1 December 2000

The Honorable Q. Todd Dickinson
Under Secretary of Commerce for
Intellectual Property and Director of the
United States Patent and Trademark Office
Box 4
Washington, D.C. 20231
Attention: Elizabeth Shaw (via e-mail)

Dear Under Secretary Dickinson:

Re: Draft Hague Convention on Jurisdiction and Foreign Judgments

The International Trademark Association ("INTA") appreciates the opportunity to respond to the United States Patent and Trademark Office's request for comments on the Hague Conference Preliminary Draft Convention on Jurisdiction and Foreign Judgments in Civil and Commercial Matters ("Draft Convention") that was published in the 17 October 2000 Federal Register (65 Fed. Reg. 61306).

INTA is a 122 year-old worldwide membership organization, representing over 3,800 corporations, package design firms, law firms and professional associations in 120 countries. INTA's membership crosses all industry lines, including manufacturers and retailers, and is united in the goal of supporting the essential role trademarks play in promoting effective commerce, protecting the interest of consumers, and encouraging free and fair competition.

We must preface our comments with two caveats. INTA has not yet been able to study the Draft Convention as thoroughly as it would wish, and has been unable to solicit the views of members from countries other than the United States. The comments set out in this letter therefore should be regarded as preliminary. We hope that INTA will have the opportunity to submit further comments at a later date.

General Comments

Lack of Clarity and Need

Our analysis has been based on the text of the Draft Convention, which seems to us unclear in many respects. We are aware that implementing legislation would be required if the United States adhered to the Convention and that the legislation might clarify portions of the Draft. Since the legislation could not vary substantively from the terms of the Draft, however, we have assumed in our analysis that the language of the Draft and the language of the implementing legislation would be identical.

Even a preliminary review of the Draft Convention gives rise to serious concerns. The Draft Convention would require radical changes in the principles that now govern the exercise of jurisdiction by United States courts. These principles are well settled and well accepted; we believe they work well and, perhaps more important, work equitably, in cases involving trademarks in traditional contexts. INTA has grave doubts as to the wisdom of altering the principles governing jurisdiction of trademark disputes in traditional contexts and for this reason would oppose the changes that the Draft Convention would compel.

Failure to Address Internet Issues

The Internet is not a traditional context for trademarks. Its uniquely international character has raised new jurisdictional issues that are neither readily resolved by existing law nor expressly addressed by the Draft Convention. To the extent that the Draft Convention may be construed to address Internet issues, the construction seems likely to be detrimental to the interests of trademark owners in the United States and elsewhere, as explained below. If the Draft Convention is construed to leave Internet issues unaddressed, it will ignore the one area in which internationally accepted jurisdictional principles are needed. We therefore believe the Draft Convention must be revised to address Internet issues explicitly. Absent such revisions, the utility of the Draft Convention is dubious at best.

We recognize, of course, that work on the Draft Convention began before the Internet became an integral part of many of our lives, and before e-commerce became an accepted way to do business. Given that the United States Patent and Trademark Office accepted use of the word "Internet" in identifications only a few months ago, it is not surprising that text of the Draft Convention written five or more years ago does not deal with Internet issues. Nonetheless, Internet issues exist and must be addressed.

The international reach of the Internet and its use of domain names have presented entirely new challenges to trademark owners. Before the Internet, a trademark owned and used in one country was protected to a significant extent by geographic, economic, cultural, and linguistic barriers from international infringement. If international infringement did occur, the non-U.S. infringer was by definition doing business in the United States and subject to the jurisdiction of United States courts. This is no longer true; the Internet has erased in large part the barriers to international infringement that used to exist. Trademark owners worldwide are now vulnerable to infringement on the Internet by anyone anywhere. Existing jurisdictional principles are ill-prepared to deal with an infringer who may be on the other side of the world; the Draft Convention does not deal with him or her either. We regard this failure as a serious and potentially fatal flaw.

Our views as to the critical importance of Internet issues to trademark owners today are confirmed by the United States Patents Quarterly, a weekly publication of the Bureau of National Affairs that collects and publishes intellectual property cases, including trademark cases decided by federal courts, state courts, and the Trademark Trial and Appeal Board. Of the twelve trademark cases found in the United States Patents Quarterly issues of November 6, 13, and 20, 2000, three turned on Internet issues. When a quarter of reported trademark cases revolve around the Internet, it seems to us clear that Internet issues cannot reasonably be ignored.

Specific Comments

In addition to the general concerns expressed above, INTA has specific concerns about many of the provisions in the Draft Convention. Comments on these provisions are set out below.

Article 3(2)

We share the serious concerns expressed by others at the absence from the Draft Convention of a grant of jurisdiction over defendants "doing business" in a Contracting State. When Article 3(2) is combined with Article 12(4), the result would divest United States courts of jurisdiction over foreign infringers of United States trademarks. For example:

• Company A of the United States owns and uses the AX mark on its goods in the United States. Company B of Switzerland begins use in the United States of the AX mark on goods of the same description through its Swiss distributor Company C. Company A files suit for infringement against Company B and Company C in federal district court here. Company B and Company C contest jurisdiction, arguing that they are foreign corporations with no branches in the United States, that Article 12(4) does not apply because the AX mark is not or is not required to be registered, and that Article 10(1)(b) does not apply because Company A's claim alleges a conspiracy to inflict economic loss. If the arguments of Companies B and C prevail, Company A will be forced to litigate infringement of its United States mark in Switzerland.

Articles 10(1)(b) and 10(2)

Article 10(1)(b) permits a plaintiff to bring a tort claim in courts of the State in which the injury arose, unless the defendant establishes that he or she could not reasonably have foreseen that his act would result in the injury alleged by the plaintiff. The "foreseeability" exception in the Article invites extended and expensive litigation over jurisdictional issues that would make enforcement of trademark rights against foreign defendants significantly more difficult. Article 10(2) provides that Article 10(b)(1) does not apply to injuries caused by antitrust violations or conspiracies to inflict economic loss. The Draft Convention does not define a conspiracy to inflict economic loss; the phrase could be construed to encompass conduct by two or more persons actionable as unfair competition under Lanham Act section 43(a). Taken together, these provisions could divest United States courts of jurisdiction over infringement and unfair competition claims against non-U.S. defendants. For example:

• Company A of the United States owns and uses mark AX on its products and has registered copyright in the AX package design. Company B of Switzerland begins use of a similar AZ mark and a substantially similar package design on goods of the same description sold in the United States. Company A files suit for infringement of its mark and copyright in federal district court here. Company B contests jurisdiction, arguing that it could not reasonably have foreseen that its AZ mark and packaging would injure Company A and that Article 12(4) does not apply to claims for copyright infringement, to which the trademark infringement claim is incidental. In support of its "foreseeability" argument, Company B submits expert testimony to the effect that its conduct would be lawful in Switzerland. Company A is compelled to counter with expert testimony of its own. A decision on the jurisdictional issue is not rendered until two years after Company A filed suit. If the decision goes against Company A, it will be forced to litigate its infringement suit in Switzerland.

• Company A of the United States owns and uses the common law mark AX on its products and has registered copyright in the AX package design. Company B of Switzerland contracts with Company C of Switzerland to produce goods of the same description in substantially similar packaging bearing the similar AZ mark. When the AZ goods appear in United States markets, Company A files suit in federal district court against Companies B and C for violation of Lanham Act section 43(a) and infringement of its copyright. Companies B and C contest jurisdiction, arguing that the 43(a) claim alleges a conspiracy to inflict economic loss, rendering Article 10(1)(b) inapplicable. If their arguments prevail, Company A will have to litigate its claims in Switzerland. The Draft Convention does not require Swiss courts to apply United States law to the claims; Swiss law may or may not have an analogue of section 43(a).

Article 12 (1)

This provision would give exclusive jurisdiction of in rem proceedings involving immovable property to courts of the Contracting State "in which the property is situated." The Draft Convention does not define immovable property. If immovable property were construed to encompass domain names and domain names were held to be situated in the States in which their owners reside, the Draft Convention would bar United States courts from exercising jurisdiction under the in rem provisions of Lanham Act section 43(d)(2)(A) over cyberpirates domiciled in countries other than the United States and arguably over cyberpirates whose domicile cannot be determined. Since the exercise of jurisdiction under Lanham Act section 43(d)(2)(A) would be limited to domain names owned by defendants "situated" in the United States, it seems likely that proof of the domain name owner's residence here would be a required element of the plaintiff's case. These jurisdictional requirements are contrary to the provisions of Lanham Act section 43(d)(2)(A). They would render the section inapplicable to any domain name registered by someone with a foreign address. Given the ease with which a foreign address can be acquired, it seems reasonable to assume that Article 12(1) could gut the utility of Lanham Act section 43(d)(2)(A).

Article 12(4)

Consistent with existing practice, the intent of this provision may have been to give exclusive jurisdiction of trademark and patent disputes to the courts of the country in which the trademark or patent was registered. As drafted, however, and in conjunction with Article 12(6), the Draft Convention could have a radically different effect in the United States. The provision now applies only to trademarks "required to be deposited or registered" and to trademarks deemed to have been registered or deposited under an international convention.

In the United States, it is hornbook law that trademark rights come from use, not registration. Hydro-Dynamics, Inc. v. George Putnam & Co., 811 F.2d 1470, 1473 (Fed. Cir. 1987). Since trademarks need not be registered or deposited in the United States and there is, to our knowledge, no international convention under which United States marks are deemed to have been registered, strong arguments could be made that Article 12(4) does not apply to disputes over United States trademarks. If the arguments prevailed, they would divest the United States Trademark Trial and Appeal Board of jurisdiction over oppositions to registration and petitions for cancellation of registrations of marks owned by foreigners, which would have to be brought in the courts of the applicant's or registrant's home country under Article 3. The same would be true of actions for infringement of United States marks by foreigners. For example:

• Company A, of the United States, owns and uses common law mark AX throughout the United States. Company B, of Switzerland, begins use and files an application for registration of mark AX in the United States. Company A files against Company B an infringement suit in a federal district court and an opposition to registration of AX in the Trademark Trial and Appeal Board. Company B contests jurisdiction in both actions on the ground that the infringement suit is based on a common law mark not required to be registered and the opposition is to registration of a mark that need not be registered. Company B argues that the Draft Convention therefore requires United States courts and the Trademark Trial and Appeal Board to decline jurisdiction of the actions, of which only Swiss courts have jurisdiction. If Company B's arguments prevail, Company A will be forced to litigate United States trademark matters in Swiss courts.

• Company A, of the United States, has used the mark AX since 1975 and federally registered AX in 2000. Company B, of Switzerland, began use of AX in the United States in 1999, before the filing of Company A's federal application. Company A learns of Company B's use in 2001 and files an infringement action against Company B in federal district court. Company B contests jurisdiction on Convention grounds, arguing that the suit relates either to a common law mark, which is all Company A had when Company B's use began, or to a mark not required to be registered. In either event, Company B argues that under the Convention, the suit must be brought in Company B's home country. If these arguments prevail, Company A again will be forced to litigate United States trademark matters in a Swiss court.

• Company B, of Switzerland, has obtained federal registration of the mark BX in the United States. Company A, of the United States, wants to use BX here in a descriptive, non-trademark sense and is advised by counsel that there is strong evidence that BX has become generic in this country. Company A files a petition for cancellation of Company B's BX registration in the Trademark Trial and Appeal Board. Company B contests jurisdiction, arguing that under the Convention, the cancellation proceeding must be brought in Swiss courts since BX was not required to be registered in the United States. If Company B's arguments prevail, Company A once more will be forced to litigate in Switzerland Company B's right to registration of its mark in the United States.

• Company A of the United States has contracted with Company B of Switzerland to make goods bearing Company A's mark AX. The contract provides that Company B cannot sell AX goods to anyone but Company A. Company A learns that Company B is selling AX goods to Company C in the United States and sends a protest letter to Company B. Company B immediately files suit in Switzerland seeking a declaration that Company A's AX mark and registrations in Switzerland and the United States are invalid. Company A contests Swiss jurisdiction of the United States invalidity claim. Company B counters with arguments that jurisdiction is proper under the Convention because the AX mark is not required to be registered under United States law. If Company B's arguments prevail, Company A will have to litigate the validity of its United States registration in Switzerland.

Article 12(6)

This Article provides that Article 12(4) does not apply to matters raised as "incidental questions." The Draft Convention does not define "incidental questions." The detrimental effects that Article 12(6) could have on United States trademark owners are illustrated in the following examples:

• Company A of the United States has contracted with Company B of Switzerland to produce goods bearing Company A's mark AX. The contract provides that Company B may use AX only on the goods produced for Company A, which takes possession of the AX goods produced by Company B in Switzerland and sells them in the United States. Company A learns that Company B is making AX goods in Switzerland and selling them in the United States in competition with Company A. Company A files suit against Company B in federal district court, alleging breach of contract and infringement of AX. Company B contests jurisdiction, arguing that under the Convention, the suit's primary claim is a contract claim that must be brought in Switzerland where the AX goods were supplied (Article 6(a)), and that the infringement claim must be brought in Switzerland as well because it is "incidental" to the contract claim. If Company B's arguments prevail, Company A will be forced to litigate United States trademark issues in Switzerland.

• Company A of the United States has licensed Company B of Switzerland to produce goods bearing Company A's mark AX in Switzerland and to sell AX goods in the United States through its United States subsidiary BC. Company A learns that Company B is selling AX goods in the United States through unrelated third parties. Company A sues Company B in federal district court for breach of contract and infringement of AX. Company B contests jurisdiction, arguing that the suit is primarily a contract claim required by the Convention to be brought in Switzerland, where it supplied the AX goods, and that the infringement claim must be brought in Switzerland as well because it is "incidental" to the contract claim and not directly related to the activities of BC, thus foreclosing United States jurisdiction under Article 9. If Company B prevails, only Swiss courts will have jurisdiction of the matter.

• Company A of the United States owns registrations of the AX mark in the United States and Switzerland. Company A has licensed Company B of Switzerland to make AX goods; the license provides that Company B may sell AX goods only in Austria. Company A learns that Company B is selling AX goods in Switzerland and the United States and sends Company B a protest letter. Company B files suit against Company A in Switzerland, claiming that the AX registrations in Switzerland and the United States are invalid. Company A contests Swiss jurisdiction of the United States invalidity claim. Company B counters with arguments that jurisdiction is proper under the Convention because the United States invalidity claim is "incidental" to the main claim of Swiss invalidity. If Company B prevails, the validity of Company A's United States registration will be decided by Swiss courts.

The foregoing examples show that Articles 12(4) and 12(6) of the Draft Convention could change radically the jurisdictional principles that have governed trademark disputes for many years, including the jurisdiction of the Trademark Trial and Appeal Board to determine the right to registration of marks owned by foreigners. INTA does not believe that any of these changes would be beneficial to trademark owners in the United States. Even if non-U.S. courts applied United States law to questions of validity and infringement of United States trademarks, which we note the Draft Convention does not require, it is unrealistic to assume that non-U.S. courts would have the knowledge and expertise to apply United States law correctly. INTA therefore would be strongly opposed to the Draft Convention to the extent that these Articles remain unchanged.

Article 13(1)

This Article provides that a court with jurisdiction of a matter under Articles 3 to 12 has jurisdiction to "order any provisional or protective measures." Applied to the examples discussed above, Article 13(1) clearly would permit a Swiss court to enter a preliminary injunction barring a United States company from use of its mark in the United States and might well permit a Swiss court to order seizure of goods owned in the United States by a United States trademark owner.

Article 13(2)

This Article provides that the courts of a State in which property is located have jurisdiction to order provisional or protective measures in respect of that property. Application of the Article to domain names is problematic; the Article could divest United States courts of jurisdiction to enter preliminary injunctions against Internet use of infringing marks and domain names owned by foreigners.

Article 13(3)(a)

This Article permits courts of a State without jurisdiction under Articles 13(1) or 13(2) to order provisional or protective measures limited to the territory of that State. The Article thus precludes all courts of States without jurisdiction under Articles 13(1) and 13(2) from ordering provisional or protective measures against use on the Internet of infringing marks and domain names, since orders could not be limited to Internet usage in a particular State.

Article 14(1)

This Article provides that the courts of a defendant's home State have jurisdiction over co-defendants from other States if the claims against all defendants are so closely connected that they should be adjudicated together and there is a substantial connection between the State and the dispute involving each defendant. We share the concerns voiced by others that the Article would permit a court to exercise jurisdiction over a defendant without the "minimum contacts" our Constitution has been held to require. For example:

• Company A of the United States owns and uses the AZ mark in the United States. Company A has licensed Company B of Switzerland to use the AZ mark in Switzerland, a country in which Company A does no business and has no agents, affiliates, or assets. Company C of Switzerland files suit against Companies A and B in Switzerland, alleging that use of the AZ mark infringes its rights in Company C's mark AX. Company A will be forced to defend the Swiss suit; the judgment of the Swiss court will be enforceable in the United States under Article 25 of the Draft Convention.

Article 15

This Article provides that a court with jurisdiction to determine a claim also has jurisdiction to determine a counterclaim arising out of the same transaction or occurrence. There is no exception in the Article for counterclaims governed by the exclusive jurisdiction provisions of Article 12. Thus, Article 15 creates a means of evading those provisions. For example:

• Company A of the United States has contracted with Company B of Switzerland to make goods bearing Company A's federally registered AX mark. Company A takes possession of the AX goods in Switzerland; the contract provides that Company B can sell AX goods only to Company A. Company A learns that Company B is selling AX goods to a third party in Switzerland and files suit for breach of contract and infringement against Company B in Switzerland, as the Draft Convention requires. Company B responds with a counterclaim alleging the invalidity of Company A's AX mark and registration in the United States. If Article 12(4) conferred exclusive jurisdiction on United States courts to determine the validity of United States trademark registrations, which, as demonstrated above, is not the case, Company B would have succeeded in transferring jurisdiction to Swiss courts.

Article 33

When a judgment for money damages has been entered by the courts of a Contracting State, this Article allows the courts of another State to enforce the judgment in a lesser amount. If the award is for non-compensatory damages, including exemplary or punitive damages, it must be recognized "at least to the extent that similar or comparable damages could have been awarded in the State addressed." If the judgment debtor convinces the courts of his home country that the award is "grossly excessive," those courts may enforce the judgment in a lesser amount, but in no event less than could have been awarded in the State addressed. We have serious concerns about the impact of Article 33 on judgments for damages entered by United States courts against non-U.S. defendants held liable for counterfeiting and piracy, including particularly judgments for damages under Lanham Act section 35(b) and 35(c). For example:

• Company A of the United States owns and uses the well-known AX mark on its goods. Company B of Switzerland imports counterfeit AX goods into the United States and sells them here through its United States affiliate Company BZ. Company A files suit for infringement and counterfeiting against Companies B and BZ in federal district court here. The court holds Companies B and BZ liable for willful counterfeiting and awards Company A statutory damages from each defendant under Lanham Act section 35(c)(2) in the amount of $1,000,000. When Company A seeks enforcement of its judgment against Company B in Switzerland, Swiss courts reduce the judgment under the authority of Article 33 to an amount that Company A reasonably regards as no more than a slap on the wrist. Under the Draft Convention, Company A has no recourse.

Article 36

This Article could be construed to render the enforcement provisions and the loopholes of Article 33 applicable to settlements "to which a court has given its authority." We do not believe that a settlement agreement requiring one party to pay a sum of money to the other should be subject to change after the fact by the courts of the home country of the paying party. This is what could happen if Article 33 were applied to court-sanctioned settlement agreements sought to be enforced in other States. Of course, the Draft Convention does not address settlement agreements to which no court has given its authority, a category in which the vast majority of United States settlement agreements fall. The practical effect of Article 36 on settlement agreements in the United States therefore might be limited, but its potential effect is distressing.

Article 37

No consensus has yet been reached on this Article, which would govern the relationship between the Draft Convention and other conventions. We note, however, that the proposals for Article 37 raise potentially serious questions in the context of Community trademark ("CTM") registrations in the European Union ("EU"). A major advantage of a CTM registration is that the courts of any EU member country can enter judgments against infringers; the judgments can be enforced in all EU countries. The effect of Article 37 and the Draft Convention on this and other aspects of Community trademark law is unclear.

Conclusion

The Draft Convention is not a model of clarity. Many of its provisions are open to constructions different from those we have used. The possibility or even probability that the Draft Convention would be construed differently by different States is not encouraging; we regard lack of clarity as an additional defect. When this defect is added to the serious defects we perceive in the Draft Convention's provisions as they relate to trademark rights, INTA cannot but conclude that adherence to the Draft Convention would be a disservice to trademark owners in the United States and elsewhere.

Thank you very much for allowing us to comment on the Draft Convention. Should you have any questions about our comments, please feel free to contact Judith Sapp of Preti, Flaherty, Beliveau, Pachios & Haley, LLC, Portland, Maine, tel. 207-791-3257; e-mail jsapp@preti.com.

Yours sincerely,

Kimbley L. Muller
President