Authored by Manny Schoenhuber

Welcome back to the fourth edition of USA Business Digest – A Legal Newsletter for European Companies and Investors in the United States. This month, we will take a closer look at (1) U.S.-style discovery in international arbitration and (2) the Lanham Act’s foreign reach to recover damages. As always, this update is available in both English and German.

INTERNATIONAL ARBITRATION

Limitations on U.S.-Style Discovery in International Arbitration Apply to the World Bank’s International Centre for Settlement of Investment Disputes (ICSID)

Earlier this year, the U.S. Supreme Court unanimously ruled that 28 U.S.C. Section 1782, which authorizes U.S. federal courts to order discovery for use in a proceeding in a foreign or international tribunal, does not apply to proceedings in foreign and international arbitrations before private adjudicatory bodies—only in foreign and international arbitrations before a governmental or intergovernmental adjudicative body. Prior to the decision, Section 1782 became a powerful weapon for those allowed to use it because U.S. courts generally allow for broader discovery than international arbitration tribunals. Now, the idea is that parties to foreign commercial arbitrations will not be able to improperly seek discovery in U.S. courts.

Certainly, the high court left open the possibility that some types of arbitration panels could have governmental authority and therefore, allow for U.S.-style discovery in international arbitration proceedings. Just recently, however, U.S. Magistrate Judge Robert M. Levy in New York ruled that this limitation specifically applies to proceedings before the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). In that case, Judge Levy nixed an order forcing a European Central Bank official to turn over information to be used in an ICSID arbitration against Malta and found that the ICSID arbitration panel has no governmental authority.

In the near term, this means for you that any arbitration proceedings before the ICSID are not subject to U.S.-style discovery. It remains to be seen what other international adjudicatory bodies will fall under this limited scope. But for now, it is clear that it becomes more difficult to seek U.S.-style discovery in international arbitration proceedings.

TRADEMARK LAW: LANHAM ACT

U.S. Supreme Court to Address How Far the Protection of the Lanham Act Stretches Beyond U.S. Borders

The U.S. Supreme Court agreed to hear a case that may determine a party’s ability to recover damages for foreign trademark infringement and to clarify the scope of the Lanham Act’s extraterritorial application. The parties that petitioned the high court to review a Tenth Circuit decision are five Austrian and German companies as well as their Austrian owner, which previously entered into agreements with an American company to distribute the American company’s products in Europe and elsewhere—a typical distribution set-up. The trial court as well as the Tenth Circuit found the Austrian and German companies liable for trademark infringement although only 3% of the distributors’ total sales ended up in the United States; conversely, 97% of the sales attached to the verdict were connected to “purely foreign” sales outside the United States. Regardless, the Tenth Circuit still concluded that the Lanham Act reached all of the distributors’ foreign infringing conduct.

The question before the Supreme Court is whether the Lanham Act should be applied extraterritorially to foreign sales, including purely foreign sales that never reached the United States. How the Supreme Court answers this question will most likely change how brand owners use U.S. courts to enforce trademarks against foreign businesses and how you should protect any European parent companies from the reach of U.S. courts.

The case is Abitron Austria GmbH et al. v. Hetronic International Inc., case number 21-1043, in the Supreme Court of the United States. ♦

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