Hetronic International Inc v. Hetronic Germany GMBH

             IN THE UNITED STATES DISTRICT COURT                         
           FOR THE WESTERN DISTRICT OF OKLAHOMA                          
HETRONIC INTERNATIONAL, INC.,     )                                      
                                  )                                      
               Plaintiff,         )                                      
                                  )                                      
v.                                )    Case No. CIV-14-650-F             
                                  )                                      
HETRONIC GERMANY GmbH,            )                                      
HYDRONIC-STEUERSYSTEME GmbH,      )                                      
ABI HOLDING GmbH,                 )                                      
ABITRON GERMANY GmbH,             )                                      
ABITRON AUSTRIA GmbH, and         )                                      
ALBERT FUCHS,                     )                                      
                                  )                                      
               Defendants.        )                                      
         MEMORANDUM Re: PERMANENT INJUNCTION                             
    Concurrently with the filing of this memorandum, the court has filed an order 
granting  permanent  injunctive  relief  in  favor  of  the  plaintiff  and  against  the 
defendants.  The facts that compel a grant of injunctive relief are stated in the 
injunctive order and will not be repeated in this memorandum except as may be 
relevant to the issues addressed in this memorandum.                      
    The court’s grant of injunctive relief is based on well-established standards 
for granting (or withholding) that species of equitable relief.  The usual prerequisites 
to injunctive relief (such as irreparable harm, the absence of an adequate remedy at 
law, balance of hardship, and the public interest) have been established so clearly as 
to obviate the need for elaboration of those matters beyond the findings set forth on 
page 4 of the injunctive order.  Suffice it to say that entry of a permanent injunction 
is well-warranted, substantially for the reasons set forth in plaintiff’s opening brief.  
Whether the defendants will comply with the injunctive order is a matter to be 
determined, but there is no room for doubt that, absent injunctive relief, defendants 
would persist undaunted in their violations of the intellectual property and other 
rights of the plaintiff.  That much was made clear at the jury trial and at the injunction 
hearing on April 7, 2020.  But one issue–the geographic scope of injunctive relief–
is very much in issue and deserves special attention.  Plaintiff is a U.S. company; the 
defendants  are  European  entities  (or,  in  the  case  of  defendant  Albert  Fuchs,  a 
European  individual).    Defendants  argue  strenuously  that  any  injunctive  relief 
granted in this case by a U.S. court must stop at the water’s edge.  For the reasons 
set forth in this memorandum, the court disagrees.                        
                Geographic Scope of Injunctive Relief                    
    Plaintiff  seeks  a  permanent  injunction  enjoining  defendants’  infringing 
activities worldwide.  Defendants object to the entry of any permanent injunction, 
but argue that if any permanent injunction is granted, it should be limited to direct 
sales of radio remote controls and spare parts into the United States.  Defendants 
assert that the Lanham Act does not reach foreign sales by foreign defendants. 
    Defendants previously raised the issue of extraterritorial application of the 
Lanham Act to their foreign sales at the summary judgment stage.  Relying on the 
three-factor test established in Vanity Fair Mills, Inc. v. T. Eaton Co., 234 F.2d 633, 
642 (2d Cir. 1956), defendants argued, as a matter of subject matter jurisdiction, that 
the Lanham Act could not be applied to their foreign sales.  Plaintiff countered that 
extraterritorial application of the Lanham Act was justified under the Vanity Fair 
test, but also advocated the use of a similar three-factor test followed by the Ninth 
Circuit in Star-Kist Foods, Inc. v. P.J. Rhodes & Co., 769 F.2d 1393, 1395 (9th Cir. 
1985),1 which plaintiff believed the Tenth Circuit would adopt and which three 
factors, it contended, supported extraterritorial application.  Out of an abundance of 
caution, the court applied both three-factor tests, and after doing so, “rule[d] that the 

1This three-factor test incorporated the test developed by the Ninth Circuit to determine the 
extraterritorial reach of antitrust laws in Timberlane Lumber Co. v. Bank of America, N.T. and 
S.A., 549 F.2d 597, 613 (9th Cir. 1976).                                  
Lanham Act reaches extraterritorially to defendants’ foreign sales.”  Doc. no. 311, 
p. 21.                                                                    
    In their summary judgment papers and again in their permanent injunction 
response, defendants maintain that extraterritorial application of the Lanham Act is 
an issue of subject matter jurisdiction.  Because the court did not hold an evidentiary 
hearing to resolve disputed jurisdictional facts, defendant now argue that the court 
has  no  evidentiary  basis  for  a  grant  of  permanent  injunctive  relief  with 
extraterritorial reach.                                                   
    As the court determined in its summary judgment ruling, the extraterritorial 
reach of the Lanham Act is not an issue relating to the court’s subject matter 
jurisdiction.  It goes to the merits of plaintiff’s trademark claims.  See, Morrison v. 
National Australia Bank Ltd., 561 U.S. 247, 253-254 (2010) (extraterritorial reach 
of §10(b) of the Securities Exchange Act of 1934 is a “merits question” not a 
“question of subject-matter jurisdiction”); see also Trader Joe’s Company v. Hallatt, 
835 F.3d 960, 968 (9th Cir. 2016) (“We hold that the extraterritorial reach of the 
Lanham Act is a merits question that does not implicate federal courts’ subject-
matter  jurisdiction.”)  (citing  Morrison,  561  U.S.  at  253-254);  and  A.O.  Smith 
Corporation v. USA Smith Industry Dev. Inc., 2017 WL 2224539, *2 (D. Colo. May 
22, 2017) (agreeing with the conclusion in Trader Joe’s that “the extraterritorial 
reach of the Lanham Act goes to the merits of a trademark claim”).  Although not 
cited  in  the  court’s  summary  judgment  order,  the  Tenth  Circuit  has  likewise 
concluded  that  the  extraterritorial  reach  of  the  Lanham  Act  is  not  a  matter  of 
jurisdiction.  Derma Pen, LLC v. 4EverYoung Limited, 736 Fed Appx. 741, 748 n. 
4 (10th Cir. 2018) (unpublished decision cited as persuasive under 10th Cir. R. 
32.1(A)).  Defendants have not cited any authority which would suggest that the 
court  should  reconsider  its  ruling.    In  any  event,  even  if  the  extraterritorial 
application issue were jurisdictional, it was not raised by defendants by the filing of 
a dismissal motion under Rule 12(b)(1), but rather, by the filing of a partial summary 
judgment motion under Rule 56.  Holt v. United States, 46 F.3d 1000, 1003 (10th 
Cir. 1995) (“A court has wide discretion to allow affidavits, other documents, and a 
limited  evidentiary  hearing  to  resolve  disputed  jurisdictional  facts  under  Rule 
12(b)(1).”)  Because the matter was before the court under the standards of Rule 56 
rather  than  Rule  12(b)(1),  an  evidentiary  hearing  was  neither  required  nor 
appropriate.  Moreover, defendants have cited no authority for the proposition that, 
as a procedural matter, the issue of extraterritorial application should have been 
treated as a matter to be contested once again at trial.                  
    The  court  recognizes  that,  for  reasons  of  relevance,  it  did  not  permit 
defendants to challenge the testimony of Josef Scheuerer, relating to confusion in 
the marketplace, for the purpose of showing that the confusion was in Europe and 
not  the  United  States.    But  even  if  it  had  received  the  evidence  included  in 
defendants’ offer of proof, via the affidavit of Reimer Bulling, there would still be a 
sound evidentiary basis in the trial record supporting the entry of a permanent 
injunction.    The  jury’s  verdict  of  willful  infringement  likewise  supports  that 
determination.  Nonetheless, as will be seen, plaintiff is not foreclosed from relying 
upon confusion in Europe to show a substantial effect on United States commerce.   
    The Vanity Fair test, upon which defendants rely in support of their challenge 
to  extraterritorial  application,  asks  whether  (1)  the  defendant’s  conduct  had  a 
substantial effect on United States commerce; (2) the defendant is a United States 
citizen; and (3) there exists a conflict with trademark rights established under foreign 
law.  Vanity Fair Mills, Inc., 234 F.2d at 642.  Here, there is no question that 
defendants are not citizens of the United States and defendants, in challenging the 
extraterritorial reach of a permanent injunction, do not argue that there is a conflict 
with  the  trademark  rights  established  under  foreign  law.2    The  question,  as 
acknowledged  in  their  response,  is  whether  defendants’  activities  have  had  a 
substantial effect on United States commerce.                             
       In its summary judgment ruling, the court relied, in part, upon diversion of 
sales from plaintiff by the defendants to conclude that defendants’ conduct had a 
substantial  effect  on  United  States  commerce.    Defendants  argue  that  the 
diversion-of-sales theory does not apply to foreign sales by foreign defendants.  
They point out that the Vanity Fair court applied the Lanham Act only to the foreign 
defendant’s sales in the United States and not in Canada.  However, the Vanity Fair 
court  found  that  the  substantial  effect  on  United  States  commerce  factor  was 
“present” under the facts of the case.  Vanity Fair Mills, Inc., 234 F.2d at 642.  Those 
facts revealed that the defendant diverted sales from plaintiff in Canada.  Id. at 638.  
The appellate court, however, concluded that the absence of the other two factors 
was fatal to extraterritorial application to the sales in Canada.  Id. at 643.  Vanity 
Fair does not support defendants’ argument regarding the diversion-of-sales theory.3 
    Defendants  also  rely  heavily  upon  the  Fourth  Circuit’s  decision  in  Tire 
Engineering and Distribution, LLC v. Shandong Linglong Rubber Company, 682 
F.3d 292 (4th Cir. 2012).  In that case, the appellate court stated that “courts invoking 
the diversion-of-sales theory have required the defendants to be U.S. corporations 

2 Nonetheless, as mentioned at the permanent injunction hearing, the court has not seen anything 
that would suggest in any cogent way that a permanent injunction would conflict with the 
applicable law of the European Union.                                     
3 Defendants also cite the Second Circuit’s decision in Atlantic Richfield Co. v. Arco Globus 
Intern. Co., Inc., 150 F.3d 189 (2d Cir. 1998), to support their argument.  However, in that case, 
the appellate court did not address the issue of diverted sales.  The defendant’s “principal activity 
[was] identifying products to be traded by its de facto parent, Arco Globus Company Ltd., a 
Channel Islands corporation engaged in the financing, processing, and sale of crude oil, the trading 
of oil and gas derivatives, and the provision of refinery engineering services.”  Id. at 191.  
Defendants do not address another Second Circuit case, Totalplan Corp. of America v. Colborne, 
14 F.3d 824, 830-831 (2d Cir. 1994), where the appellate court analyzed diversion of foreign sales 
but found that the evidence failed to show lost sales.                    
that conducted operations—including at least some of the infringing activity—
within the United States.”  Id. at 311.  This court, in its summary judgment order, 
acknowledged the Fourth Circuit’s decision, but was not persuaded to follow it.  The 
Fourth Circuit relied upon Ocean Garden, Inc. v. Marktrade Co., Inc., 953 F.2d 500, 
504 (9th Cir. 1991) and American Rice, Inc. v. Arkansas Rice Growers Co-op Ass’n, 
701 F.2d 408, 414-415 (5th Cir. 1983), for the quoted statement.  However, neither 
of those cases “required” defendants to be U.S. corporations as a prerequisite to the 
use of the diversion-of-sales theory.                                     
    Additionally, defendants rely upon McBee v. Delica Co., Ltd., 417 F.3d 107 
(1st Cir. 2005), which recognized that “[c]ourts have considered sales diverted from 
American companies in foreign countries in their analyses.”  Id. at 126.  However, 
defendants  argue  that  the  First  Circuit  dismissed  the  plaintiff’s  damages  claim 
because the defendant’s sales in Japan did not cause any confusion in the United 
States.  Defendants maintain that there must be confusion in the United States, rather 
than overseas, for the diversion-of-sales theory to apply to them.  Viewing the matter 
in light of the purpose of the Lanham Act, that argument is bereft of intrinsic logic.  
But it should be noted, aside from that, that the First Circuit did not foreclose a claim 
based on confusion to foreign consumers.  According to the appellate court: 
    Evidence of economic harm to [plaintiff] in Japan due to confusion of 
    Japanese consumers is less tightly tied to the interests that the Lanham 
    Act  intends  to  protect,  since  there  is  no  United  States  interest  in 
    protecting  Japanese  consumers.    American  courts  do,  however,  
    arguably  have  an  interest  in  protecting  American  commerce  by 
    protecting [plaintiff] from lost income due to the tarnishing of his 
    trademark in Japan.                                                  
Id. at 126 (emphasis in original).                                        
    The appellate court found that plaintiff presented no evidence of such harm.  
In the case at bar, the trial record contains ample evidence of such harm.  The court 
concludes that the McBee case does not preclude the application of the diversion-
of-sales theory.                                                          
    Defendants further rely upon a case from the Northern District of Illinois, 
Alcar Group Inc. v. Corporate Performance Systems, Ltd., 109 F.Supp.2d 948 (N.D. 
Ill. 2000).  Alcar did not involve the diversion-of-sales theory.  Moreover, in the case 
at bar, plaintiff’s evidence at trial showed more than that the trademark violations 
“hurt  the  plaintiff’s  ability  to  conduct  its  business  and  license  its  products 
worldwide.”  Id. at 949.                                                  
    The court remains satisfied that evidence relied upon by plaintiff as to the 
diversion of sales in foreign countries is adequate, and then some, to demonstrate a 
substantial  effect  on  United  States  commerce.    The  court  also  disagrees  with 
defendants’ position that there is no evidence of lost sales.  The evidence presented 
supports plaintiff’s contention that the sales made by defendants in Europe could 
have been made by plaintiff but for defendants’ infringing activity.      
    Defendants maintain that they were prepared to show at trial, through Mr. 
Bulling, that confusion in the United States was not possible.  They maintain that 
there was evidence at trial of only two direct sales by Abitron Germany to the United 
States.  The problem with that is that the evidence also showed that defendants sold 
to foreign customers substantial quantities of infringing products which they knew 
were  destined  for  the  United  States.    See,  McBee,  417  F.3d  at  125  (“Quite 
commonly, plaintiffs in these sorts of cases can meet their burden by presenting 
evidence  that  while  the  initial  sales  of  infringing  goods  may  occur  in  foreign 
countries, the goods subsequently tend to enter the United States in some way and 
in substantial quantities.”)4  The evidence also showed that defendants exhibited 
infringing products at international trade shows attended by United States customers.  

4 During the permanent injunction hearing, counsel for defendants represented that defendants did 
not intend to continue selling directly to the United States but made no such representation as to 
indirect sales.                                                           
Moreover,  the  trial  record  included  other  evidence  of  confusion  in  the  U.S. 
marketplace.  The court concludes that the trial record contains reliable evidence of 
confusion in the United States.                                           
    While addressing the Vanity Fair test in its papers, plaintiff also advocates the 
use of the Ninth’s Circuit Timberlane three-factor test, which the appellate court 
followed in Star-Kist Foods.  In Timberlane, the appellate court stated:  
    Third, there is the additional question whether the interests of, and links 
    to, the United States including the magnitude of the effect on American 
    foreign  commerce  are  sufficiently  strong,  vis-à-vis  those  of  other 
    nations, to justify an assertion of extraterritorial authority.      
549 F.2d at 613.                                                          
    In American Rice, Inc., the Fifth Circuit addressing Vanity Fair, stated: 
    In Vanity Fair, the Second Circuit . . . stated that the degree of effect 
    on United States commerce must be ‘substantial’ before the contacts  
    and interests of the United States are sufficient to support the exercise 
    of extraterritorial jurisdiction.                                    
701 F.2d at 414 n. 8.                                                     
    These two cases look at the “interests of, and links to” and the “contacts and 
interests” of the United States in determining extraterritorial application.  In the case 
at bar, defendants clearly have contacts with and links to the United States, which in 
the court’s view, make a stronger case for extraterritorial application of a permanent 
injunction.                                                               
    In fact, it is at this point that any remaining qualms about extraterritorial 
application  really  melt  away.    Specifically,  Hetronic  Germany  and 
Hydronic-Steuersysteme  GmbH  had  a  very  intricate  and  carefully  crafted 
contractual relationship with plaintiff.  That relationship provided the vehicle that 
facilitated the infringement.  After the contractual relationship was terminated due 
to defendants’ infringing activities, the companies continued to hold themselves out 
as connected with plaintiff.  Torsten Rempe, plaintiff’s former President and a 
United States citizen, was hired as a consultant to assist with defendants’ activities. 
The  Abitron  companies  were  formed  and  took  over  Hetronic  Germany  and 
Hydronic-Steuersysteme’s operations, taking all employees but one.  They applied 
for and registered the “Abitron” trademark in the United States and hired a United 
States distributor to sell products in competition with plaintiff.  They sent employees 
to train salespersons and to perform repairs in the United  States.  The companies 
knew  their  products  were  exhibited  at  United  States  trade  shows.   They  also 
exhibited at international trade shows with United States customers.  The companies 
sold infringing products directly and indirectly in the United States. 
     Although defendants are foreign citizens, their links to and contacts with the 
United States are plainly sufficient to provide substantial additional support for entry 
of an injunction having extraterritorial application. 
     In  Steele  v.  Bulova  Watch  Co.,  344  U.S.  280  (1952),  the  Supreme  Court 
stated: 
    Nor do we doubt the District Court’s jurisdiction to award appropriate 
     relief if warranted by the facts after trial... Where, as here, there can 
     be no interference with the sovereignty of another nation, the District 
     Court in exercising its equity powers may command persons properly 
     before it to cease or perform acts outside its territorial jurisdiction. 
Id. at 289. 
     After careful consideration, the court concludes that the evidence in the trial 
record  supports  the  entry  of a  permanent  injunction  that  applies  to  defendants’ 
foreign sales.  Therefore, the scope of the permanent injunction shall be worldwide 
as requested by plaintiff. 
     Dated this 22"4 day of April, 2020. 

                                               STEPHEN P. FRIOT        [— 
                                               UNITED STATES DISTRICT JUDGE 
14-0650p094.docx