Fourth Circuit Adopts Predicate-Act Doctrine Allowing Recovery of Damages for Foreign Violations of Copyright Act Linked to a Domestic Violation
Plaintiffs, domestic developers and producers of specialized tires for underground mining vehicles, alleged that defendants, foreign entities, manufactured and sold competing tires based on Plaintiffs' blueprints that had allegedly been stolen.
Five claims were submitted to the jury including claims under the Copyright Act and the Lanham Act. The jury found in plaintiffs' favor on all counts and awarded them $26 million in damages. On appeal, the Fourth Circuit made two holdings worthy of at least brief mention.
First, the Fourth Circuit joined the Second, Ninth, Sixth and Federal Circuits in adopting the "predicate-act" doctrine, which is an exception to the general rule that the Copyright Act has no extraterritorial reach. Under that doctrine, "[o]nce a plaintiff demonstrates a domestic violation of the Copyright Act, then, it may collect damages from foreign violations that are directly linked to the U.S. infringement."
The Fourth Circuit also rejected the defendants' argument that the predicate-act doctrine did not apply where the Copyright Act's three-year statute of limitations barred the recovery of damages from the domestic violation of the Act.
Second, the Fourth Circuit declined to adopt the "diversion-of-sales" theory to extend the Lanham Act's extraterritorial reach. The Lanham Act applies extraterritorially only when the foreign acts have a "significant effect" on U.S. commerce. Under the "diversion-of-sales" theory, however, some courts have found such a "significant effect on U.S. commerce where sales to foreign consumers would jeopardize the income of an American company."
Although the Fourth Circuit noted that there were compelling reasons for the use of the doctrine in other cases, it concluded that it was not appropriate to apply it in this case. Specifically, in those other cases, the courts had emphasized that the defendants were U.S. companies that also had substantial domestic business activity, neither of which was true in this case.
The case cite is Tire Eng'g & Distrib., LLC v. Shandong Linglong Rubber Co., Ltd., No. 10-2271 (4th Cir. June 6, 2012).
