Hetronic Int'l, Inc. v. Hetronic Germany GMBH

• Decision Date: 24 August 2021
• Docket Number: Nos. 20-6057 & 20-6100,s. 20-6057 & 20-6100
• Citation: 10 F.4th 1016
• Parties: HETRONIC INTERNATIONAL, INC., Plaintiff - Appellee, v. HETRONIC GERMANY GMBH; Hydronic-Steuersysteme GmbH; ABI Holding Gmbh; Abitron Germany GmbH; Abitron Austria GmbH ; Albert Fuchs, Defendants - Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

10 F.4th 1016

HETRONIC INTERNATIONAL, INC., Plaintiff - Appellee,

v.HETRONIC GERMANY GMBH; Hydronic-Steuersysteme GmbH; ABI Holding Gmbh; Abitron Germany GmbH; Abitron Austria GmbH ; Albert Fuchs, Defendants - Appellants.

Nos. 20-6057 & 20-6100

United States Court of Appeals, Tenth Circuit.

FILED August 24, 2021

Geren T. Steiner (Anton J. Rupert and Mack J. Morgan with him on the briefs), of Rupert, Steiner & Morgan PLLC, Oklahoma City, Oklahoma, for Defendants-Appellants.

Debbie L. Berman (Wade A. Thomson and Matthew S. Hellman with her on the brief), of Jenner & Block LLP, Chicago, Illinois, for Plaintiff-Appellee.

Before PHILLIPS, MURPHY, and McHUGH, Circuit Judges.

PHILLIPS, Circuit Judge.

Hetronic International, Inc., a U.S. company, manufactures radio remote controls—the kind used to remotely operate heavy-duty construction equipment (think cranes). Defendants, none of whom are U.S. citizens, distributed Hetronic's products, mostly in Europe. That relationship worked well for nearly a decade. But then one of Defendants’ employees stumbled across an old research-and-development agreement between the parties. Embracing a creative legal interpretation of the agreement endorsed by Defendants’ lawyers, Defendants concluded that they—not Hetronic—owned the rights to Hetronic's trademarks and other intellectual property.

That caused some tension in the relationship. Defendants began manufacturing their own products—identical to Hetronic's—and selling them under the Hetronic brand, mostly in Europe. They even kept the same product names. Hetronic terminated the parties’ distribution agreements, but that didn't stop Defendants from making tens of millions of dollars selling their copycat products (which they continue to sell today). Defendants attempted a brief foray into the U.S. market but backed off after Hetronic sued them.

Hetronic asserted numerous claims against Defendants, but we're here concerned almost exclusively with its trademark claims under the Lanham Act. A jury sitting in the Western District of Oklahoma awarded Hetronic over $100 million in damages, most of which related to Defendants’ trademark infringement. Then on Hetronic's motion, the district court entered a worldwide injunction barring Defendants from selling their infringing products. Defendants have ignored the injunction.

In the district court and now on appeal, Defendants have focused on one defense in particular: Though they accept that the Lanham Act can sometimes apply extraterritorially, they insist that the Act's reach doesn't extend to their conduct, which generally involved foreign defendants making sales to foreign consumers. Our circuit has yet to grapple with that question. After considering the Supreme Court's lone decision on the issue and persuasive authority from our sibling circuits, we conclude that the district court properly applied the Lanham Act to Defendants’ conduct. But we narrow the district court's expansive injunction. And so, exercising jurisdiction under 28 U.S.C. § 1291, we affirm in part, reverse in part, and remand for further consideration consistent with this opinion.

BACKGROUND

I. Factual Background

Hetronic sells and services its radio remote controls in over forty-five countries around the world. Though Hetronic offers a wide range of radio remote controls, the parties’ dispute centers on ten of those products: ERGO, EURO, GL, GR, HH, MINI, NOVA, Pocket, TG, and RX. Hetronic's products feature a distinctive black-and-yellow color scheme to distinguish them from those of its competitors:

Appellants’ App. vol. 7 at 1615–16, 1644.

Hetronic markets and distributes its radio remote controls through a worldwide network of wholly-owned subsidiaries and distributors. In 2006, Hetronic entered distribution and licensing agreements with Hydronic Steuersysteme GmbH, an Austrian corporation managed by Albert Fuchs. In time, Hydronic came to distribute Hetronic's products in over twenty European countries. In 2007, Hetronic entered similar distribution and licensing agreements with a company that would eventually be purchased by Hetronic Germany GmbH, a German corporation owned by Fuchs. Hetronic Germany became Hetronic's principal distributor in Germany.

The distribution and licensing agreements authorized Hydronic and Hetronic Germany to assemble and sell Hetronic's remote controls under Hetronic's brand, but they were required to purchase parts from Hetronic unless otherwise authorized in writing. Further, the two distributors agreed to act in Hetronic's best interest and to protect Hetronic's confidential information. They also agreed not to compete with Hetronic. They abided by those conditions without issue through much of 2011.

September 2011 marked the beginning of the end of Hetronic's business relationship with Hetronic Germany and Hydronic. That month, a Hetronic Germany employee happened upon an old research-and-development agreement entered between Hetronic and Hetronic Germany's predecessor. After consulting with legal counsel, Hetronic Germany took the position that it owned all the technology developed under that agreement (more on that later).

Based on that understanding, Hetronic Germany and Hydronic began reverse-engineering Hetronic's products. One of Hetronic Germany's former employees testified by deposition that he used Hetronic-manufactured parts to try to "recreate the model ... so that no difference could be seen." Id. at 1631. Once they developed these new, copycat parts (what they referred to as "KH" parts, id. ), Hetronic Germany and Hydronic sought out new suppliers to source them. Eventually, both Hetronic Germany and Hydronic began selling Hetronic-branded products that incorporated KH parts sourced from unauthorized third-parties.

In 2014, a whistleblower who had worked for Hetronic Germany told Hetronic what had been going on the past few years. That June, once Hetronic understood the scope of Hetronic Germany and Hydronic's activities, it terminated their licensing and distribution agreements. But both distributors continued to sell Hetronic-branded products for several months.

Around the same time, Fuchs used an Austrian company he owned, ABI Holding GmbH, to incorporate two new companies, Abitron Germany GmbH and Abitron Austria GmbH. Abitron Austria purchased Hydronic in August 2014; Abitron Germany purchased Hetronic Germany the following month. They soon began competing directly with Hetronic, selling the same NOVA and ERGO products with the exact same trade dress (compared below).

Id. at 1644. Before this litigation ensued, they sold several hundred thousand dollars’ worth of products in the United States.

II. Procedural Background

In June 2014, Hetronic sued Hetronic Germany and Hydronic in the Western District of Oklahoma, alleging breach of contract. In 2015, Hetronic filed an amended complaint that added as defendants Fuchs, ABI, Abitron Austria, and Abitron Germany. The amended complaint also added new claims under the Lanham Act and state tort law.

Two motions to dismiss soon followed, one filed by the Abitron companies and the other by ABI and Fuchs. Each motion argued that the district court lacked personal jurisdiction over the relevant Defendants. The district court denied both motions. First, the district court concluded that the forum-selection clause in Hetronic's agreements with Hetronic Germany and Hydronic extended to both Abitron Germany and Abitron Austria as Hetronic Germany's and Hydronic's successors-in-interest. Second, the district court denied ABI and Fuchs's motion because it concluded that they had purposefully availed themselves of a U.S. forum under Federal Rule of Civil Procedure 4(k)(2).

Hetronic then filed a Second Amended Complaint, and both sides moved for summary judgment. Though the district court granted Hetronic's motion on Defendants’ counterclaims, it otherwise denied the motion.

Defendants’ motion argued that the court lacked subject-matter jurisdiction to resolve Hetronic's Lanham Act claims because the conduct at issue occurred overseas. Specifically, Defendants asserted that the Lanham Act applies extraterritorially only if a defendant's conduct has a substantial effect on U.S. commerce; because that was allegedly lacking here, Defendants maintained that Hetronic's claims had to be dismissed. The district court rejected that argument and denied Defendants summary judgment based on their extraterritoriality defense.

While Defendants played defense in federal district court, they sought to go on offense in the European Union. In July 2015, Abitron Germany sought a "declaration of invalidity" from the European Union Intellectual Property Office (EUIPO) that would nullify Hetronic's "NOVA" trademark in the EU. Id. vol. 13 at 3106–07, 3171. The Cancellation Division—the initial EUIPO tribunal to consider the request—rejected Abitron Germany's claim. Abitron Germany appealed, but the Board of Appeal affirmed. The Board concluded that Hetronic owned all the disputed intellectual property.

Based on that ruling, Hetronic moved for summary judgment on Defendants’ defense that they owned the disputed intellectual property, arguing that the doctrine of issue preclusion barred Defendants from relitigating that question. After briefing and two hearings, the district court granted Hetronic's motion, concluding that the EUIPO proceeding afforded Defendants a full and fair opportunity to adjudicate the merits of the ownership dispute.

About a week later, the eleven-day jury trial began. The jury returned a verdict for Hetronic on all counts, finding that Defendants had willfully infringed Hetronic's trademarks. The jury awarded Hetronic over $115 million in damages, $96 million of which related to Defendants’ Lanham Act violations.

After the trial, Hetronic moved for a permanent injunction to prohibit Defendants from further infringing its trademarks. In opposing the injunction, Defendants reasserted their contention that the court lacked jurisdiction under the Lanham...