Supreme Court Decides Extraterritorial Reach of the Lanham Act | WilmerHale
On June 29, 2023, the Supreme Court decided Abitron Austria GMBH v. Hetronic Int’l, Inc., No. 21-1043, addressing the extraterritoriality of the Lanham Act. The Court held that §1114(1)(a) and §1125(a)(1) of the Lanham Act do not rebut the presumption against extraterritoriality, and thus are not extraterritorial and extend only to claims where the infringing “use in commerce” is domestic. This decision aimed to resolve a long-standing circuit split stemming from the Court’s 1952 ruling in Steele v. Bulova Watch Co., Inc., 344 U.S. 280 (1952), in which the Court held that the Lanham Act reaches foreign infringing conduct that was likely to cause consumer confusion in the U.S. where the defendant was a U.S. citizen and committed “essential steps” in the U.S. However, while the Court’s holding unequivocally declared the Lanham Act’s provisions authorizing infringement and unfair competition claims as not extraterritorial, the Court’s newly-prescribed “dividing line” between permissible-domestic or impermissible-foreign application of the provisions—whether infringing “use [of a trademark] in commerce” occurred in the U.S.—leaves significant room for interpretation.
The case stemmed from a dispute between Hetronic, a U.S. company, and six foreign entities (collectively Abitron). Hetronic manufactures radio remote controls for construction equipment. In 2006, Hetronic entered into distribution and licensing agreements with Abitron to distribute Hetronic’s products in Europe. In 2011, Abitron concluded that it held the rights to Hetronic’s trademarks and other IP under an old R&D agreement between the parties, and began manufacturing knockoffs of Hetronic-branded products in Europe and selling them under the Hetronic brand. While Abitron made some direct sales into the U.S., it mostly sold its products in Europe, some of which ended up in the U.S. When Hetronic learned of Abitron’s activities in 2014, it terminated the distribution and licensing agreements and sued Abitron for, among other things, Lanham Act violations. The District Court awarded Hetronic approximately $96 million in damages under the Lanham Act, including damages from direct sales to the U.S., foreign sales for which foreign buyers designated the U.S. as the ultimate destination, and foreign sales that did not end up in the U.S. On appeal, the Tenth Circuit affirmed the damages award, holding that the Lanham Act applies extraterritorially to foreign infringing conduct having “substantial effect” on U.S. commerce. In doing so, the Tenth Circuit joined the First, Second, Fourth, Fifth, Ninth, Eleventh, and Federal Circuits in concluding that the Lanham Act applies to foreign activities having varying degrees of effect on U.S. commerce.
The Supreme Court granted certiorari to determine the extraterritorial reach of the Lanham Act.
Writing on behalf of the majority including Justices Thomas, Gorsuch, Kavanaugh, and Jackson, Justice Alito applied the two-step framework for evaluating whether a statute applies extraterritoriality set forth in RJR Nabisco, Inc. v. European Community, 579 U.S. 325 (2016). At step one, the Court determines whether a provision is extraterritorial, which turns on whether Congress has affirmatively and unmistakably instructed that the provision at issue should apply to foreign conduct. For §1114(1)(a) and §1125(a)(1) of the Lanham Act, the Court found that neither of them provides an express statement of extraterritorial application or any other clear indication that it nonetheless applies abroad.
Concluding that the provisions at issue are not extraterritorial, the Court proceeded to step two—determining whether the case involves permissible domestic application of the provisions at issue, which turns on whether conduct relevant to the focus of the provisions occurred in the U.S. While the parties’ arguments in the case had centered around the focus of the Lanham Act’s enforcement provisions, the Court found this debate to miss the point, because “the conduct relevant to any focus the parties have proffered is infringing use in commerce.” Accordingly, the Court held that permissible domestic application of §1114(1)(a) and §1125(a)(1) of the Lanham Act requires infringing “use [of a mark] in commerce” to have occurred in the U.S.
Addressing Steele, the Court found that it is of “little assistance” in this case. The Court reasoned that because “Steele implicated both domestic conduct and a likelihood of domestic confusion,” it offered no guidance in resolving this case. However, as Justice Sotomayor pointed out in her concurring opinion, the defendant in Steele did not commit any infringing act in the United States. In Steele, the defendant exported watch parts from the U.S. into Mexico, where he assembled his watches, affixed thereon the infringing mark “Bulova,” and sold them as such. Defendants’ purchasers brought the assembled watches from Mexico into the U.S., and caused actual consumer confusion in the U.S. Thus, the defendant’s infringing acts in Steele—the affixation of the mark “Bulova” on watches and the sale of the watches—occurred in Mexico, and not in the U.S. To the extent Steele involves domestic conduct, that conduct was either not an infringing act (i.e., exportation of unmarked watch parts from the U.S.), or not committed by the defendant (i.e., introduction of watches bearing the infringing mark into U.S. commerce by third-party purchasers). While the Court limited its ruling in Steele to a “narrow and fact-bound” inquiry, attempts to reconcile the Court’s ruling in this case with its earlier ruling in Steele may lead to the conclusion that the Lanham Act reaches cases involving any infringing “use [of a trademark] in commerce” in the U.S., irrespective of whether such domestic use is caused by the defendant’s conduct.
Indeed, Justice Jackson’s concurring opinion appears to support this understanding. In elaborating on what it means to “use [a trademark] in commerce,” Justice Jackson explained that a “use in commerce” can occur “wherever the mark serves its source-identifying function,” and is not limited to the place where “the mark is first affixed, or where the item to which it is affixed is first sold.” By way of example, Justice Jackson suggested that a foreign manufacturer that marked and sold goods overseas “use[s the mark] in commerce” when a third party purchaser resells the marked goods in the U.S., thus triggering potential liability for the foreign manufacturer under §1114(1)(a) and §1125(a)(1). Justice Jackson noted in a footnote that a manufacturer reaps benefit from a trademark “whenever [the] trademark is serving a source-identifying function with respect to items in commerce—however that commercial status came to be.” Applying this understanding of “use in commerce” to Steele, the defendant used the “Bulova” mark in domestic commerce, thus giving rise to potential liability under the Lanham Act, when purchasers brought the marked watches into the U.S. and identified them as defective “Bulovas.”
Justice Sotomayor, joined by Chief Justice Roberts, Justice Kagan, and Justice Barrett, concurred in the judgment to the extent that it vacated and remanded the Tenth Circuit’s judgment for applying the wrong test for extraterritoriality, but stated an even more expansive view of the extraterritorial reach of the Lanham Act’s enforcement provisions. The four Justices disagreed with the majority’s application of the second step of the RJR framework, finding that the relevant provisions extend “to activities carried out abroad when there is a likelihood of consumer confusion in the United States.” Justice Sotomayor reasoned that because the focus of the Lanham Act’s enforcement provisions is protection against consumer confusion, the provisions cover foreign infringement activities if there is a likelihood of consumer confusion in the U.S. This approach, unlike that prescribed in the Court’s opinion and Justice Jackson’s concurrence, would not require domestic infringing “use in commerce” to trigger Lanham Act liability.
The narrow split in the Court’s decision suggests the Court may have more to say on this issue in the future. While the metes and bounds of the Court’s ruling remain to be tested, plaintiffs in Lanham Act causes of action may safeguard against narrow application of the decision by relying on the theory of contributory infringement and/or commercial activities on the internet to demonstrate foreign entities’ infringing use of trademark in the domestic marketplace. On the other hand, while the decision in Abitron seemingly gives foreign defendants not operating in the U.S. some protection from suit under the Lanham Act, given the uncertainty regarding how the Court’s decision will be applied, they should not rest solely on their lack of U.S. domestic operation, and instead should proactively pursue alternative defenses on due process and international comity grounds, such as lack of personal jurisdiction and forum non conveniens.
