D.C. Circuit Affirms Vacatur of Default Judgment Won by Bell Against Iranian Gov't

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By Anandashankar Mazumdar  

Nov. 4 --Any conceivable reputational injury suffered by the maker of the Bell Jet Ranger helicopter as a result of alleged trade dress infringement by an Iranian state enterprise is too attenuated, speculative or remote to qualify as a “direct effect” in the United States such that Iran should lose its sovereign immunity, the U.S. Court of Appeals for the District of Columbia Circuit ruled Nov. 1 (Bell Helicopter Textron, Inc. v. Islamic Republic of Iran, D.C. Cir., No. 12-7103, 11/1/13).

The court thus affirmed a federal district court's vacatur of a default judgment against the government of Iran.

Bell Abandons Factory During Revolution

The Bell Jet Ranger 206 helicopter has been manufactured and sold since 1966. Bell Helicopter Textron Inc. of Fort Worth, Texas, has sold almost 10,000 helicopters using the trade dress of the 206 Model Helicopter Series, and the company receives about $500,000 in royalties for each helicopter over its lifetime from third-party parts manufacturers.

Until the Iranian revolution in 1979, Bell operated a helicopter manufacturing plant in Iran. In 2001, the Iran Aircraft Manufacturing Industrial Co., an entity wholly owned by the government of the Islamic Republic of Iran, began selling helicopters and parts under the name Shahed 278 and Shahed 285 that resembled the Jet Ranger 206. In 2006, Bell sued the government of Iran, alleging trade dress infringement and dilution, pursuant to the Foreign Sovereign Immunities Act of 1976, 28 U.S.C. §1605. Specifically, Bell invoked an exception to sovereign immunity set forth in Section 1605(a)(2).

Bell effected service of process in July 2007 through diplomatic channels; however, the Iranian government neither responded nor made appearances in court. Judge Ricardo M. Urbina of the U.S. District Court for the District of Columbia entered default against Iran in 2009 and then awarded default judgment in 2001, after determining that Iran's actions had had a “direct effect” on Bell, and thus the Section 1605(a)(2) exception was applicable.

That exception is applicable in three circumstances, one of this occurs “upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.”

The district court found that Bell had satisfied the elements of that exception and determined that Bell had also shown infringement and dilution under the Lanham Act, 15 U.S.C. §§1114(1)(a) and 1125(c). It established treble damages for intentional use of a counterfeit trademark of $6.5 million based on loss of profits from spare parts. Furthermore, the court awarded $2.5 million in pre-judgment interest and $500,000 in attorneys' fees.

In August 2011, the government of Iran received notice of the default judgment and in February 2012 moved to vacate on the basis of lack of subject matter jurisdiction under Fed. R. Civ. P. 60(b)(4) and 60(c)(1).

Judge Amy Berman Jackson found that the government of Iran's marketing of helicopters in Iran had not had a “direct effect” on Bell and thus the exception under Section 1605(a)(2) of the Foreign Sovereign Immunities Act was inapplicable. The court thus granted the motion to vacate and nullified the $22 million judgment (188 PTD, 9/28/12). Bell appealed.

Timeliness Not an Issue in This Case

Judge Judith W. Rogers first rejected Bell's argument that Iran's motion was untimely. The court said that its precedent permitted the raising of the subject matter jurisdiction issue by a party that had not thus far submitted to the jurisdiction of the court. Next, the court said that if there be a deficiency of subject matter jurisdiction, then the judgment would be void, as opposed to merely voidable.

In this case, because the government of Iran had not submitted to the district court's jurisdiction, the appeals court ruled that it could argue in the context of a Rule 60(b)(4) motion that the judgment was entirely void for lack of subject matter jurisdiction.

Turning to the substantive issue, the court started with the proposition that “Interference with a property right does not necessarily demonstrate a 'direct effect' under the FSIA.” Furthermore, the court said, the direct effect requirement “is not satisfied when a 'plaintiff's U.S. citizenship furnished the only connection between the commercial activity and the United States.' ”

McKesson HBOC, Inc. v. Islamic Republic of Iran, 271 F.3d 1101 (D.C. Cir. 2001), found a direct effect arising from “the cut-off of the constant flow of capital, management personnel, engineering data, machinery, equipment, materials and packing between the [American and Iranian] companies, as well as the abrupt end of McKesson's role as an active investor.”

In this case, the court said, Bell had failed to offer evidence of any such direct effect, such as the marketing of the Shahed helicopters in the United States. The sole source of loss identified was that arising from the similarity of the appearances of the Shahed and Bell helicopters, a “potential financial and reputational loss,” and this was “remote or speculative” so far as any effect on Bell was concerned.

There was not even any evidence that any Bell customers or potential customers would be likely to confront marketing or sales of the Shahed and thus be subject to potential confusion, the court said. Nor was there evidence that any such customer had considered purchasing a Shahed instead of a Jet Ranger, or had experience the actual confusion of belief that the Shahed was somehow associated with Bell.

“Bell likewise presented no evidence that there is any crossover between the market for Bell spare parts and the market for Shahed spare parts, or that such crossover is substantially likely,” the courts aid.

The court said that there was some conceivable harm to Bell resulting from Iran's use of Bell's trade dress, but that this was not the kind of harm encompassed by the “direct effect” requirement. The evidence was either too remote, too attenuated, or too speculative to overcome this hurdle, the court concluded.

Thus, the court affirmed the district court's vacatur of the judgment.

The court's opinion was joined by Judge David S. Tatel and Judge David B. Sentelle.

Bell was represented by Kannon K. Shanmugam of Williams & Connolly LLP, Washington, D.C. The government of Iran was represented by Christopher J. Wright of Wiltshire & Grannis LLP, Washington, D.C.


To contact the reporter on this story: Anandashankar Mazumdar in Washington at amazumdar@bna.com

To contact the editor responsible for this story: Naresh Sritharan at nsritharan@bna.com

Text is available at http://www.bloomberglaw.com/public/document/Bell_Helicopter_Textron_Inc_et_al_v_Islamic_Republic_of_Iran_et_a.

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