Reebok Intern., Ltd. v. Marnatech Enterprises, Inc.

Decision Date02 July 1992
Docket NumberNo. 90-55400,90-55400
Citation23 U.S.P.Q.2d 1377,970 F.2d 552
Parties, 22 Fed.R.Serv.3d 1314, 23 U.S.P.Q.2d 1377 REEBOK INTERNATIONAL, LTD. (a Massachusetts Corporation) and Reebok International Limited (a Limited Company of the United Kingdom), Plaintiffs-Appellees, v. MARNATECH ENTERPRISES, INC., Conatech, S.A. de C.V., Nathan Betech, Various John Does, Jane Does and ABC Companies, Defendants-Appellants.
CourtU.S. Court of Appeals — Ninth Circuit

Neil A. Smith, Limbach & Limbach, San Francisco, Cal., Harley I. Lewin, and G. Roxanne Elings, Lewin & Laytin, New York City, for plaintiffs-appellees.

Robert G. Dyer, Law Offices of Robert G. Dyer, San Diego, Cal., for defendants-appellants.

Before: REINHARDT and FERNANDEZ, Circuit Judges, and SMITH, District Judge. *

REINHARDT, Circuit Judge:

Appellees ("Reebok") manufacture and sell a fashionable brand of shoes both in America and abroad. They also are the owners of federally registered REEBOK, STRIPECHECK design and STARCREST design trademarks for footwear and apparel, and own registrations for these trademarks in Mexico as well. During the time period relevant to this appeal, appellees assert that they were the only authorized sellers of genuine REEBOK footwear in the United States and Mexico.

The nature of the appellants' business is a subject of dispute; indeed, it is the subject of this litigation. Reebok alleges that appellants ("Betech") sell counterfeit REEBOK shoes in Mexican border towns (such as Tijuana) and that these sales detract from purchases of legitimate REEBOK merchandise in both Mexico and the United States. Reebok was sufficiently convinced that such nefarious activity was afoot to move ex parte on September 12, 1989 for a temporary restraining order and a seizure of Betech's assets. The district court apparently agreed: it granted Reebok's motion and ordered Betech to show cause why it should not enter a preliminary injunction along the lines of the ex parte order previously entered. After briefing and argument by both parties, the district court entered preliminary injunctions that ordered Betech and its agents to cease counterfeiting activity, to refrain from destroying particular documents and property, and to transfer certain assets only after court approval. See Reebok International Ltd. v. Marnatech Enterprises, Inc., 737 F.Supp. 1515 (S.D.Cal.1989) (enjoining copyright violations) ["Reebok I "]; Reebok International Ltd. v. Marnatech Enterprises, Inc., 737 F.Supp. 1521 (S.D.Cal.1989) (freezing assets) ["Reebok II "]. Betech appeals, and asserts that the district court had neither the jurisdiction nor authority to enter the injunctions. We affirm.

I.

Appellants first contend that the district court did not have the authority to enter either injunction because the Lanham Act, 15 U.S.C. § 1051 et seq., does not grant jurisdiction over appellants' activities. "The existence of subject matter jurisdiction presents a question of law reviewed de novo by the court of appeals.... A district court's factual findings on jurisdictional issues must be accepted unless they are clearly erroneous." Kruso v. International Telephone & Telegraph Corp., 872 F.2d 1416, 1421 (9th Cir.1989), cert. denied, 496 U.S. 937, 110 S.Ct. 3217, 110 L.Ed.2d 664 (1990) (citations omitted). As the Supreme Court has noted, the Lanham Act provides a "broad jurisdictional grant". Steele v. Bulova Watch Co., 344 U.S. 280, 286, 73 S.Ct. 252, 255, 97 L.Ed. 319 (1952); see also Ocean Garden, Inc. v. Marktrade Co., 953 F.2d 500, 503 (9th Cir.1991) (quoting from Bulova Watch and Reebok I with approval). "The Lanham Act's coverage of foreign activities may be analyzed under the test for extraterritorial application of the federal antitrust laws set forth in Timberlane Lumber Co. v. Bank of America National Trust & Savings Ass'n, 549 F.2d 597 (9th Cir.1976) (Timberlane I ).... In Timberlane I, we held: first, there must be some effect on American foreign commerce; second, the effect must be sufficiently great to present a cognizable injury to plaintiffs under the federal statute; and third, the interests of and links to American foreign commerce must be sufficiently strong in relation to those of other nations to justify an assertion of extraterritorial authority." Star-Kist Foods, Inc. v. P.J. Rhodes & Co., 769 F.2d 1393, 1395 (9th Cir.1985) (citations omitted); see also Ocean Garden, 953 F.2d at 503 (applying same factors). 1

The first two requirements of Timberlane I are unquestionably met here. " ' "[T]he sales of infringing goods in a foreign country may have a sufficient effect on commerce to invoke Lanham Act jurisdiction." ' " Ocean Garden, 953 F.2d at 503 (quoting Van Doren Rubber Co. v. Marnatech Enterprises, 1989 WL 223017 * 4, 1989 U.S. LEXIS 17323 * 11, 13 U.S.P.Q.2d (BNA) 1587 (S.D.Cal.1989) (quoting American Rice, Inc. v. Arkansas Rice Growers Cooperative Ass'n, 701 F.2d 408, 415-16 (5th Cir.1983))). The district court found that, at the very least, Betech organized and directed the manufacture of counterfeit REEBOK shoes from the United States and knew that their counterfeit shoes went back to the United States with regular frequency. The district court further found that Betech's sales of counterfeit REEBOK shoes decreased the sale of genuine REEBOK shoes in Mexico and the United States and directly decreased the value of Reebok's consolidated holdings. See Reebok I, 737 F.Supp. at 1517-19. A review of the record indicates that those findings are in no way clearly erroneous. See Kruso, 872 F.2d at 1421. Betech's activities thus affect American foreign commerce in a manner which causes an injury to Reebok cognizable under the Lanham Act. See Ocean Garden, 953 F.2d at 503.

The third requirement of Timberlane I--that the interests of and links to American commerce be sufficiently strong in relation to those of other nations to justify extraterritorial application of the Lanham Act--involves the balancing of seven relevant factors:

[T]he degree of conflict with foreign law or policy, the nationality or allegiance of the parties and the locations or principal places of business of corporations, the extent to which enforcement by either state can be expected to achieve compliance, the relative significance of effects on the United States as compared with those elsewhere, the extent to which there is explicit purpose to harm or affect American commerce, the foreseeability of such effect, and the relative importance to the violations charged of conduct within the United States as compared with conduct abroad.

Timberlane I, 549 F.2d at 614.

An analysis of these factors supports the district court's exercise of jurisdiction. The first factor in the Timberlane balancing test involves the degree of conflict with foreign law or policy. Mexico has both civil and criminal trademark laws of its own: extraterritorial trademark enforcement by U.S. courts might, in some instances, conflict with the law or policy of a foreign nation. 2 This possibility is heightened when, as here, one of the parties (Betech) is involved in pending litigation in a foreign court. See Reebok I, 737 F.Supp. at 1517 ("[I]t appears that the Mexican Federal Judicial police arrested defendant, Nathan Betech, and raided defendants' Mexican warehouses and charged those arrested with tax evasion, trademark and copyright counterfeiting and other crimes."). But cf. Timberlane, 549 F.2d at 614 ("Particularly in the field of trade regulation, American laws may not be duplicated by the other nation. That does not necessarily indicate a 'conflict,' however, since non-prohibition does not always mean affirmative approval.").

The parties disagree about the precise nature of the Mexican proceedings: Betech asserts that the litigation involved a trademark infringement claim, while Reebok contends that it involved only criminal charges against Betech. 3 Regardless of the exact contours of the litigation in Mexico, it is clear that at the time the district court granted the preliminary injunction, the Mexican litigation presented no conflict with the district court's order because the litigation in Mexico had not yet been concluded. See Reebok I, 737 F.Supp. at 1520 ("This Court's assertion of Lanham Act jurisdiction does not conflict with the law or policy of any nation. Plaintiffs own and control their REEBOK trademark in Mexico. Questions of infringement of the Mexican trademark will be litigated in the Mexican courts."); see also id. at 1517 ("This Court, in granting this Order, does not rely upon, or intend its Order to influence that proceeding, which will be governed solely by and under Mexican law."). 4 Moreover, Mexico and the United States have a common interest in preventing trademark violations and in the protection of any valid Mexican and American trademark registrations owned by Reebok. Although the district court was aware that extraterritorial application of the Lanham Act in this case eventually could result in some degree of conflict with an action of the Mexican courts, the degree of such potential conflict was small. The first of the Timberlane factors therefore may well weigh in favor of the district court's exercise of extraterritorial jurisdiction but at the most, does not weigh strongly against such exercise. 5

The second factor in the Timberlane balance is the nationality or allegiance of the parties and the locations or principal places of business of the involved corporations. One of the Reebok plaintiffs is a Massachusetts corporation and the other is a limited company of the United Kingdom: both have substantial contacts with the United States. Nathan Betech is a Mexican citizen, but he resides in the United States in San Diego, California. Marnatech Enterprises is incorporated in California, and Nathan Betech is the president and owner of Marnatech Enterprises. Nathan Betech and Marnatech Enterprises 6 have offices in San Diego,...

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