A Brief Analysis Of Cross-Border IP Litigation Issues

Wednesday, June 1, 2005 - 01:00

Business litigators are well aware that they must keep in mind their client's business objectives as they advise them regarding the strategy and tactics associated with filing or defending a lawsuit. As a general rule, most decisions are made after a careful cost-benefit analysis. If the benefit of taking certain actions, such as threatening or filing a lawsuit, appears to be outweighed by its present or future cost, then the litigator should advise the client of the risk and allow the immediate business objective to drive the decision. When faced with global intellectual property litigation, however, the litigator's job becomes considerably more complex.

Under most circumstances, the decision-making process in global IP litigation tracks the process taken in more local litigation: If the client perceives that someone is infringing their intellectual property rights and hence is harming their product (or has been accused of infringement), then the client and the litigator must weigh the costs and chances of success against the benefit conferred by a victory. In this era of global corporate structures, however, it would not be surprising to find that the parties involved in an infringement matter may be operating in multiple jurisdictions. Because of the non-uniform nature of most intellectual property laws, the decision making process can rapidly evolve into a discussion of a multitude of factors.

Before discussing some case-specific studies, it is worth noting some of the principal differences and similarities between the intellectual property laws of different jurisdictions. The laws of copyright are, for the most part, uniform throughout the world. That said, in particular cases the differences may be significant. For example, in the United States the name of a cartoon character is generally not entitled to copyright protection; in France, and other countries, the name of a character may be protectable. Moreover, moral rights ( adroit moral), or the right of the original author to control certain aspects of the author's work notwithstanding an assignment to a third party, are recognized in most of the world, but generally not to the same extent in the United States.

Likewise, patent and trademark protections are territorial in nature. Thus the determination of whether an invention is patentable, or whether a mark can serve a source-identifying function, is decided by the laws of each country. Moreover, for the most part the decisions in one country relative to whether a patent is enforceable and infringed, or whether one mark is confusingly similar to another, are not afforded precedential value in another.

Because of these territorial differences, it is easy to see that deciding how, where and when to use the global laws of intellectual property protection can be daunting.

Case Study No. 1: A U.S. company, owning trademark rights throughout the world, believes that its marks are being infringed by a French company selling goods throughout the European Union and North America. The U.S. company is faced with deciding between several different places in which it can seek redress for the perceived infringement. In order to determine how best to approach the problem it faces in the marketplace, it needs to analyze several different, and competing, interests.

First, the company needs to define its ultimate business goal. Is it to force the French company to change its mark? Is it to force the French company to pay damages as well as change its mark? Is it to use the litigation as leverage to negotiate a license, thereby resulting in the French company's use of the mark inuring to the benefit of the U.S. company, which in turn may increase the strength of the U.S. company's mark? A license may also result in a continuous stream of income, which might be more desirable than a single damage award.

Second, the company needs to analyze the strength of its case under the laws of the possible jurisdictions in which it can sue. For example, French law provides for a form of unfair competition not present under U.S. law, where a junior user of a mark may be considered to be engaging in parasitic behavior if the senior mark is well known. The claim bears some resemblance to the U.S. claim of trademark dilution, without the difficult standards of proof mandated by the U.S. Supreme Court in dilution cases.

On the other hand, the lack of a jury trial and other limitations on damages will usually result in much lower damage awards in France than the U.S. Moreover, because of the territorial nature of IP laws, as a general proposition a finding of liability in one jurisdiction will not necessarily result in a similar finding in another. This is easily illustrated by the fact that many marks are famous in one country and virtually unheard of in others.

Third, the company needs to analyze the costs associated with filing suit in either or both jurisdictions. Quite obviously, filing suit in the U.S. would result in the prosecution of the claim in a convenient forum for the company, in that the suit could probably be filed in the same location as the company's principal place of business, where its witnesses and documents are located. Conversely, defending a lawsuit in the U.S. would likely be markedly more expensive for the French company, given that its witnesses would need to travel for discovery and trial. The French company would also be faced with the difficult task to quantify the burden of litigating under laws and procedures that are, quite literally, foreign.

The U.S. company would also need to look at the advantages, and disadvantages, of filing suit in France. While plainly more expensive for the U.S. company, an advantage would be gained from the fact that a victory in France would most likely result in a worldwide change in the French company's mark. This result would stem from the fact that it can be quite expensive for a consumer goods manufacturer to use different marks in different countries. Moreover, if the French company decided to continue selling the product under the old mark in countries outside of France, this would result in a diminution of the manufacturer's goodwill caused by the fact that there is no uniformity of mark from country to country. These considerations could drive the French company to change its global mark if faced with a defeat in its home country. Thus, notwithstanding the additional costs, filing in France might provide a better means for reaching the desired result.

In the case at hand, the U.S. company first filed in the U.S. Upon further analysis, the company then filed suit in France, while convincing the court in the U.S. to stay the case pending the outcome in France. The U.S. company prevailed, which resulted in a global change of mark by the French company. Moreover, following that victory, the U.S. company retained the threat of prosecuting the U.S. lawsuit as a means of obtaining either a substantial judgment or a negotiated settlement.

Case Study No. 2: A U.S. company distributes its consumer product in Canada and the U.S., and believes that its Canadian competitor is engaging in false advertising. As above, the decision regarding where best to file is similar: Decide what the overall business objective is, and then evaluate that objective in light of the law and the convenience of the parties.

Unlike the foregoing case, here the U.S. company makes the decision that it wants nothing more than complete capitulation. Thus, the company must achieve complete victory, and determine whether a victory in one country will result in a change in advertising in the other.

Unlike the trademark infringement case described above, the internal markets for the U.S. and Canada are sufficiently different that it is common for companies to use completely different advertising messages in each. For example, because of the language requirements in certain provinces, in Canada virtually all labeling is bilingual in French and English. While such labeling may be proper in the U.S., the message conveyed may not be desired.

In addition, the laws and procedures in each of the jurisdictions result in different requirements for the U.S. company to prevail.

Apparently recognizing these differences, and taking into account its ultimate goal, the U.S. company sues simultaneously in both jurisdictions. While the Canadian case drags on, the U.S. case results in a relatively quick decision against the U.S. company. Armed with that victory, the Canadian company is left with a lucrative market in which to sell its product (the U.S.) and a Canadian lawsuit that will not substantially affect those U.S. sales. Thus, by suing in both forums simultaneously, the U.S. company is left with little leverage to reach its ultimate objective.

The U.S. company might have taken a less aggressive path to reach its goal. It might have sued in one jurisdiction where the law might be considered to be slightly more favorable, and allowed that proceeding to reach its conclusion. While it still might have lost the first decision, it would be left with the option of suing in the other jurisdiction, and bolstering its case by correcting the deficiencies identified in the first. In other words, the second lawsuit could be made that much stronger by learning the lessons of the past. While this path may not result in the original goal - driving the Canadian company completely out of the business segment - the U.S. company could identify a secondary goal (e.g., incremental changes in the advertising message) and create enough uncertainty to cause the Canadian company to accept such a settlement.

These case studies illustrate several aspects of multi-jurisdiction business and litigation. First, when faced with such a situation it is necessary for a party to fully understand both its ultimate and best business objective as well as possible back-up positions. Second, these goals must be analyzed in light of the various factors that arise from multi-jurisdiction litigation, including differences in the applicable law and procedure, and the costs associated with such litigation. While the analysis of these issues is necessarily complex, if approached carefully that analysis can greatly increase the chances of the company understanding its desired result before embarking on the litigation path, and achieving that desired result in an economical manner.

Kenneth L. Wilton is a Partner in the Intellectual Property practice group of Seyfarth Shaw LLP in the Los Angeles office. Mr. Wilton practices in the area of intellectual property litigation, trademark counseling and prosecution, and Internet-related intellectual property issues.

Please email the author at kwilton@seyfarth.com with questions about this article.