Vespa of America Corp. v. Bajaj Auto Ltd., C 80-0881 SW.

• Citation: 550 F. Supp. 224
• Decision Date: 23 June 1982
• Docket Number: No. C 80-0881 SW.,C 80-0881 SW.
• Parties: VESPA OF AMERICA CORPORATION, et al., Plaintiffs, v. BAJAJ AUTO LIMITED, et al., Defendants.
• Court: U.S. District Court — Northern District of California

550 F. Supp. 224

VESPA OF AMERICA CORPORATION, et al., Plaintiffs, v. BAJAJ AUTO LIMITED, et al., Defendants.

No. C 80-0881 SW.

United States District Court, N.D. California.

June 23, 1982.

Ream, Train, Horning, Ellison & Roskoph, Blaine C. Janin, Richard Allan Horning, D. Peter Harvey, James R. Busselle, San Francisco, Cal., for plaintiffs Vespa of America Corp. and Piaggio & C.S.p.A.

Baker & McKenzie, Michael K. Murtaugh, Chicago, Ill., Kurt W. Melchior, Michael Wischkaemper, Severson, Werson, Berke & Melchior, a Professional Corporation, San Francisco, Cal., for defendant and counter-claimant Bajaj Auto Ltd.

G. William Hunter, U.S. Atty., Amanda Metcalf, Asst. U.S. Atty., San Francisco, Cal., for Federal defendants.

ORDER GRANTING DEFENDANTS' MOTION FOR PARTIAL DISMISSAL

SPENCER WILLIAMS, District Judge.

This action came before the court on defendant Bajaj Auto Limited of India's (hereinafter "Bajaj") motion to dismiss all of plaintiffs' non-domestic claims. After careful consideration of the memoranda submitted by the parties and the arguments of counsel for both sides, the court granted defendants' motion, dismissing plaintiffs' breach of contract and conversion claims as well as the extraterritorial elements of the unfair competition and unjust enrichment claims.

I. BACKGROUND FACTS.

This dispute arose out of a licensing agreement between Piaggio & C.S.p.A. (hereinafter "Piaggio"), the Italian corporation which designs and manufactures Vespa vehicles, and defendant Bajaj's corporate predecessor, Bachraj Trading Corporation, Ltd., an Indian corporation. The relationship between the two companies began twenty-two years ago in India when they entered into the first of a series of agreements by which Piaggio licensed Bachraj Trading Corporation to manufacture components and assemble both the Vespa scooter and three-wheeled commercial vehicles.

All licensing agreements between Indian and foreign firms require approval by the Indian Government. This requirement exists to allow India to protect its legitimate policy interest in promoting economic independence. Thus, the Indian Government played a strong role at each stage of the Piaggio-Bajaj interaction. For example, the first license, executed in 1960, omitted certain provisions required for approval. Under Indian law, it had to be rewritten to include these provisions. The license agreement was ultimately approved as amended on March 22, 1961. Subsequently, in December of 1964, the appropriate ministry approved an extension of the agreement as requested by the parties.

The focus of this litigation is the final manufacturing license entered into by Piaggio and Bajaj. This agreement was submitted for government approval in 1968. Indian authorities accepted the agreement upon stipulation that no further extensions would be permitted. Under the agreement, Bajaj received from Piaggio all plans and specifications necessary to construct the Vespa vehicles.

The contract expired on April 1, 1971. Piaggio asserts that Bajaj then violated the license agreement by refusing to return the plans and specifications. Piaggio contends Bajaj misappropriated the designs to "slavishly" and illegally continue to manufacture Vespa vehicles after the license expired. Bajaj maintains it tendered the plans, but Piaggio allowed it to keep them. More importantly, Bajaj claims that the last agreement between the parties was executed with the express understanding that Bajaj's right to produce these vehicles would survive the license agreement. Indeed, Bajaj argues that this was a condition of the Indian Government's approval of the final licensing agreement.

In 1980, nine years after the alleged breach of contract first occurred, Piaggio and its American distributor, Vespa of America Corporation, brought this suit. In the intervening years, Bajaj has risen to become the world's second largest manufacturer of scooters, second only to Piaggio. Bajaj scooters are sold in 171 countries. They first entered the American scooter market in 1977. To date, however, total sales have amounted to only about 1,300 scooters. The three-wheeled vehicles have never been marketed in this country.

II. PIAGGIO'S COMPLAINT AND THE ISSUES RAISED.

Piaggio raises a federal claim for patent infringement under the Lanham Act. 15 U.S.C. § 1125(a). The claim is based on the contention that Bajaj copied non-functional features of both the Vespa scooter and the three-wheeled commercial vehicle that have acquired a secondary meaning in the marketplace. Piaggio appended four state claims to its single federal cause of action. These claims include breach of contract, conversion, unjust enrichment and unfair competition.¹

Piaggio apparently concedes that its Lanham Act claim extends only to those sales which directly affect United States commerce. This tactical concession does not, however, eliminate all the jurisdictional problems presented in the complaint. By foregoing the transnational dimensions of its Lanham Act claim, Piaggio successfully avoids application of the Timberlane comity test (discussed infra) as a means of determining the existence of jurisdiction² over the federal claim. Timberlane Lumber Co. v. Bank of America, 549 F.2d 597 (9th Cir. 1976); Wells Fargo Company v. Wells Fargo, 556 F.2d 406 (9th Cir.1977) (holding the Timberlane-comity test applies to extraterritorial enforcement of the Lanham Act).

What remains to be scrutinized is Piaggio's obvious attempt to sidestep Timberlane by placing all the overseas conduct relevant to its case into its pendent state and foreign law claims. Briefly stated, the issue is whether pendent jurisdiction is an appropriate basis for asserting American authority over a related but wholly foreign cause of action. After a careful review of all the relevant authorities, it appears that this question is one of first impression. There is ample authority, however, demonstrating the need for judicial restraint in similar internationally sensitive areas. See Timberlane, supra and Wells Fargo, supra. In keeping with the trend towards a heightened awareness of the need to avoid international conflict, the court declines to exercise its jurisdiction over any of the wholly foreign-based claims raised in Piaggio's complaint.

A. Pendent Jurisdiction.

Under the doctrine of pendent jurisdiction, a plaintiff may bring appropriate state law claims for which there is no independent federal jurisdiction by joining them with a substantial federal claim. The federal court's power to hear such claims is derived from the notion that the relationship between the state and federal claims is such that they comprise but one constitutional "case." United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 1138, 16 L.Ed.2d 218 (1966). Therefore, a claim may be said to be pendent to a federal claim only if it arises out of a "common nucleus of operative fact." Id. As a fundamental matter, then, it is unlikely that a claim which could not be brought in state court could ever be properly pendent.

1) The Role of Comity in Asserting American Jurisdiction Over Foreign Conduct.

The concept of comity has received increasing attention as a consideration in determining the existence of United States jurisdiction in transnational cases. See e.g. Timberlane, supra. Awareness of the difficulties arising from the reactions of other countries to a particular exercise of jurisdiction is of particular importance in areas of antitrust and business regulation. Id. The policy reasons underlying this expanded concern are manifest. As a matter of judicial economy, the doctrine of comity must be implemented to ensure that under principles of res judicata, decisions in one country are effective and enforceable in another. Moreover, decisions will be mutually enforced only if the assertion of jurisdiction is limited by a concern for respecting another country's basic laws and policies.

While there is no doubt that United States law may extend to some conduct in other nations and may penalize acts by persons other than American citizens, there are limitations on excessive intrusions by American courts into the affairs of other countries.³ Of course, it is ultimately Congress's task to set the jurisdictional boundaries of a particular statute. See United States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir.1945). Absent either constitutional prohibition or a clear expression of Congressional intent, it falls to the courts to develop appropriate standards of restraint.

In antitrust law, the Ninth Circuit has established a complex set of factors which must be weighed and analyzed to determine when the country's antitrust laws will extend to activities concerning foreign countries or foreign nationals. Timberlane, supra, at 613-15. Soon after the Timberlane decision, the Circuit applied the same test to the extraterritorial application of the Lanham Act. Wells Fargo, supra. The Timberlane test has three elements. It requires that (1) there was some effect, actual or intended, on American foreign commerce; (2) the effect was sufficiently large to present a cognizable injury to plaintiffs; and (3) that the interest of and links to the United States — including the magnitude of the effect on American foreign commerce — are sufficiently strong, vis-a-vis those of other countries, to justify an assertion of extraterritorial authority. Timberlane, supra, at 613.

The third element of the test is the main concern here. In determining the interests of various nations in a certain dispute, the court suggested the following list of factors: the 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 expect to achieve compliance, the relative significance of effects on the United States as compared with those elsewhere, the extent to which there is...