopters that resembled the Jet Ranger 206. Bell
designed this particular model to have distinctive but
nonfunctional design features, including a protruding nose as
opposed to a rounded front, based on an “automotive concept,”
which would set it and the Bell brand apart from other
helicopters and helicopter manufacturers. The Iranian
helicopters went under the name Shahed, and the Shahed 278
resembles the Jet Ranger 206; the Shahed 285 is a militarized
3
version of the same helicopter. Iran has displayed prototypes of
the Shahed at its annual air show held at Kish Island, Iran for
international helicopter buyers for the purpose of selling them in
what Bell’s witness described as “Third World” markets where
safety certification restrictions imposed by European and North
American governments do not apply. Iran would not, however,
be able to sell the Shahed in U.S. markets.
Bell sued Iran in 2006, alleging that Iran’s manufacture and
marketing of the Shahed helicopters infringed and diluted Bell’s
“trade dress” in violation of the Lanham Act, 15 U.S.C. § 1051et seq., and infringed its design patent under the Patent Act, 35
U.S.C § 1 et seq. (The Patent Act claim was later dropped.)
Bell served Iran with the complaint, but Iran did not appear. A
default was entered against Iran on March 31, 2009, and the
district court scheduled a hearing on damages for October 5,
2009. Iran contacted Bell to conduct settlement negotiations,
but no agreement was reached prior to the hearing. At the
hearing, Bell’s witnesses included one of its staff engineers, who
testified regarding the distinctive trade dress of the Jet Ranger
206 and Bell’s primary customers, which include foreign
militaries and “numerous commercial customers.” Ex Parte Hg.
Tr. at 28–36 (Oct. 5, 2009) (testimony of Douglas Jordan). An
aviation safety consultant testified for Bell about the confusingly
similar appearances of the Jet Ranger and the Shahed, Bell’s
“second to none” reputation for safety, and speculated regarding
the possibility that Shahed helicopters could be “passed off” as
Bell products in “Third World” markets with the resulting risk
of accidents from the use of Shahed parts in Bell helicopters. Id.
at 38–48 (testimony of Vernon Albert). A Bell manager
testified regarding the potential loss of Bell revenues as a result
of the sale of Shahed helicopters. Id. at 49–54 (testimony of
Terry Jeffcoat).
4
The district court issued an order and default judgment
against Iran on February 11, 2011, ruling that Iran had infringed
and diluted Bell’s “trade dress” in violation of the Lanham Act,
and that Iran was not immune from suit because its actions were
commercial and had a “direct effect” in the United States. Bell
Helicopter Textron Inc. v. Islamic Republic of Iran, 764 F. Supp.
2d 122, 126, 127–28 (D.D.C. 2011) (“Bell I”). It awarded Bell
$22,035,002.28 in damages (adjusted for pre-judgment interest)
and $497,125 in attorneys fees. Id. at 129–30. The State
Department filed on October 19, 2011 an affidavit of service of
the default judgment on Iran, and counsel for Iran entered an
appearance on December 28, 2011. On February 10, 2012, Iran
moved, pursuant to Rule 60(b)(4), to vacate the default
judgment as void due to lack of subject-matter jurisdiction.
Upon reviewing de novo whether it had subject-matter
jurisdiction, the district court granted the motion, ruling that Iran
was immune from suit under the FSIA because Bell had not
presented evidence that Iran’s actions had caused a “direct
effect” in the United States. Bell Helicopter Textron Inc. v.
Islamic Republic of Iran, 892 F. Supp. 2d 219, 225, 234 (D.D.C.
2012) (“Bell II”).
Bell appeals, and our review of the question of law is de
novo, see Smith v. Mallick, 514 F.3d 48, 50 (D.C. Cir. 2008); the
subsidiary facts are undisputed. Although Rule 60(b) motions
are generally committed to the discretion of the district court,
and thus subject to review for abuse of discretion, “there is no
question of discretion on the part of the court when a motion is
under Rule 60(b)(4); if the judgment is void, relief is
mandatory.” Combs v. Nick Garin Trucking, 825 F.2d 437, 441
(D.C. Cir. 1987) (footnote and internal quotation marks
omitted).
5
II.
Rule 60(b)(4) of the Federal Rules of Civil Procedure
provides that a court “may relieve a party . . . from a final
judgment” if “the judgment is void.” Bell contends that a Rule
60(b)(4) motion is subject to the limitation in Rule 60(c)(1) that
a Rule 60(b) motion be “made within a reasonable time,” and
Iran’s motion, which was filed 364 days after entry of the
default judgment, surpassed this limit. For support, Bell points
to United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260,
264 (2010), where the Supreme Court stated:
Rule 60(b)(4) strikes a balance between the need for
finality of judgments and the importance of ensuring
that litigants have a full and fair opportunity to litigate
a dispute. Where, as here, a party is notified of a
[bankruptcy] plan’s contents and fails to object to
confirmation of the plan before the time for appeal
expires, that party has been afforded a full and fair
opportunity to litigate, and the party’s failure to avail
itself of that opportunity will not justify Rule 60(b)(4)
relief.
Id. at 276.
Bell ignores this circuit’s precedent as well as the fact that
in Espinosa, the Supreme Court stated that it was “not persuaded
that a failure to find undue hardship in accordance with [the
Bankruptcy Code] is on par with the jurisdictional and notice
failing that define void judgments that qualify for relief under
Rule 60(b)(4).” Id. at 273. Here, the district court was faced
with a subject-matter jurisdiction challenge, not a claim of
procedural deficiency. In Espinosa, the creditor participated in
the Bankruptcy Court proceedings by filing a proof of claim, did
not object to the non-jurisdictional legal error, and then years
6
later asked for a second bite at the apple. See id. at 264–66.
Here, Iran never participated in the district court proceedings
that led to the default judgment and moved to vacate based on
the district court’s lack of subject-matter jurisdiction. Ensuring
finality by imposing time limits on Rule 60 motions makes sense
in situations similar to Espinosa where a party submits to the
court’s jurisdiction, never objects to a non-jurisdictional error,
and subsequently in a collateral challenge raises that error as a
basis to vacate the final judgment. But absent any indication
that the Supreme Court would apply the same standard in the
materially different circumstances of the instant case, this
court’s precedent controls, and the district court did not err in
rejecting Bell’s argument that Iran’s Rule 60(b)(4) motion was
untimely.
In Austin v. Smith, 312 F.2d 337, 343 (D.C. Cir. 1962), this
court held that Rule 60(b)(4) motions are not governed by a
reasonable time restriction. In that case the Rule 60(b)(4)
movant had not appeared in the proceeding that resulted in a
default judgment but challenged the judgment more than four
years later on the grounds that he had never received notice that
a suit had been filed. Id. at 339–40. This court held:
Under [Rule 60(b)(4)]. . ., the only question for the
court is whether the judgment is void; if it is, relief
from it should be granted. . . . Moreover, the Rule
places no time limit on an attack upon a void judgment,
nor can such a judgment acquire validity because of
laches on the part of him who applies for relief from it.
Id. at 343. Similarly, in Practical Concepts, Inc. v. Republic of
Bolivia, 811 F.2d 1543, 1545 (D.C. Cir. 1987) (“Practical
Concepts”), the court rejected the argument that a Rule 60(b)(4)
motion was barred when filed by a foreign sovereign over a year
after a default judgment was entered.
7
The RESTATEMENT (SECOND) OF JUDGMENTS § 65 comment
b (1982), explains regarding default judgments that “no public
purpose is served by protecting [a] judgment” arising from a
“proceeding [that] was infected by fundamental error.”
According to the Rules Advisory Committee, no substantive
change has been made to Rule 60(b)(4) since Austin v. Smith
was decided in 1962. See FED. R. CIV. P. 60(b)(4) advisory
committee’s note (1987 and 2007). Bell’s interpretation of Rule
60(b)(4) is contrary to this court’s precedent, as well as that of
almost every other circuit court of appeals, all of which reject a
time limit that would bar Rule 60(b)(4) motions.1
III.
“Under [Rule 60(b)(4)] . . ., the only question for the court
is whether the judgment is void . . . .” Austin, 312 F.2d at 343.
Bell cites cases from circuits that interpret the word “void”
narrowly where a judgment is void only “when there is a total
want of jurisdiction and no arguable basis on which [the district
court] could have rested a finding that it had jurisdiction,” Cent.
Vt. Pub. Serv. Corp. v. Herbert, 341 F.3d 186, 190 (2d Cir.
2003) (internal quotation marks omitted). It points to Espinosa,
559 U.S. at 271, where the Supreme Court observed that
multiple courts of appeals “generally have reserved relief
1
See Precision Etchings & Findings, Inc. v. LGP Gem, Ltd.,
953 F.2d 21, 23 (1st Cir. 1992); “R” Best Produce, Inc. v. DiSapio,
540 F.3d 115, 123–24 (2d Cir. 2008); United States v. One Toshiba
Color Television, 213 F.3d 147, 157 (3d Cir. 2000) (en banc); In re
Heckert, 272 F.3d 253, 256–57 (4th Cir. 2001); Jackson v. FIE Corp.,
302 F.3d 515, 523–24 (5th Cir. 2002); Philos Techs., Inc. v. Philos &
D, Inc., 645 F.3d 851, 857 (7th Cir. 2011); Orner v. Shalala, 30 F.3d
1307, 1310 (10th Cir. 1994); Hertz Corp. v. Alamo Rent-A-Car, Inc.,
16 F.3d 1126, 1130–31 (11th Cir. 1994); see also 11 CHARLES ALAN
WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE § 2862 (3d ed.
2013).
8
[pursuant to Rule 60(b)(4)] only for the exceptional case in
which the court that rendered judgment lacked even an ‘arguable
basis’ for jurisdiction.” Bell effectively ignores this court’s
precedent in Practical Concepts adopting a broader
interpretation of “void” where a judgment is “void” whenever
the issuing court lacked jurisdiction.
The Supreme Court has long instructed that judgments in
excess of subject-matter jurisdiction “are not voidable, but
simply void.” Elliott v. Peirsol’s Lessee, 26 U.S. (1 Pet.) 328,
340 (1828); accord Gonzalez v. Crosby, 545 U.S. 524, 534
(2005); Johnson v. Zerbst, 304 U.S. 458, 468 (1938). Under this
traditional rule, “[w]hen a federal court reaches beyond its
statutory grant of subject-matter jurisdiction, its judgment is
void.” Commodity Futures Trading Comm’n v. Nahas, 738 F.2d
487, 492 (D.C. Cir. 1984). Bell does not contest this principle
but instead maintains that “once final judgment has been
entered, the calculus changes,” Appellants’ Reply Br. 9,
principally relying on the interest in preserving the finality of
judgments. It cites cases that generally distinguish between an
error in the exercise of jurisdiction, as might occur in
interpreting a statutory grant of jurisdiction, and a total want of
jurisdiction when the court’s judgment was a plain usurpation of
power for which no arguable basis existed. See infra note 3.
“[T]he principle of finality,” however, “rests on the premise that
the proceeding had the sanction of law, expressed in the rules of
subject matter jurisdiction.” RESTATEMENT (SECOND) OF
JUDGMENTS § 12 cmt. a. A judgment remains void even after
final judgment if the issuing court lacked subject-matter
jurisdiction, regardless of whether there existed an “arguable
basis” for jurisdiction.
This court has applied the traditional understanding of
voidness in reviewing Rule 60(b)(4) motions de novo. In
Practical Concepts, 811 F.2d at 1545, the district court issued a
9
default judgment against the Republic of Bolivia. Bolivia,
although aware of the initial proceedings, had not appeared and
later challenged the judgment for lack of personal and subject-
matter jurisdiction. Id. The district court followed “[t]he
traditional rule . . . that a judgment rendered in excess of the
court’s jurisdiction is void and a legal nullity.” Practical
Concepts, Inc. v. Republic of Bolivia, 613 F. Supp. 863, 867
(D.D.C. 1985) (citing RESTATEMENT (FIRST) OF JUDGMENTS
§§ 5–7 (1942)). On appeal, this court held that “the district
court . . . properly allowed full consideration of [the]
jurisdictional objection.” Practical Concepts, 811 F.2d at 1545(emphasis added). Although the court did not explicitly endorse
the traditional construction of voidness adopted by the district
court, much less refer to its own review as de novo, its analysis
and the content of the district court’s analysis make both clear.
The district court expressly declined to apply a version of
the arguable basis standard, rejecting a construction of voidness
that would distinguish between “a total want of jurisdiction” and
“an error in the exercise of jurisdiction.” Practical Concepts,
613 F. Supp. at 866–67 (quoting Lubben v. Selective Serv. Sys.
Local Bd. No. 27, 453 F.2d 645, 649 (1st Cir. 1972)). It rejected
the distinction adopted in cases Bell now cites because they
failed to distinguish between voidness and issue preclusion. Id.
at 867. The district court stated that “where . . . the defendant
never appeared in the original suit and thus has not yet litigated
the point, he is not excepted from the rule that a jurisdictional
defect renders a judgment void.” Id. (citing Ins. Corp. of Ir. v.
Compagnie des Bauxites de Guinee, 456 U.S. 694, 706 (1982),
and Maritime Int’l Nominees Establishment v. Republic of
Guinea, 693 F.2d 1094, 1099 n.9 (D.C. Cir. 1982), cert. denied,
464 U.S. 815 (1983)).
This court elaborated on appeal that “[w]hen a person
named as a defendant knows about the action but perceives that
10
the court lacks territorial or subject matter jurisdiction, he is
given a right to ignore the proceeding at his own risk but to
suffer no detriment if his assessment proves correct.” Practical
Concepts, 811 F.2d at 1547 (quoting RESTATEMENT (SECOND)
OF JUDGMENTS § 65 cmt. b (alterations omitted)). The court
identified two risks a party takes in declining to appear: (1) “the
inconvenience of having its assets subjected to judicial process
following the entry of the default judgment,” and (2) “the
prospect that it might lose its chance to argue the merits of the
suit.” Id. at 1548 (alterations and internal quotation marks
omitted). Had the court concluded the defaulting party would
have to overcome a narrow construction of voidness under Rule
60(b)(4), it could not have held that the district court properly
gave “full consideration” to Bolivia’s jurisdictional objections
upon de novo review, particularly when the district court had
rejected the arguable basis standard. The arguable basis
standard would create a high risk for parties who choose not to
appear, and omission of reference to it further indicates that in
holding “full consideration” was appropriate the court endorsed
the traditional understanding of voidness applied by the district
court.
Bell maintains that in Practical Concepts this court did not
say that a foreign state would be entitled to de novo review
whenever it asserted its jurisdictional objection. But this simply
ignores what the court’s analysis reveals (as well as that of other
circuit courts of appeals holding that non-appearing parties may
obtain de novo review of jurisdictional challenges when
appearing for the first time2) and betrays a misunderstanding of
2
See, e.g., Gen. Star Nat’l Ins. Co. v. Administratia
Asigurarilor de Stat, 289 F.3d 434, 437–40 (6th Cir. 2002); MCI
Telecomms. Corp. v. Alhadhood, 82 F.3d 658, 661–64 (5th Cir. 1996);
Exp. Grp. v. Reef Indus., Inc., 54 F.3d 1466, 1469–71 (9th Cir. 1995);
King Fisher Marine Serv., Inc. v. 21st Phoenix Corp., 893 F.2d 1155,
11
how the principles of res judicata apply to jurisdictional
determinations. Where a defendant “w[as] given a fair chance
to challenge . . . subject-matter jurisdiction,” the issuing court’s
determination of jurisdiction is res judicata and may not be
challenged in a collateral proceeding in the district court but
only on direct appeal. Travelers Indem. Co. v. Bailey, 557 U.S.
137, 153 (2009). An exception exists “where the issue is the
waiver of [sovereign] immunity.” United States v. U.S. Fid. &
Guar. Co., 309 U.S. 506, 514 (1940); see also RESTATEMENT
(SECOND) OF JUDGMENTS § 12. In virtually all of the cases Bell
describes as creating a “formidable phalanx of case law” in
support of the arguable basis standard, Appellants’ Br. 26, the
objecting party had appeared in the challenged proceeding or by
privity was subject to the principles of res judicata.3 In the one
case cited by Bell applying the arguable basis standard to a non-
appearing defendant in the context of a Rule 60(b)(4) motion,
the court in Central Vermont Public Service Corp. v. Herbert,
341 F.3d at 188, did not distinguish between parties who have
appeared and could have litigated jurisdiction but did not and
those that declined to enter an appearance altogether; nor was
1158 (10th Cir. 1990); cf. Budget Blinds, Inc. v. White, 536 F.3d 244,
260 (3d Cir. 2008).
3
United States v. Boch Oldsmobile, Inc., 909 F.2d 657, 659
(1st Cir. 1990); Nemaizer v. Baker, 793 F.2d 58, 60 (2d Cir. 1986);
Marshall v. Bd. of Ed., 575 F.2d 417, 420 (3d Cir. 1978); Wendt v.
Leonard, 431 F.3d 410, 411–12 (4th Cir. 2005); Callon Petroleum Co.
v. Frontier Ins. Co., 351 F.3d 204, 206–07 (5th Cir. 2003); In re
G.A.D., Inc., 340 F.3d 331, 333–34 (6th Cir. 2003); United States v.
Tittjung, 235 F.3d 330, 333–34 (7th Cir. 2000); Kansas City S. Ry. Co.
v. Great Lakes Carbon Corp., 624 F.2d 822, 823–24 (8th Cir. 1980)
(en banc); Gschwind v. Cessna Aircraft Co., 232 F.3d 1342, 1344
(10th Cir. 2000); Oakes v. Horizon Fin., S.A., 259 F.3d 1315, 1316
(11th Cir. 2001) (per curiam).
12
the defendant a foreign sovereign. Even so, it is not in accord
with this circuit’s precedent.
Because Iran never appeared in the district court proceeding
resulting in the default judgment, the district court properly
applied the traditional definition of voidness in granting Iran’s
Rule 60(b)(4) motion.
IV.
The FSIA “establishes a comprehensive framework for
determining whether a court in this country, state or federal, may
exercise jurisdiction over a foreign state.” Republic of
Argentina v. Weltover, Inc., 504 U.S. 607, 610 (1992). “[A]
foreign state shall be immune from the jurisdiction of the courts
of the United States and of the States,” unless one of the
enumerated exceptions applies. 28 U.S.C. § 1604. Bell relies
on the commercial activity exception, which provides, in
relevant part, that a foreign state is not immune when “the
action” in question “is based . . . upon an act outside the territory
of the United States in connection with a commercial activity of
the foreign state elsewhere and that act causes a direct effect in
the United States.” Id. § 1605(a)(2).4 Bell contends, contrary to
4
The commercial activity exception to the FSIA provides that
a foreign state does not enjoy jurisdictional immunity in any case
in which the action is based upon a commercial activity
carried on in the United States by the foreign state; or upon an
act performed in the United States in connection with a
commercial activity of the foreign state elsewhere; or upon an
act outside the territory of the United States in connection
with a commercial activity of the foreign state elsewhere and
that act causes a direct effect in the United States.
28 U.S.C. § 1605(a)(2); see also id. § 1603(d).
13
the district court’s findings, that there was evidence that Iran’s
production and marketing of the Shahed helicopters abroad
caused a “direct effect” in the United States. Although no circuit
court of appeals has addressed whether intellectual property
infringement occurring abroad can cause a “direct effect” in the
United States, Bell suggests that under intellectual property case
law the effect of infringement occurs where the possessor of the
intellectual property lives.
Preliminarily, we note that Bell’s procedural objections fail.
First, Bell has forfeited the issue of which party has the burden
of production of evidence to show “direct effects.” While
initially contending that Iran made no effort to meet its
evidentiary burden that its actions caused no direct effect in the
United States, see Appellants’ Br. 36, in response to Iran’s
statement that it was not challenging the underlying facts, see
Appellee’s Br. 38, Bell shifted gears, stating that it did not mean
that Iran had the burden of production but instead the burden of
persuasion, see Reply Br. 21. This last minute pivot is
problematic because in its opening brief Bell stated the burden
of production was the issue. See Appellants’ Br. 35–36. Issues
first raised in a reply brief are ordinarily presented too late to be
considered by the court because the other party has no chance to
respond. See Students Against Genocide v. Dep’t of State, 257
F.3d 828, 835 (D.C. Cir. 2001). Second, Bell’s suggestion that
the district court gave Iran an improper advantage by
emphasizing the presumption of immunity under the FSIA, see
Appellants’ Br. 36–37, overlooks that the FSIA begins with a
presumption of immunity, which the plaintiff bears the initial
burden to overcome by producing evidence that an exception
applies, see FG Hemisphere Assocs., LLC. v. Dem. Rep. Congo,
447 F.3d 835, 842 (D.C. Cir. 2006); Price v. Socialist People’s
Libyan Arab Jamahiriya, 294 F.3d 82, 87 (D.C. Cir. 2002), and
once shown, the sovereign bears the ultimate burden of
persuasion to show the exception does not apply, see FG
14
Hemisphere Assocs., 447 F.3d at 842. The district court did not
err in ruling Bell failed to meet its initial burden.
In Republic of Argentina v. Weltover, Inc., 504 U.S. 607(1992), the Supreme Court held that for acts outside the territory
of the United States to cause direct effects in the United States
under the FSIA, “an effect is direct [only] if it follows as an
immediate consequence of the defendant’s activity.” Id. at 618(internal quotation marks omitted). The Court acknowledged
that the commercial activity exception did not “contain[] any
unexpressed requirement of ‘substantiality’ or ‘foreseeability.’”
Id. Still, the effect must be more than “purely trivial,” and
reputational harm “(assuming it is not too speculative to be
considered an effect at all) is too remote and attenuated to satisfy
the ‘direct effect’ requirement of the FSIA.” Id. The Court
concluded that Argentina’s unilateral rescheduling of its bonds
had a direct effect in the United States, not because of any
diminishment to New York’s status as a world financial leader,
but because the bond holders “had designated their accounts in
New York as the place of payment and Argentina made some
interest payments into those accounts before announcing” the
rescheduling, and consequently, “[m]oney that was supposed to
have been delivered to a New York bank for deposit was not
forthcoming.” Id. at 619.
This court in Princz v. Federal Republic of Germany, 26
F.3d 1166 (D.C. Cir. 1994), explained that a direct effect “is one
which has no intervening element, but, rather, flows in a straight
line without deviation or interruption,” id. at 1172 (internal
quotation marks omitted). It rejected Princz’s claim that his
forced labor for the Nazis during World War II had a direct
effect in the United States by aiding the Nazi war effort because
too “[m]any events and actors necessarily intervened between
any work that Mr. Princz performed — as a bricklayer for I.G.
Farben in Poland or as a laborer in the Messerschmidt aircraft
15
works in Germany — and any effect felt in the United States.”
Id.; see also id. at 1172–73; Zedan v. Kingdom of Saudi Arabia,
849 F.2d 1511, 1515 (D.C. Cir. 1988).
Bell maintains the requisite “direct effect” in the United
States from Iran’s infringement and dilution of Bell’s intellectual
property were both financial and reputational. It points to the
invasion of its exclusive right to reap the financial, reputation-
related rewards associated with its desirable product, which is
essentially a financial effect. On the other hand, the harm to
Bell’s reputation as a producer of safe aircraft, the loss of the
ability of Bell’s “trade dress” to serve as a unique identifier, and
the diminishment of Bell’s incentive to product a quality product
are basically reputational effects.
Interference with a property right does not necessarily
demonstrate a “direct effect” under the FSIA. In Antares
Aircraft, L.P. v. Federal Republic of Nigeria, 999 F.2d 33, 34 (2d
Cir. 1993), a Delaware limited partnership, with its primary place
of business in New York, sued Nigeria for detaining the
partnership’s sole asset (an aircraft) because a prior lessee had
failed to pay fees that were due. All of the tortious acts occurred
outside of the United States. Id. at 36. Citing the Supreme
Court’s focus in Weltover on the breached contract’s place of
performance, the Second Circuit stated that “[i]n tort, the analog
to contract law’s place of performance is the locus of the tort.”
Id. The court concluded, notwithstanding interference with a
U.S. corporation’s property rights held in the United States, that
no “direct effect” from the property tort had occurred in the
United States because “[t]he tort . . . began in Nigeria with the
detention of the aircraft and ended in Nigeria with the payment
of the money.” Id. “[T]he fact that an American individual or
firm suffers some financial loss from a foreign tort cannot,
standing alone, suffice to trigger the exception” to immunity
because:
16
[i]f a loss to an American individual and firm resulting
from a foreign tort were sufficient standing alone to
satisfy the direct effect requirement, the commercial
activity exception would in large part eviscerate the
FSIA’s provision of immunity for foreign states. Many
commercial disputes, like the present one, can be pled
as the torts of conversion or fraud and would, if
appellant is correct, result in litigation concerning
events with no connection with the United States other
than the citizenship or place of incorporation of the
plaintiff.
Id.; see Guirlando v. T.C. Ziraat Bankasi A.S., 602 F.3d 69, 78
(2d Cir. 2010); Virtual Countries, Inc., v. Republic of S. Afr., 300
F.3d 230, 240 (2d Cir. 2002); see also Samco Global Arms, Inc.
v. Arita, 395 F.3d 1212, 1217 (11th Cir. 2005); cf. United World
Trade Inc. v. Mangyshlakneft Oil Prod. Ass’n, 33 F.3d 1232,
1237–39 (10th Cir. 1994).
This court reached a like conclusion in Cruise Connections
Charter Management 1, LP v. Attorney General of Canada, 600
F.3d 661, 665 (D.C. Cir. 2010), stating that the FSIA’s “direct
effect” requirement is not satisfied when a “plaintiff’s U.S.
citizenship furnished the only connection between the
commercial activity and the United States,” id. In that case, the
Canadian government’s breach of a contract with a U.S.
company to provide cruise ship services in Canada caused a
“direct effect” because the U.S. company was unable to
consummate fully negotiated, multi-million dollar subcontracts
with U.S.-based cruise lines. Id. at 663–65. Similarly in
McKesson HBOC, Inc. v. Islamic Republic of Iran, 271 F.3d
1101 (D.C. Cir. 2001), vacated in part on other grounds, 320
F.3d 280 (D.C. Cir. 2003), the court identified as a “direct effect”
of Iran’s expropriation of an American corporation’s interest in
a company “the cut-off of the constant flow of capital,
17
management personnel, engineering data, machinery, equipment,
materials and packaging between the [American and Iranian]
companies, as well as the abrupt end of McKesson’s role as an
active investor [in the foreign company].” Id. at 1105 (citations
and internal quotation marks omitted). Bell has offered no
analogous evidence of a “direct effect.”
In the district court, Bell did not offer evidence that Iran had
sold or advertised the Shahed in the United States. Instead, Bell
focused on the physical similarity between the Shahed and the
Jet Ranger 206 and potential financial and reputational loss, see
Bell II, 892 F. Supp. 2d at 227, but the evidence regarding any
effect on Bell was remote or speculative. For example, the only
evidence of customer confusion was testimony from an aviation
safety consultant who had formerly been a Bell customer that he
was confused when he was “shown a picture” of the Shahed.
The district court noted any confusion was momentary because
the caption of the picture identified the two helicopters by name.
Bell II, 892 F. Supp. 2d at 230, 232. Bell presented no evidence
that any of its current or potential customers were likely to
encounter the Shahed in the regular course of doing business.
Neither did Bell offer evidence that any consumer had
contemplated buying a Shahed rather than a Jet Ranger, much
less done so thinking the Shahed was associated with Bell. Nor
did Bell offer evidence that any consumer had refrained from
buying a Bell product because an association between the
Shahed and the Jet Ranger had tainted Bell’s reputation. Yet
under the Lanham Act, “the inquiry is whether the buying public
is likely to believe that defendant’s services come from the same
source, or are affiliated with the trademark owner.” Foxtrap,
Inc. v. Foxtrap, Inc., 671 F.2d 636, 639 (D.C. Cir. 1982). Failing
to show that “revenues that would otherwise have been generated
in the United States were ‘not forthcoming,’” Cruise
Connections, 600 F.3d at 665 (quoting Weltover, 504 U.S. at
619), Bell likewise presented no evidence that there is any
18
crossover between the market for Bell spare parts and the market
for Shahed spare parts, or that such crossover is substantially
likely.
To the extent Bell hypothesizes the loss of the incentive to
create quality products, the effect in the United States is too
attenuated to meet the requirement in Weltover, 504 U.S. at 618,
that the effect be “immediate.” See also Princz, 26 F.3d at 1172.
To create the kind of disincentive Bell suggests, the effect of
Iran’s actions on Bell’s sales would have to reach levels at which
Bell determined that investment it would have made is no longer
worthwhile. Notwithstanding the absence of any evidence that
the Shahed has affected Bell’s sales, Bell’s incentive-based
theory would require the intervention of a host of actors and
would not be a direct consequence of Iran’s production of what
a Bell witness described as consisting of a handful of Shahed
helicopters, see Ex Parte Hg. Tr. at 21 (testimony of David
Chant).
Bell’s response is that intellectual property torts are different
from other property torts because of the importance of protecting
intellectual property in a way that allows a producer to reap the
financial and reputational rewards of its product and preserves
incentives for trademark owners to produce quality products.
Bell points to cases regarding Lanham Act protections and
asserts that “infringement of [intellectual property] rights directly
harms the owner where it lives.” Appellant’s Br. 39 (citing
Qualitex Co. v. Jacobson Prods. Co., 514 U.S. 159, 163–64
(1995) and Zino Davidoff SA v. CVS Corp., 571 F.3d 238,
243–44 (2d Cir. 2009)). It is conceivable that Bell’s interests
might be harmed by Iran’s production of the Shahed, but that is
not the focus of the “direct effect” jurisdictional requirement.
See Cruise Connections, 600 F.3d at 666. The premise of Bell’s
response ignores the rationale of the precedents holding that the
victim of a commercial tort abroad does not establish a “direct
19
effect” in the United States under the FSIA simply by virtue of
its U.S. citizenship. See id. at 665; Antares, 999 F.2d at 36; see
also Noxell Corp. v. Firehouse No.1 Bar-B-Que Rest., 760 F.2d
312, 317 (D.C. Cir. 1985). The cases that Bell cites generally
discussing Lanham Act protections, Qualitex Co., 514 U.S. at
161, and Zino Davidoff, 517 F.3d at 242–43, involved sales in the
United States. So do the two district court cases Bell cites on a
foreign sovereign’s extraterritorial infringement of intellectual
property causing a “direct effect” in the United States. In
CYBERsitter, LLC v. People’s Republic of China, 805 F. Supp.
2d 958, 976 (C.D. Cal. 2011), the People’s Republic of China
made misappropriated software code available on the internet,
and individuals could download it in the United States. In Supra
Medical Corp. v. McGonigle, 955 F. Supp. 374, 377 (E.D. Pa.
1997), the defendants were developing and testing infringing
technology in the United States. Neither case would eviscerate
the jurisdictional immunity of foreign states to suits in U.S.
courts involving intellectual property torts committed against
U.S. corporations. Yet that would be the consequence of Bell’s
position that all instances of a foreign sovereign’s infringement
of a U.S. corporation’s intellectual property have a “direct
effect” in the United States.
Because Bell’s evidence regarding the effect in the United
States of Iran’s commercial activities abroad is either “too
remote and attenuated to satisfy the ‘direct effect’ requirement
of the FSIA” or “too speculative to be considered an effect at
all,” Weltover, 504 U.S. at 618, the district court did not err in
ruling the commercial activity exception in the FSIA did not
apply.
Accordingly, we affirm the judgment of the district court.