Supreme Court Rules U.S. Trademark Law Does Not Apply to Foreign Conduct | Sullivan & Worcester
On June 29, 2023, in Abitron Austria GmbH v. Hetronic International, Inc., the U.S. Supreme Court ruled that the Lanham Act does not have an extraterritorial scope and applies only in cases where the alleged infringing “use in commerce” is domestic in nature. Although the Court’s decision provides much-needed clarity as to the statute’s reach, it also introduces ambiguity by failing to define specifically what “use in commerce” is necessary to trigger the Lanham Act. As lower courts grapple with the murkiness created by this decision, one thing is clear: all brand owners must think proactively about their global strategy for protecting and enforcing their brands against infringing conduct abroad.
Background and Procedural History
The case involved a trademark dispute between Hetronic International, Inc. (“Hetronic”), a U.S. manufacturer of radio remote controls used to operate heavy-duty construction equipment, and Abitron Austria GmbH (“Abitron”), an Austrian company that once served as a licensed distributor of Hetronic’s products in Europe. Abitron subsequently began manufacturing identical versions of Hetronic’s products and selling them under Hetronic’s trademarks. Nearly all of Abitron’s sales occurred in Europe, but it also made some direct sales in the United States.
In response to Abitron’s conduct, Hetronic terminated Abitron’s distribution agreement and sued for trademark violations under the Lanham Act in the Western District of Oklahoma. Hetronic contended that Abitron’s foreign use of Hetronic’s trademarks was likely to cause confusion in the United States among U.S. consumers and sought damages for Abitron’s allegedly infringing acts throughout the world. Abitron argued, unsuccessfully, that the Lanham Act does not have extraterritorial reach in cases where allegedly infringing conduct occurs overseas and does not substantially affect U.S. commerce.
Finding in favor of Hetronic, a jury awarded $96 million in damages relating to Abitron’s use of Hetronic’s marks, and the court enjoined Abitron from selling the products worldwide. The U.S. Court of Appeals for the Tenth Circuit narrowed the injunction to certain counties but otherwise affirmed, finding that Abitron’s overseas conduct had a “substantial effect” on U.S. commerce. Abitron petitioned the Supreme Court for certiorari.
Supreme Court Decision
The Supreme Court vacated the lower court’s decision, ruling in favor of Abitron that the Lanham Act does not apply extraterritorially to foreign conduct. The Court invoked the presumption that U.S. statutes do not apply extraterritorially, and it described a two-step test to overcome the presumption: (1) determine whether Congress affirmatively and unmistakably instructed that the statute should apply to foreign conduct; and (2) if not, identify the focus of the statute and determine whether the conduct relevant to that focus occurred within the United States.
In this case, as the first step, the Court found no clear indication that Congress intended the Lanham Act to apply to foreign conduct. The Court rejected Hetronic’s argument that “commerce” for purposes of the Lanham Act should be defined to include commerce with foreign nations, which Congress may regulate under the foreign commerce clause of the U.S. Constitution. As the second step, Justice Alito, writing for the Court, determined that the focus of the Lanham Act is the defendant’s conduct—the unauthorized use in commerce that is likely to cause confusion. In this case, the Court determined that Abitron’s conduct—its use in commerce of Hetronic’s trademarks—did not occur in the United States, so the Lanham Act did not apply.
Even as the majority opinion identified “use in commerce” as the focus of the Lanham Act, the Court declined to provide clarity as to how that term should be understood in the context of a cross-border infringement claim. The Lanham Act itself defines “use in commerce” quite generally as “the bona fide use of a mark in the ordinary course of trade.” In a concurrence, Justice Jackson attempted to bring some clarity to the term, suggesting that “use in commerce” should be defined broadly to include U.S. resales of products initially sold in a foreign country or online use absent a domestic physical presence. Ultimately, Justice Alito’s opinion leaves it to the lower courts to “address the precise contours of that phrase.”
In a separate concurrence, Justice Sotomayor disagreed with the majority’s application of the test for extraterritoriality. Justice Sotomayor argued that the focus of the Lanham Act is preventing U.S. consumer confusion, rather than the defendant’s conduct. Under this reasoning, the Lanham Act would apply to the extent that foreign use in commerce causes confusion in the United States, regardless of the location of the use. Yet, Justice Alito’s majority opinion rejected this view as giving the Lanham act an “untenably broad reach.”
Comments
As a result of Abitron, it may be more challenging than ever for U.S. brand owners to seek relief for foreign infringing conduct under the Lanham Act. As lower courts haggle over what constitutes “use in commerce” and when that use is domestic or foreign, U.S. trademark owners should be vigilant to protect their brands wherever they do business. U.S. brand owners, including domestic operators and those with a global reach, should work with counsel to consider and implement international strategies for registration, monitoring and enforcement of their marks. Foreign trademark registration can serve as a counterweight to the reduced territorial scope of U.S. trademark law following Abitron.
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The case is Abitron Austria GmbH v. Hetronic International, Inc., No. 21-1043 (U.S. June 29, 2023). The opinion is available here.
