Trends In International Litigation

US Copyright Law Discriminates against Foreign Copyrights

Edward Joffe — Wed, 10 Mar 2010 12:04:11 -0500

A U.S. District Court Judge declined to find that the registration prerequisite for statutory damages under the U.S. Copyright laws was preempted by the Berne Convention.

Elsevier B.V., Elsevier Inc., and Mosby, Inc. (collectively “Elsevier”) own or exclusively license copyrights in scientific books and journals which they offer to subscribers to their on-line database, ScienceDirect ®. A large percentage of those publications are created abroad and their foreign copyrights have not been registered in the United States. Elsevier alleged that Defendant Ingenix, Inc. (“Ingenix”) violated the terms of its subscriber agreement with Elsevier by allowing unauthorized access to the ScienceDirect ® database. In seeking statutory damages in a case filed in the US District Court for the Southern District of New York, Elsevier assered that Article Five of the Berne Convention for the Protection of Literary and Artistic Works (the “Berne Convention”) conflicts with § 412 of theUS Copyright laws to the extent that it conditions an award of statutory damages and attorney's fees for infringement of a Berne Convention copyright on the registration of that copyright in the United States.

Article Five of the Berne Convention provides that “the enjoyment and the exercise of [rights under the Convention] shall not be subject to any formality.” Elsevier argues that the Berne Convention superseded § 412 of the Copyright Act of 1976 because statutory damages and attorney's fees are integral to the enjoyment and exercise of foreign copyrights.

The US District Court noted that that argument requires a finding that the Berne Convention was self-executing and became law upon ratification. However, in adopting the Berne Convention Implementation Act of 1988 (the “Implementation Act”), Congress declared that the Berne Convention was “not self-executing under the Constitution and laws of the United States”; that “[t]he obligations of the United States under the Berne Convention may be performed only pursuant to appropriate domestic law”; and that “[t]he amendments made by this Act ..., together with the law as it exists on the date of the enactment of this Act [October 31, 1988], satisfy the obligations of the United States in adhering to the Berne Convention and no further rights or interests shall be recognized or created for that purpose.” Berne Convention Implementation Act of 1988, Pub.L. No. 100-568 § 2, 102 Stat. 2853 (codified as amended at 17 U.S.C. § 101 et seq.)

The court concluded that since the Berne Convention is not self-executing, it cannot serve as the basis for a claim of preemption under Article VI of the United States Constitution.

This decision, although correct on the law, highlights a bias in our copyright laws. We cannot complain about inequities in other countries' IP rights unless we address this issue in our own laws.

Does your company pass the pronoun test?

Edward Joffe — Thu, 04 Mar 2010 14:58:36 -0500

Daniel H. Pink's posting is worth sharing. In the early 1990s, he worked for Robert B. Reich, then the U.S. Secretary of Labor. Reich taught Pink a simple (and free) tool for diagnosing the health of an organization.

When he visited companies and talked with employees, Reich listened carefully for the pronouns people used. Did employees refer to their companies as “they” or as “we”? ”They” suggested at least some amount of disengagement, and perhaps even alienation. “We” suggested the opposite–that employees felt that they were part of something significant and meaningful.

If you’re a boss–of a handful of people, an entire organization, or even your local church group–spend a few days listening to the people around you, not only in formal settings like meetings, but also in the hallways and at lunch. Then apply Reich’s pronoun test. Are you a “we” organization or a “they” organization? The difference matters. All of us seek intrinsic motivation. The thing is, “we” can get it–but “they” can’t.

Supreme Court Hears Arguments over Immunity for Foreign Leaders

Edward Joffe — Wed, 03 Mar 2010 22:27:02 -0500

As reported by Jess Bravin in the Wall Street Journal On Line, the Supreme Court heard arguments on March 3 over whether foreign leaders are entitled to legal immunity in the U.S. for their official acts, in a case that some justices suggested could hold ramifications for former American officials.The court is seeking to reconcile two U.S. laws in apparent conflict.

The Torture Victim Protection Act of 1991 authorizes lawsuits against people who allegedly committed torture or extrajudicial killing "under actual or apparent authority…of any foreign nation" when the home nation lacks adequate remedies for such offenses. But the 1976 Foreign Sovereign Immunities Act exempts foreign governments and their "agencies" and "instrumentalities" from being sued.

The case involves a former Somali official, Mohamed Ali Samantar. Five Somali natives, including two U.S. citizens, claim that they or their relatives were abused or killed by forces under Mr. Samantar's command. Mr. Samantar, who now lives in Fairfax, Va., contends that because he was prime minister or defense minister from 1980 until the Somali regime's 1991 collapse, he was an "instrumentality" of government and thus immune from liability.

In a ruling last year, the Fourth U.S. Circuit Court of Appeals disagreed. The Richmond, Va., court said the Immunities Act was designed to cover entities such as national airlines and other state-owned businesses, not individuals. Other appeals courts have read the Immunities Act more broadly, and the Supreme Court seemed similarly divided over how to construe the law.

Shay Dvoretzky, a lawyer representing Mr. Samantar, said there was no way to distinguish between a foreign government and the individuals who ran it. Congress immunized "foreign officials for acts taken on the state's behalf, because such suits are the equivalent of a suit against the state directly," he told the court.

Patricia Millett, an attorney representing the plaintiffs, said that if Mr. Samantar was right, then the Torture Victim Act "was a very empty statute."

Deputy Solicitor General Edwin Kneedler said the law's ambiguity was intended to leave discretion with the executive branch, which could advise courts whether specific torture lawsuits should be allowed to proceed. "There are a lot of diplomatic sensitivities about whether immunity should be recognized in a particular case or not," Mr. Kneedler said.

Last year, Baltazar Garzon, a Spanish magistrate, opened an investigation into torture allegations against six former Bush administration officials, including former Justice Department lawyer John Yoo.

A decision in Samantar v. Yousuf is expected before July.

Prosecution Against Foreign Corrupt Practices to Grow Substantially

Edward Joffe — Sat, 27 Feb 2010 19:01:17 -0500

As reported by David Hechler of Corporate Counsel, the Department of Justice unit that prosecutes Foreign Corrupt Practices Act cases will soon grow "substantially," according to Mark Mendelsohn, deputy chief of the fraud section's criminal division. Mendelsohn said his section "may grow as much as 50 percent in size in the next year or two." At the same time, he added, he expects companies to play an increasingly aggressive role in thwarting corruption.

"Companies -- individually and collectively and in collaboration with countries -- need to adopt stricter standards," Mendelsohn told a gathering of compliance professionals on February 24 at the Global Ethics Summit 2010 in New York City.

Companies will soon have help on that front. The Organization for Economic Co-operation and Development (OECD) will be publishing best practices guidelines that, unlike those promulgated by the U.S. Sentencing Commission, are specifically tailored to these kinds of cases, and will arrive with the endorsement of the U.S. government, Mendelsohn said.

Mendelsohn began the morning reviewing recent enforcement trends. The big one was the jump in the prosecution of individuals. The number last year was 44 -- up from nine in 2008, 10 in 2007, and six in 2006. When the Justice Department goes after corruption, it isn't myopically focused only on FCPA violations. It's used money laundering, wire fraud and antitrust laws, among others, Mendelsohn noted. "They're all tools to be used against corruption."

He also spoke of increased cooperation with other countries."I don't want to overstate this," he said. "I think the progress is modest and mixed. But there have been pockets." He called the collaboration between U.S. and German authorities in the case against Siemens "the high water mark." He sounded positive about a bribery bill in the U.K. that is widely expected to become law in the coming months. But he reserved his strongest language for the importance of this work to the United States. It even has an impact on the war effort, he observed.

"Corruption is a national security issue," he said, "and an impediment to stability in places like Iraq and Afghanistan."

Florida Businessman Pleads Guilty to Money Laundering in Foreign Bribery Scheme

Edward Joffe — Sun, 21 Feb 2010 13:35:20 -0500

The president of a Miami-Dade County, Fla.,-based company pleaded guilty today to engaging in monetary transactions involving property derived from a scheme to bribe former Haitian government officials.

According to the criminal information filed on Feb. 1, 2010, Jean Fourcand, 62, of Miami, was the president and director of Fourcand Enterprises Inc. In pleading guilty, Fourcand admitted that he received funds between November 2001 and August 2002 originating from U.S. telecommunications companies for the benefit of an official of the Republic of Haiti’s state-owned national telecommunications company, Telecommunications D’Haiti (Haiti Teleco). Fourcand admitted during his guilty plea that some of these funds were received from an intermediary company, J.D. Locator Services Inc. Juan Diaz, the president of J.D. Locator, pleaded guilty on May 15, 2009, to conspiracy to commit violations of the Foreign Corrupt Practices Act (FCPA) and money laundering. Fourcand also admitted that Robert Antoine, the former director of international relations at Haiti Teleco, was the recipient of the bribes.

According to court documents, various U.S. telecommunications companies sent money to Diaz who would then disperse the funds by issuing J.D. Locator checks made payable to Fourcand Enterprises. For example, Fourcand admitted that he received a check for $18,500 on Feb. 20, 2002, drawn on J.D. Locator Service’s bank account, which he deposited into an account in the name of Fourcand Enterprises. This check contained a false invoice number to make the payment appear to be for legitimate services when in fact the money was intended for Antoine. Fourcand admitted that he used these funds to engage in a real estate transaction that benefited Antoine.

The charged crime carries a maximum penalty of 10 years in prison and a fine of the greater of $250,000 or twice the value of the property involved in the transaction. Fourcand also agreed to forfeit $18,500 as part of his guilty plea.

Antoine was indicted on Dec. 4, 2009, for money laundering conspiracy and later arrested and expelled from Haiti to face the U.S. charges. Also charged on Dec. 4, 2009, for their alleged roles in the scheme were Joel Esquenazi, the former president, and Carlos Rodriguez, the former executive vice president of a U.S. telecommunications company, as well as Jean Rene Duperval, a former official at Haiti Teleco, and Duperval’s sister, Marguerite Grandison.

An indictment is merely an accusation, and defendants are presumed innocent until proven guilty beyond a reasonable doubt.

The case was prosecuted by Trial Attorney Kevin Gerrity of the Criminal Division’s Asset Forfeiture and Money Laundering Section, Trial Attorney Nicola J. Mrazek of the Criminal Division’s Fraud Section, and Assistant U.S. Attorney Aurora Fagan of the U.S. Attorney’s Office for the Southern District of Florida.

Seven Charged for Illegal Export of Electronics to U.S. Designated Terrorist Entity in Paraguay

Edward Joffe — Sun, 21 Feb 2010 13:00:34 -0500

Four individuals and three Miami businesses have been indicted on charges involving the export of electronics to a U.S. designated terrorist entity in Paraguay.

Samer Mehdi, 37, of Paraguay, Khaled T. Safadi, 56, of Miami, FL, Ulises Talavera, 46, of Miami, FL, Emilio Jacinto Gonzalez-Neira, 43, of Paraguay, Cedar Distributors, Inc. (Cedar), a Miami-based freight forwarding company owned by defendant Safadi, Transamerica Express of Miami, Inc. (Transamerica), a Miami-based freight forwarding company owned by defendant Talavera, and Jumbo Cargo, Inc. (Jumbo), a Miami-based freight forwarding company owned by defendant Gonzalez-Neira, were indicted on charges of conspiracy, 18 U.S.C. § 371, violating the International Emergency Economic Powers Act (IEEPA), 50 U.S.C. §§ 1701-1706, and smuggling electronic goods from the United States to Paraguay, 18 U.S.C. § 554. The Indictment also seeks the forfeiture of an amount equal to the value of the electronics that were illegally exported. If convicted, the individual defendants face up to 20 years’ imprisonment on the IEEPA charges, 10 years’ imprisonment on the smuggling charges, and 5 years’ imprisonment on the conspiracy charge. The companies each face up to five years’ probation on all charges, and fines of up to $1,000,000 on the IEEPA charges, and $250,000 on the smuggling and conspiracy charges, respectively.

This investigation was initiated in 2007 by ICE, FBI, CBP and DOC, as part of the Joint Terrorism Task Force (JTTF). According to the allegations in the Indictment, from at least as early as March 2007 through and continuing to at least January 2008, freight-forwarders Talavera, through Transamerica, and Gonzalez-Neira, through Jumbo, exported Sony brand electronics, including Playstation 2 consoles and digital cameras, to defendant Samer Mehdi, owner of Jomana Import Export, an electronics business located within the Galeria Page, a shopping center in Ciudad del Este, Paraguay. Safadi, through Cedar, was a distributor of the electronics to the freight-forwarders.
Since December 6, 2006, the shopping center known as Galeria Page in Ciudad del Este, Paraguay, has been designated as a Specially Designated Global Terrorist (SDGT) entity by OFAC, pursuant to Executive Order 13224. Consequently, any transaction or dealing by a U.S. person with Galeria Page, including any transaction or dealing with an entity within Galeria Page, is prohibited. The OFAC designation banned trade with Galeria Page and all tenants located therein. At all relevant times to the Indictment, it is alleged that the defendants were aware that shipping to Galeria Page was prohibited.
To conceal the true destination of the prohibited shipments, the defendants created fake invoices that contained false addresses and also listed fictitious ultimate consignees on the required Shippers Export Declarations (SEDs), and other necessary export paperwork. Locations referenced in these false documents, as well as corresponding emails, ensured that the electronics would reach the prohibited intended destination. Additionally, wire transfer payments from Mehdi in Paraguay to the U.S.-based distributors were routed through various facilities to mask their true origin.
An Indictment is only an accusation and a defendant is presumed innocent until and unless proven guilty.

Italian company, Parker ITR pleads guilty today in fixing prices for marine hose

Edward Joffe — Tue, 16 Feb 2010 18:22:29 -0500

An Italian subsidiary of Parker has agreed to plead guilty and to pay a $2.29 million criminal fine for participating in a conspiracy to rig bids, fix prices and allocate market shares of marine hose sold in the United States and elsewhere, the Department of Justice announced today.

A one-count felony charge was filed today in U.S. District Court in Houston, against Parker ITR S.r.l., a manufacturer of marine hose, headquartered in Veniano, Italy. Under the terms of the plea agreement, which is subject to court approval, Parker ITR has agreed to pay a criminal fine and to cooperate fully in the Department’s ongoing antitrust investigation. Parker ITR is the fourth company to be charged in the investigation. To date, nine individuals have been convicted for their involvement in the marine hose conspiracy.

Marine hose is a flexible rubber hose used to transfer oil between tankers and storage facilities. The victims of this conspiracy included companies involved in the off-shore extraction and/or transportation of petroleum products, as well as the U.S. Department of Defense. During the conspiracy, the cartel affected prices for hundreds of millions of dollars worth of marine hose and related products sold worldwide.

Parker ITR is charged with participating in the conspiracy from as early as 1999 until as late as May 2, 2007. According to the charge, Parker ITR and its co-conspirators agreed to allocate shares of the marine hose market and to use a price list for marine hose in order to implement the conspiracy. Parker ITR and its co-conspirators agreed not to compete for one another’s customers either by not submitting prices or bids, or by submitting intentionally high prices or bids, to certain customers. As part of the conspiracy, Parker ITR and its co-conspirators provided information received from customers in the United States and elsewhere about upcoming marine hose jobs to a co-conspirator who served as the coordinator of the conspiracy. Parker ITR received marine hose prices for customers in the United States and elsewhere from the coordinator of the conspiracy and then sold the marine hose to those customers at collusive and noncompetitive prices and then concealed the conspiracy through various means, including code names, private email accounts and telephone numbers.

Parker ITR is charged with violating the Sherman Act, which carries a maximum fine of $100 million for corporations. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

Today’s charge is an example of the department’s commitment to protect U.S. taxpayers from public procurement fraud through its creation of the National Procurement Fraud Task Force. The National Procurement Fraud Initiative, announced in October 2006, is designed to promote the early detection, identification, prevention and prosecution of procurement fraud associated with the increase in contracting activity for national security and other government programs.

Virginia Resident Pleads Guilty to Bribing Former Panamanian Government Officials in Connection with Maritime Contract

Edward Joffe — Mon, 15 Feb 2010 11:47:14 -0500

A Virginia resident pleaded guilty today in connection with his role in a conspiracy to pay bribes to former Panamanian government officials, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division, US Department of Justice.

John W. Warwick, 64, of Virginia Beach, Va., pleaded guilty before U.S. District Court Judge Henry E. Hudson in Richmond, Va., to a one-count indictment charging him with conspiring to make corrupt payments to foreign government officials for the purpose of securing business for Ports Engineering Consultants Corporation (PECC) in violation of the Foreign Corrupt Practices Act (FCPA). Warwick was indicted on Dec. 15, 2009. PECC, a company incorporated under the laws of Panama, was affiliated with an engineering firm based in Virginia Beach. According to the indictment, PECC was created so that Warwick, co-conspirator Charles Jumet, the engineering firm and others could corruptly obtain certain maritime contracts from the Panamanian government.

According to court documents, Warwick and Jumet participated in a conspiracy to pay money secretly to Panamanian government officials for awarding contracts to PECC to maintain lighthouses and buoys along Panama’s waterway. In December 1997, the Panamanian government awarded PECC a no-bid 20-year concession to perform these duties. Upon receipt of the concession, Warwick, Jumet and others authorized corrupt payments to be made to the Panamanian government officials.

In connection with his guilty plea, Warwick admitted that at least from 1997 through approximately July 2003, he, Jumet and others conspired to make corrupt payments totaling more than $200,000 to the former administrator and deputy administrator of the Panama Maritime Authority and to a former, high-ranking elected executive official of the Republic of Panama.

As part of his plea agreement, Warwick has agreed to forfeit $331,000, which represents the proceeds of this crime. At sentencing, scheduled for May 14, 2010, at 10:30 a.m. before Judge Hudson, Warwick faces a maximum of five years in prison and a fine of the greater of $250,000 or twice the gain or loss.

Jumet pleaded guilty on Nov. 13, 2009, to a two-count criminal information charging him with conspiring to make corrupt payments to foreign government officials for the purpose of securing business for PECC, in violation of the FCPA, and making a false statement. Jumet is scheduled to be sentenced on March 26, 2010.

U.K. Firm Pleads Guilty to Illegally Exporting Boeing 747 Aircraft to Iran

Edward Joffe — Thu, 11 Feb 2010 23:24:58 -0500

Balli Aviation Ltd., a subsidiary of the United Kingdom-based Balli Group PLC, has plead guilty in the U.S. District Court for the District of Columbia to a two-count criminal information in connection with its illegal export of commercial Boeing 747 aircraft from the United States to Iran.
Under the plea agreement, Balli Aviation Ltd. agreed to pay a $2 million criminal fine and be placed on corporate probation for five years. The $2 million fine, combined with a related $15 million civil settlement among Balli Group PLC, Balli Aviation Ltd., the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), that was also announced today, represents one of the largest fines for an export violation in BIS history.

Under the terms of the related civil settlement, Balli Group PLC and Balli Aviation Ltd. have agreed to pay a civil penalty of $15 million of which $2 million will be suspended if there are no further export control violations. In addition, Balli Aviation Ltd. and Balli Group PLC are denied export privileges for five years, although this penalty will be suspended provided that neither Balli Aviation nor Balli Group commits any export violations and pays the civil penalty. Under the terms of the settlement, Balli Group PLC and Balli Aviation, Ltd. will also have to submit the results of an independent audit of its export compliance program to BIS and OFAC for each of the next five years.

According to count one of the information filed with the court, beginning in at least October 2005, through October 2008, Balli Aviation Ltd. conspired to export three Boeing 747 aircraft from the United States to Iran without first having obtained the required export license from BIS or authorization from OFAC, in violation of the Export Administration Regulations (EAR) and the Iranian Transactions Regulations. More particularly, the information states that Balli Aviation Ltd., through its subsidiaries, the Blue Sky Companies, purchased U.S.-origin aircraft with financing obtained from an Iranian airline and caused these aircraft to be exported to Iran without obtaining the required U.S. government licenses. Further, Balli Aviation Ltd. entered into lease arrangements that permitted the Iranian airline to use the U.S.-origin aircraft for flights in and out of Iran.

Count two of the information states that Balli Aviation Ltd. violated a Temporary Denial Order (TDO) issued by BIS on March 17, 2008, that prohibited the company from conducting any transaction involving any item subject to the EAR. Starting in or about March 2008 and continuing through about August 2008, Balli Aviation Ltd. willfully violated the TDO by carrying on negotiations with others concerning buying, receiving, using, selling and delivering U.S.-origin aircraft which went to the Export Administration Regulations.

Crowley Settles Puerto Rican Cabotage Litigation

Edward Joffe — Tue, 09 Feb 2010 12:53:03 -0500

This past Friday, February 5, 2010, plaintiffs filed a motion seeking approval of a settlement reached between the Class Action Representatives and the Crowley Companies ( Crowley Maritime Corporation and Crowley Liner Services, Inc.) Under the proposed settlement $ 13.5 million would be paid into the settlement fund. Any class member who is a party to a Transportation Service Agreement with Horizon would have the option to elect, in lieu of receiving a cash payment, a freeze of the then existing contract base rates for two years.

Last summer the Horizon Line Companies also reached a proposed settlement under similar terms which includes a $ 20 million payment.

The litigation is continuing against the other defendants. However, this settlement puts additional pressure against them and we believe that a global settlement will be concluded shortly.

Ontario court found that Canadian Imperial Bank of Commerce colluded in dishonor of a letter of credit

Edward Joffe — Fri, 05 Feb 2010 22:43:58 -0500

In Nareerux Import Co Ltd v Canadian Imperial Bank of Commerce , the Ontario Court of Appeal did not allow an issuer of a letter of credit to refuse payment based on the beneficiary's non-compliance with the letter of credit's terms and conditions when the issuing bank has knowingly contributed to, or acquiesced in, the circumstances that undermined the prospect of strict compliance.

Thai Fisheries Co Ltd accepted letters of credit from Canadian Imperial Bank of Commerce in order to ensure payment for shipments of large quantities of Thai shrimp to Douglas R Robertson International Inc in the United States. Ultimately, the shrimp was to be sold by Robertson to Sam's Club.

Thai Fisheries and the bank agreed to include the following provision in the letters of credit:
"Payment of drafts or drafts drawn hereunder will be effected when accompanied by required documents and after receipt from the applicant of a signed purchase order(s) issued by Sam's Club and related delivery receipt(s) showing container number(s), number of cartons and evidencing that goods have been received by Sam's Club Distribution Centre(s)."

Robertson failed to deliver the receipts from Sam's Club to the bank and as a result Thai Fisheries did not receive payment for substantial amounts of shrimp supplied. However, the proceeds of sale were used by Robertson to reduce his line of credit at the bank. The bank was informed that Robertson may have been withholding the required documents and that there would be no further shipments to Sam's Club. Thai Fisheries was not advised of this information for more than a year thereafter.

The appellate court refused to allow the bank to rely on the defense of non-compliance when its own conducgt contributed to the noncompliance. The appellate court noted that the bank was aware that no receipts were produced for US$6.9 million of shrimp delivered by Robertson to Sam's Club, and that shrimp was being sold to purchasers, other than Sam's Club, that should have been subject to the requirement of producing receipts. The bank failed to bring this information to Thai Fisheries' attention and continued to accept the proceeds of sale to reduce Robertson's line of credit. The court upheld the trial judge's decision and held that the bank's conduct was correctly characterized as a direct breach of the principle of autonomy underpinning letter of credit transactions and as a breach of the bank's implied duty of good faith.

In finding that the bank had breached the guiding principle of autonomy, the court held that:
"Letters of Credit by the issuer and its customer as a tap for payment, depending upon when the Bank and its client wanted to effect such payment - in order to better their own positions vis-à-vis each other as debtor and creditor - nullifies the entire autonomy principle and the independent role required of the Bank under the Letters of Credit."

The court also noted that the bank had violated its implied duty of good faith and and also had failed to give timely notice of its dishonor.

Practice pointer – The beneficiary should never had accepted a letter of credit where it did not control the ability to submit compliant documents.

British Court Guts Arbitration Clause for Judicial Remedies under an EU Directive

Edward Joffe — Wed, 27 Jan 2010 14:26:42 -0500

An English distributor, Accentuate Ltd, and Canadian licensor, Asigra Inc., entered into a software distribution agreement which contained clauses requiring arbitration and a choice of law provision providing that the laws of Ontario and Canada govern. When a breach of the agreement occurred, the distributor threatened to bring a claim in England under an EU Directive--Commercial Agents (Council Directive) Regulations 1993– which provides a self-employed commercial agent with indemnity or compensation upon termination of an agency contract.

In response to the threat of litigation, the licensor started arbitration in Canada for a declaration that the distributor had no claims against it. In the resulting awards, the tribunal stated that the laws of Ontario (and federal laws of Canada) applied to the dispute and that the regulations were irrelevant.
Rather than challenge the awards, the distributor applied to an English court for permission to serve the licensor out of the jurisdiction in order to obtain compensation under the regulations. The licensor applied to the court to stay proceedings on the grounds that the parties had agreed to refer disputes to arbitration in Toronto under Canadian law. The judge declared that the court had no jurisdiction, but granted the distributor permission to appeal. The distributor appealed to the High Court, arguing that the choice of law amounted to an evasion of EU law.

The appellate court reversed and found that the requirements of the regulations were mandatory; thus, an arbitration clause in favor of Canadian law was null and void and inoperative to the extent that it required the submission to arbitration of questions pertaining to mandatory provisions of EU law. Furthermore, recognition of any resulting awards would be refused on public policy grounds. As a result, the stay of proceedings was lifted and permission to serve the licensor out of the jurisdiction was confirmed.

This decision is troublesome. The concept behind both choice of law provisions and arbitration clauses is that the parties have the right to contractually agree on all terms of their business arrangement--including the remedies. This decision undercuts these rights. Anyone doing business in the European Union is forced to make sure that he is not falling into a trap of unintended consequences.

French Hoodwink Geitner During AIG Bailout

Edward Joffe — Thu, 21 Jan 2010 10:11:25 -0500

As Dennis Berman reported in the Wall Street Journal, the French appear to have bested Tim Geithner when the Federal Reserve agreed to the full payment demands of France's bank regulator and two of AIG's largest creditors, Société Générale SA and Calyon Securities, a unit of Crédit Agricole SA., as part of its bailout of American International Group Inc.

The French banks and the regulator, known as the Commission Bancaire,won the day by arguing that the bank executives could be criminally liable for accepting a discount on their contracts. While true in the abstract, "their argument was very overstated," said Pierre-Henri Conac, a University of Luxembourg law professor and a director of France's oldest corporate-law review. "Banks give haircuts every day." Their refusal was crucial, as it helped set the tone for U.S. banks, including Goldman and Merrill, to resist negotiation.

In November 2008, the Fed, having already committed $85 billion to rescue AIG, was worried about a set of AIG holdings tied to mortgage securities that were draining cash from the company, according to the inspector general's report. At the top of the counterparty list: Société Générale, with $16.5 billion in contracts. Calyon Securities was sixth, with $4.3 billion. Goldman Sachs was second with $14 billion.

The Fed and AIG finally seized on a plan, according to the inspector general's report. Step one: Let the banks keep $35 billion of collateral already posted by AIG. Two: Purchase the banks' underlying securities, which were derivatives tied to low-grade mortgages. Three: Cancel the contracts.
Over one frenzied weekend in early November, Fed and AIG officials struggled with the final step: What should they pay for those securities? By contract, the banks were guaranteed full payment.
There were some factors to suggest a lower, negotiated price was in order. The securities' market value had fallen significantly. And absent the extraordinary U.S. bailout, AIG would have been in bankruptcy, potentially leaving counterparties with zero.

A call went out from the New York Fed to Société Générale and Calyon, as well as to France's Commission Bancaire, according to the report by Neil Barofsky, the TARP inspector general. They wanted to treat all the parties equally. By demanding payment in full, the French helped the other banks get the same treatment.

"[T]he French banks concluded they were precluded by law from making concessions and could face potential criminal liability for failing to comply with their duties to shareholders," Mr. Barofsky found in interviews with Fed officials. The French were "indignant that we would even contemplate asking for this," added one person close to the New York Fed. Other banks, including Goldman Sachs and Merrill Lynch, rebuffed the Fed on similar grounds at the same time. In the end, no one took a haircut.

Yet there appear plenty of grounds for challenging the French conclusion, said French lawyers and law professors. "To say that these people would have gone to jail if they cut a deal and signed the same agreement as Goldman Sachs is really pushing beyond what goes on in France," said Christopher Mesnooh, a partner at Paris's Fields Fisher Waterhouse who has written a book on French corporate law.

Twenty-Two Executives and Employees of Military and Law Enforcement Products Companies Charged in Foreign Bribery Scheme

Edward Joffe — Tue, 19 Jan 2010 20:58:23 -0500

On January 19,2010 the Justice Department announced that twenty-two executives and employees of companies in the military and law enforcement products industry have been indicted for engaging in schemes to bribe foreign government officials to obtain and retain business, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division; U.S. Attorney Channing Phillips for the District of Columbia; and Assistant Director Kevin Perkins of the FBI’s Criminal Investigative Division. Twenty-one defendants were arrested in Las Vegas yesterday. One defendant was arrested in Miami. The indictments stem from an FBI undercover operation that focused on allegations of foreign bribery in the military and law enforcement products industry.
The 16 indictments unsealed today represent the largest single investigation and prosecution against individuals in the history of DOJ’s enforcement of the Foreign Corrupt Practices Act (FCPA), a law that prohibits U.S. persons and companies, and foreign persons and companies acting in the United States, from bribing foreign government officials for the purpose of obtaining or retaining business. The indictments unsealed today were returned on Dec. 11, 2009, by a grand jury in Washington, D.C.

In connection with these indictments, approximately 150 FBI agents executed 14 search warrants in locations across the country, including Bull Shoals, Ark.; San Francisco; Miami; Ponte Vedra Beach, Fla.; Sarasota, Fla.; St. Petersburg, Fla.; Sunrise, Fla.; University Park, Fla.; Decatur, Ga.; Stearns, Ky.; Upper Darby, Penn.; and Woodbridge, Va. Additionally, the United Kingdom’s City of London Police executed seven search warrants in connection with their own investigations into companies involved in the foreign bribery conduct that formed the basis for the indictments.

These cases are being prosecuted by Assistant Chief Hank Bond Walther and Trial Attorney Laura N. Perkins of the Criminal Division’s Fraud Section, and Matthew C. Solomon of the U.S. Attorney’s Office for the District of Columbia.

The indictments allege that the defendants engaged in a scheme to pay bribes to the minister of defense for a country in Africa. In fact, the scheme was part of the undercover operation, with no actual involvement from any minister of defense. As part of the undercover operation, the defendants allegedly agreed to pay a 20 percent “commission” to a sales agent who the defendants believed represented the minister of defense for a country in Africa in order to win a portion of a $15 million deal to outfit the country’s presidential guard. In reality, the “sales agent” was an undercover FBI agent. The defendants were told that half of that “commission” would be paid directly to the minister of defense. The defendants allegedly agreed to create two price quotations in connection with the deals, with one quote representing the true cost of the goods and the second quote representing the true cost, plus the 20 percent “commission.” The defendants also allegedly agreed to engage in a small “test” deal to show the minister of defense that he would personally receive the 10 percent bribe.
The indictments charge the following executives and employees of the various companies in the military and law enforcement product industries:
Daniel Alvirez, 32, and Lee Allen Tolleson, 25, the president and director of acquisitions and logistics at a company in Bull Shoals, Ark., that manufactures and sells law enforcement and military equipment;
Helmie Ashiblie, 44, the vice president and founder of a company in Woodbridge, Va., that supplies tactical bags and other security-related articles for law enforcement agencies and governments worldwide;
Andrew Bigelow, 40, the managing partner and director of government programs for a Sarasota, Fla., company that sells machine guns, grenade launchers and other small arms and accessories;
R. Patrick Caldwell, 61, and Stephen Gerard Giordanella, 50, the current and former chief executive officers of a Sunrise, Fla., company that designs and manufactures concealable and tactical body armor; Yochanan R. Cohen, aka Yochi Cohen, 47, the chief executive officer of a San Francisco company that manufactures security equipment, including body armor and ballistic plates;
Haim Geri, 50, the president of a North Miami Beach, Fla., company that serves as a sales agent for companies in the law enforcement and military products industries;
Amaro Goncalves, 49, the vice president of sales for a Springfield, Mass., company that designs and manufactures firearms, firearm safety/security products, rifles, firearms systems and accessories; John Gregory Godsey, aka Greg Godsey, 37, and Mark Frederick Morales, 37, the owner and agent of a Decatur, Ga., company that sells ammunition and other law enforcement and military equipment; Saul Mishkin, 38, the owner and chief executive officer of an Aventura, Fla., company that sells law enforcement and military equipment; John M. Mushriqui, 28, and Jeana Mushriqui, 30, the director of international development and general counsel/U.S. manager of an Upper Darby, Penn., company that manufactures and exports bulletproof vests and other law enforcement and military equipment; David R. Painter, 56, and Lee M. Wares, 43, the chairman and director of a United Kingdom company that markets armored vehicles; Pankesh Patel, 43, the managing director of a United Kingdom company that acts as sales agent for companies in the law enforcement and military products industries; Ofer Paz, 50, the president and chief executive officer of an Israeli company that acts as sales agent for companies in the law enforcement and military products industries; Jonathan M. Spiller, 58, the owner and president of a Ponte Vedra Beach, Fla., company that markets and sells law enforcement and military equipment;
Israel Weisler, aka Wayne Weisler, 63, and Michael Sachs, 66, owners and co-chief executive officers of a Stearns, Ky., company that designs, manufactures and sells armor products, including body armor; John Benson Wier III, 46, the president of a St. Petersburg, Fla., company that sells tactical and ballistic equipment.

All of the defendants except Giordanella were arrested yesterday by FBI agents in Las Vegas. Giordanella was arrested in Miami, also by FBI agents.

Smuggler of Illegal Coral from Phillippines Sentenced in Federal Court

Edward Joffe — Fri, 15 Jan 2010 10:01:05 -0500

Although receiving little publicity, our federal government continues to prosecute environmental crimes. On January 14, 2010, Gunther Wenzek, a German national, was sentenced to serve three years on probation and pay a criminal penalty of over $35,000 by Judge Anna J. Brown of the U.S. District Court for the District of Oregon for smuggling coral into the Port of Portland, Ore., the Justice Department announced.The penalty included a criminal fine of $16,510, nearly $10,000 in restitution to the National Oceanic and Atmospheric Administration, and a community service payment of $8,890.

Wenzek owns a company named CoraPet, based in Essen, Germany, that sells various coral products to retailers in the United States. The investigation was launched in 2007 after Wenzek tried to ship a container loaded with fragments of endangered coral from reefs off the Philippine coast to Portland. After this initial shipment, agents subsequently seized two full containers of endangered coral shipped by Wenzek to a customer in Portland. These two shipments made up a total of over 40 tons of coral.

The corals seized have been identified as corals from the scientific order Scleractinia, genera Porites, Acropora, and Pocillopora, common to Philippine reefs. Due to the threat of extinction, stony corals, such as those seized in this case are protected by international law. Philippine law specifically forbids exports of all coral. Moreover, the Convention on International Trade in Endangered Species bars importation of the coral Wenzek tried to import to customers in the United States, without a permit.

The case was investigated by the U.S. Fish and Wildlife Service, U.S. Immigration and Customs Enforcement and the National Marine Fisheries Service. The case was prosecuted by U.S. Attorney’s Office for the District of Oregon and the Justice Department’s Environmental Crimes Section.

Bahrain Launches World's First Arbitration 'Free Zone'

Edward Joffe — Tue, 12 Jan 2010 18:22:16 -0500

The Kingdom of Bahrain today formally launched the Bahrain Chamber of Dispute Resolution and, in the process, became the first country in the world to establish an arbitration "free zone" and introduce the concept of statutory arbitration. The Chamber, an initiative of Bahrain's Ministry of Justice and delivered in partnership with the American Arbitration Association, the world's leading provider of conflict management and dispute resolution services, will be known formally as the BCDR-AAA.
When international disputes are heard at the BCDR, where the parties involved agree to be bound by the outcome, the award will be guaranteed and not subject to challenge in Bahrain. This resolves an issue that has been a significant problem in many parts of the world, despite existing international conventions. Bahrain's arbitration "free zone" will, therefore, offer jurisdictional and legal certainty to the recognition of arbitration awards, an essential component of modern day commercial transactions.

In another global first, Bahrain has also introduced the concept of statutory arbitration for commercial and financial disputes. Cases that would previously have come before Bahrain's domestic courts, where the claim is over 500,000 BHD ($1.3m USD) and involves an international party or a party licensed by the Central Bank of Bahrain, will now be directed to the BCDR-AAA for final and binding resolution. The move is aimed at providing additional benefit to Bahrain's commercial, banking and financial services sectors, which form a long-established hub within the region.

Bahrain Minister of Justice, HE Sheikh Khaled bin Ali Al Khalifa commented: "In establishing the BCDR-AAA, Bahrain has sought to bring the very latest in global ADR solutions to the region. BCDR has partnered with the world's leading provider - the AAA - to ensure the highest standards of international best practice are consistently delivered. And have also enacted cutting-edge legislation that guarantees the independence of the Chamber itself and, vitally, the interests of its users.

AAA President & CEO William K Slate II commented: "The American Arbitration Association is honored and pleased to partner with the Minister of Justice to form the BCDR. As alternative dispute resolution grows internationally, public and private sector legal officials are experiencing its efficiencies and fairness.

Manhattan resident indicted for violating Iran Trade Embargo by operating an unlicensed money transfer business

Edward Joffe — Tue, 12 Jan 2010 12:37:56 -0500

Mahmoud Reza Banki, a 33 year old management consultant at a major New York consulting firm -- was arrested last Thursday on an Indictment charging him with violating the Iran Trade Embargo and with operating an unlicensed money transfer business between the United States and Iran.

According to the Indictment Banki, a United States citizen and resident of New York, allegedly provided money transmitting services to residents of Iran by operating a "hawala," a type of informal value transfer system in which money does not physically cross international boundaries through the banking system. In the hawala system, funds are transferred by customers to a hawala operator, or "hawaladar," in one country, and corresponding funds, less any fees, are disbursed to recipients in another country by hawaladar associates on that end. Banki allegedly received wire transfers totaling approximately $4.7 million from companies and individuals --located in, among other places, Saudi Arabia, Kuwait, Latvia, Slovenia, Russia, Sweden, the Philippines, and the United States-- in a personal bank account he maintained for this purpose at Bank of America in Manhattan.

Generally, Banki did not know the wire originators personally. He received the funds with the understanding that an equivalent amount of Iranian currency would, in turn, be disbursed to intended recipients residing in Iran. Banki informed an Iran-based co-conspirator when funds had been received, and the co-conspirator then disbursed the funds, less any fees, in Iran. Banki allegedly used certain of the funds transferred into his Bank of America account to make joint investments in the United States with the Iran-based co-conspirator. Among other things, Banki used the funds to purchase a $2.4 million condominium in Manhattan; to invest in securities for his own benefit and that of the co-conspirator; and to make payments on his credit card accounts, including approximately $55,000 in one month alone in the summer of 2007.

BANKI is charged with violating the International Emergency Economic Powers Act( IEEPA), together with Executive Orders and United States Department of Treasury regulations; conducting an unlicensed money transmitting business; and conspiracy to commit those two crimes. If convicted, BANKI faces a maximum sentence of five years in prison on each of the conspiracy and unlicensed money transmitting counts, and 20 years in prison on the IEEPA violation count.

This case is being handled by the Office's Complex Frauds and Asset Forfeiture Units. Assistant United States Attorneys E. Danya Perry and Jason Hernandez are in charge of the prosecution. The charges and allegations contained in the Indictment are merely accusations, and the defendant Mahmoud Reza Banki is presumed innocent.

Earlier today theNew York Post reported that Mr. Banki was denied bail.

Chinese Government accused of cyberpiracy

Edward Joffe — Mon, 11 Jan 2010 13:07:24 -0500

CYBERsitter, LLC which does business as Solid Oak Software, has filed suit in the US District Court, Central District of California against the Chinese government and two Chinese companies (among others) for software piracy in the theft of approximately 3,000 lines of code from Solid Oak’s internet content filtering program. This software called CYBERsitter, was designed to help parents protect their children from viewing inappropriate pornographic and violent content on the Web. CYBERsitter , the first commercially available Internet content filter, has been published for over 14 years and has over 2.4 million active CYBERsitter users worldwide, including 20 thousands of businesses, individuals, and schools in China.

The law suit alleges that Chinese software developers, in collaboration with the Chinese government, purported to design an Internet content filtering program known as Green Dam Youth Escort. Like CYBERsitter, the Green Dam program was allegedly designed to block pornographic and violent Internet content from children. Unlike CYBERsitter, however, the Green Dam program was found to contain filters to block political and religious content expressing views that differed from those of the Chinese government.

Solid Oak alleges that a group of independent researchers at the University of Michigan confirmed that the Green Dam developers had copied verbatim nearly 3,000 lines of code from the CYBERsitter program and incorporated it into the Green Dam program.

The stolen materials include the heart of the CYBERsitter software: its proprietary content filters. The Chinese government has issued Green Dam usage figures reporting — as of early June 2009 — that over 153 million computers marketed for home use had been sold with the Green Dam program, that the Green Dam program had been installed on more than half a million computers in Chinese schools and that Green Dam had been downloaded by users from the Internet an additional 3.27 million times.

The plaintiff seeks over $ 2 Billion Dollars in damages under a variety of theories including misappropriation of trade secrets, unfair competition and copyright infringement.

The court case will impose significant challenges for Solid Oak including defenses of personal jurisdiction and sovereign immunity and this litigation will take years to unfold.
Diplomacy has been unable to stop, or even thwart, the wholesale violation of US intellectual property rights in China. It will be interesting to see if civil litigation and the risk enormous money damages will provide the needed threats and sanctions to bring a stop to this piracy.

At the end of the day, i.e. years from now, this case will eventually settle - Just the cost of doing business with the world’s most populous economy.

Court Awards 8 Million Dollar Default Judgment Against Hyundai as Discovery Sanction

Edward Joffe — Wed, 06 Jan 2010 20:52:34 -0500

Multinational businesses sued in US beware. Ignoring litigation obligations can have serious financial consequences. The Supreme Court of Washington upheld a $ 8 million dollar default judgment against Hyundai imposed as a discovery sanction.

On February 15, 1997 Jesse Magaña was a passenger in a 1996 Hyundai Accent, two-door hatchback driven by Ricky Smith. As they drove over a hill they saw an oncoming truck driven by Dennis Nylander that appeared to be in their lane. Smith swerved the Accent to avoid the truck, causing his car to veer off the road. The car hit several trees and spun violently. Magaña was thrown out of the rear window and landed about 50 to 100 feet away from where the car eventually stopped. He was rendered a paraplegic due to the accident.

Magaña filed suit on February 8, 2000 in Clark County Superior Court, Washington, against Hyundai Motor America and Hyundai Motor Company (collectively Hyundai) and the drivers of both vehicles.

Fast forwarding through a detailed procedural history, the trial court found that Hyundai had willfully violated the discovery rules , its discovery abuses had substantially prejudiced Magaña in preparing for trial and it had spoiled and lost evidence. The trial court imposed an $ 8 million dollar default judgment against Hyundai as a discovery sanction. The Washington Court of Appeals reversed in a two-to-one decision and remanded for a new trial.

However, in November, 2009 the Supreme Court found that trial courts need not tolerate deliberate and willful discovery abuse, that given the unique facts and circumstances of this case, the trial court appropriately diagnosed Hyundai's willful efforts to frustrate and undermine truthful pretrial discovery efforts by striking its pleadings and rendering an $8,000,000 default judgment plus reasonable attorney fees. This result appropriately compensates the other party, punishes Hyundai, and hopefully educates and deters others so inclined.

This decision should serve as a reminder to large companies, both domestic and foreign, that US courts will not tolerate playing games in producing evidence during the pretrial process.

ITC Determines Chinese Oil Country Tubular Piping Injuries US Industry

Edward Joffe — Wed, 30 Dec 2009 16:50:56 -0500

The United States International Trade Commission today determined that a U.S. industry is materially injured or threatened with material injury by reason of imports of certain oil country tubular goods from China. U.S. Department of Commerce has determined these goods are subsidized .

Kris Maher at andHenry J. Pulizzi at the Wall Street Journal Online report that this steel-pipe case is the ITC's biggest ever by dollar amount, and comes as the world's recession and overall drop in demand for steel products has caused steelmakers to fight for a smaller pool of customers Imports of so-called oil country tubular goods from China, totaled $2.8 billion in 2008.The Chinese government can appeal Wednesday's decision to the World Trade Organization, and Chinese steelmakers can appeal to a federal district court in New York that handles trade cases.
Daniel Porter, a Washington attorney representing the Chinese exporters, said a decision on whether to appeal could be made in several weeks, once a detailed ruling by the ITC explaining the rationale for its decision is made public. "We are obviously disappointed," Mr. Porter said. Chinese steelmakers argued that the U.S. industry is trying to stymie legitimate competition and wasn't injured by the imports. They note the U.S. steel industry was making record profits, especially in 2008, when selling pipe and tube to energy and exploration countries, and argued that Chinese imports increased to meet demand in the U.S. "It's hard to see how those imports caused injury," Mr. Porter said.
John Surma, CEO of U.S. Steel Corp., said he was "pleased" with the ITC's ruling on Wednesday. "This enormous surge of unfairly traded goods resulted in an overhang of inventory that crippled the domestic industry."

Pittsburgh-based U.S. Steel and seven other domestic producers, along with the United Steelworkers, filed a trade complaint in April against Chinese producers and exporters, claiming China's government was subsidizing pipe-production costs.

The United Steelworkers, which has been actively involved in filing trade cases and was the driving force in the tire case, said the decision would enable companies to bring back laid off workers. "Today's vote by the trade commission makes it clear to American pipe workers and industry that the U.S. government will stand up against China's violation of fair trade rules," said Leo Gerard, the union's president.

The ruling, which will likely result in duties of between 10% and 16% on future imports of Chinese steel pipes used to drill for natural gas and oil.