Bell Helicopter Textron, Inc. v. Islamic Republic of Iran

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 16, 2013 Decided November 1, 2013

No. 12-7103

BELL HELICOPTER TEXTRON, INC.,

A DELAWARE CORPORATION AND BELL HELICOPTER

TEXTRON CANADA, LTD., A CANADIAN CORPORATION,

APPELLANTS

v.

ISLAMIC REPUBLIC OF IRAN, A FOREIGN NATION, ET AL.,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 1:06-cv-01694)

Kannon K. Shanmugam argued the cause for appellants.

With him on the briefs were John K. Villa, Charles Davant IV,

and Matthew H. Blumenstein.

Christopher J. Wright argued the cause for appellees. With

him on the brief was Charles T. Kimmett. Thomas G. Corcoran

Jr. and Laina Lopez entered appearances.

Before: ROGERS and TATEL, Circuit Judges, and SENTELLE,

Senior Circuit Judge.

Opinion for the Court by Circuit Judge ROGERS.

2

ROGERS, Circuit Judge: Bell Helicopter Textron Inc. and

Bell Helicopter Textron Canada Ltd. (together “Bell”) appeal

the vacatur of a default judgment as void in connection with the

manufacture and marketing by the Islamic Republic of Iran

(“Iran”) of a helicopter that resembles Bell’s Jet Ranger 206 in

appearance. Bell contends the district court made three errors in

granting Iran’s motion to vacate, pursuant to Federal Rule of

Civil Procedure 60(b)(4), for lack of subject matter jurisdiction

because: (1) the motion was subject to a reasonable time limit

and thus untimely; (2) a deferential standard should have been

applied whereby the default judgment could have been vacated

only if there had been no arguable basis for jurisdiction; and (3)

the commercial activity exception in the Foreign Sovereign

Immunities Act (“FSIA”), 28 U.S.C. § 1605(a)(2), applies.

Bell’s first two claims of error are contrary to this court’s

precedent, which we must apply, see LaShawn A. v. Barry, 87

F.3d 1389, 1395 (D.C. Cir. 1996), and its third claim of error

fails for lack of evidence that Iran’s commercial activity caused

a “direct effect” in the United States. Accordingly, we affirm.

I.

In the 1970s, Bell operated a helicopter plant in Iran, which

it abandoned after the Iranian revolution of 1979. In December

2002, Bell became aware that the Iran Aircraft Manufacturing

Industrial Company (“HESA”), a company wholly owned and

controlled by the Iranian government, was using the plant to

manufacture helicopters that resembled the Jet Ranger 206. Bell

designed this particular model to have distinctive but

nonfunctional design features, including a protruding nose as

opposed to a rounded front, based on an “automotive concept,”

which would set it and the Bell brand apart from other

helicopters and helicopter manufacturers. The Iranian

helicopters went under the name Shahed, and the Shahed 278

resembles the Jet Ranger 206; the Shahed 285 is a militarized

3

version of the same helicopter. Iran has displayed prototypes of

the Shahed at its annual air show held at Kish Island, Iran for

international helicopter buyers for the purpose of selling them in

what Bell’s witness described as “Third World” markets where

safety certification restrictions imposed by European and North

American governments do not apply. Iran would not, however,

be able to sell the Shahed in U.S. markets.

Bell sued Iran in 2006, alleging that Iran’s manufacture and

marketing of the Shahed helicopters infringed and diluted Bell’s

“trade dress” in violation of the Lanham Act, 15 U.S.C. § 1051

et seq., and infringed its design patent under the Patent Act, 35

U.S.C § 1 et seq. (The Patent Act claim was later dropped.)

Bell served Iran with the complaint, but Iran did not appear. A

default was entered against Iran on March 31, 2009, and the

district court scheduled a hearing on damages for October 5,

2009. Iran contacted Bell to conduct settlement negotiations,

but no agreement was reached prior to the hearing. At the

hearing, Bell’s witnesses included one of its staff engineers, who

testified regarding the distinctive trade dress of the Jet Ranger

206 and Bell’s primary customers, which include foreign

militaries and “numerous commercial customers.” Ex Parte Hg.

Tr. at 28–36 (Oct. 5, 2009) (testimony of Douglas Jordan). An

aviation safety consultant testified for Bell about the confusingly

similar appearances of the Jet Ranger and the Shahed, Bell’s

“second to none” reputation for safety, and speculated regarding

the possibility that Shahed helicopters could be “passed off” as

Bell products in “Third World” markets with the resulting risk

of accidents from the use of Shahed parts in Bell helicopters. Id.

at 38–48 (testimony of Vernon Albert). A Bell manager

testified regarding the potential loss of Bell revenues as a result

of the sale of Shahed helicopters. Id. at 49–54 (testimony of

Terry Jeffcoat).

4

The district court issued an order and default judgment

against Iran on February 11, 2011, ruling that Iran had infringed

and diluted Bell’s “trade dress” in violation of the Lanham Act,

and that Iran was not immune from suit because its actions were

commercial and had a “direct effect” in the United States. Bell

Helicopter Textron Inc. v. Islamic Republic of Iran, 764 F. Supp.

2d 122, 126, 127–28 (D.D.C. 2011) (“Bell I”). It awarded Bell

$22,035,002.28 in damages (adjusted for pre-judgment interest)

and $497,125 in attorneys fees. Id. at 129–30. The State

Department filed on October 19, 2011 an affidavit of service of

the default judgment on Iran, and counsel for Iran entered an

appearance on December 28, 2011. On February 10, 2012, Iran

moved, pursuant to Rule 60(b)(4), to vacate the default

judgment as void due to lack of subject-matter jurisdiction.

Upon reviewing de novo whether it had subject-matter

jurisdiction, the district court granted the motion, ruling that Iran

was immune from suit under the FSIA because Bell had not

presented evidence that Iran’s actions had caused a “direct

effect” in the United States. Bell Helicopter Textron Inc. v.

Islamic Republic of Iran, 892 F. Supp. 2d 219, 225, 234 (D.D.C.

2012) (“Bell II”).

Bell appeals, and our review of the question of law is de

novo, see Smith v. Mallick, 514 F.3d 48, 50 (D.C. Cir. 2008); the

subsidiary facts are undisputed. Although Rule 60(b) motions

are generally committed to the discretion of the district court,

and thus subject to review for abuse of discretion, “there is no

question of discretion on the part of the court when a motion is

under Rule 60(b)(4); if the judgment is void, relief is

mandatory.” Combs v. Nick Garin Trucking, 825 F.2d 437, 441

(D.C. Cir. 1987) (footnote and internal quotation marks

omitted).

5

II.

Rule 60(b)(4) of the Federal Rules of Civil Procedure

provides that a court “may relieve a party . . . from a final

judgment” if “the judgment is void.” Bell contends that a Rule

60(b)(4) motion is subject to the limitation in Rule 60(c)(1) that

a Rule 60(b) motion be “made within a reasonable time,” and

Iran’s motion, which was filed 364 days after entry of the

default judgment, surpassed this limit. For support, Bell points

to United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260,

264 (2010), where the Supreme Court stated:

Rule 60(b)(4) strikes a balance between the need for

finality of judgments and the importance of ensuring

that litigants have a full and fair opportunity to litigate

a dispute. Where, as here, a party is notified of a

[bankruptcy] plan’s contents and fails to object to

confirmation of the plan before the time for appeal

expires, that party has been afforded a full and fair

opportunity to litigate, and the party’s failure to avail

itself of that opportunity will not justify Rule 60(b)(4)

relief.

Id. at 276.

Bell ignores this circuit’s precedent as well as the fact that

in Espinosa, the Supreme Court stated that it was “not persuaded

that a failure to find undue hardship in accordance with [the

Bankruptcy Code] is on par with the jurisdictional and notice

failing that define void judgments that qualify for relief under

Rule 60(b)(4).” Id. at 273. Here, the district court was faced

with a subject-matter jurisdiction challenge, not a claim of

procedural deficiency. In Espinosa, the creditor participated in

the Bankruptcy Court proceedings by filing a proof of claim, did

not object to the non-jurisdictional legal error, and then years

6

later asked for a second bite at the apple. See id. at 264–66.

Here, Iran never participated in the district court proceedings

that led to the default judgment and moved to vacate based on

the district court’s lack of subject-matter jurisdiction. Ensuring

finality by imposing time limits on Rule 60 motions makes sense

in situations similar to Espinosa where a party submits to the

court’s jurisdiction, never objects to a non-jurisdictional error,

and subsequently in a collateral challenge raises that error as a

basis to vacate the final judgment. But absent any indication

that the Supreme Court would apply the same standard in the

materially different circumstances of the instant case, this

court’s precedent controls, and the district court did not err in

rejecting Bell’s argument that Iran’s Rule 60(b)(4) motion was

untimely.

In Austin v. Smith, 312 F.2d 337, 343 (D.C. Cir. 1962), this

court held that Rule 60(b)(4) motions are not governed by a

reasonable time restriction. In that case the Rule 60(b)(4)

movant had not appeared in the proceeding that resulted in a

default judgment but challenged the judgment more than four

years later on the grounds that he had never received notice that

a suit had been filed. Id. at 339–40. This court held:

Under [Rule 60(b)(4)]. . ., the only question for the

court is whether the judgment is void; if it is, relief

from it should be granted. . . . Moreover, the Rule

places no time limit on an attack upon a void judgment,

nor can such a judgment acquire validity because of

laches on the part of him who applies for relief from it.

Id. at 343. Similarly, in Practical Concepts, Inc. v. Republic of

Bolivia, 811 F.2d 1543, 1545 (D.C. Cir. 1987) (“Practical

Concepts”), the court rejected the argument that a Rule 60(b)(4)

motion was barred when filed by a foreign sovereign over a year

after a default judgment was entered.

7

The RESTATEMENT (SECOND) OF JUDGMENTS § 65 comment

b (1982), explains regarding default judgments that “no public

purpose is served by protecting [a] judgment” arising from a

“proceeding [that] was infected by fundamental error.”

According to the Rules Advisory Committee, no substantive

change has been made to Rule 60(b)(4) since Austin v. Smith

was decided in 1962. See FED. R. CIV. P. 60(b)(4) advisory

committee’s note (1987 and 2007). Bell’s interpretation of Rule

60(b)(4) is contrary to this court’s precedent, as well as that of

almost every other circuit court of appeals, all of which reject a

time limit that would bar Rule 60(b)(4) motions.1

III.

“Under [Rule 60(b)(4)] . . ., the only question for the court

is whether the judgment is void . . . .” Austin, 312 F.2d at 343.

Bell cites cases from circuits that interpret the word “void”

narrowly where a judgment is void only “when there is a total

want of jurisdiction and no arguable basis on which [the district

court] could have rested a finding that it had jurisdiction,” Cent.

Vt. Pub. Serv. Corp. v. Herbert, 341 F.3d 186, 190 (2d Cir.

2003) (internal quotation marks omitted). It points to Espinosa,

559 U.S. at 271, where the Supreme Court observed that

multiple courts of appeals “generally have reserved relief

1

See Precision Etchings & Findings, Inc. v. LGP Gem, Ltd.,

953 F.2d 21, 23 (1st Cir. 1992); “R” Best Produce, Inc. v. DiSapio,

540 F.3d 115, 123–24 (2d Cir. 2008); United States v. One Toshiba

Color Television, 213 F.3d 147, 157 (3d Cir. 2000) (en banc); In re

Heckert, 272 F.3d 253, 256–57 (4th Cir. 2001); Jackson v. FIE Corp.,

302 F.3d 515, 523–24 (5th Cir. 2002); Philos Techs., Inc. v. Philos &

D, Inc., 645 F.3d 851, 857 (7th Cir. 2011); Orner v. Shalala, 30 F.3d

1307, 1310 (10th Cir. 1994); Hertz Corp. v. Alamo Rent-A-Car, Inc.,

16 F.3d 1126, 1130–31 (11th Cir. 1994); see also 11 CHARLES ALAN

WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE § 2862 (3d ed.

2013).

8

[pursuant to Rule 60(b)(4)] only for the exceptional case in

which the court that rendered judgment lacked even an ‘arguable

basis’ for jurisdiction.” Bell effectively ignores this court’s

precedent in Practical Concepts adopting a broader

interpretation of “void” where a judgment is “void” whenever

the issuing court lacked jurisdiction.

The Supreme Court has long instructed that judgments in

excess of subject-matter jurisdiction “are not voidable, but

simply void.” Elliott v. Peirsol’s Lessee, 26 U.S. (1 Pet.) 328,

340 (1828); accord Gonzalez v. Crosby, 545 U.S. 524, 534

(2005); Johnson v. Zerbst, 304 U.S. 458, 468 (1938). Under this

traditional rule, “[w]hen a federal court reaches beyond its

statutory grant of subject-matter jurisdiction, its judgment is

void.” Commodity Futures Trading Comm’n v. Nahas, 738 F.2d

487, 492 (D.C. Cir. 1984). Bell does not contest this principle

but instead maintains that “once final judgment has been

entered, the calculus changes,” Appellants’ Reply Br. 9,

principally relying on the interest in preserving the finality of

judgments. It cites cases that generally distinguish between an

error in the exercise of jurisdiction, as might occur in

interpreting a statutory grant of jurisdiction, and a total want of

jurisdiction when the court’s judgment was a plain usurpation of

power for which no arguable basis existed. See infra note 3.

“[T]he principle of finality,” however, “rests on the premise that

the proceeding had the sanction of law, expressed in the rules of

subject matter jurisdiction.” RESTATEMENT (SECOND) OF

JUDGMENTS § 12 cmt. a. A judgment remains void even after

final judgment if the issuing court lacked subject-matter

jurisdiction, regardless of whether there existed an “arguable

basis” for jurisdiction.

This court has applied the traditional understanding of

voidness in reviewing Rule 60(b)(4) motions de novo. In

Practical Concepts, 811 F.2d at 1545, the district court issued a

9

default judgment against the Republic of Bolivia. Bolivia,

although aware of the initial proceedings, had not appeared and

later challenged the judgment for lack of personal and subject-

matter jurisdiction. Id. The district court followed “[t]he

traditional rule . . . that a judgment rendered in excess of the

court’s jurisdiction is void and a legal nullity.” Practical

Concepts, Inc. v. Republic of Bolivia, 613 F. Supp. 863, 867

(D.D.C. 1985) (citing RESTATEMENT (FIRST) OF JUDGMENTS

§§ 5–7 (1942)). On appeal, this court held that “the district

court . . . properly allowed full consideration of [the]

jurisdictional objection.” Practical Concepts, 811 F.2d at 1545

(emphasis added). Although the court did not explicitly endorse

the traditional construction of voidness adopted by the district

court, much less refer to its own review as de novo, its analysis

and the content of the district court’s analysis make both clear.

The district court expressly declined to apply a version of

the arguable basis standard, rejecting a construction of voidness

that would distinguish between “a total want of jurisdiction” and

“an error in the exercise of jurisdiction.” Practical Concepts,

613 F. Supp. at 866–67 (quoting Lubben v. Selective Serv. Sys.

Local Bd. No. 27, 453 F.2d 645, 649 (1st Cir. 1972)). It rejected

the distinction adopted in cases Bell now cites because they

failed to distinguish between voidness and issue preclusion. Id.

at 867. The district court stated that “where . . . the defendant

never appeared in the original suit and thus has not yet litigated

the point, he is not excepted from the rule that a jurisdictional

defect renders a judgment void.” Id. (citing Ins. Corp. of Ir. v.

Compagnie des Bauxites de Guinee, 456 U.S. 694, 706 (1982),

and Maritime Int’l Nominees Establishment v. Republic of

Guinea, 693 F.2d 1094, 1099 n.9 (D.C. Cir. 1982), cert. denied,

464 U.S. 815 (1983)).

This court elaborated on appeal that “[w]hen a person

named as a defendant knows about the action but perceives that

10

the court lacks territorial or subject matter jurisdiction, he is

given a right to ignore the proceeding at his own risk but to

suffer no detriment if his assessment proves correct.” Practical

Concepts, 811 F.2d at 1547 (quoting RESTATEMENT (SECOND)

OF JUDGMENTS § 65 cmt. b (alterations omitted)). The court

identified two risks a party takes in declining to appear: (1) “the

inconvenience of having its assets subjected to judicial process

following the entry of the default judgment,” and (2) “the

prospect that it might lose its chance to argue the merits of the

suit.” Id. at 1548 (alterations and internal quotation marks

omitted). Had the court concluded the defaulting party would

have to overcome a narrow construction of voidness under Rule

60(b)(4), it could not have held that the district court properly

gave “full consideration” to Bolivia’s jurisdictional objections

upon de novo review, particularly when the district court had

rejected the arguable basis standard. The arguable basis

standard would create a high risk for parties who choose not to

appear, and omission of reference to it further indicates that in

holding “full consideration” was appropriate the court endorsed

the traditional understanding of voidness applied by the district

court.

Bell maintains that in Practical Concepts this court did not

say that a foreign state would be entitled to de novo review

whenever it asserted its jurisdictional objection. But this simply

ignores what the court’s analysis reveals (as well as that of other

circuit courts of appeals holding that non-appearing parties may

obtain de novo review of jurisdictional challenges when

appearing for the first time2) and betrays a misunderstanding of

2

See, e.g., Gen. Star Nat’l Ins. Co. v. Administratia

Asigurarilor de Stat, 289 F.3d 434, 437–40 (6th Cir. 2002); MCI

Telecomms. Corp. v. Alhadhood, 82 F.3d 658, 661–64 (5th Cir. 1996);

Exp. Grp. v. Reef Indus., Inc., 54 F.3d 1466, 1469–71 (9th Cir. 1995);

King Fisher Marine Serv., Inc. v. 21st Phoenix Corp., 893 F.2d 1155,

11

how the principles of res judicata apply to jurisdictional

determinations. Where a defendant “w[as] given a fair chance

to challenge . . . subject-matter jurisdiction,” the issuing court’s

determination of jurisdiction is res judicata and may not be

challenged in a collateral proceeding in the district court but

only on direct appeal. Travelers Indem. Co. v. Bailey, 557 U.S.

137, 153 (2009). An exception exists “where the issue is the

waiver of [sovereign] immunity.” United States v. U.S. Fid. &

Guar. Co., 309 U.S. 506, 514 (1940); see also RESTATEMENT

(SECOND) OF JUDGMENTS § 12. In virtually all of the cases Bell

describes as creating a “formidable phalanx of case law” in

support of the arguable basis standard, Appellants’ Br. 26, the

objecting party had appeared in the challenged proceeding or by

privity was subject to the principles of res judicata.3 In the one

case cited by Bell applying the arguable basis standard to a non-

appearing defendant in the context of a Rule 60(b)(4) motion,

the court in Central Vermont Public Service Corp. v. Herbert,

341 F.3d at 188, did not distinguish between parties who have

appeared and could have litigated jurisdiction but did not and

those that declined to enter an appearance altogether; nor was

1158 (10th Cir. 1990); cf. Budget Blinds, Inc. v. White, 536 F.3d 244,

260 (3d Cir. 2008).

3

United States v. Boch Oldsmobile, Inc., 909 F.2d 657, 659

(1st Cir. 1990); Nemaizer v. Baker, 793 F.2d 58, 60 (2d Cir. 1986);

Marshall v. Bd. of Ed., 575 F.2d 417, 420 (3d Cir. 1978); Wendt v.

Leonard, 431 F.3d 410, 411–12 (4th Cir. 2005); Callon Petroleum Co.

v. Frontier Ins. Co., 351 F.3d 204, 206–07 (5th Cir. 2003); In re

G.A.D., Inc., 340 F.3d 331, 333–34 (6th Cir. 2003); United States v.

Tittjung, 235 F.3d 330, 333–34 (7th Cir. 2000); Kansas City S. Ry. Co.

v. Great Lakes Carbon Corp., 624 F.2d 822, 823–24 (8th Cir. 1980)

(en banc); Gschwind v. Cessna Aircraft Co., 232 F.3d 1342, 1344

(10th Cir. 2000); Oakes v. Horizon Fin., S.A., 259 F.3d 1315, 1316

(11th Cir. 2001) (per curiam).

12

the defendant a foreign sovereign. Even so, it is not in accord

with this circuit’s precedent.

Because Iran never appeared in the district court proceeding

resulting in the default judgment, the district court properly

applied the traditional definition of voidness in granting Iran’s

Rule 60(b)(4) motion.

IV.

The FSIA “establishes a comprehensive framework for

determining whether a court in this country, state or federal, may

exercise jurisdiction over a foreign state.” Republic of

Argentina v. Weltover, Inc., 504 U.S. 607, 610 (1992). “[A]

foreign state shall be immune from the jurisdiction of the courts

of the United States and of the States,” unless one of the

enumerated exceptions applies. 28 U.S.C. § 1604. Bell relies

on the commercial activity exception, which provides, in

relevant part, that a foreign state is not immune when “the

action” in question “is based . . . upon an act outside the territory

of the United States in connection with a commercial activity of

the foreign state elsewhere and that act causes a direct effect in

the United States.” Id. § 1605(a)(2).4 Bell contends, contrary to

4

The commercial activity exception to the FSIA provides that

a foreign state does not enjoy jurisdictional immunity in any case

in which the action is based upon a commercial activity

carried on in the United States by the foreign state; or upon an

act performed in the United States in connection with a

commercial activity of the foreign state elsewhere; or upon an

act outside the territory of the United States in connection

with a commercial activity of the foreign state elsewhere and

that act causes a direct effect in the United States.

28 U.S.C. § 1605(a)(2); see also id. § 1603(d).

13

the district court’s findings, that there was evidence that Iran’s

production and marketing of the Shahed helicopters abroad

caused a “direct effect” in the United States. Although no circuit

court of appeals has addressed whether intellectual property

infringement occurring abroad can cause a “direct effect” in the

United States, Bell suggests that under intellectual property case

law the effect of infringement occurs where the possessor of the

intellectual property lives.

Preliminarily, we note that Bell’s procedural objections fail.

First, Bell has forfeited the issue of which party has the burden

of production of evidence to show “direct effects.” While

initially contending that Iran made no effort to meet its

evidentiary burden that its actions caused no direct effect in the

United States, see Appellants’ Br. 36, in response to Iran’s

statement that it was not challenging the underlying facts, see

Appellee’s Br. 38, Bell shifted gears, stating that it did not mean

that Iran had the burden of production but instead the burden of

persuasion, see Reply Br. 21. This last minute pivot is

problematic because in its opening brief Bell stated the burden

of production was the issue. See Appellants’ Br. 35–36. Issues

first raised in a reply brief are ordinarily presented too late to be

considered by the court because the other party has no chance to

respond. See Students Against Genocide v. Dep’t of State, 257

F.3d 828, 835 (D.C. Cir. 2001). Second, Bell’s suggestion that

the district court gave Iran an improper advantage by

emphasizing the presumption of immunity under the FSIA, see

Appellants’ Br. 36–37, overlooks that the FSIA begins with a

presumption of immunity, which the plaintiff bears the initial

burden to overcome by producing evidence that an exception

applies, see FG Hemisphere Assocs., LLC. v. Dem. Rep. Congo,

447 F.3d 835, 842 (D.C. Cir. 2006); Price v. Socialist People’s

Libyan Arab Jamahiriya, 294 F.3d 82, 87 (D.C. Cir. 2002), and

once shown, the sovereign bears the ultimate burden of

persuasion to show the exception does not apply, see FG

14

Hemisphere Assocs., 447 F.3d at 842. The district court did not

err in ruling Bell failed to meet its initial burden.

In Republic of Argentina v. Weltover, Inc., 504 U.S. 607

(1992), the Supreme Court held that for acts outside the territory

of the United States to cause direct effects in the United States

under the FSIA, “an effect is direct [only] if it follows as an

immediate consequence of the defendant’s activity.” Id. at 618

(internal quotation marks omitted). The Court acknowledged

that the commercial activity exception did not “contain[] any

unexpressed requirement of ‘substantiality’ or ‘foreseeability.’”

Id. Still, the effect must be more than “purely trivial,” and

reputational harm “(assuming it is not too speculative to be

considered an effect at all) is too remote and attenuated to satisfy

the ‘direct effect’ requirement of the FSIA.” Id. The Court

concluded that Argentina’s unilateral rescheduling of its bonds

had a direct effect in the United States, not because of any

diminishment to New York’s status as a world financial leader,

but because the bond holders “had designated their accounts in

New York as the place of payment and Argentina made some

interest payments into those accounts before announcing” the

rescheduling, and consequently, “[m]oney that was supposed to

have been delivered to a New York bank for deposit was not

forthcoming.” Id. at 619.

This court in Princz v. Federal Republic of Germany, 26

F.3d 1166 (D.C. Cir. 1994), explained that a direct effect “is one

which has no intervening element, but, rather, flows in a straight

line without deviation or interruption,” id. at 1172 (internal

quotation marks omitted). It rejected Princz’s claim that his

forced labor for the Nazis during World War II had a direct

effect in the United States by aiding the Nazi war effort because

too “[m]any events and actors necessarily intervened between

any work that Mr. Princz performed — as a bricklayer for I.G.

Farben in Poland or as a laborer in the Messerschmidt aircraft

15

works in Germany — and any effect felt in the United States.”

Id.; see also id. at 1172–73; Zedan v. Kingdom of Saudi Arabia,

849 F.2d 1511, 1515 (D.C. Cir. 1988).

Bell maintains the requisite “direct effect” in the United

States from Iran’s infringement and dilution of Bell’s intellectual

property were both financial and reputational. It points to the

invasion of its exclusive right to reap the financial, reputation-

related rewards associated with its desirable product, which is

essentially a financial effect. On the other hand, the harm to

Bell’s reputation as a producer of safe aircraft, the loss of the

ability of Bell’s “trade dress” to serve as a unique identifier, and

the diminishment of Bell’s incentive to product a quality product

are basically reputational effects.

Interference with a property right does not necessarily

demonstrate a “direct effect” under the FSIA. In Antares

Aircraft, L.P. v. Federal Republic of Nigeria, 999 F.2d 33, 34 (2d

Cir. 1993), a Delaware limited partnership, with its primary place

of business in New York, sued Nigeria for detaining the

partnership’s sole asset (an aircraft) because a prior lessee had

failed to pay fees that were due. All of the tortious acts occurred

outside of the United States. Id. at 36. Citing the Supreme

Court’s focus in Weltover on the breached contract’s place of

performance, the Second Circuit stated that “[i]n tort, the analog

to contract law’s place of performance is the locus of the tort.”

Id. The court concluded, notwithstanding interference with a

U.S. corporation’s property rights held in the United States, that

no “direct effect” from the property tort had occurred in the

United States because “[t]he tort . . . began in Nigeria with the

detention of the aircraft and ended in Nigeria with the payment

of the money.” Id. “[T]he fact that an American individual or

firm suffers some financial loss from a foreign tort cannot,

standing alone, suffice to trigger the exception” to immunity

because:

16

[i]f a loss to an American individual and firm resulting

from a foreign tort were sufficient standing alone to

satisfy the direct effect requirement, the commercial

activity exception would in large part eviscerate the

FSIA’s provision of immunity for foreign states. Many

commercial disputes, like the present one, can be pled

as the torts of conversion or fraud and would, if

appellant is correct, result in litigation concerning

events with no connection with the United States other

than the citizenship or place of incorporation of the

plaintiff.

Id.; see Guirlando v. T.C. Ziraat Bankasi A.S., 602 F.3d 69, 78

(2d Cir. 2010); Virtual Countries, Inc., v. Republic of S. Afr., 300

F.3d 230, 240 (2d Cir. 2002); see also Samco Global Arms, Inc.

v. Arita, 395 F.3d 1212, 1217 (11th Cir. 2005); cf. United World

Trade Inc. v. Mangyshlakneft Oil Prod. Ass’n, 33 F.3d 1232,

1237–39 (10th Cir. 1994).

This court reached a like conclusion in Cruise Connections

Charter Management 1, LP v. Attorney General of Canada, 600

F.3d 661, 665 (D.C. Cir. 2010), stating that the FSIA’s “direct

effect” requirement is not satisfied when a “plaintiff’s U.S.

citizenship furnished the only connection between the

commercial activity and the United States,” id. In that case, the

Canadian government’s breach of a contract with a U.S.

company to provide cruise ship services in Canada caused a

“direct effect” because the U.S. company was unable to

consummate fully negotiated, multi-million dollar subcontracts

with U.S.-based cruise lines. Id. at 663–65. Similarly in

McKesson HBOC, Inc. v. Islamic Republic of Iran, 271 F.3d

1101 (D.C. Cir. 2001), vacated in part on other grounds, 320

F.3d 280 (D.C. Cir. 2003), the court identified as a “direct effect”

of Iran’s expropriation of an American corporation’s interest in

a company “the cut-off of the constant flow of capital,

17

management personnel, engineering data, machinery, equipment,

materials and packaging between the [American and Iranian]

companies, as well as the abrupt end of McKesson’s role as an

active investor [in the foreign company].” Id. at 1105 (citations

and internal quotation marks omitted). Bell has offered no

analogous evidence of a “direct effect.”

In the district court, Bell did not offer evidence that Iran had

sold or advertised the Shahed in the United States. Instead, Bell

focused on the physical similarity between the Shahed and the

Jet Ranger 206 and potential financial and reputational loss, see

Bell II, 892 F. Supp. 2d at 227, but the evidence regarding any

effect on Bell was remote or speculative. For example, the only

evidence of customer confusion was testimony from an aviation

safety consultant who had formerly been a Bell customer that he

was confused when he was “shown a picture” of the Shahed.

The district court noted any confusion was momentary because

the caption of the picture identified the two helicopters by name.

Bell II, 892 F. Supp. 2d at 230, 232. Bell presented no evidence

that any of its current or potential customers were likely to

encounter the Shahed in the regular course of doing business.

Neither did Bell offer evidence that any consumer had

contemplated buying a Shahed rather than a Jet Ranger, much

less done so thinking the Shahed was associated with Bell. Nor

did Bell offer evidence that any consumer had refrained from

buying a Bell product because an association between the

Shahed and the Jet Ranger had tainted Bell’s reputation. Yet

under the Lanham Act, “the inquiry is whether the buying public

is likely to believe that defendant’s services come from the same

source, or are affiliated with the trademark owner.” Foxtrap,

Inc. v. Foxtrap, Inc., 671 F.2d 636, 639 (D.C. Cir. 1982). Failing

to show that “revenues that would otherwise have been generated

in the United States were ‘not forthcoming,’” Cruise

Connections, 600 F.3d at 665 (quoting Weltover, 504 U.S. at

619), Bell likewise presented no evidence that there is any

18

crossover between the market for Bell spare parts and the market

for Shahed spare parts, or that such crossover is substantially

likely.

To the extent Bell hypothesizes the loss of the incentive to

create quality products, the effect in the United States is too

attenuated to meet the requirement in Weltover, 504 U.S. at 618,

that the effect be “immediate.” See also Princz, 26 F.3d at 1172.

To create the kind of disincentive Bell suggests, the effect of

Iran’s actions on Bell’s sales would have to reach levels at which

Bell determined that investment it would have made is no longer

worthwhile. Notwithstanding the absence of any evidence that

the Shahed has affected Bell’s sales, Bell’s incentive-based

theory would require the intervention of a host of actors and

would not be a direct consequence of Iran’s production of what

a Bell witness described as consisting of a handful of Shahed

helicopters, see Ex Parte Hg. Tr. at 21 (testimony of David

Chant).

Bell’s response is that intellectual property torts are different

from other property torts because of the importance of protecting

intellectual property in a way that allows a producer to reap the

financial and reputational rewards of its product and preserves

incentives for trademark owners to produce quality products.

Bell points to cases regarding Lanham Act protections and

asserts that “infringement of [intellectual property] rights directly

harms the owner where it lives.” Appellant’s Br. 39 (citing

Qualitex Co. v. Jacobson Prods. Co., 514 U.S. 159, 163–64

(1995) and Zino Davidoff SA v. CVS Corp., 571 F.3d 238,

243–44 (2d Cir. 2009)). It is conceivable that Bell’s interests

might be harmed by Iran’s production of the Shahed, but that is

not the focus of the “direct effect” jurisdictional requirement.

See Cruise Connections, 600 F.3d at 666. The premise of Bell’s

response ignores the rationale of the precedents holding that the

victim of a commercial tort abroad does not establish a “direct

19

effect” in the United States under the FSIA simply by virtue of

its U.S. citizenship. See id. at 665; Antares, 999 F.2d at 36; see

also Noxell Corp. v. Firehouse No.1 Bar-B-Que Rest., 760 F.2d

312, 317 (D.C. Cir. 1985). The cases that Bell cites generally

discussing Lanham Act protections, Qualitex Co., 514 U.S. at

161, and Zino Davidoff, 517 F.3d at 242–43, involved sales in the

United States. So do the two district court cases Bell cites on a

foreign sovereign’s extraterritorial infringement of intellectual

property causing a “direct effect” in the United States. In

CYBERsitter, LLC v. People’s Republic of China, 805 F. Supp.

2d 958, 976 (C.D. Cal. 2011), the People’s Republic of China

made misappropriated software code available on the internet,

and individuals could download it in the United States. In Supra

Medical Corp. v. McGonigle, 955 F. Supp. 374, 377 (E.D. Pa.

1997), the defendants were developing and testing infringing

technology in the United States. Neither case would eviscerate

the jurisdictional immunity of foreign states to suits in U.S.

courts involving intellectual property torts committed against

U.S. corporations. Yet that would be the consequence of Bell’s

position that all instances of a foreign sovereign’s infringement

of a U.S. corporation’s intellectual property have a “direct

effect” in the United States.

Because Bell’s evidence regarding the effect in the United

States of Iran’s commercial activities abroad is either “too

remote and attenuated to satisfy the ‘direct effect’ requirement

of the FSIA” or “too speculative to be considered an effect at

all,” Weltover, 504 U.S. at 618, the district court did not err in

ruling the commercial activity exception in the FSIA did not

apply.

Accordingly, we affirm the judgment of the district court.