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Washington, DC, USA      




Free Speech Under the FSIA During Arbitration

On November 13, 2017, Judge James E. Boasberg of the U.S. District Court for the District of Columbia issued a memorandum opinion in Sharp Electronics Corporation v. Hisense USA Corporations and Hisense International (Hong Kong) America Investment Co. Ltd. In May 2017, the Japanese-owned Sharp Corporation moved to terminate a licensing agreement under which the Chinese-owned Hisense Corporation was to make and market television sets under the Sharp name becuase of regulatory concerns. Sharp took the case before the US DC District Court, challenging the enforcability of an injunctive request by the third-party arbitration center compelling Sharp to abide with the licensing agreement while the arbitration was pending, and preventing the company from violating the confidentiality agreement by making disparaging statements about Hisense or the dispute. Judge Boasberg dismissed Sharp's complaint on both substantive -- the absence of a First Amendment violation -- and procedural -- lack of personal jurisdiction -- grounds.

As a government-owned entity, Hisense also presented a defense under the Foreign Sovereign Immunities Act.

One of the procedural questions the Court considered was whether the two defendants in the case, Hisense Intl. and Hisense USA, are instrumentalities of a foreign government under the FSIA.

The FSIA generally states that a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States. It also, however, articulates specific conditions under which plaintiffs may sue foreign states and their instrumentalities in U.S. courts. One such condition concerns commercial activity. A foreign state or its instrumentality is not immune from the jurisdiction of U.S. courts in any case in which the action is based upon a commercial activity carried on in the United States by the foreign state. Selling the TV sets per the terms of the licensing agreement constitutes such commercial activity.

However, foreign states, like U.S. states, do not constitute persons under the Fifth Amendment's Due Process Clause. In First Nationall City Bank v. Banco Para El Comercio Exterior De Cuba, however, the Court determined that foreign state instrumentalities, unless they are primarily controlled by a foreign sovereign, such as through a principal-agent relationship, should be treated as distinct juridical entities from governments. Thus, just because foreign governments do not constitute persons for due process purposes, does not mean that foreign companies also do not. Foreign companies may in fact be persons in the U.S. for due process purposes, and those that qualify as persons may in fact raise a personal jurisdiction defense before a U.S. court.

In the end, the subject-matter inquiry under the FSIA was not determinative of the outcome, the court decided, but its discussion is nonetheless instructive. -- Zarine Kharazian, Legal Assistant, Berliner Corcoran & Rowe LLP, Washington, DC, and Assistant Editor of the International Enforcement Law Reporter.