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Tire Engineering and Distribution, LLC v. Shandong Linglong Rubber Company, Ltd., No. 10-2271; Tire Engineering and Distribution, LLC v. Al Dobowi, Ltd., Nos. 10-2273 & 10-2321

Decided: June 6, 2012

At the outset, note that the Appellate Court refers collectively to Tire Engineering & Distribution, LLC; Bearcat Tire ARL, LLC; Bcatco A.R.L., Inc.; and Jordan Fishman as “Alpha.” It refers collectively to Al Dobowi, Ltd.; Al Dobowi Tyre Co., LLC; TyreX International, LTD.; and TyreX International Rubber Co. Ltd. as “Al Dobowi.”  Finally, the Court refers collectively to Shandong Linglong Rubber Co., Ltd.; and Shandong Linglong Tire Co., Ltd. as “Linglong.”

Alpha is a domestic producer of mining tires. Alpha sued Al Dobowi and Linglong, both foreign corporations, alleging that they conspired to steal Alpha’s tire blueprints in order to produce tires and sell them to former Alpha customers. At trial, the jury found for Alpha and awarded the company $26 million in damages. The District Court upheld this award of damages, and the defendants appealed. On appeal, Al Dobowi and Linglong contest the verdict and the District Court’s exercise of personal jurisdiction. The Appellate Court held that the lower court had jurisdiction over Al Dobowi and Linglong, and affirmed the jury’s damages award. However, the Appellate Court affirmed the District Court’s judgment that Al Dobowi and Linglong are liable to Alpha only under the Copyright Act and for conversion under Virginia Law, dismissing all other theories of liability that were submitted to the jury. Finally, the Appellate Court vacated the lower court’s award of attorney’s fees.

The Appellate Court noted that, in light of the jury verdict in favor of Alpha, it would view the evidence in the light most favorable to Alpha, and review factual findings for clear error.

The relevant underlying facts are as follows: Alpha’s designs for its “Mine Mauler” were trademarked, and it’s blueprints closely guarded. In 2005, Canning, a former employee of Alpha, Vance, an employee of Alpha, and Kandhari, the chairman of Al Dobowi, met to discuss the possibility of Al Dobowi entering the mining-tire business. In furtherance of the three men’s plan, Vance soon began working for Al Dobowi out of his Virginia home, even supplying Al Dobowi with Alpha’s blueprints, customer list, and cost information, which the men planned to use to produce and sell a line of mining tires that mimicked Alpha’s design. The men then sought to find a tire manufacturer that would produce tires based on Alpha’s designs, and Linglong soon agreed to do so. Evidence presented makes it clear that Linglong knew from the outset that the blueprints being used were stolen, and that Vance was working for Al Dobowi out of Virginia. Linglong proceeded to manufacture mining tires based on Alpha’s design, and Al Dobowi then sold those tires under the name Infinity, even stealing away one Alpha’s largest customers. In 2006, Alpha confirmed its suspicions that Vance had stolen its blueprints and subsequently brought suit against Al Dobowi and Linglong.

The Appellate Court first addressed the Appellants’ claim that the District Court lacked personal jurisdiction over them, reviewing the lower court’s decision de novo. The Appellants alleged that their contacts with Virginia are negligible, and, as such, it would be a violation of the Fourteenth Amendment’s Due Process Clause if they were forced to litigate in Virginia. The Appellate Court found this argument meritless, stating that the District Court’s factual findings established that Al Dobowi and Linglong possessed sufficient contacts with Virginia, the forum state, to satisfy the demands of due process. Note that the Virginia long-arm statute extends personal jurisdiction to the outer limits of due process. Since Alpha only argued that the District Court had specific jurisdiction over the defendants, the Court’s analysis is limited to specific jurisdiction. The Court identified three relevant factors in determining whether a court has personal jurisdiction over a nonresident defendant: (1) the extent to which the defendant purposefully availed itself of the privilege of conducting activities in the forum state; (2) whether the plaintiff’s claims arise out of those activities; and (3) whether the exercise of personal jurisdiction is constitutionally reasonable.

In applying those factors, the Appellate Court found that Al Dobowi purposefully availed itself of the privilege of conducting activities in Virginia by conspiring to unlawfully copy Alpha’s blueprints in Virginia, and subsequently corresponding with a Virginia-based employee. Furthermore, the Court found that Alpha’s claims clearly arise out of Al Dobowi’s contacts directed at Virginia, noting that Al Dobowi’s original meeting in Virginia was the “genesis” of the dispute. Finally, the Court found that the lower court’s exercise of jurisdiction over Al Dobowi was constitutionally reasonable. Despite the disadvantages Al Dobowi faced as a foreign corporation, the Court noted Al Dobowi’s ability to both foresee litigation in Virginia as a possibility, and to secure able counsel. The Court found that the forum state had an interest in ensuring that national copyright and trademark laws are not violated within it borders, and noted that the state had an even greater interest in the outcome since some of the claims were based on Virginia law. The Court also noted Alpha’s obvious interest in obtaining relief.

Applying this three-factor analysis to Linglong, the Court found that it, too, purposefully availed itself of the privilege of conducting business in Virginia by repeatedly “reaching into” Virginia to transact business with Vance, thus invoking the benefits and protections of Virginia Law. Specifically, Linglong collaborated extensively with Vance from his Virginia office regarding the blueprints and designs. The Court further noted that Linglong should have reasonably anticipated being brought into litigation in Virginia. Next, the Court found that Alpha’s claims arise out of this activity since Linglong’s correspondence with Virginia forms a central part of Alpha’s claims. Finally, the Court found that the lower court’s exercise of jurisdiction over Linglong was constitutionally reasonable for the same reasons as given above with respect to Al Dobowi.

Having found that the District Court properly exercised jurisdiction over the appellants, the Court then addressed the merits of the appellants’ claims. The appellants’ first argued that the Copyright Act does not afford Alpha a remedy because the only claims Alpha raised involved conduct abroad, and the Copyright Act does not reach extraterritorial conduct. In the alternative, appellants’ argued that if the Copyright Act reaches foreign conduct that flows from a domestic violation, then it only applies where the domestic violation is not barred by the Copyright Act’s three-year statue of limitations. The Court adopted the predicate-act doctrine, which provides that a plaintiff may collect damages from foreign violations of the Copyright Act so long as the foreign conduct flows from domestic infringement. Applying predicate-act doctrine, the Court found that Alpha established a domestic violation – Vane and Al Dobowi’s unlawful conversion and unauthorized reproduction of Alpha’s blueprints. The Court also found that Alpha demonstrated damages flowing from the extraterritorial exploitation of this conduct – namely, producing tires identical to Alpha’s and selling those tires to Alpha’s former customers. The Court then recognized that no court applying the doctrine has followed the appellants’ proposal that the doctrine’s application be limited only to cases in which the domestic violation is not time barred, and the Court declined to do so here.

Appellants next challenge the District Court’s denial of their Rule 50 motion regarding Alpha’s Virginia state law conversion claim, alleging that Alpha’s claim is preempted by the Copyright Act. The Court laid out the two-part test to determine if a claim is preempted by the Copyright Act: (1) whether the claim falls within the subject matter of copyright and (2) whether the claim protects rights that are equivalent to any of the exclusive rights of a federal copyright. Applying this test, the Court found that Alpha, in proving its conversion claim, was able to prove the extra element that the defendant retained control of the blueprints – an element in addition to those needed to prove its claim under the Copyright Act. Thus, the Court concluded that the Copyright Act does not preempt the conversion claim, and the District Court was correct to deny the appellants’ Rule 50 motion.

Appellants next challenge the jury’s liability verdict for trademark infringement under the Lanham Act, alleging that the Lanham Act does not apply to the extraterritorial acts claimed by Alpha. The Appellate Court agreed with this argument, concluding that appellants’ trademark infringement lacks sufficient effect on U.S. commerce for the Lanham Act to apply.

Appellants next challenge the jury’s verdict on Alpha’s common-law civil conspiracy claims, and contend that those claims should be dismissed. Under Virginia law, a common law claim requires proof that the underlying tort was committed. Thus, if the underlying tort is dismissed, the conspiracy claim must also be dismissed. In this case, because the Appellate Court dismissed the underlying tort for the conspiracy to infringe trademark – the Lanham Act claim – it found that it also must dismiss the corresponding conspiracy claim. Furthermore, the Court found that this conspiracy claim is preempted by the Copyright Act. While the Court concluded that Alpha’s conspiracy claim based on the underlying tort of trademark infringement should be dismissed, it found that the conspiracy claim based on the tort of conversion should not be dismissed since it upheld the jury’s verdict on the underlying conversion claim, and it is not subject to preemption by the Copyright Act – unlike the conspiracy to infringe trademarks claim.

Since the Court dismissed the conspiracy to infringe trademarks claim but found the conspiracy to convert claim meritorious, the question still remained as to whether the jury’s verdict on the civil conspiracy claim could stand. Given that the verdict form did not require the jury to issue a special finding of which underlying torts the appellants conspired to commit, the Appellate Court found that the verdict could not stand, and it set aside the verdict on this count.

The Court then addressed the appellants’ challenge to the damages award. Despite the fact that the Court reversed the jury’s verdict on some claims, it affirmed the lower court’s ruling that a new trial on damages was not needed. The Court found that the claims are based on the same conduct and have basically the same maximum recovery amount. As such, the Court found that any error was harmless.

In summary, the Appellate Court held that the District Court properly exercised personal jurisdiction over the appellants; sustained the jury’s liability verdict based on the Copyright Act and conversion under Virginia law; dismissed all other theories of liability presented to the jury; affirmed the jury’s damages award; vacated the District Court’s award of attorney’s fees; and reversed the District Court’s dismissal of the statutory conspiracy claim and remanded for further proceedings.

Diaz, Circuit Judge, dissenting in part: Judge Diaz dissented from the portion of the majority opinion that upheld the jury’s damages award. Diaz, viewing the relevant precedent as foreclosing sustaining a general award of compensatory damages when a theory of liability has been dismissed post verdict, would have remanded the case for a limited trial on damages.

Full Opinion

– Kassandra Moore