A Domesticated Lanham Act: Supreme Court’s Abitron Ruling Opens New Debate on Foreign Reach of U.S. Trademark Law | Fenwick & West LLP

The Supreme Court’s June 29, 2023, decision in Abitron Austria GMBH v. Hetronic Int’l, Inc., No. 21-1043, ended decades of circuit splits on the standard for determining the extraterritorial reach of the Lanham Act (see our prior publication for discussion of the circuit splits). Applying the modern two-step framework for overcoming the presumption against extraterritoriality, the Supreme Court held certain Lanham Act provisions “are not extraterritorial and that they extend only to claims where the claimed infringing use in commerce is domestic.” But while the finding of non-extraterritoriality was unanimous and largely uncontroversial, only five members of the court agreed that step two of the test, which looks at the domestic application of a statute, turns on whether the “conduct relevant to the statute’s focus occurred in the United States”—or, in this case, the infringing use of a trademark in commerce in the United States. Even then, the narrow majority was ambiguous on the scope of the “use in commerce” standard, leaving open the possibility of future circuit splits on the application of this new standard. The old debate of the Lanham Act’s extraterritorial application is now over, but a new debate on its domestic application begins.

Case Recap:

An American manufacturer of radio remote controls for construction equipment, Hetronic International Inc., sued its foreign distributors in the Western District of Oklahoma, for the reverse-engineering, manufacturing and sale of Hetronic-branded products without authorization. Hetronic invoked 15 U.S. Code § 1114(1)(a) and § 1125(a)(1), provisions of the Lanham Act that prohibit trademark infringement. A jury awarded Hetronic $96 million in damages for its infringement claims, most of which reflected the distributors’ foreign sales. The Tenth Circuit upheld the award, and the Supreme Court granted certiorari on the distributors’ question of “whether the court of appeals erred in applying the Lanham Act extraterritorially to petitioners’ foreign sales, including purely foreign sales that never reached the United States or confused U.S. consumers.”

Two-Part Test for Overcoming the Presumption Against Extraterritoriality:

Despite the enactment of the Lanham Act predating the development of the modern statutory construction principles, the Supreme Court readily applied the presumption against extraterritoriality framework to its provisions. Under this two-step framework, the court first decides whether a statute is extraterritorial, and if it is not, the court then considers whether the claims involve a permissible domestic application of the statute. To find that, the court must first “identify the statute’s focus” and then “as[k] whether the conduct relevant to that focus occurred in United States territory.”

The Supreme Court unanimously held that the Lanham Act provisions are not extraterritorial. A provision is extraterritorial only when Congress has “affirmatively and unmistakably instructed that” the provision should “apply to foreign conduct.” (RJR Nabisco, Inc. v. Eur. Cmty., 579 U.S. 325, 335 (2016).) This is an extraordinarily high bar: even statutes that “expressly refer to ’foreign commerce’ when defining ‘commerce’” would not be sufficient to defeat the presumption against extraterritoriality. (Morrison v. Nat’l Australia Bank, 561 U. S., at 262–263.) Neither of the Lanham Act provisions at issue met this bar.

On the “domestic application” step, however, the court was sharply divided on what the controlling standard should be. Justice Sotomayor, joined by Justices Kagan and Barrett and Chief Justice Roberts, wrote a concurring opinion that identified consumer confusion as the focus of the Lanham Act provisions. Under this interpretation, the Lanham Act would govern “foreign in­fringement activities if there is a likelihood of consumer confusion in the United States.”

Justice Alito, writing on behalf of the majority including Justices Thomas, Gorsuch, Kavanaugh, and Jackson, rejected this consumer-confusion-focused approach. Instead, the majority leaned on what it believed was the “conduct relevant to the statute’s focus” to hold that, while confusion is a necessary element of the claim, the focus of the inquiry should be on the prohibited action— “the unauthorized use ‘in commerce’ of a protected trademark.” Based on this reasoning, the dividing line between domestic (permissible) and foreign (impermissible) applications of §1114(1)(a) and §1125(a)(1) of the Lanham Act is the location of the infringing “use in commerce” of a trademark. These provisions could only reach extraterritorial conduct if the infringing “use in commerce” occurred in the U.S. By focusing on the location of the infringing conduct rather than a likelihood of consumer confusion, the majority established a more limiting standard than the various “effects” tests that the First, Second, Fourth, Fifth, Ninth, Tenth, Eleventh and Federal Circuits had previously adopted. “If a claim under the Act involves a domestic application whenever particular ‘effects are likely to occur in the United States,’” Justice Alito cautioned, the presumption against extraterritoriality would be no more than “a muzzled Chihuahua.”

The Uncertain (But Likely Grim) Fate of Steele v. Bulova Watch Co.:

But the “use in commerce” standard is not as clean-cut as Justice Alito portrayed it. The majority tried to relegate its 1952 ruling in Steele v. Bulova Watch Co., 344 U.S. 280 (1952), which also concerned the extraterritorial application of the Lanham Act, to a “narrow and fact-bound” inquiry that “is of little assistance” in this case because it “implicated both domestic conduct and a likelihood of domestic confusion.” But as Justice Sotomayor pointed out in her concurrence, the defendant in Steele—a U.S. citizen who assembled and sold luxury watches stamped with a U.S. trademark exclusively in Mexico— “com­mitted no illegal acts within the United States.” (Steele, 344 U.S. at 282.) Yet the court still held the defendant liable under the Act when his purchasers brought the infringing watches into the U.S. and created actual consumer confusion. Therefore, unless the court interprets “domestic conduct” to include more than the act of marking or selling the goods in the U.S, it cannot successfully reconcile the ruling in Steele with its new conduct-centric standard.

Indeed, although Justice Alito declined to address “the precise contours” of the standard in his majority opinion, Justice Jackson’s concurrence supports a reading of the “use in commerce” standard that could be divorced from any direct action of the infringer in the U.S. Justice Jackson provided an example of American college students bringing home counterfeit bags manufactured and sold in Germany, and suggested that the reach of the Lanham Act depends not on whether the German manufacturer sold the bags “in, or directly into, the United States,” but rather on whether the American students decided to resell the bags in the U.S.—reasoning there is no use of the mark in commerce to identify the source until the owner attempts to sell or resell the goods in the U.S. Such an approach reconciles Steele, but it also smears the boundaries of the Lanham Act. Under it, the liability of a foreign defendant would attach whenever an infringing mark is used in commerce, “however that commercial status came to be.”

Takeaways:

At a first glance, Abitron seems to introduce a clear standard for invoking the Lanham Act: it shuts down the statute’s extraterritorial application and only looks to the location of the infringing “use in commerce.” But as the concurring opinions demonstrate, the new “use in commerce” standard leaves lower courts with plenty of room for interpretation. Thus, while the circuit courts’ various effects tests are out of the picture, new tests (and circuit splits) may emerge from the many ways of finding an infringing “use in commerce.”

Before the legal landscape clarifies, foreign companies should refrain from relying solely on their lack of activity in the U.S. as a defense against Lanham Act claims, and instead prepare arguments based on due process and international comity grounds. On the other hand, the foreign reach of the Lanham Act will likely be much curtailed after Abitron, and U.S. companies seeking to enforce their trademarks abroad should expect to move their battles to foreign jurisdictions when there is no evidence of domestic conduct.

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