2003 International Law Update, Volume 9, Number 1 (January)
Ninth Circuit affirms dismissal of action by Portuguese survivors of China Airlines crash in Hong Kong because district court lacked jurisdiction under Warsaw Convention
Numerous Portuguese plaintiffs brought an action in California state court against China Airlines, McDonnell Douglas Corporation, the Boeing Company, and others, after a crash by a China Airlines plane in Hong Kong had killed three and injured several others. The flight was on a round trip from Portugal to the far east and return. It had scheduled stops in London, Hong Kong, and Bangkok. Defendants removed the case to federal court on the basis of alienage. Plaintiffs, however, moved to remand to state court for lack of complete diversity -- both plaintiffs and China Airlines being foreign.
The district court concluded that plaintiffs had fraudulently joined China Airlines only because they could not have filed their damage claims against China Airlines in the U.S. under the Convention for the Unification of certain Rules Relating to International Transportation by Air, October 12, 1929, 49 Stat. 3000, 3020-21, T.S. No. 876, 137 L.N.T.S. 11 (The Warsaw Convention).
The district court, therefore, denied the motion to remand, and dismissed China Airlines with prejudice. Plaintiffs later dismissed the “other” defendants whom they had not been able to serve pursuant to Fed.R.Civ.P. 41(a)(1)(i). They also stipulated to the dismissals of defendants McDonnell Douglas and Boeing, leaving no defendants in the action. Plaintiffs appealed, claiming error (1) in the district court’s denial of their motion to remand to state court, and (2) in the dismissal of China Airlines for lack of jurisdiction. The U.S. Court of Appeals for the Ninth Circuit affirms.
The Court points out that the Convention is the exclusive basis for filing a personal injury action against air carriers in international transportation between citizens of parties to the Convention. Article 28(1) sets forth where plaintiffs may file such a suit: “An action for damages must be brought, at the option of the plaintiff, in the territory of one of the High Contracting Parties, either before the court of the domicile of the carrier or his principal place of business, or where he has a place of business through which the contract has been made, or before the court at the place of destination.”
Here, the U.S. is neither the domicile of China Airlines, nor the place of its principal place of business, nor the place where the parties made the contract of transportation, nor the destination of the flight in question. Therefore, plaintiffs could not have filed the action against China Airlines in the U.S.
The Ninth Circuit remands the matter to the district court only to have the record reflect that it should have dismissed China Airlines without prejudice. This is the accepted practice in dismissals for lack of subject matter jurisdiction.
Citation: Bartolomeu v. China Airlines, Nos. 01-15497 & 01-15518, 2002 WL 31829110 (9th Cir. December 17, 2002) (unpublished).
English Court of Appeal (Civil Division) allows appeal of investor who sued lone director of Pennsylvania corporation in equity for breach of plaintiff’s beneficial interest in proceeds from sale of two Virginia subsidiaries
Ghassan Shaker is a national of Saudi Arabia and a distinguished businessman and diplomat. He was the plaintiff in three actions relating to the alleged proceeds from the sale of two subsidiaries of the Arab Network of America Inc. (ANA Inc.), a U.S. company run by Mohammed Al‑Bedrawi (Mr. Bedrawi).
ANA Inc. was a U.S. satellite/cable television and radio station business that furnished programming to the Arab American population and to Arabic-speaking consumers. Incorporated in April 1989 in Pennsylvania, it operated through two Virginia subsidiaries, one for radio and one for TV broadcasting.
Mr. Shaker owned a number of ANA Inc. shares. Mr. Bedrawi, the company’s only director, claimed that he was holding the shares in trust for Mr. Shaker. Mr. Bedrawi, however, repeatedly failed to comply with plaintiff’s requests to receive his share of the sales proceeds.
Mr. Shaker first sued Mr. Bedrawi in a Virginia State court in 1996, and obtained a judgment for $5,750,000 plus interest. In January 1999, Mr. Shaker filed suit against Mr. Bedrawi in the English courts to enforce the Virginia judgment. In July 1999, a Master handed down a judgment for Mr. Shaker for nearly $8 million. Mr. Bedrawi agreed to dismiss his appeal. Plaintiff also lodged Bankruptcy proceedings against director Bedrawi and a trustee in bankruptcy took office in May 2001.
Suspicions existed that the director might have either made off with the sales proceeds or had illegally given it out to others. Under either theory, English law would recognize a valid claim by the company against the director for the whole amount for breaching his fiduciary duties to the corporation. On the other hand, if the facts showed that the director has lawfully extracted part of the money, the company as such would have had no claim against the director.
At first instance, the defendants argued that the “reflective loss”or “Prudential” principle would bar plaintiff’s suit. This principle blocks a shareholder from suing for damages under circumstances where the company itself owns the cause of action. For example, a shareholder cannot recover damages merely because the company in which he has interests has suffered damage. Nor can he recover a sum equal to the reduction in the market value of his shares, or equal to a likely cut in dividends, because such a “loss” merely counts as a company loss. The law does not look upon the shareholder as receiving a personal loss.
The lower court judge agreed with this contention and ruled as a preliminary matter of law for defendants. Plaintiff appealed, maintaining that his cause of action against the director was in reality a demand that the director, as trustee, account to him for an appropriate segment of the $6 million. He classified these moneys as a “profit” from the director’s use of trust property.
The Court of Appeal (Civil Division) thus had to resolve whether the Prudential principle stood in the way of plaintiff’s claim or whether plaintiff’s claim might reach lawfully-extracted sums as to which the company itself would have no complaint against the director. The Court allows plaintiff’s appeal and remands for trial.
Since the plaintiff comes before the courts only in the role of trust beneficiary, the Court notes, the Prudential principle would not bar his claim. Moreover, the principle involves an exclusionary rule that would take away plaintiff’s otherwise valid right to sue. Thus, sound policy fastens the burden upon the defendant to prove that the principle applies on the facts of each particular case. Here the director would have to show that he had either misappropriated the $6 million from the company or had illegally parceled it out. Acceptance of this proof would mean that only the company had the right to recover the entire sum. Since a judge would have to hear and decide the underlying facts, however, the Court holds that a trial of the case is required.
“Further, it would not be right to bar the claimant’s action unless the defendants can establish not merely that the company has a claim to recover a loss reflected by the profit, but that such claim is available on the facts. If, in the present case, it could be shown that the $6m was misappropriated from ANA Inc. or unlawfully distributed so that ANA Inc. was entitled to the whole of the $6m, we would accept that the Prudential principle applied to bar Mr Shaker's action.” [¶ 83]
From about 1992 Mr Bedrawi had English solicitors, Steggles Palmer (also defendants), acting for him. As the director ordered, Steggles Palmer had incorporated Qube Investments Ltd. (Qube) in the British Virgin Islands. The $6 million was paid to Qube in December 1993.
The Court’s reasoning is similar to its treatment of the claim against the director. Plaintiff alleged that Steggles Palmer dishonestly helped Mr. Bedrawi carry out his alleged breach of trust. “The applicability of the Prudential principle to the knowing receipt claim, which is restricted to the small extent to which Steggles Palmer’s fees were paid from the $6m, also turns on whether the monies were lawfully extracted.”
“As for the deceit claim, only Mr. Shaker had a cause of action in deceit and we do not agree with the [trial] judge's view [Cite] that the relevant alleged conduct would have amounted to dishonest concealment, for which ANA Inc. would have had a cause of action. However, as the complaint is that Mr. Shaker was deceived by Steggles Palmer into not taking action to preserve that part of the $6m which was still capable of being preserved in Steggles Palmer's or Qube's hands, the applicability of the Prudential principle to this claim again turns on the question of the lawful or unlawful extraction from ANA Inc. of the $6m. In our judgment, for the reasons already given, the Prudential principle does not bar the proceedings against Steggles Palmer.” [¶ 85]
Citation: Shaker v. Al-Bedrawi et al.,  E.W.C.A. Civ. 1452,  4 All E.R. 835 (Ct. App., Civ. October 18, 2002).
European Court of Justice annuls Council Decision authorizing conclusion of “Energy Star Agreement” between U.S. and EC to coordinate energy‑efficient labeling programs for office equipment because based on wrong provision of EC Treaty
In 1992, the U.S. Environmental Protection Agency (EPA) developed a voluntary labeling program applicable to office equipment. Dubbed the “EnergyStarProgram” (ESP), it persuaded most U.S. manufacturers to adopt energy-saving features for office equipment and educated consumers as to the waste of energy that takes place while electrical gear is in stand-by mode.
The EPA later expanded the ESP to apply, inter alia, to household appliances, heating and cooling equipment, consumer electronics, home office equipment, water‑coolers, house construction and lighting. It also introduced a star logo with which the maker could label its equipment to signal its conformity to the ESP’s energy-saving principles.
The EC Commission noted that the American market and many others worldwide (including within the EC) had adopted the ESP as their energy-saving standard. Rather than trying to come up with a separate conservation program, the Commission decided that it made more sense to adopt the U.S. program for the entire EC. Thus, on December 19, 2000, the U.S. and the EC signed “the Energy Star Agreement” (ESA) in Washington.
Under Article III of the ESA, the parties appointed the EC Commission and the EPA the responsible agencies for carrying out the ESA. Article IV makes each agency responsible for registering voluntary participants in the labeling program, for enforcing the conditions for using the star logo and for educating consumers on its significance.
The ESA provides that the EPA and the Commission shall each recognize each other’s registrations. Moreover, they are to work together to make sure that all products featuring the logo do in fact meet the energy-saving specifications set forth in ESA, Annex C.
To authorize the EC’s entry into the ESA, the Commission had proposed to the Council, in July 1999, a Decision based on Article 133 EC [ex Article 113] (common commercial policy) in conjunction with Article 300(2) EC [ex Article 228] (Commission role in negotiating foreign agreements). In December of that year, the Council unanimously passed Council Decision 2001/469/EC that would authorize the EC to enter into the ESA.
The Council’s final version of the Decision had rested, however, on Article 175(1) EC [ex Article 130s] (EC role in environmental regulation) along with Article 300(2) EC. The European Parliament in May 2001 had approved entry into the ESA essentially based on the grounds stated by the Council. On June 7, 2001, the ESA went into effect.
The Commission, however, applied to the European Court of Justice to annul the Decision as enacted. The five Judges of the ECJ’s Fifth Chamber rule in favor of the Commission and annul the Decision.
The Court first points out the importance of establishing the correct legal basis for a Community measure and of showing that the choice of this basis rests on objective factors which a court is capable of resolving.
“If examination of a Community measure reveals that it pursues a twofold purpose or that it has a twofold component and if one is identifiable as the main or predominant purpose or component, whereas the other is merely incidental, the measure must be founded on a single legal basis, namely that required by the main or predominant purpose or component.”
“By way of exception, if it is established that the measure simultaneously pursues several objectives which are inseparably linked without one being secondary and indirect in relation to the other, the measure must be founded on the corresponding legal bases.” [¶¶ 34, 35]
The Court then points to the dual nature of the ESA. “In the present case, it is not in dispute that, as is clear from its title, the Energy Star Agreement is designed to coordinate energy‑efficient labeling programmes for office equipment. As the Commission points out, such coordination necessarily facilitates trade inasmuch as manufacturers henceforth need to refer to just one standard as regards labeling and to comply with just one registration procedure with a single management entity in order to sell equipment bearing the Energy Star logo on the European and American markets. That coordination, therefore, undoubtedly constitutes a commercial‑policy measure.”
“However, it is also clear, on reading the preamble to the Energy Star Agreement and Article I thereof, that, by stimulating the supply of, and demand for, energy‑efficient products, the labeling programme in question is intended to promote energy savings and therefore in itself constitutes an environmental‑ policy measure.” [¶¶ 36-38]
The Court then focuses on determining whether either goal dominates the ESA or whether its dual objectives are inseparably intertwined. “It is clear from the terms in which the Energy Star Agreement is couched, ... that the Energy Star labeling program is essentially intended to enable manufacturers to use, in accordance with a procedure for the mutual recognition of registrations, a common logo to identify for consumers certain products complying with a common set of energy‑ efficiency specifications which they intend to sell on the American and Community markets. An instrument having a direct impact on trade in office equipment is therefore involved.”
“It is true that, in the long term, depending on how manufacturers and consumers in fact behave, the programme should have a positive environmental effect as a result of the reduction in energy consumption which it should achieve. However, that is merely an indirect and distant effect, in contrast to the effect on trade in office equipment which is direct and immediate.” [¶¶ 40, 41]
“The commercial‑policy objective pursued by the Energy Star Agreement must therefore be regarded as predominant, so that the decision approving the Agreement should have been based on Article 133 EC, in conjunction with Article 300(3) EC.”
“The fact that participation in the Energy Star labeling program is not mandatory cannot affect that conclusion. The Agreement is none the less designed to have a direct impact on trade in office equipment by facilitating such trade for manufacturers and enabling consumers to choose the products which use the least energy.”
“In addition, ... it is clear from the Agreement on Technical Barriers to Trade which is annexed to the Agreement establishing the World Trade Organisation, approved on behalf of the European Community, as regards matters within its competence, by Council Decision 94/800/EC of 22 December 1994 (OJ 1994 L 336, p. 1), that non‑binding labeling provisions may constitute an obstacle to international trade.” [¶¶ 43-45]
“It follows from the foregoing considerations that the Council should have chosen Article 133 EC, in conjunction with Article 300(3) EC, as the legal basis for the decision concluding the Energy Star Agreement on behalf of the Community. Since Article 175(1) EC, in conjunction with the first sentence of the first subparagraph of Article 300(2), the first subparagraph of Article 300(3) and Article 300(4) EC, is the only legal basis referred to in that measure, Decision 2001/469 must be annulled.”[¶¶ 48, 49]
Citation: Commission v. Council, Case C-281/01; Celex No. 601J0281 (E.C.J., 5th Ch. December 12, 2002).
In reviewing challenge by Illinois charitable organization to freeze of its assets under I.E.E.P.A. after September 2001 terrorist attacks, Seventh Circuit rules that restrictions turn on “beneficial” rather than “legal” ownership of corporation
After the terrorist attacks of September 11, 2001, the U.S. President issued an Executive Order declaring a national emergency. It froze the assets of groups that “assist in, sponsor, or provide financial, material, or technological support for, or financial or other services to or in support of, such acts of terrorism.” See Executive Order 13224, Section 1(d)(1), 66 Federal Register 49079 (September 23, 2001). This Executive Order rested on the International Emergency Economic Powers Act (IEEPA) [50 U.S.C. Sections 1701-1707], which was later amended by the USA PATRIOT Act [Pub. L. 107-56, Title I, Section 106, 115 Stat. 272, October 26, 2001].
Global Relief Foundation, Inc. (GRF), is an Illinois charitable corporation operating in about 25 foreign countries, including Afghanistan, Albania, Pakistan, Somalia, and Syria. On December 14, 2001, the U.S. Secretary of the Treasury blocked its assets, pursuant to IEEPA, Section 1702(a)(1)(B). This provision authorizes the U.S. President to “investigate, block during the pendency of an investigation, regulate ... prevent or prohibit, any acquisition ... with respect to ... any property in which any foreign country or a national thereof has any interest ..., subject to the jurisdiction of the United States.”
GRF requested a district court to enjoin the blocking order. It denied that any “foreign ... national” has an “interest” in its assets, and argued that IEEPA did not apply to corporations holding charters issued in the U.S. The district court turned down the request, and GRF appealed. (Meanwhile, on October 18, 2002, the Office of Foreign Assets Control listed GRF as a “Specially Designated Global Terrorist organization.”) The U.S. Court of Appeals for the Seventh Circuit affirms and remands.
The Court first rejects GRF’s argument that IEEPA does not apply to corporations that hold charters issued within the U.S. because all its assets are under U.S. control. It is incorrect to contend that the property of all corporations chartered within the U.S. is necessarily domestic U.S. property.
“Cases such as Sumitomo Shoji America, Inc. v. Avagliano, 457 U.S. 176 (1982), illustrate the application of this principle to federal statutes. Treaties that the United States has negotiated with many foreign nations grant citizens (including corporations) of those nations certain privileges within the United States. Avagliano holds that a U.S. subsidiary of a foreign corporation is a U.S. citizen, not a foreign citizen, for the purpose of these treaties. This meant that the subsidiary has to comply fully with U.S. law even though 100% of its stock may be held by foreign nationals.”
“Some statutes prescribe a different rule. The Foreign Sovereign Immunities Act, for example, treats a corporation as having the sovereign attributes of a government that owns the majority of its stock. 28 U.S.C. Section 1603(b)(2). ... But under the Foreign Sovereign Immunities Act, a corporation chartered within the United States always is treated as a private U.S. citizen, even if a foreign nation owns all of its stock. 28 U.S.C. Section 1603(b)(3) ...”
“GRF reads the word ‘interest’ in Section 1702(a)(1)(B) as referring to a legal interest, in the way that a trustee is legal owner of the corpus even if someone else enjoys the beneficial interest. ... The legal interest in GRF’s property lies in the United States, but we need to know whether Section 1702(a)(1)(B) refers to legal as opposed to beneficial interests.”
“The function of the IEEPA strongly suggests that beneficial rather than legal interests matter. The statute is designed to give the President means to control assets that could be used by enemy aliens. When an enemy holds the beneficial interest in property, that is a real risk even if a U.S. citizen is the legal owner.”
“Consider for a moment what would happen if Osama bin Laden put all of his assets into a trust, under Illinois law, administered by a national bank. If the trust instrument directed the trustee to make the funds available for purchases of weapons to be used by al Qaeda, then foreign enemies of the United States would have an ‘interest’ in these funds even though legal ownership would be vested in the bank ...”
“Nothing in the text of the IEEPA suggests that the United States’ ability to respond to an external threat can be defeated so easily. Thus the focus must be on how assets could be controlled and used, not on bare legal ownership. GRF conducts its operations outside the United States; the funds are applied for the benefit of non-citizens and thus are covered by Section 1702(a)(1)(B).” [Slip op. 9-12] The Court remands the case to the district court to decide whether GRF in fact does support terrorism.
Citation: Global Relief Foundation, Inc. v. O’Neill, No. 02-2536, 2002 WL 31890724 (7th Cir. December 31, 2002). [See also “Appeals court won’t lift curbs on Islamic charity,” Chicago Tribune, January 1, 2003, page C3; “When Justice Goes Mute,” Los Angeles Times, January 5, 2003, page M4].
Canadian Supreme Court upholds Glaxo/Wellcome’s patent on AZT as treatment for HIV and AIDS but concludes, inter alia, that NIH researchers who verified AZT’s efficacy were not co-inventors under laws of Canada
In 1983, the Institut Pasteur had isolated the Human Immunodeficiency Virus (HIV), the retrovirus shown to cause Acquired Immune Deficiency Syndrome (AIDS). Later that year, the British pharmaceutical giant, Glaxo/Wellcome (Glaxo or defendant), drew on its considerable expertise involving retroviruses and put together a group of scientists to begin looking for an anti-AIDS drug.
Scientists knew in 1984 that HIV attacks T-cells, which are crucial to the human immune system. HIV uses the enzyme “reverse transcriptase” to convert its own RNA to DNA and to insert this DNA into the DNA of the host cell.
The Glaxo researchers thought that the reverse transcription stage, unique to retroviruses, could be vulnerable and thus a potential drug target. AZT (Azidothymidine) is a compound synthesized and tested in 1964 as a potential cancer treatment for humans. Glaxo itself had been researching AZT as a possible anti-bacterial treatment.
In November 1984, Glaxo began testing various known compounds. Its researchers first introduced a retrovirus found in mice into mouse T-cells. They next decided how good each compound was in stopping the retrovirus from killing the T-cells. During these tests, AZT came out on top at ridding the T-cells of the virus.
Lacking the resources to perform testing on human cells, Glaxo turned, inter alia, to the U.S. National Institutes of Health (NIH). Without having the AZT identified to them, Drs. Samuel Broder and Hiroaki Mitsuya, did the critical NIH research. They used a human cell line that could propagate in vitro, and be infected in vitro with HIV. The tests showed AZT’s probable effectiveness against HIV in the T-cells of living patients.
By February 6, 1985, Glaxo had drafted a patent application. On February 21, 1985, Drs. Broder and Mitsuya told Glaxo that their research showed that AZT did curb the replication of HIV in their in vitro HIV assay systems.
Based upon these results, the company predicted that physicians could prescribe AZT to treat HIV in humans. On March 16, 1985, while tests of AZT on human patients with HIV was still going on, Glaxo filed in the U. K. the patent application from which the Canadian patent claims priority.
Apotex, Inc. and Novopharm Ltd, two “generic” drug manufacturers (plaintiffs), sued Glaxo and others (collectively defendant) in a Canadian federal court to challenge the validity of defendant’s patent based on three premises. First, plaintiffs alleged that defendant had not shown the necessary utility of AZT as of the patent’s priority date. Second, plaintiffs averred that the claims went beyond the scope of the invention by including “prophylactic” properties as well as “treatment” properties. Finally, plaintiffs claimed that the disclosure was invalid because it failed to include the NIH scientists as “co-inventors.”
After an extensive hearing, The Commissioner of Patents rejected the substance of plaintiffs’ attack, and declared certain of defendant’s claims to be valid and infringed. The Federal Court of Appeal dismissed plaintiffs’ appeal. Granting review, the Supreme Court of Canada affirms the validity of the patent and dismisses plaintiffs appeals.
The Court begins by examining plaintiff’s claims and identifying the applicable Canadian laws. “The appeals require us to consider the statutory requirement for an invention in the context of a new use for an old chemical compound, and the related questions of who ought to have been included as inventors, and what is the appropriate remedy if someone who ought to have been included in the patent is left out.”[¶ 2]
The Court notes the importance of AZT to defendant and also relates the plaintiffs’ challenge to the broader public interest. “AZT has earned for the respondents hundreds of millions of dollars in worldwide sales since its usefulness was discovered for the treatment of HIV and AIDS. In the United States alone, it is estimated that AZT earned for the patent owner a profit of $592 million between 1987 and 1993 ...[¶ 35]”
On the other hand, the Court declares, “A patent ... is not intended as an accolade or civic award for ingenuity. It is a method by which inventive solutions to practical problems are coaxed into the public domain by the promise of a limited monopoly for a limited time.”
“Disclosure is the quid pro quo for valuable proprietary rights to exclusivity which are entirely the statutory creature of the Patent Act. Monopolies are associated in the public mind with higher prices. ... The patent monopoly should be purchased with the hard coinage of new, ingenious, useful and unobvious disclosures.”[¶ 37]
The Court then relates plaintiffs’ legal points to the above principles. “The [plaintiffs’] argument here is that the identification in March of 1985 of AZT as a treatment and prophylaxis for HIV/AIDS was a shot in the dark, a speculation based on inadequate information and testing, a lottery ticket for which the public in general and HIV and AIDS sufferers in particular have paid an exorbitant price.” [¶ 37]
The Court then takes up the plaintiffs’ argument that defendants had not proven the necessary element of utility as of the priority date of the patent. Referring to litigation in the U.S. over this same patent, the Canadian Court notes that “[u]nder United States law ...[i]t was sufficient that on February 6, 1985, Glaxo/Wellcome scientists had a concept that was ‘definite and permanent’ which could be applied by a person skilled in the art ‘without extensive research or experimentation. [Cite]”
“Given the differences in our respective patent laws, [however,] the outcome of the U.S. litigation on the patent is of limited interest here. ... Unless the inventor is in a position to establish utility as of the time the patent is applied for, on the basis of either demonstration or sound prediction, the Commissioner ‘by law’ is required to refuse the patent (Patent Act, s.40).” [¶¶ 40, 46]
The Court makes clear “that the only contribution made by Glaxo/Wellcome in the case of AZT was to identify a new use ... Glaxo/Wellcome claimed a hitherto unrecognized utility but if it had not established such utility by tests or sound prediction at the time it applied for its patent, then it was offering nothing to the public but wishful thinking in exchange for locking up potentially valuable research turf for (then) 17 years.”[¶ 52]
Turning to the doctrine of “sound prediction,” the Court points out that it has three components. “Firstly, as here, there must be a factual basis for the prediction... Secondly, the inventor must have, at the date of the patent application, an articulable and ‘sound’ line of reasoning from which the desired result can be inferred from the factual basis ... Thirdly, there must be proper disclosure.”[¶ 70]
The Court concludes that “[i]n this case, the findings of fact necessary for the application of ‘sound prediction’ were made and the appellants have not ... demonstrated any overriding or palpable error. ...”
“On March 1, 1985, Glaxo/Wellcome received from the NIH the key results of the in vitro test of AZT against the HIV in a human cell line. This, taken together with Glaxo/Wellcome’s own data on AZT, including the mouse tests, provided a factual foundation.”
“Glaxo/Wellcome’s knowledge of the mechanism by which a retrovirus reproduces, and the ‘chain terminator effect’ of AZT, as disclosed in the patent, was found by the trial judge to provide a line of reasoning by which utility could be established as of the date of the U.K. patent application, March 16, 1985, which is also the priority date by which the invention must be evaluated for purposes of the Canadian patent.” [¶¶ 71-72]
Plaintiffs also contended that defendant claimed more than it had invented when it asserted AZT’s both “treatment” and “prophylactic” or preventative properties. They claimed that the ability of AZT to prevent the transmission of HIV from a pregnant woman to her fetus and the protection that AZT affords some health care workers after needle sticks are both examples of post-infection treatment rather than examples of prophylaxis. The Court rejects this argument.
“In the particular circumstances of this case, I think [defendant’s] prediction that the ‘chain terminator’ effect disclosed in the patent specification had prophylactic as well as post-infection treatment application was sound. ... The onus was on the [plaintiffs] to show that the patent is invalid, not [on] the [defendants] to show that it is valid. I agree with the trial judge and the Federal Court of Appeal that the [plaintiffs] have not discharged this onus.”[¶ 93]
The Court next rejects plaintiffs’ contention that Glaxo/Wellcome had wrongly excluded the two NIH scientists from co-inventorship. “For this argument to benefit the [plaintiffs] (as opposed to Drs. Broder and Mitsuya), the [plaintiffs] must further establish that this omission was a ‘material’ misstatement that was ‘wilfully made for the purpose of misleading’. If so, the patent would be void pursuant to s.53(1) of the Patent Act.[¶ 94]... The ultimate question must therefore be: who is responsible for the inventive concept?”[¶ 96]
To decide this question, the Court analyzes the roles of Drs. Broder and Mitsuya. It concludes that “[i]t is clear that Drs. Broder and Mitsuya ... carried out their investigation using extraordinary skill and expertise but, in my view, their blind test of a chemical compound whose existence they had not yet identified, and with which (unlike Glaxo/Wellcome) they apparently had no prior experience, did not require them to be listed as co-inventors. [¶ 101] ... [G]reat though the contributions of Drs. Broder and Mitsuya was [sic] to the advancement of science, they were not co-inventors of the patent-in-suit.”[¶ 106]
“If [for example], defendant had soundly predicted that AZT could cure nausea in the weightlessness of space, it might require NASA and all its rocket ship expertise to ‘establish’ the utility, but NASA would not on that account become a co‑inventor.” [¶ 100]
Citation: Apotex Inc. v. Wellcome Foundation Ltd. et al., File No.: 28287; 2002 S.C.C. 77 (Can. Sup. Ct. December 5, 2002).
In action by household employee against Korean consular officer over low wages and unduly long working hours, Ninth Circuit finds that dealings with household employee were not in exercise of consular or sovereign functions, and thus are not immune under either Vienna Convention or FSIA
Tae Sook Park, a Chinese citizen, worked as a domestic servant for Bong Kil Shin, the Deputy Consul General of the Korean Consulate in San Francisco. Park began working for Shin in 1996 when they were stationed in China, and came with him to the U.S. in 1999 upon Shin’s reassignment. Park took care of the three children, cooked, cleaned, and did other household duties. Park also fixed the meals when Shin entertained important official guests at his home.
Park sued the Shins in a California federal court, alleging that she earned less than the U.S. minimum wage, that the Shins refused to take her to the hospital when she was sick, and that the Shins had taken away her passport. The district court dismissed the case based on consular immunity according to the Vienna Convention on Consular Relations (Convention) (April 24, 1963, 21 U.S.T. 77; T.I.A.S. 6820; 596 U.N.T.S. 261). The U.S. Court of Appeals for the Ninth Circuit reverses and remands.
Article 43(1) of the Convention provides that “consular officers and consular employees shall not be amenable to the jurisdiction of the judicial or administrative authorities of the receiving State in respect of acts performed in the exercise of consular functions.” Shin certainly qualifies as a consular officer, in the Court’s view, but his alleged activities that gave rise to Park’s lawsuit were not “acts performed in the exercise of consular functions.”
Article 5 of the Convention sets forth 12 specific consular functions, and also contains a “catch-all” provision. It includes “any other functions entrusted to a consular post by the sending State which are not prohibited by the laws and regulations of the receiving State or ... which are referred to in the international agreements in force between the sending State and the receiving State.” See Article 5(m).
Shin argued that he could not adequately carry out his official functions if he also had to cook, clean and take care of the children. In the Court’s view, however, this is not enough to convert the hiring and supervision of a domestic servant into a “consular function.”
The Court also notes (1) that Park held an “A-3" visa, which is for personal employees of consular officers; and (2) that Shin, not the Korean government, paid Park’s salary. Even her cooking for official guests would have been merely incidental to her regular job as Shin’s personal servant.
Shin additionally claimed that he qualified as a “foreign state” and thus enjoyed immunity under the Foreign Sovereign Immunities Act (FSIA) [28 U.S.C. Sections 1604, 1605-1607]. The Court agrees that the law may sometimes treat individual government employees as agents of “foreign states” under the FSIA, but only if the individuals act in their official capacities as employees of a foreign sovereign.
Here, Shin was not representing the State of Korea when he hired Park but was acting as a private person hiring a domestic servant to be paid out of his personal funds. Moreover, Park does not complain about any Korean government policy but only about Shin’s personal decisions about her wages and working conditions. An adverse judgment against Shin would in no way interfere with the sovereignty or policy-making power of the Korean state. Therefore, the Court concludes, Shin could not have been acting within the scope of his official duties in his domestic dealings with Park.
Even if he were, the courts should treat his acts as within the “commercial activity” exception set forth in 28 U.S.C. Section 1605(a)(2). In deciding whether certain acts amount to “commercial activity,” courts look to the nature of the activity in question rather than to its purpose. In general, acts by government agencies are “commercial” in nature if the sovereign’s role is one that a private person or company could play in the market place. Conversely, an activity is “sovereign” if it is one that only a sovereign state could perform.
Citation: Park v. Shin, 313 F.3d 1138 (9th Cir. 2002).
In litigation between German and New Mexico companies, Tenth Circuit decides that forum selection clause declaring that “jurisdiction for all and any disputes arising out of or in connection with this agreement is Munich” has permissive rather than mandatory effect
K & V Scientific Co., Inc. (K & V), a New Mexico corporation, developed a novel technology for triggering air bags in automobiles. It consisted of a semiconductor bridge that bursts into a plasma discharge to ignite some pyrotechnic material that inflates the air bag. The Sandia Laboratories in New Mexico had developed the process for military applications. After the government allowed K & V to market the mechanisms for private automobiles, K & V got in touch with Bayerische Motorenwerke (BMW) in Germany.
In 1996, K & V and BMW agreed that K & V would design BMW’s “next generation” air bag systems. The deal included a confidentiality clause.
In 1997, BMW mailed a new confidentiality agreement to K & V. This time it contained a choice-of-forum clause which stated: “Jurisdiction for all and any disputes arising out of or in connection with this agreement is Munich. All and any disputes arising our of or in connection with this agreement are subject to the laws of the Federal Republic of Germany.” K & V signed the new provision.
After the parties had a falling out, BMW allegedly began working directly with the original developers of the semiconductor bridge. K & V then sued BMW in a New Mexico state court claiming, inter alia, that BMW had breached the confidentiality agreements, and had acted in bad faith.
BMW had the case removed to federal court, and moved to dismiss for lack of personal jurisdiction and improper venue. The district court granted BMW’s motion to dismiss for improper venue because the forum selection clause in the 1997 confidentiality agreement was “unambiguous and enforceable.” K & V appealed. The U.S. Court of Appeals for the Tenth Circuit reverses and remands.
K & V argued that the forum selection clause in the 1997 confidentiality agreement was permissive rather than mandatory. “‘Mandatory forum selection clauses contain clear language showing that jurisdiction is appropriate only in the designated forum.’ ... ‘In contrast, permissive forum selection clauses authorize jurisdiction in a designated forum, but do not prohibit litigation elsewhere.’ ...”
“... The district court ... purported to rely exclusively on Tenth Circuit precedent in general, and our decision in Milk ‘N’ More, Inc. v. Beavert, 963 F.2d 1342 (10th Cir. 1992), in particular. In Milk ‘N’ More, we concluded that a forum selection clause stating ‘venue shall be proper under this agreement in Johnson County, Kansas’ was mandatory. [Cite] Based upon our holding in Milk ‘N’ More, the district court concluded that the relevant language of the forum selection clause at issue here, i.e., ‘jurisdiction ... is Munich,’ was unambiguous and mandatory. ... The district court also concluded that the choice of law provision contained in the parties’ confidentiality agreement ‘supported the interpretation that jurisdiction is to be located exclusively in a court best suited to interpret and apply German law, e.g., Munich.’ [Cite]” [Slip op. 9-11]
The Court disagrees with this analysis. The majority of the Circuits have considered the following forum selection clauses to be permissive: (1) “Any dispute arising between the parties hereunder shall come within the jurisdiction of the competent Greek Courts, specifically of the Thessaloniki Courts”; (2) “The laws and courts of Zurich are applicable”; (3) “Place of jurisdiction is Sao Paulo/Brazil”; and (4) “This agreement shall be governed by and construed in accordance with the laws of the Federal Republic of Germany ... Place of jurisdiction shall be Dresden.”
On the other hand, more than half of the Circuits have treated the following clauses as mandatory: (1) “Place of jurisdiction ... is the registered office of the trustee [in Germany], to the extent permissible under the law”; (2) “In all disputes arising out of the contractual relationship, the action shall be filed in the court which has jurisdiction for the principal place of business of the supplier ... The supplier also has the right to commence an action against the purchaser at the purchaser’s principal place of business”; and (3) “Licensee hereby agrees and consents to the jurisdiction of the courts of the State of Virginia. Venue of any action brought hereunder shall be deemed to be in Gloucester County, Virginia.”
In this case, the Court concludes: “Applying the majority rule, which we believe is sound, to the facts before us, we have little trouble concluding that the forum selection clause at issue is permissive. In particular, the clause refers only to jurisdiction, and does so in non-exclusive terms (e.g., there is no use of the terms ‘exclusive,’ ‘sole,’ or ‘only’). ... Even if the clause were deemed to be ambiguous (i.e., capable of being construed as either permissive or mandatory), the rule in this circuit and others is that the clause must be construed against the drafter, in this case defendant. ...” [Slip op. 17-18]
Citation: K & V Scientific Co., Inc., v. Bayerische Motoren Werke Aktiengesellschaft, 314 F.3d 494 (10th Cir. 2002).
WORLD TRADE ORGANIZATION
WTO Appellate Body upholds Panel finding that Canada has continued to provide illegal subsidies for its milk exported to U.S. and New Zealand
On December 20, 2002, the Appellate Body of the World Trade Organization (WTO) issued its report in the case brought by New Zealand and the U.S. challenging Canada’s measures for the export of dairy products. The Appellate Body basically upholds the previous Panel Report in that Canada has provided export subsidies in excess of its WTO commitments. [See 2002 Int’l Law Update 188, 2002 Int’l Law Update 125, 1999 Int’l Law Update 154.]
Pending before the WTO for several years, the dispute began when Canada introduced its “milk class system” (MCS) in 1995 to replace its subsidy payments on dairy products. In 1999, a WTO Panel found that Canada’s MCS then in force constituted an export subsidy by providing for discounts on exported milk.
Canada later initiated its “commercial export milk” (CEM) scheme. It is free from pricing regulation, and uses Special Milk Class 5(d) only for export and within the limits of Canada’s permissible export subsidies. Another WTO Panel found the revised CEM improper in a July 2002 ruling. Canada appealed, resulting in the present Appellate Body (AB) decision.
First, the AB overturns the Panel’s interpretation of Article 10.3 of the Agreement on Agriculture in paragraph 5.19 of the Panel Report. According to the Panel, a complaining Member would be required to make out a prima facie case in support of all aspects of its claims under Articles 3.3, 8, 9.1(c), and 10.1 of the Agreement on Agriculture. The AB, however, holds that this error did not invalidate the Panel’s findings under Articles 3.3, 8, 9.1(c), and 10.1 of that Agreement.
Secondly, the AB upholds the Panel’s finding, in paragraphs 5.89 and 5.135 of its Report, that Canada was combining the supply of CEM with the operation of Special Milk Class 5(d). Thus, it has acted at odds with its duties under Article 3.3 and Article 8 of the Agreement on Agriculture. Moreover, it furnished export subsidies listed in Article 9.1(c) of that Agreement in excess of the quantity commitment levels specified in Canada’s Schedule.
Finally, the AB declines to rule on the Panel’s alternative finding under Article 10.1 of the Agreement on Agriculture in paragraph 5.165 of the Panel Report. In the AB’s view, its ruling on the second point mooted the present issue. The AB therefore recommends that Canada make its inconsistent measures conform to the Agreement on Agriculture.
Citation: Canada - Measures Affecting the Importation of Milk and the Exportation of Dairy Products (WT/DS103/AB/RW2) (December 20, 2002). [Report is available on WTO website at “www.wto.org”; See Office of U.S. Trade Representative press release 02-118 (December 20, 2002).]
EU court upholds Commission’s right to sue tobacco companies in U.S. On January 15, 2003, the EC Court of First Instance (CFI) ruled that the EC Commission could sue tobacco makers, Philip Morris, and R. J. Reynolds of the U.S. plus Japan Tobacco (the Companies) in the U.S. courts to litigate its smuggling and money laundering claims. “A decision by the Commission to bring legal proceedings is not an act which may be challenged by [the Companies in] an action for annulment,” the CFI’s statement declared. The Companies have two months within which to seek review by the European Court of Justice. Since 2000, the Commission has filed three (so far unsuccessful) U.S. cases against the Companies which are on appeal. One type alleges that the Companies are taking part in the smuggling of tobacco products into the EU, causing it to lose hundreds of millions of euros annually in customs and tax revenue. In October 2002, the Commission filed a distinct money-laundering case in the U.S. against R. J. Reynolds. Citation: Findlaw Legal News, Brussels, Wednesday, January 15, 2003 (copyright - Reuters 2003; all rights reserved.)
EU issues Regulation on civil aviation security. As a result of the terrorist attacks of September 11, 2001, the European Union has issued Regulation No 2320/2002 establishing common rules in the field of civil aviation security. It requires all EU Member States to set up a national civil aviation security program. The goal is to make sure that the States apply uniform EU and international safety standards, and develop quality control and training programs. The Annexes lay down detailed requirements, e.g., for baggage screening, cargo transport, and mail shipments. Citation: 2002 O.J. of European Communities (L 355) 1, December 30, 2002.
In U.S. litigation, federal appeals court rules for Amgen on Epogen patent. On Monday, January 6, 2003, Amgen, Inc. of California reported that the U.S. Court of Appeals for the Federal Circuit [See Amgen, Inc. v. Hoechst Marion Roussel, 2003 WL 41993 (Fed. Cir. 2003)] affirmed a district court ruling that found that two of Amgen’s competitors had infringed two of its patents on its widely sold anemia drug, Epogen. Transkaryotic Therapies, Inc. (TTI) was one of the opponents. It produces Dynepo, a likely alternative to Epogen, with Aventis, the French pharmaceutical outfit. The two companies have been litigating with Amgen in Europe and in the U.S. TTI did not lose on every issue in this case, however, because the court of appeals remanded a branch of the case involving two distinct patents. Epogen is a genetically engineered type of erythropoietin (EPO), a protein that occurs in nature. It reinforces the body’s capacity to produce red blood cells. A key issue in the litigation is whether Amgen’s patents cover the protein itself or are limited to Amgen’s technique of manufacturing it. To make EPO, Amgen injects a human gene into hamster cells. On the other hand, TTI has come up with its own distinctive process that makes use of human genes. Some analysts believe that TTI’s Dynepo is not likely to pose an immediate threat to Amgen since its adversary has not yet resubmitted its drug to U.S. regulators. Although TTI did win a British appeals court decision over Amgen in an Epogen case in July 2002, some observers have opined that Amgen has more extensive patent protection in the U.S. than in Europe. Citation: FindLaw Legal News, Tuesday, January 7, 2003 (bylines of Kim Dixon and Jed Seltzer); (Copyright - Reuters 2003; all rights reserved.)
During ongoing Rio Grande water talks, Mexico and U.S. reach interim agreement. Over the years, Mexico has built up a deficit of 1.5 million acre-feet its delivery of water to the Rio Grande River for U.S. use. See 2001 International Law Update 47. On January 9, 2003, the two countries came to an understanding that, for the next nine months, Mexico would firmly commit to furnish at least 350,000 acre-feet of water and, if climatic conditions allow it, at least 50,000 additional acre-feet. The State Department declares that it is pleased with Mexico’s promise to make 200,000 acre-feet available by the end of January, in time for the current U.S. growing season. The two nations plan to have binational experts meet in late January to discuss how Mexico’s emerging domestic water allocation plan fits in with its commitments under the 1944 Treaty Relating to the Utilization of Waters of the Colorado and Tijuana Rivers and of the Rio Grande, and Supplementary Protocol, which entered into force on November 8, 1945 [59 Stat. 1219; T.S. 994; 9 Bevans 1166; 3 U.N.T.S. 313]. Citation: Press Statement by Richard Boucher, U.S. State Department Spokesman, Washington, D.C., January 10, 2003.
Norwegian court clears local teenager charged with pirating Hollywood films on DVD. The interested parties in Jon Johansen's case were the Motion Picture Association of America, representing Hollywood studios like Walt Disney Co., Universal Studios and Warner Bros. After a six-day trial before a judge and two technical experts, the Norwegian court unanimously found that, in developing his DeCSS software that would allow the copying of DVD versions of Hollywood movies, Johansen had not committed “criminal theft” under Norwegian law. There apparently is no legislation in Norway that specifically protects digital content. According to an American attorney who has successfully represented the movie industry, Johansen’s actions would have been illegal if done in the U.S. The industry had brought the U.S. lawsuit under the 1998 Digital Millennium Copyright Act (Pub. Law. 105-304, 17 U.S.C.A. 1201ff) Johansen said he had tried out the DeCSS program on the movies “Matrix” and “The Fifth Element” on two DVDs for which he had lawfully paid. Moreover, prosecutors had failed to show that others had used defendant’s program to enable them to view pirated copies. According to the Associated Press, the Norwegian prosecutors have just decided to file an appeal. Citation: FindLaw Legal News, Tuesday, January 7, 2003 (bylines of Inger Sethov and Sue Zeidler); (Copyright Reuters 2003, All rights reserved); Associated Press, Oslo, Norway, January 20, 2003, 18:43:31 GMT (byline of Doug Mellgren, AP writer).
Federal court convicts phony African “princess” of falsehoods. Having entered the U.S. on a fake passport in 1997, Regina Danson asked for asylum, alleging that she was an outcast tribal princess from Ghana. She claimed that she had breached tribal law by converting to Christianity, by secretly falling in love, and by losing her virginity. According to Danson, the tribal elders would punish her by female genital mutilation (FGM) if she had to go back to that country. The asylum judge rejected her application, pointing out that her true identity was unclear and that, in any event, Ghana had outlawed FGM in 1994. An appellate court then overturned this ruling in 1999. The following year, however, an INS inquiry found that Danson’s story was wholly fictional. The investigators concluded that she had been a Ghanaian hotel employee who had taken on the identity of a woman named Adelaide Abankwah. A federal grand jury indicted Danson in 2002 on charges of perjury, false-statement and passport fraud. During her trial, tribal chief, Nana Kwa Bonko, testified that Danson did not belong to the tribe’s royal family and that his area of Ghana did not practice FGM. On January 15, 2003, the jury came in with a verdict of guilty on the charge of lying to immigration officials. Citation: Chicago Tribune, Wednesday, January 22, 2003, page 2 (byline of Tom Hays, Associated Press writer).