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Reebok International, Ltd. v. Marnatech Enterprises, Inc.
Citations: 970 F.2d 552; 22 Fed. R. Serv. 3d 1314; 23 U.S.P.Q. 2d (BNA) 1377; 92 Cal. Daily Op. Serv. 5929; 92 Daily Journal DAR 9660; 1992 U.S. App. LEXIS 15087Docket: No. 90-55400
Court: Court of Appeals for the Ninth Circuit; July 2, 1992; Federal Appellate Court
Reebok manufactures and sells a popular brand of footwear and holds federally registered trademarks for its products in the United States and Mexico. They assert they were the sole authorized sellers of genuine REEBOK shoes during the relevant period. The dispute in this litigation involves appellants, Betech, whom Reebok accuses of selling counterfeit REEBOK shoes in border towns like Tijuana, potentially harming legitimate sales in both Mexico and the U.S. Reebok sought a temporary restraining order and asset seizure against Betech, which the district court granted, subsequently issuing preliminary injunctions to halt counterfeiting activities and protect certain documents and assets. Betech appealed, claiming the district court lacked jurisdiction under the Lanham Act regarding their activities. The appellate court reviewed this jurisdictional question de novo but accepted the district court's factual findings unless clearly erroneous. It noted that the Lanham Act provides broad jurisdiction and can cover foreign activities, evaluated under a test established in Timberlane Lumber Co. v. Bank of America. This test includes assessing the effect on American foreign commerce, the significance of the effect on the plaintiffs, and the relative strength of American interests in relation to those of other nations. The appellate court concluded that the first two requirements of the Timberlane test were satisfied, justifying the assertion of jurisdiction under the Lanham Act for Betech's actions. Betech was found by the district court to have organized and directed the manufacture of counterfeit REEBOK shoes in the U.S., with knowledge that these counterfeits were frequently returned to the U.S. This activity resulted in a decrease in sales of genuine REEBOK products in both Mexico and the U.S., negatively impacting Reebok's consolidated holdings. The findings were deemed not clearly erroneous and indicated that Betech's actions affected U.S. foreign commerce, thus constituting an injury cognizable under the Lanham Act. The district court's jurisdiction was supported by analyzing the Timberlane factors, which assess the strength of American interests in relation to foreign commerce. One significant aspect is the potential conflict with foreign law; here, Mexico has its own trademark laws, and Betech is involved in ongoing litigation there, complicating matters. Though Betech claims the Mexican litigation pertains to trademark infringement, Reebok argues it involves criminal charges. Despite this disagreement, the district court concluded there was no conflict with the Mexican proceedings at the time of granting the preliminary injunction, as the Mexican litigation was unresolved. The court emphasized that the assertion of Lanham Act jurisdiction did not conflict with any foreign laws or policies, and that trademark infringement issues concerning the REEBOK trademark in Mexico would be addressed in Mexican courts, independent of the U.S. proceedings. Mexico and the United States share a mutual interest in combating trademark violations and safeguarding valid trademark registrations for Reebok. The district court recognized that applying the Lanham Act extraterritorially might lead to minor conflicts with Mexican court actions. The first Timberlane factor potentially favors the court's exercise of extraterritorial jurisdiction, albeit not strongly. The second factor, concerning the nationality and business locations of the parties, supports extraterritorial application, as one Reebok plaintiff is a Massachusetts corporation, the other a UK company, and both have significant U.S. connections. Nathan Betech, a Mexican citizen residing in San Diego, heads Marnatech Enterprises, which is incorporated in California and operates there. The third Timberlane factor also favors Reebok, given that while some of Betech's actions occur in Mexico, the United States is better positioned to enforce trademark laws due to the location of the defendants' assets and operations. The subsequent Timberlane factors indicate that Betech's activities significantly impact the U.S. market, with a clear intent to affect American commerce, particularly through the sale of counterfeit Reebok products. The harm to Reebok from the importation of these counterfeit goods into U.S. markets far outweighs the impact on sales in Mexico. Although the last Timberlane factor does not decisively favor either side, the overall analysis supports the district court's decision to exercise extraterritorial jurisdiction in this case. The manufacture and distribution of Betech’s allegedly counterfeit products were primarily directed from the United States, although consumer sales mainly took place in Mexico. Reebok's trademark infringement claim involves actions in both countries, with no clear indication that one set of actions is more significant than the other. The majority of factors from the Timberlane test support the exercise of extraterritorial jurisdiction, which justifies the district court's jurisdiction over Reebok's claims against Betech. Betech contends that even if jurisdiction existed, the district court lacked authority to issue the preliminary injunction in Reebok II that froze its assets. This issue regarding the district court's power to freeze assets in cases under the Lanham Act is novel in this circuit. Rule 65 of the Federal Rules of Civil Procedure governs preliminary injunctions, while Rule 64 outlines the procedures for asset seizure. The district court found that California’s attachment statute did not authorize the asset freeze since Reebok’s claims were not contract-based, a ruling Reebok does not contest. However, the lack of a state law basis does not preclude the possibility that the injunction was authorized under Rule 64 or by the Lanham Act. The Lanham Act, specifically 15 U.S.C. 1116(a), empowers courts to grant injunctions to prevent trademark violations, and Section 1116(d) permits the prejudgment seizure of counterfeit goods and related materials. Section 1116(a) of the Lanham Act permits the issuance of injunctions to prevent violations of trademark rights, which may encompass the right to recover profits and damages for trademark dilution under 15 U.S.C. 1117. Although it is unclear if Section 1116 explicitly authorizes the asset freeze in Reebok II, it might allow for such a measure to protect a plaintiff’s right to recover under 1117. The court has previously held that failing to award adequate relief under 1117 can be an abuse of discretion. Importantly, the district court's inherent equitable power allows it to issue provisional remedies, including asset freezes, regardless of the specific authorizations of Rule 64 or the Lanham Act. Courts may issue preliminary injunctions to prevent asset dissipation, thereby safeguarding the potential for equitable remedies. The requirement that remedies eliminate economic incentives for trademark infringement emphasizes the necessity of accounting for profits to prevent unjust enrichment. An accounting under 1117(a) serves as an equitable remedy distinct from monetary damages, ensuring that the plaintiff can obtain a return of profits obtained through infringement. Therefore, the district court had the authority to freeze Betech’s assets to secure the availability of such final relief, as the injunction sought to prevent the defendants from hiding assets needed for an effective accounting of profits fraudulently obtained. This aligns with precedent that upholds prejudgment asset freezes to protect equitable rights. A prejudgment asset freeze is a recognized equitable remedy, allowing courts to secure the right to rescission or restitution of fraudulently obtained funds, as seen in Singer and SEC v. Manor Nursing Centers. While courts possess the power to issue preliminary injunctions to preserve the status quo, this power is limited to circumstances where the freeze is ancillary to a form of final relief. Betech argues against the asset freeze, citing DeBeers Consolidated Mines, which ruled that a similar freeze was beyond a district court's authority as it was not related to any final remedy within the court's jurisdiction under the Sherman Act. The Supreme Court in DeBeers reversed the injunction because it dealt with matters outside the suit's issues. However, the current case differs significantly; the Lanham Act allows for monetary relief, making the asset freeze relevant to the case's subject matter. Thus, the precedent from DeBeers does not apply here, as the asset freeze is closely tied to the potential final relief that can be granted under the Lanham Act. DeBeers' broader implications caution against allowing indefinite freezes based solely on speculative concerns of asset disposal, emphasizing the need for a direct connection between provisional remedies and the court's final relief authority. A plaintiff seeking a personal judgment in tort or contract may request an injunction to sequester a defendant's assets while awaiting judgment, despite historical equity jurisprudence not justifying such relief. The argument presented by Betech to broadly interpret this limitation is rejected, as precedents establish that a preliminary injunction can provide appropriate intermediate relief akin to final relief. The asset freeze in Reebok II is considered such an equitable remedy, ensuring the availability of an accounting of Betech’s profits. The district court's inherent equitable powers allow for provisional remedies related to final equitable relief unless Congress explicitly restricts these powers through comprehensive enforcement schemes. The Supreme Court emphasizes that unless a statute clearly limits a court's jurisdiction in equity, the court retains its full equitable authority. Betech's claim that the Lanham Act removes the district court's inherent power to issue equitable remedies is countered, particularly referencing the Religious Technology Center v. Wollersheim case, which established that injunctive relief is not available to private plaintiffs under the RICO Act, based on a thorough examination of the statute's language and legislative intent. Civil RICO lacks any implied injunctive relief for private plaintiffs, supported by both legislative history and statutory language emphasizing damages, costs, and fees as the sole remedies. In contrast, the Lanham Act does not suggest that Congress intended to remove federal courts' traditional equitable powers. The Act explicitly allows for equitable defenses and empowers courts to grant injunctions to protect the rights of mark registrants. The present case parallels F.T.C. v. H.N. Singer, where the court maintained its equitable jurisdiction despite statutory provisions. The district court’s authority to freeze assets is upheld, as the Lanham Act does not limit this power. Betech's argument against the preliminary injunction based on hardship is dismissed; the district court adequately assessed the merits, finding likely success for the plaintiffs and immediate irreparable harm due to counterfeiting, alongside the risk of Betech concealing assets. The court allowed for provisions to mitigate hardship on defendants and retains the discretion to modify the injunction as needed. The findings do not indicate an abuse of discretion by the district court regarding the asset freeze. The district court's decision is affirmed, establishing jurisdiction over the appellants based on their U.S. activities related to the Mexican distribution of counterfeit REEBOK footwear. The court found jurisdiction under the Timberlane test as an alternative basis, noting that there has been no adjudication on the merits in Mexican courts, which minimizes the risk of interfering with foreign laws. A potential conflict between U.S. and foreign laws suffices under the Timberlane test, with the degree of risk affecting the justification for exercising extraterritorial jurisdiction. Betech's claim of vindication in a subsequent Mexican court action does not necessarily require vacating the preliminary injunction. The court acknowledges uncertainty about reviewing the injunction's validity regarding events occurring post-issuance. Generally, materials not presented to the district court cannot be included in the appeal record, though exceptions exist. The court also notes that changes in law or fact after an appeal can lead to remands for reevaluation of injunctions, referencing past case law to support this principle. Cross-motions to strike disputed materials from the briefs are declined as the decision remains unchanged regardless of their inclusion. The court does not need to determine the impact of the Mexican court's decision on extraterritorial jurisdiction, as any conflict between Mexican and U.S. law is outweighed by numerous Timberlane factors favoring the exercise of territorial jurisdiction. Betech may request the district court to modify or dissolve the injunctions against it based on the outcomes of the Mexican proceedings or other relevant developments post-appeal. Betech’s forum non conveniens argument was not preserved for appeal, and the plaintiffs' choice of forum will only be disturbed if strongly favored by the defendant. The court emphasizes that such determinations are at the trial court's discretion and can be reversed only for clear abuse of discretion. Betech's jurisdictional objections to the preliminary injunction against its allegedly illegal activities are rejected, and the injunction is upheld. The court notes potential authority for an asset freeze under Rule 64, which does not exclude other sources of authority. Even if state law under Rule 64 solely authorized prejudgment attachment, it wouldn’t prevent an asset freeze. The court indicates that certain frozen assets may properly relate to the defendant's profits, thus justifying the freeze as ancillary to final relief. However, assets that cannot be addressed in any final relief may not be within the district court's equitable powers. The court refrains from evaluating the validity of all terms of the injunction or the authority to freeze specific assets since Betech did not raise those issues on appeal. Ultimately, the district court's authority to impose an asset freeze is upheld, and Reebok's motion for sanctions on appeal is denied.