The short answer is no, not yet, but their future looks uncertain. In this update we have a look at developments affecting restrictive covenants across various jurisdictions around the globe and what multinational employers should know.

Non-competition clauses (otherwise known as “non-competes” or restraints of trade) are clauses aimed at preventing an employee from joining a competitor for a certain period after the termination of their employment. Non-competes have been around since the Middle Ages, with the first known English case involving a restraint of trade emerging in 1414, when a Mr. Dyer promised to not exercise his trade in the same town he had been trained in for six months.[1] Nowadays, non-compete clauses are common practice in the employment relationship and are often accompanied by other post-employment obligations including restrictions on soliciting or doing business with the former employer’s clients and other employees.

Continue Reading Are Restrictive Covenants a Thing of the Past?
colin-lloyd-_JEiyOfC2y8-unsplash (2)

Introduction

The United States Supreme Court recently granted Certiorari in a closely watched case that could have significant consequences for the Securities and Exchange Commission (SEC) and certain other federal administrative agencies.

In SEC v. Jarkesy, the Supreme Court will determine the constitutionality of the SEC’s broad discretion in deciding which cases will be tried to an SEC administrative law judge (ALJ) and which will be tried to a jury in an Article III federal court. It will also consider the constitutionality of Congress’ delegation of certain authority to the SEC relating to rules and regulations that the SEC has considered or adopted, and the SEC’s discretionary authority to make determinations on policy matters where Congress has not provided sufficient guidance. The Court also will consider the constitutionality of the rules on removal of administrative law judges.

In May of 2022, the Fifth Circuit Court of Appeals, in a 2-to-1 panel opinion, determined that the SEC’s current discretionary authority to bring civil fraud claims before its in-house administrative law judges in civil-enforcement proceedings is unconstitutional in three separate ways. First, the appeals court held that the use of administrative tribunals for enforcement of common law claims which are not public claims violates the Seventh Amendment right to a jury trial. Second it found that Congress violated the non-delegation doctrine in giving the SEC broad discretion to determine whether and when to prosecute enforcement proceedings before its own ALJ’s as opposed to federal courts. Third, the Fifth Circuit held that the SEC’s double layer of for-cause removal protection for administrative law judges was also unconstitutional.

To read the full article, click here.

patrick-fore-H5Lf0nGyetk-unsplash (1)

The following post was originally published to Seyfarth’s Gadgets, Gigabytes & Goodwill blog.

The U.S. Supreme Court’s end-of-term decision in Abitron v. Hetronic seems to have created more questions than answers about U.S. brand owners’ ability to leverage the federal Lanham Act in global trademark disputes. In the few weeks since the Court issued its opinion, parties and courts alike are already struggling with exactly how to apply it.

Tenth Circuit Prompts Question As to Statute’s Reach

The Hetronic case originated in the Tenth Circuit. Oklahoma-based Hetronic, a manufacturer of remote controls for construction equipment, sued its former EU distributor for infringing trademarks and trade dress associated with authentic Hetronic products. A jury awarded Hetronic more than $115 million in damages, $96 million of which related to Lanham Act violations. The district court then granted Hetronic a worldwide injunction against defendant Abitron. Abitron appealed, arguing that the award was improper because 97 percent of the sales at issue occurred abroad. The Tenth Circuit tailored the injunction to apply only to markets where Hetronic was actually selling products, but upheld the damage award, reasoning that even activity occurring abroad had a “substantial effect” on U.S. commerce.

Continue Reading Courts and Brand Owners Struggling With SCOTUS Decision Limiting Ability to Police Against Foreign Trademark Infringement
christin-hume-Hcfwew744z4-unsplash (1)

In a previous blog, we summarized the recent case of Groff v. Dejoy, where the U.S. Supreme Court unanimously clarified the undue hardship standard under Title VII, a federal law in the United States that prohibits employment discrimination based on race, color, religion, sex, and national origin.

The decision is in line with a general global trend in other common law based jurisdictions towards inclusivity in the workplace and the notion that an employer simply cannot deny such requests without at least a legitimate consideration of whether an accommodation based upon belief system can be made. Many employers acknowledge the importance of fostering a work environment that values and embraces diversity, equity, and inclusion, which includes recognizing and respecting religious differences. The challenge for all employers lies in ensuring that these considerations are balanced with commerciality. Additionally, multinational corporations need help ensuring compliance with the legal standards set by all the countries in which they operate, given the variations in standards and requirements across different countries.

Our international employment practitioners have provided some insights below for multinational employers regarding their obligations to accommodate employees’ religious beliefs in the United States, United Kingdom, Australia, and Hong Kong to highlight some of the differences in each jurisdiction.

Groff v. Dejoy and the New U.S. Standard Addressing Employee Religious Accommodations

In Groff v. Dejoy, the Court rejected the long-standing de minimis standard established in the TWA v. Hardison case, which held that employers cannot avoid meeting religious requests simply by arguing that it would cost them more than a trivial amount. Instead, the Court stated that an accommodation imposes an undue hardship on the employer only if it substantially increases costs directly related to business operations. Additionally, the Court emphasized that the impact of accommodation on co-workers is considered an undue hardship only if it affects the overall conduct of the business. Based on this new standard, the Court ruled that an accommodation that may compel other employees to work overtime does not automatically meet the criteria for undue hardship.

Although the case concerned accommodating a Christian’s observance of the Sabbath day, the obligation is not limited to traditional Judeo-Christian concerns. Amici representing the interests of many religions and faiths filed briefs arguing for a higher standard for many religions and faith practices. In the end, employers in the U.S. and in other common law states face an interesting question—does the ruling put larger employers with more resources under a greater obligation to make such accommodations than smaller employers with more limited resources? Only time, and jurisprudence, will settle that question.

United Kingdom

While there is no positive statutory duty in England and Wales for an employer to make reasonable adjustments to the work environment for religious belief, in the same way as the law of discrimination so clearly applies to disabilities, an employer would be at peril in failing to accommodate or at least trying its best to accommodate working constraints around employee belief systems.

The UK Equality Act 2010 prohibits both direct or indirect discrimination on the grounds of religion or belief in the workplace. Whilst direct discrimination is wholly prohibited, there are exceptions where indirect discrimination might be justified, where the contentious practice is a proportionate means of achieving a legitimate aim. Case law in this area is both legion and fact specific. An (easy and oversimplistic) illustration of this is where an item of religious clothing is prohibited for health and safety reasons or to ensure the personal safety of the employees. This is a legitimate aim and, provided it is reasonable in all of the circumstances, it is likely to be held to be lawful.

Had Mr. Groff bought this action in England and Wales, the analysis would be different because the UK has never really had the same “de minimis” standard as the United States has. The claim would most likely present under the auspices of indirect discrimination, and it would be for the employer to demonstrate that insisting Mr. Groff work Sundays contrary to his beliefs or disciplining him for failing to work Sundays would be a proportionate means of achieving a legitimate aim. The way this works in practice, in our experience, is that the employer must show it had little practical choice but to adhere to the policy in issue for sound operational reasons. But, employers must always start with a view to seeking a way to accommodate such requests if they are legitimate. Minor costs of waiving this requirement would probably not justify enforcing it, but major costs or other operational constraints attendant in doing so might.

Some critics in the UK claim that the Equality Act fails to provide the requisite protection for those seeking to assert their religious freedom. This has led to calls for clearer duties, not dissimilar to those imposed in the area of disability discrimination, to be established for religious rights. The Equality Act and the relevant code of practice supporting it make it clear that the law encourages balanced, pragmatic reasoning that should be engaged on a case-by-case basis by employers. The key is respect for the tenets of the religion or belief system and a genuine attempt to accommodate it within the operational parameters of the enterprise.

Australia

Similar to the UK, there is no positive obligation to make adjustments to accommodate religious practices under Australian law. It is likely that an equivalent claim in Australia would have been argued on the basis of indirect discrimination, alleging that the employer’s requirement to work on Sundays was a requirement that (while appearing to apply equally to everyone) had a discriminatory impact by disadvantaging employees with religious commitments on that day. The lawfulness of any such requirement (and the capacity to enforce it) will turn on an assessment of whether the requirement is reasonable or not.

When assessing reasonableness, relevant factors include: whether a less discriminatory alternative exists; whether it would be as effective, efficient, and convenient; and the time, cost, and effort of not discriminating. While cost is one factor that will be considered, a de minimis cost impact is unlikely to be sufficient (on its own) to demonstrate reasonableness.

What is reasonable (and therefore lawful) for one employer might not be reasonable for another. Employers are expected to balance the discriminatory impact and the interest of individuals, as well as the broader objectives of promoting substantive equality. Less discriminatory alternatives need to be considered on a case-by-case basis, with potentially discriminatory requirements only used where these can be justified as reasonable.

Hong Kong

In Hong Kong, there is no statutory protection against religious discrimination. In fact, there are only four anti-discrimination ordinances in Hong Kong covering sex, race, disability, and family status. It may, however, be possible for an employee to bring a claim under the race anti-discrimination ordinance in respect of religion if the argument was made that the race, color, descent, national or ethnic origin, and the religion were intrinsically linked – certainly, we are aware of complaints being made to the Equal Opportunities Commission in Hong Kong by Muslims in respect of being treated discriminatorily due to wearing hijabs, although there have been no reported court cases of this nature. Therefore, practically, if an employee wanted their employer to accommodate their religious beliefs in the workplace, they could raise this internally first, through a complaint/grievance, and could then escalate it to the Equal Opportunities Commission or the District Court, if the matter was not resolved to their satisfaction.

Even though there is no positive statutory obligation for an employer to accommodate employee requests regarding religious beliefs in Hong Kong, as a matter of good practice, had Mr. Groff made his request to a Hong Kong employer, the employer should have properly assessed whether it was reasonable to accommodate the request. In doing so, the risks of any indirect racial discrimination claim relating to the religion of certain racial groups should be considered, and, if the employer was minded to reject the request, the reason for refusal should be legitimate and objective (e.g., costs or operational/business needs).

Further, if Mr. Groff was employed under a continuous contract (i.e., employed continuously for at least four weeks, with at least 18 hours worked each week), he would also have been entitled to at least one rest day per week in Hong Kong. In that case, the employer could, subject to operational needs, appoint Sunday as Mr. Groff’s weekly rest day to accommodate his request and discharge its statutory obligations.

The above examples have been chosen to highlight some of the differences, however, we are working with our clients across jurisdictions to ensure that they are compliant globally.

Seyfarth’s International Employment Team and International Dispute Resolution Group collaborate closely with multinational clients to address the complexities and opportunities that impact their cross-border operations. With our extensive expertise in International Labor and Employment matters, Seyfarth is uniquely equipped to assist in striking a balance between commercial considerations and the implementation of equity and inclusion best practices. Our global experience allows us to provide comprehensive legal guidance, develop and execute diversity and inclusion strategies, and track progress towards meaningful change.

greg-bulla-2eQ-XtiJoBs-unsplash

Most of our readers have transnational business operations.  If they have employees in the United States, they should review carefully today’s decision of the United States Supreme Court.  In a 9-0 ruling, the Court clarified—and raised—the bar that employers must meet in order to show that a religious accommodation imposes an “undue hardship” under Title VII of the Civil Rights Act of 1964.  Groff v. DeJoy, Case No. 22-174 (June 29, 2023). Lower courts had for decades held that anything “more than a de minimis cost” sufficed to establish undue hardship, relying on language in Trans World Airlines v. Hardison, 432 U. S. 63 (1977). While declining to overturn Hardison, the Supreme Court held that employers must show that a proposed religious accommodation would result in “substantial increased costs in relation to the conduct of its particular business.”

Gerald Groff, an Evangelical Christian, delivered mail for the United States Postal Service (USPS). His religious belief that Sunday should be devoted to worship and rest eventually clashed with USPS’s requirement that drivers facilitate Sunday deliveries for Amazon. Groff received “progressive discipline” for failing to work on Sundays, and he ultimately resigned. Groff sued under Title VII, which prohibits discrimination “because of … religion.” The term “‘religion’ includes all aspects of religious observance and practice, as well as belief, unless an employer demonstrates that he is unable to reasonably accommodate to an employee’s … religious observance or practice without undue hardship on the conduct of the employer’s business.” 42 U. S. C. §2000e(j).

The District Court granted summary judgment to USPS, and the Third Circuit Court of Appeal affirmed. Relying on Hardison, the Third Circuit held that exempting Groff from Sunday work would impose “more than a de minimis cost” on USPS—namely, “impos[ing] on his coworkers, disrupt[ing] the workplace and workflow, and diminish[ing] employee morale.” Writing for a unanimous court, Justice Alito reversed.

The Supreme Court first put Hardison in context, noting that the principal issue in that case was whether Title VII “require[s] an employer and a union who have agreed on a seniority system to deprive senior employees of their seniority rights in order to accommodate a junior employee’s religious practices.” The answer was no: the employer (TWA) was not required to compel senior workers to work on the Sabbath in order to accommodate a junior worker’s religious belief. But Hardison contained this line: “To require TWA to bear more than a de minimis cost in order to give Hardison Saturdays off is an undue hardship.” That line, Justice Alito noted, “would later be viewed by many lower courts as the authoritative interpretation of the statutory term ‘undue hardship,’” though “it is doubtful that it was meant to take on that large role.” Instead, Hardison elsewhere described the governing standard as “substantial” “costs” or “expenditures.”

Articulating the governing standard, the Supreme Court held: “‘undue hardship’ is shown when a burden is substantial in the overall context of an employer’s business.” The Supreme Court directed lower courts to “apply the test in a manner that takes into account all relevant factors in the case at hand, including the particular accommodations at issue and their practical impact in light of the nature, size and operating cost of an employer.” While this is a “fact specific inquiry,” the Supreme Court provided some guidelines as to its contours: employers cannot “escape liability simply by showing that an accommodation would impose some sort of additional costs.” Nor does “a hardship that is attributable to employee animosity to a particular religion, to religion in general, or to the very notion of accommodating religious practice” qualify as “‘undue.’”

Rather, the Supreme Court held, “the modifier ‘undue’ means that the requisite burden … must rise to an ‘excessive’ or ‘unjustifiable’ level.” The court also had “no reservations in saying that a good deal of the EEOC’s guidance in this area is sensible and will, in all likelihood, be unaffected by our clarifying decision today.” Under that guidance, no undue hardship is imposed by temporary costs, voluntary shift swapping, occasional shift swapping, or administrative costs. 29 CFR §1605.2(d). But the Supreme Court stopped short of “ratify[ing] in toto a body of EEOC interpretation that has not had the benefit of the clarification we adopt today.”

Elaborating further, the Supreme Court held that “Title VII requires that an employer reasonably accommodate an employee’s practice of religion, not merely that it assess the reasonableness of a particular possible accommodation.” For a situation like Groff’s, “it would not be enough for an employer to conclude that forcing other employees to work overtime would constitute an undue hardship. Consideration of other options, such as voluntary shift swapping, would also be necessary.” The Supreme Court therefore sent the case back to the lower court “to apply our clarified context-specific standard.”

Of course, Groff and application of the new test is not limited to traditional Christian beliefs.  The Supreme Court relied on amicus briefs filed by “a bevy of diverse religious organizations”—including groups representing the Sikh, Muslim, Jewish, and Seventh Day Adventist faiths—who argued that the de minimis test had “blessed the denial of even minor accommodation in many cases.”

 Groff has major implications for U.S. employers. Faced with a heightened undue hardship standard, employers likely will need to accommodate a greater number of religious beliefs and practices in the workplace than they have done in the past. Requests for religious accommodation can run the gamut from work scheduling requests, to exemptions from dress code and grooming requirements and vaccination mandates. After Groff, evaluating such accommodation requests will be a “context-specific” inquiry, requiring a careful consideration of a number of the factors outlined in the Supreme Court’s decision.

Seyfarth lawyers are here to assist as employers navigate this new legal landscape. Seyfarth’s International Dispute Resolution Group will also provide an international perspective on these developments in a blog post next week.

jonathan-borba-EEo7yUv5bHg-unsplash

The U.S. Supreme Court’s June 23, 2023, majority decision in Coinbase, Inc. v. Bielski, Case No. 22-105 requires a stay of district court litigation if a party loses a motion to compel arbitration and pursues the right of interlocutory appeal granted by 9 U.S.C. § 16(a).  Section 16(a) is the provision of the Federal Arbitration Act granting the right to an interlocutory appeal when a district court denies a motion to compel arbitration.  Section 16(a) is clear on the right of appeal but does not address in the text a mandatory stay pending the appeal.   

The issue on appeal arose when the U.S. District Court for the Northern District of California denied Coinbase’s motion to compel arbitration and then denied Coinbase’s motion to stay the litigation while it pursued its right to an interlocutory appeal before the U.S. Court of Appeals for the Ninth Circuit.  The Ninth Circuit also declined to order a stay, relying on existing Ninth Circuit precedent holding that an appeal from an order denying a motion to compel arbitration does not require a mandatory stay of litigation pending in the District Court.  The U.S. Supreme Court reversed and remanded the case, noting the practice of the Circuits that require a stay and its view of the practical effect on the right to an interlocutory appeal if the litigation moves forward: 

The common practice in § 16(a) cases, therefore, is for a district court to stay its proceedings while the interlocutory appeal on arbitrability is ongoing.  That common practice reflects common sense.  Absent an automatic stay of the district court proceedings, Congress’s decision in § 16(a) to afford a right to an interlocutory appeal would be largely nullified.

Prior to this decision, the Circuit Courts of Appeal were split about whether district court proceedings must be stayed pending a decision on an interlocutory appeal from the denial of a motion to compel arbitration.  The Third, Fourth, Seventh, Tenth, Eleventh, and D.C. Circuits all held that there is an automatic stay during the pendency of such an appeal.  The Second, Fifth, and Ninth Circuits held that there was no automatic stay, and that courts would instead grant or deny a stay based upon the traditional stay factors: likelihood of success on the merits of the appeal; the possibility of irreparable harm in the absence of a stay; the balance of the equities; and the public interest. 

Writing for the 5-4 majority, Justice Kavanaugh rejected the use of the traditional factors in considering whether to grant a stay, holding instead that the rule requires an automatic stay.  The majority noted that Section 16(a) of the Federal Arbitration Act (“FAA”), does not specifically reference stays pending appeal, but held that Section 16(a) was enacted against the backdrop of the Court’s decision in Griggs v. Provident Consumer Discount Co., 459 U.S. 56 (1982).  In Griggs, the Court held that an appeal “divests the district court of its control over those aspects of the case involved in the appeal.” [1] The majority reasoned that “[b]ecause the question on appeal is whether the case belongs in arbitration or instead in the district court, the entire case is essentially ‘involved in the appeal.’”  Thus, the Court concluded, an appeal from the denial of a motion to compel arbitration triggers a mandatory stay under the Griggs principle.

The majority found that this outcome was supported by several policy rationales.  They stated that if the district court proceedings continued, the benefits of arbitration “would be irretrievably lost”; the district court and the parties would be burdened with potentially wasteful discovery and motion practice that might ultimately be for naught if the case is sent to arbitration following appeal; and “parties could also be forced to settle to avoid the district court proceedings … that they contracted to avoid through arbitration.”  The majority further held that, in their view, Congress typically is silent about automatic stays during the pendency of interlocutory appeals.  According to the majority, Congress normally only says something about stays when it authorizes an interlocutory appeal but does not wish to authorize a stay pending appeal. 

The majority also noted that the traditional stay analysis is not sufficient to protect parties seeking to compel arbitration in this situation, since litigation-related burdens typically do not warrant a stay under the traditional approach, and since “the background Griggs rule applies regardless of how often courts might otherwise grant stays under the ordinary discretionary stay factors.”  Finally, the majority rejected the plaintiff’s contention that no stay was warranted under the Griggs rule because the Court had previously held in Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1 (1983) that questions of arbitrability are “severable from the merits of the underlying disputes.”  Id. at 21.  The majority held that Griggs applies because “the district court’s authority to consider a case is ‘involved in the appeal’ when an appellate court considers the threshold question of arbitrability.”  Thus, the majority held that an automatic stay is appropriate in cases involving appeals from denials of motions to compel arbitration.

Justice Jackson, joined by Justices Sotomayor and Kagan, dissented, with Justice Thomas joining all but Parts I and V of the dissent.  Their view reflects essentially the opposite position on each aspect of the majority’s analysis. 

The Court’s decision has major implications for litigants across the country, particularly for litigants in large states like New York, Texas, and California where the Circuit Courts had previously rejected the automatic stay.  Parties seeking to enforce contractual arbitration provisions will now be able to stay district court cases for a potentially significant period—first while the motion to compel arbitration is pending and then, if the motion is denied, during the pendency of an appeal.

[1] 459 U.S. at 58. 

rodrigo-santos-y4CbN3JCCTA-unsplash

This post was originally published to Seyfarth’s Trading Secrets blog.

The UK government has announced that it will bring in legislation to restrict the post-employment non-compete restraints to three months. This is a significant proposal as currently non-compete restrictions in the UK are generally capable of being enforced for a period up to 12 months (if they are “no more restrictive than is reasonably necessary to protect the employer’s legitimate business interests’’). Whilst this means a 12 month period will usually only be appropriate for very senior employees, in practice non-competes are commonly expressed to apply for six or nine months post-termination.

The announcement comes following a government consultation, in which they had proposed either requiring payment for the duration of a non-compete in order for it to be valid (as is the case in many European countries), or limiting the use of non-competes. The expectation was that either no changes would be made, or would there be a requirement for extra payment. This new cap on the length of non-competes was not expected.

The government announcement came as part of a series of regulatory reform proposals intended to reduce regulation for businesses post-Brexit. It is brief, but references some further details on the new statutory three month limit, including that:

  • Employers will still be able to restrict activities during (paid) garden leave or notice periods, during which employees are still employed and on payroll – the three month limit will only apply to post-termination non-competes;
  • Confidentiality provisions and other types of post-employment restrictive covenants, such as non-solicit and non-dealing restraints, will not be affected by the new statutory limit;
  • The reforms will not be extended to cover non-competes in other types of contracts, such as shareholders’ and partnership agreements – however, in practice these are often part of an employment relationship, so this might not be such a simple distinction to make.

There are a number of important details missing and questions left unanswered in the announcement. Significantly, it is currently unclear how the new statutory limit will apply to existing non-competes that exceed three months – will they now be unenforceable, amended down to apply for three months only or judged under the rules applicable at the time the contract was signed? Given recommended UK practice in offer letters is to offset garden leave against non-competes, this could leave employers with no post-termination protections where an employee has a three-month notice period, as is often the case for senior employees. What about restraints for which an employees has received a significant payment or benefit, for example in an LTIP or RSU agreement? And when will the new legislation be introduced, if at all? The announcement says this will be “when parliamentary time allows” which might well not be before the next election, with no guarantees as to whether a new government would take this forward.

In the meantime, there is significant uncertainly as to what employers should be doing – both in terms of whether they need to amend existing employees’ covenants, and also offers to new hires. For now, we recommend that companies continue to include non-competes where they feel other restrictions do not give enough protection, but include these within a fuller set of protections. These could include non-dealing and non-interference restraints, non-solicits, longer notice periods which could be used to enforce garden leave and tailored confidentiality restrictions. And we already see a trend towards building retention arrangements, such as RSUs, which may offer a potentially safer ‘home’ for a non-compete restriction for senior employees.

Please contact any of the London employment team for any questions on your UK, or International, business protection strategy.

bady-abbas-c4XoMGxfsVU-unsplash

Seyfarth Shaw Hong Kong Office
Suite 3701 & 3708-3710, 37/F
Edinburgh Tower, The Landmark
15 Queen’s Road Central
Central, Hong Kong

Wednesday, May 17, 2023
9:00am to 10:00am, with registration open and breakfast served from 8:30am

Language: English

Who should attend: HR Directors, Employment Counsel, General Counsel and business owners with responsibility for workforces in Hong Kong and Mainland China

Cost: There is no cost to attend this event, but registration is required.

REGISTER HERE

About the Program

Join us Wednesday, 17 May, for an in-person breakfast seminar at Seyfarth’s office on cross-border investigations in Hong Kong and Mainland China, involving discrimination and harassment complaints.

Conducting a successful workplace investigation is not an easy task, especially where discrimination and harassment allegations are involved and there are cross-border issues. It is important to handle it with the utmost care and be aware of the dos and don’ts of conducting investigations in both jurisdictions.

Employers can be apprehensive when handling discrimination and harassment complaints – there can be uncertainty as to how to react to the issues, or fear that an employee may become litigious if the company is perceived to be mishandling the complaint. Sometimes, cultural nuances also affect the approach to an investigation. Being aware of the anti-discrimination and harassment laws in each jurisdiction and how to apply them to an investigation can help ease this apprehension.

During this seminar, Seyfarth’s Hong Kong and Shanghai employment lawyers shall provide their insight into conducting investigations of discrimination and harassment complaints brought in Hong Kong and Mainland China, including key considerations and common pitfalls employers should be mindful of. We will also provide an analysis of the law on discrimination and harassment from a Hong Kong and Mainland China perspective, cover recent relevant case law/precedent and take you through a case study to bring the legal issues to life. Time will be allocated at the end of the seminar for Q&A.

We have applied for CPD accreditation from the Law Society for this seminar and are awaiting confirmation.

Speakers:
Kathryn Weaver, Partner
Leon Mao, Counsel
Joni Wong, Senior Associate
Ellie Cheung, Associate

If you have any questions, please contact Judie Tong at jtong@seyfarth.com and reference this event.

josh-appel-NeTPASr-bmQ-unsplash

Seyfarth Hong Kong Office
Suite 3701 & 3708-3710, 37F
Edinburgh Tower, The Landmark
15 Queen’s Road Central
Central, Hong Kong

Seyfarth Shanghai Office
15th Floor, Tower 2
Jing An Kerry Centre
1539 Nanjing Road West
Shanghai, China 200040

IN-PERSON Options

May 10, 2023
2:45 p.m. to 3:00 p.m. (GMT+8) Registration
3:00 p.m. to 4:00 p.m. (GMT+8) Program

WEBINAR Option

May 10, 2023
3:00 p.m. to 4:00 p.m. (GMT+8)

Cost

There is no cost to attend this event, but registration is required.

REGISTER HERE

About the Program

On Wednesday, May 10, from 3:00 – 4:00 pm (GMT+8), Seyfarth and JP Morgan will co-present “Escrow Services Introduction and Case Study – Risk Management Tool in M&A Transactions During Turbulent Times.”

Cross-border transactions are facing increasing risks and challenges during turbulent times. With breadth and depth of knowledge in areas ranging from M&A, litigation, and capital markets, this session aims to help attendees:

  • Develop knowledge of various escrow transaction structures that are catered for different transaction needs;
  • Gain a better understanding about preferential benefits on escrow services, such as an easy distribution and security assurance of the assets that are held in escrow; and
  • Understand the global market trend for using escrow arrangements, supported by interesting case studies.

This event will be jointly hosted in Seyfarth’s Shanghai and Hong Kong offices, with the speakers joining from our Shanghai office. Guests may also attend the event remotely; we will circulate the WebEx link shortly before the event.

If you are interested in attending the event, please use the link above for registration. We welcome all of you to attend and look forward to receiving your response by May 5, 2023.

Speakers

Stefano Beghi, Partner, Seyfarth Shaw LLP
Natalie Huang, Escrow Services, Corporate & Investment Bank, J.P. Morgan

If you have any questions, please contact Alice Li at alli@seyfarth.com and reference this event.

kaung-myat-min-0SJj3nUIW_0-unsplash

There is a little-known provision of the Lanham Act (the US Trademark Act) that packs a potentially big punch.  15 USC § 1051(e) provides that if a non-U.S. entity registers for a trademark in the United States without designating a United States resident for service of “notices or process in proceedings affecting the mark” (a “Domestic Representative”), or if the Domestic Representative cannot be found, then service, including of court pleadings commencing and related to a lawsuit, can be accomplished on the non-U.S. entity by serving the Director of the United States Patent and Trademark Office (USPTO). The practical effect of this provision is that certain non-U.S. entities who apply for trademarks in the United States could find themselves a party to U.S. litigation if the non-U.S. entity is never directly served with court papers.

Recent Decisions Apply Section 1051(e) to Court Proceedings

Two recent cases suggest that Section 1051(e) may not be little-known much longer.  In San Antonio Winery, Inc. v. Jiaxing Micarose Trade Co., Ltd.,[1] the plaintiff sued a foreign trademark applicant and served the court papers on the USPTO Director, after which the USPTO sent the papers to the foreign applicant.  After the foreign applicant failed to appear in court, the plaintiff sought a default judgment.  The district court rejected that application, holding that Section 1051(e) only applies in USPTO administrative proceedings, not court cases.[2]  On appeal, the Ninth Circuit vacated the district court’s decision. It found that the plain meaning of “proceeding” includes court cases because court cases can “affect” a trademark.  This includes, among other things, determining whether someone has the right to register a mark, canceling a registered mark or restoring canceled registrations.[3]  The Ninth Circuit also relied on Section 1051(e)’s references to service of notices or “process,” which it held applied to service of process in a court case.[4]

The Ninth Circuit also held that Section 1051(e) does not conflict with the Hague Service Convention, which provides procedures for service on non-U.S. defendants in countries that are signatories to the Convention.[5]  The appeals court reasoned that the Convention applies only if “the method of service at issue ‘require[s] the transmittal of documents abroad.’”[6]  Because Section 1051(e) involves domestic service on the USPTO Director, it “falls outside the scope of the Convention.”[7]  Following the Ninth Circuit’s decision, the district court entered the default judgment sought by the plaintiff.[8]

Soon after the Ninth Circuit’s decision, a federal court in New York followed the same approach.  In Equibal, Inc. v. 365 Sun LLC,[9] two Brazilian entities that had applied for U.S. trademarks had listed U.S. attorneys as their counsel in their applications.  But the attorneys were no longer in contact with the Brazilian entities or authorized to accept service on the entities’ behalf.[10]  Neither entity had designated a Domestic Representative. Under those circumstances, the New York court found that Section 1051(e) applies in court proceedings, and concluded that service via the USPTO Director was proper.

The New York court held that service on the USPTO Director satisfied Federal Rule of Civil Procedure 4(f), which provides that individuals or entities outside the United States can be served: (1) by means set forth in an international agreement, such as the Hague Convention or the Inter-American Convention; (2) if there is no applicable international agreement, by means calculated to give reasonable notice; or (3) by means not prohibited by an international agreement that a U.S. court may order.[11]  The New York court found that the third option was satisfied.  Like the Ninth Circuit, the New York court concluded that neither the Hague Convention nor the Inter-American Convention (to which Brazil is a signatory) bars service on the USPTO Director.  The New York court found that service on the USPTO Director also satisfied due process because the Brazilian entities were “explicitly warn[ed]” by Section 1051(e) that if they availed themselves of U.S. trademark protection, they could be served via the USPTO Director if they failed to designate a Domestic Representative or their Representative could not be found.[12]  The court concluded by finding that service on the USPTO Director was warranted in the case before it in light of the difficulty of service through other means.[13]

Points for Plaintiffs

Section 1051(e) is a potentially useful tool for Lanham Act plaintiffs seeking to sue non-U.S. entities in connection with marks those entities apply to register in the United States.  If accepted in the particular judicial Circuit, service through Section 1051(e) could allow plaintiffs to avoid procedures like those set forth in the Hague Convention, which can often be cumbersome and expensive.  The statute, as interpreted by the Ninth Circuit and New York court, may also permit service via Federal Rule of Civil Procedure 4(f) on entities in countries that are not signatories to the Hague Convention, such as Algeria, Ghana, Kenya, Laos, Lebanon, Nigeria, Uganda, and Yemen.

It is worth noting, however, that the New York court was inclined to permit service in part because the plaintiff had made efforts to serve the Brazilian entities directly, and then sought leave to serve the USPTO Director when those efforts failed.  Plaintiffs who rely solely on serving the USPTO Director, but do not attempt to serve via other means, may find courts to be less receptive to the application of Section 1051(e).

In addition, Lanham Act plaintiffs should remain aware that, simply because service of process could be made through the USPTO Director, that in and of itself does not subject the foreign trademark applicant to personal jurisdiction in a federal district court.  The cases interpreting Section 1051(e) were based on the defendants’ United States use of allegedly infringing marks that they had also applied to register.

Points for Non-U.S. Entities

Non-U.S. entities should consider designating a Domestic Representative when they apply to register a trademark in the United States.  This should be a fairly easy thing to do, as all foreign-domiciled trademark applicants, registrants, and parties to proceedings must be represented by a U.S. attorney,[14] and attorneys may, and quite often are, appointed as foreign entities’ Domestic Representatives.  This said, designees may retire, pass away, or have a change in contact information.  Non-U.S. entities should find a trusted agent they can designate as Domestic Representative and share that agent’s details with their trademark attorneys.  That way, they ensure domestic representation for the long-term and can keep tabs on that agent so that they can update their Domestic Representative if the need arises.  Non-U.S. entities may want to consider using a corporate agent as a Domestic Representative to ensure continuity and predictability, with the caveat that the non-U.S. entity needs to ensure that the corporate agent has up-to-date contact information for the non-U.S. entity.

Non-U.S. entities should also take care to make sure that the USPTO has the most up-to-date contact information for the non-U.S. entity, in the event that service does go through the USPTO director.  In the Ninth Circuit case, the USPTO mailed the court documents to the non-U.S. entity at the address the entity had included in its trademark application.  If that address is out of date, the non-U.S. entity may never receive the court papers even if the USPTO sends them promptly.

Conclusion

Section 1051(e) is an important provision of the Lanham Act that, as recently interpreted by the Second and Ninth Circuit Courts of Appeal, can have a potentially significant impact on both non-U.S. entities registering trademarks in the United States and Lanham Act plaintiffs seeking to sue those entities.  Trademark registrants and litigants should pay close attention to both the statute and decisions interpreting that statute.

[1] 53 F.4th 1136 (9th Cir. 2022). 

[2] Id. at 1139-40. 

[3] Id. at 1141. 

[4] Id.

[5] Id. at 1143. 

[6] Id. 

[7] Id. at 1143-44. 

[8] Case No. 20-cv-9663-GW, ECF No. 57 (C.D. Cal. Nov. 28, 2022).

[9] 2023 U.S. Dist. LEXIS 62759 (S.D.N.Y. Apr. 10, 2023).

[10] Id. at *18-19. 

[11] Fed. R. Civ. P. 4(f). 

[12] 2023 U.S. Dist. LEXIS 62759, at *22. 

[13] Id. at *22-24.

[14] 37 C.F.R. § 2.11(a).