Reversing the district court’s finding of no successor liability, the U.S. Court of Appeals for the Federal Circuit held that the question of successor liability relating two U.S. corporations is controlled by United States law, notwithstanding anything to the contrary in a foreign asset purchase agreement under which the successor was created. Funai Elec. Co., Ltd. v. Daewoo Elec. Corp., Case Nos. 09-1225, -1244 (Fed. Cir., Sept. 1, 2010) (Newman, J.) (Linn, J., concurring).
In 2004 Funai filed suit, alleging the infringement of six U.S. patents against four Daewoo entities: Daewoo Electronics Corp. (DEC), a corporation of South Korea; and its predecessor Korean company Daewoo Electronics Co. (DECL); a DEC and DECL U.S. subsidiary named Daewoo Electronics America, Inc. (DEAM), a Florida corporation; and its predecessor (also a DEC and DECL U.S. subsidiary) Daewoo Electronics Company of America (DECA), a California corporation.
In 2005 DECL and DECA (collectively the predecessor companies) ceased participating in the litigation and the district court entered default judgment against them, awarding Funai almost $7 million in damages. The predecessor companies did not pay the judgment, and Funai asserted that DEC and DEAM (collectively the successor companies) should be liable for the default judgment.
After a full trial, a jury held that the successor companies willfully infringed three of Funai’s asserted patents and awarded Funai just over $7 million in damages against the successor companies. The district court, applying Korean law, concluded that the successor companies were not liable for the default judgment against the predecessor companies. Both sides appealed.
On appeal, the Federal Circuit affirmed the infringement findings, but reversed the district court’s finding regarding successor liability, concluding that DEAM was liable for the default judgment against its predecessor, DECA. The Federal Circuit reasoned that that despite the fact that the predecessor company’s assets were transferred from DECA to DEAM pursuant to a Korean contract (entered into by two Korean companies), the issue raised is not one of conflict or choice of law between the United States and Korea. Instead, the "question is whether a domestic corporation incurring a judgment of a United States court is insulated from that judgment if the judgment would not be enforceable under the laws of its foreign parent." Finding that the laws of the United States "ha[ve] an overriding interest in the integrity of judgments of its courts with respect to violations of United States law by entities doing business in the United States," the Court went on to hold that United States law should apply, and under the Ninth Circuit’s choice of law rules, New Jersey law requires DEAM be held liable for the default judgment entered against DECA.