Fourth Circuit Adopts Predicate-act Doctrine to Affirm Damages for Foreign Copyright Infringement | Practical Law

Fourth Circuit Adopts Predicate-act Doctrine to Affirm Damages for Foreign Copyright Infringement | Practical Law

In Tire Engineering and Distribution, LLC v. Shandong Linglong Rubber Co., the US Court of Appeals for the Fourth Circuit affirmed a district court decision that two foreign entities were liable under the Copyright Act and for conversion under Virginia law. This decision is notable for its adoption of the predicate-act doctrine allowing damages for foreign copyright infringement stemming from domestic infringement.

Fourth Circuit Adopts Predicate-act Doctrine to Affirm Damages for Foreign Copyright Infringement

by PLC Intellectual Property & Technology
Published on 11 Jun 2012 • USA (National/Federal)
In Tire Engineering and Distribution, LLC v. Shandong Linglong Rubber Co., the US Court of Appeals for the Fourth Circuit affirmed a district court decision that two foreign entities were liable under the Copyright Act and for conversion under Virginia law. This decision is notable for its adoption of the predicate-act doctrine allowing damages for foreign copyright infringement stemming from domestic infringement.

Key Litigated Issues

The key litigated issues before the US Court of Appeals for the Fourth Circuit in Tire Engineering and Distribution, LLC v. Shandong Linglong Rubber Co. were whether the district court erred in:
  • Upholding the jury's award for damages under the Copyright Act for infringing acts that occurred outside the US.
  • Finding that the Copyright Act did not preempt the plaintiff's state law conversion claim.

Background

Tire Engineering and Distribution, LLC, along with the other plaintiffs in the case (collectively, Alpha), develops and sells special tires for mining vehicles in the US. Alpha's tires have unique designs that Alpha protects, among other ways, through:
  • Closely guarding its tire blueprints.
  • Copyrights for its designs.
In May 2005, a former Alpha employee, a then-current Alpha employee (Vance) and the chairman of the Al Dobowi defendants (a group of related United Arab Emirates entities) met to discuss Al Dobowi's possible entry into the mining-tire business. Vance offered to supply Al Dobowi with Alpha's tire blueprints, customer list and cost information to help Al Dobowi produce and sell mining tires that copied Alpha's designs and compete with Alpha. After the meeting:
  • Vance started to work for Al Dobowi from his home in Virginia. He worked there until July 2006, when he moved in China.
  • The parties engaged the Linglong defendants (two Chinese entities) to manufacture mining tires based on Alpha's blueprints.
Some of Vance's work in Virginia involved steps to modify the tires to make it less obvious that they were copied from Alpha's blueprints. Linglong manufactured tires based on these modified designs. Al Dobowi began to sell these tires in early 2006, including to one of Alpha's customers. In 2006, Alpha began to suspect their blueprints had been stolen and given to Al Dobowi. Alpha confirmed these suspicions in the fall of 2006.
On October 28, 2009, Alpha sued Al Dobowi and Linglong for, among other things:
  • Copyright infringement under the Copyright Act.
  • Registered and unregistered trademark infringement under the Lanham Act.
  • Common-law conversion under Virginia law.
  • Common-law civil conspiracy under Virginia law.
The district court dismissed certain claims as time-barred under the applicable statutes of limitations, including all Copyright Act claims that accrued before October 28, 2006. This included all of the copyright infringement claims for acts that took place in the US. In submitting the remaining copyright infringement claims to the jury, the court gave instructions consistent with the predicate-act doctrine, specifically that:
  • Generally, the Copyright Act does not apply to infringement outside the US.
  • The jury can consider infringing acts that occurred outside the US if it determines they resulted from predicate infringing acts inside the US.
The jury found in favor of Alpha on the copyright, trademark, conversion and common-law conspiracy claims and awarded the company $26 million in damages. In post-trial proceedings, the district court dismissed the registered trademark claims and most unregistered trademark claims, but upheld the rest of the verdict and the full damages award. Al Dobowi and Linglong appealed.

Outcome

In its June 6, 2012, opinion, the Fourth Circuit affirmed the district court's rulings on:
  • Copyright infringement.
  • State law conversion.
The Fourth Circuit reversed the district court's decision on trademark infringement and civil conspiracy and vacated the district court's award of attorneys' fees for the trademark claims, but it affirmed the $26 million damages award.

Foreign Violations of the Copyright Act

In affirming the Copyright Act ruling, the Fourth Circuit joined several other circuits in adopting the predicate-act doctrine. Other circuit courts that have applied this doctrine include the Second, Sixth, Ninth and Federal Circuits. Under the predicate-act doctrine, a plaintiff can collect damages for foreign violations of the Copyright Act if the foreign conduct flows from a domestic infringement. The court found it appropriate even though claims based on the predicate act were time-barred.
The court read the relevant case law on the predicate-act doctrine to require the plaintiff to show both:
  • A domestic violation of the Copyright Act.
  • Damages flowing from foreign exploitation of that violation.
The Fourth Circuit found that Alpha had satisfied both prongs. Specifically, the court found that:
  • Al Dobowi and Vance committed a domestic violation when they unlawfully converted Alpha's blueprints and reproduced them without authorization while in the US.
  • Al Dobowi and Linglong's use of these blueprints to produce tires almost identical to Alpha's and sell them to Alpha's former customers caused damages flowing from the domestic violation.
The Fourth Circuit also found that a predicate act that is time-barred may still provide the basis for a claim under the predicate act doctrine, reasoning that to hold otherwise would allow an infringer to avoid liability by committing a domestic infringement and then waiting three years to reproduce the infringing material abroad. However, when a plaintiff brings a claim for foreign infringement, it still only may recover damages incurred during the statutory period for bringing claims.

State Law Conversion Claim

In addition to the Copyright Act claim, Alpha brought a claim for conversion under Virginia law. On appeal, Al Dobowi argued the Copyright Act preempted the state law claim. The Fourth Circuit, however, determined the Copyright Act did not preempt the state conversion claim. Section 301(a) of the Copyright Act preempts state law claims that The court used a two-part test that analyzes whether the claim:
  • Seek to protect rights that are equivalent to the exclusive rights under the Copyright Act.
  • Falls within the subject matter of copyright as set out in the Copyright Act.
In evaluating whether a state law cause of action is equivalent to an exclusive right, courts apply the extra-element test. Under this test, to avoid preemption, a state cause of action must have an extra element that makes it qualitatively different from a copyright infringement claim. Here, the court found the extra element to exist because Alpha showed that Al Dobowi unlawfully obtained and retained a tangible copy of Alpha's blueprints, denying Alpha the right to control the copy.

Practical Implications

This decision is notable for the Fourth Circuit's adoption of the predicate-act doctrine and, in particular, its holding that the doctrine can apply even where the predicate act is time-barred. When pursuing foreign copyright infringement, copyright owners should consider whether there is any domestic activity that may establish a basis for recourse for the foreign activities under the Copyright Act. When relying on this doctrine, copyright owners should also remember that the Copyright Act's statute of limitations still may apply to claims for the foreign violations.

Court Documents