Courts and Brand Owners Struggling With SCOTUS Decision Limiting Ability to Police Against Foreign Trademark Infringement | Seyfarth Shaw LLP

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.

At oral argument in March, the parties argued various interpretations of the 1952 decision in Steele v. Bulova Watch Co., the original pronouncement on the Lanham Act’s “sweeping reach” into other geographic territories. Arbitron’s lawyer argued Steele should only apply in cases involving U.S. defendants. The U.S. Solicitor General agreed with Abitron that the Tenth Circuit applied Steele too broadly, but suggested that instead of citizenship of the defendant, the test should be whether infringing activity abroad is the proximate cause of confusion within the United States. Meanwhile, Hetronic’s lawyer pointed to the fact that Congress amended the Lanham Act 36 times since Steele was decided, but never once attempted to reign in application of the statute on foreign conduct.

SCOTUS Applies Presumption Against Extraterritoriality to Limit Statute’s Reach

The Supreme Court’s majority opinion, authored by Justice Alito, ultimately sidestepped Steele altogether. The longstanding presumption against extraterritoriality—established after Steele—should govern, the majority held. This presumption requires analysis under a two-step framework: (1) whether the Lanham Act is extraterritorial; and (2) if not, whether there is a permissible domestic application of the statute based on its “focus.” The Court found the Lanham Act was not meant to be applied extraterritorially, and it could only properly be applied to govern infringing activity occurring through use of a mark in commerce in the United States. A more expansive reading of the Act would threaten international comity, given the territorial nature of trademark law, the Court held.

In a concurring opinion, Justice Jackson attempted to inject some additional insight into what might be considered “use in commerce.” She explained that “use in commerce” should be interpreted to occur wherever a trademark is serving a source-identifying function. Therefore, in her view, even if a trademark was originally used abroad, domestic resale of those goods might be actionable.

Justice Sotomayor offered a second concurring opinion. Pointing to Steele, she concluded that the Lanham Act should indeed cover activities occurring abroad, so long as those activities create a likelihood of confusion in the United States. Justice Sotomayor criticized the majority for failing to “actually take a stance on the focus of the Act or apply this Court’s settled law.” In requiring infringing conduct to occur within U.S. borders, the decision “significantly waters down protections for U.S. trademark owners,” she wrote. She called on Congress “to correct the Court’s limited reading of the Act.”

Impact of the Decision

The majority opinion in Hetronic suggests trademark owners should protect their rights on a piecemeal, jurisdiction-by-jurisdiction basis rather than through a single action brought in their home court. This has prompted many brand owners to reevaluate their international registration, watching, and enforcement strategy. Defensive filings may be warranted in key commercial markets, or in countries where manufacturers, distributors, or other licensees operate in order to arm brand owners for future disputes in those countries.

Unfortunately, the majority’s suggested approach does not seem to recognize the fluid, global nature of e-commerce. For example, what happens when an infringer located abroad—and selling its infringing products from abroad—directly targets U.S. consumers through the internet?

Theoretically, there is room to argue under Justice Sotomayor’s suggested approach (in line with the Solicitor General) that foreign conduct causing confusion within the United States would be covered under the Lanham Act. After all, the majority did not expressly overrule Steele.

Initial Applications of SCOTUS’ Opinion

Magistrate Judge Jeremiah J. McCarthy of the U.S. District Court for the Western District of New York recently asked for supplemental briefing on Hetronic’s impact on subject matter jurisdiction over claims involving foreign marks. In a July 27 Request for Additional Briefing in Michaels v. Unitop SP. Z.O.O., Case No. 1:16-cv-01015-LJV-JJM, Judge McCarthy “tentatively conclude[d]” that because the Canadian plaintiff’s claims were rooted in a WIPO decision involving Canadian trademark rights, those claims do not arise under U.S. trademark law. He urged the parties to “argue in writing why this tentative conclusion is erroneous,” and has given them until August 23 to do so.

Given the apparent lack of any direct tie to U.S. trademark rights in Michaels, McCarthy’s conclusion makes a lot of sense. But the application of Hetronic is not as straightforward in cases involving cross-border commercial activity. The lines are blurred in terms of which conduct is relevant to a U.S. dispute, and which is not.

Only one district court appears to have issued an opinion applying Hetronic. On July 18, the District of Delaware held that Hetronic does not prohibit a U.S. plaintiff from relying upon evidence of foreign conduct in support of its Lanham Act claims. In Rockwell Automation, Inc. v. Parcop S.R.L., Case No. 21-1238-GBW-JLH, the court found that where a plaintiff is not seeking damages for foreign sales, Hetronic permits evidence of foreign conduct as circumstantial evidence to support U.S.-based claims.

Although it is still too early to tell exactly how these issues will bear out in the long term, these early applications of Hetronic indicate that district courts may be willing to read the opinion broadly enough to address the inevitable clash between territorial trademark rights and international commerce.

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