Solicitor General Asks SCOTUS to Grant Petition to Reject Tenth Circuit’s Extraterritorial Application of Lanham Act

“Given the background understanding that ‘Congress is primarily concerned with domestic conditions…,’ and in the absence of clear textual evidence to the contrary, it is appropriate to infer that Congress sought to prevent those ill effects from occurring in the United States.” – SG’s brief

INTA - September 23, the office of the U.S. Solicitor General filed a brief with the U.S. Supreme Court on the issues at play in Abitron Austria GmbH v. Hetronic International, Inc., a trademark case in which the U.S. Court of Appeals for the Tenth Circuit affirmed a $90 million damages award for trademark infringement based on infringement occurring almost entirely outside of the United States. The Solicitor General’s brief asks the nation’s highest court to grant cert on Abitron Austria’s appeal in order to properly limit the application of the Lanham Act so that damages are only awarded when the alleged infringement has a likelihood of causing confusion among U.S. consumers.

Tenth Circuit Finds Substantial Effect on U.S. Commerce by Infringing Foreign Sales

Abitron Austria’s petition for writ of certiorari follows a Tenth Circuit decision from last August in which the appellate court affirmed a jury verdict from the Western District of Oklahoma that awarded $90 million to Hetronic against a series of former business partners from Austria and Germany, including Abitron Austria. Those companies had contracted to distribute Hetronic radio remote controls for heavy-duty construction equipment abroad, but after that business relationship soured, the Austrian and German firms reverse-engineered an identical product, prompting Hetronic’s lawsuit. The damages award entered in Western Oklahoma included $240,000 for infringing products sold directly into the United States, $2 million for infringing products sold to foreign customers who intended to ultimately sell those products into the United States, and $87 million for infringing products sold abroad and that were not designated for resale into the U.S., although a portion of those sales displaced foreign sales for Hetronic.

In affirming the Western Oklahoma’s jury verdict on damages, the Tenth Circuit cited to the Supreme Court’s 1952 decision in Steele v. Bulova Watch Co. for the premise that the Lanham Act’s provisions on civil liability for infringement could apply abroad in certain circumstances. Though the Tenth Circuit applied a First Circuit test requiring a showing that the alleged infringement by a foreign national has a substantial effect on U.S. commerce, a showing not required for foreign infringement conducted by an American defendant, the Tenth Circuit found this test satisfied under two theories. First, the sale of infringing goods into the U.S. gave the created a reasonably strong interest in the litigation permitting the court to hold Abitron Austria and others liable for their foreign sales as well. Second, under a diversion-of-sales theory, the Tenth Circuit found that the record evidence of tens of millions of dollars in lost foreign sales for Hetronic, an American company, deprived the U.S. economy of those revenues.

‘Congress is Primarily Concerned with Domestic Conditions’ Under Supreme Court Precedent

While the Solicitor General’s brief acknowledged that, under Steele, the Lanham Act can apply to foreign sales of infringing goods, the brief argued that such applications must be consistent with the principle from Foley Bros. v. Filardo (1949), in which the Supreme Court stated that “Congress is primarily concerned with domestic conditions.” Under this precedent, the Solicitor General contended that the Lanham Act requires consideration of whether those foreign sales were likely to create consumer confusion in the United States. The Solicitor General urged the Supreme Court to grant cert as none of the tests applied by courts of appeals focus on this critical factor.

The Solicitor General also presented its own version of the question on appeal for the Supreme Court. While Abitron Austria’s question presented generally asks whether the Tenth Circuit erred in its extraterritorial application of the Lanham Act, the Solicitor General’s question presented was more pointed about the statutes involved:

“Whether, under Sections 32(1)(a) and 43(a)(1)(A) of the Lanham Act, the owner of a U.S.-registered trademark may recover damages for uses of that trademark that occurred outside the United States and that were not likely to cause consumer confusion in the United States.”

As the Solicitor General argues, Sections 32(1)(a), which imposes civil liability for trademark infringement, and 43(a)(1)(A), which provides a cause of action for the use of an infringing mark in commerce, only apply within the jurisdiction of the United States unless Congress made clear its intent that the statute should apply abroad as well. Under the Supreme Court’s two-step framework from RJR Nabisco v. European Community (2016), courts determining the territorial scope of a statute should look to whether there is any clear intent rebutting the presumption against extraterritorial application, and if not, whether the statute’s “focus,” or the conduct that the statute purports to regulate, counsels for a domestic application of the statute.

Conduct at the Focus of Lanham Act Provisions Must Take Place Within the United States

Under the RJR Nabisco test, the Solicitor General argued that the Lanham Act provisions at issue are best construed to make actionable trademark infringement causing confusion with U.S. consumers. Although the Lanham Act defines “commerce” broadly as “all commerce that may be lawfully regulated by Congress,” Supreme Court precedent on extraterritorial applications of U.S. statutes have only found such applications lawful if the conduct at the statute’s focus occurred within the United States.

“Congress viewed use of infringing trademarks as objectionable because of its adverse effects both on consumers (whose ability to make informed purchasing decisions is hindered) and on trademark owners (whose ability to capitalize on the goodwill associated with their marks is impaired). Given the background understanding that ‘Congress is primarily concerned with domestic conditions…,’ and in the absence of clear textual evidence to the contrary, it is appropriate to infer that Congress sought to prevent those ill effects from occurring in the United States.”

The Solicitor General’s brief noted that this approach is consistent with the Supreme Court’s ruling in Steele, in which the Court applied the Lanham Act against sales of counterfeit Bulova watches sold in Mexico. That ruling was based in part on the fact that Texas-based representatives of Bulova were receiving complaints from U.S. customers who purchased watches that had filtered through the Mexican border into Texas. While the most obvious ill effects of infringement are felt at the point of sale, Steele acknowledged the harm that can occur when U.S. citizens returned to the country to find their counterfeit purchases didn’t work as they expected. While Steele also based its ruling upon the defendant’s U.S. citizenship and the importation of infringing watch parts from the U.S. into Mexico, the Solicitor General argued that no court applying Steele had required similar facts to be present in other cases on trademark infringement via foreign sales.

Diversion of Foreign Sales Does Not Establish That Consumer Confusion is Likely in the United States

The Tenth Circuit’s decision below is not consistent with these statutory principles, the Solicitor General argued, and the appellate court’s stated rationales for its ruling lack merit. The Tenth Circuit was wrong to approach damages calculations under the Lanham Act as an all-or-nothing proposition; Abitron Austria and the other defendants could have been properly penalized for its sales creating a likelihood of confusion in U.S. consumers without seeking damages for other uses of Hetronic’s trademarks that aren’t actionable under the Lanham Act. On the diversion-of-sales theory, the Solicitor General argued that Hetronic’s loss of foreign sales does not satisfy the requirement that Abitron Austria’s conduct relevant to those foreign sales must have created a likelihood of consumer confusion within the United States.

Not only could the Tenth Circuit’s extraterritorial application of the Lanham Act potentially undermine the international system of trademark protection established under treaties like the Paris Convention, the Solicitor General argued that review should be granted to solve a circuit split caused by the decision. In the Fourth Circuit’s decision in Tire Engineering & Distribution v. Shandong Linglong Rubber (2012), the appellate court rejected a diversion-of-sales theory on a Lanham Act claim for foreign infringement. “More fundamentally, the decision below is symptomatic of widespread confusion in the lower courts,” the Solicitor General contended, noting that the courts of appeals have come up with various tests for extraterritorial applications of the Lanham Act under Steele, the last Supreme Court ruling providing any guidance on the subject.

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Author: VadimVasenin


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