SCOTUS Says Lanham Act Does Not Reach Extraterritorial Infringement

The U.S. Supreme Court (SCOTUS) ruled today in Abitron Austria v. Hetronic International that Sections 1114(1)(a) and 1125(a)(1) of the Lanham Act are not extraterritorial in nature and that “‘use in commerce’ provides the dividing line between foreign and domestic applications of these provisions.” The decision of the U.S. Court of Appeals for the Tenth Circuit, which upheld a $96 million damages award for Hetronic, was thus vacated and remanded. Justice Alito authored the opinion for the Court and Justices Jackson and Sotomayor each filed concurring opinions—though Sotomayor’s concurrence reads more like a dissent.

The underlying case involved Hetronic’s radio remote controls, which are used to operate heavy-duty construction equipment, such as cranes. Abitron et. al. began manufacturing and selling the products primarily in Europe under the Hetronic brand and continued to do so following the termination of their distribution agreements with Hetronic. The infringement occurred almost entirely outside of the United States.

The Tenth Circuit in August 2021 affirmed in part, reversed in part and remanded a decision of the U.S. District Court for the Western District of Oklahoma, holding that the Lanham Act applied to Abitron’s extraterritorial conduct. Abitron appealed to the Supreme Court and the petition was granted in November 2022.

The U.S. Solicitor General filed a brief in September 2022 asking the Court to grant cert 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. During oral argument in March of this year, the Justices struggled with the appropriate reach of the Act and whether reversing the Tenth Circuit would require overruling Steele v. Bulova Watch Co., 344 U.S. 280, 282-285 (1952), but overall seemed to be considering the need for a new or narrowed test to account for the realities of modern commerce.

Lanham Act Isn’t Special

However, the majority today said that “neither provision [of the Lanham Act] at issue provides an express statement of extraterritorial application or any other clear indication that it is one of the ‘rare’ provisions that nonetheless applies abroad.”

During oral argument, counsel for Hetronic had argued that the Lanham Act is unique and that “since 1952, this Court has held and repeatedly reaffirmed that the Lanham Act’s uniquely broad language reaches infringement of U.S. marks that is carried out overseas.” But the Court said that the fact that the Lanham Act’s definition of commerce is unique is insufficient to rebut the presumption against extraterritoriality.

Under the two-step test for applying the presumption against extraterritoriality, courts first “determine whether a provision is extraterritorial,” which involves evaluating whether “’Congress has affirmatively and unmistakably instructed that’ the provision at issue should ‘apply to foreign conduct’” and then if it is not extraterritorial, “we move to step two, which resolves whether the suit seeks a (permissible) domestic or (impermissible) foreign application of the provision.”

Conduct is What Counts

Having found the Lanham Act provisions not to be extraterritorial, the Court then determined whether the claims at issue in the case involve domestic application of the Lanham Act. The Court said the proper analysis is one in which the conduct relevant to the focus of the statutory provisions is evaluated. While the parties all relied on Steele v. Bulova to support their positions, the Court said that case is “of little assistance here.” Steele involved both domestic conduct and a likelihood of domestic confusion, so “it does not tell us which one determines the domestic applications of §1114(1)(a) and §1125(a)(1),” wrote the Court.

Ultimately, since the use in commerce at issue here was not in the United States, the Tenth Circuit’s decision must be vacated, said the Court.

A Contentious Concurrence

The majority also spent a fair amount of its opinion rebutting Justice Sotomayor’s concurrence, which agreed that the case at hand should be vacated, but for different reasons. The Chief Justice and Justices Kagan and Barrett both joined Sotomayor.

Sotomayor said the relevant inquiry is consumer confusion in the United States, rather than the location of the conduct. Sotomayor explained:

“Although there is no clear indication that the Lanham Act provisions at issue rebut the presumption against extraterritoriality at step one, a domestic application of the statute can implicate foreign conduct at step two, so long as the plaintiff proves a likelihood of consumer confusion domestically.”

But the majority said this approach would undermine the extraterritoriality regime. “This approach is wrong, and it would give the Lanham Act an untenably broad reach that undermines our extraterritoriality framework,” the Court wrote.

Sotomayor said that, ultimately, the case at hand should be vacated because the Tenth Circuit and the district court did not apply the proper test, but said the majority’s instruction to apply its conduct-focused test on remand is improper because that test “is not supported by either the Lanham Act or this Court’s traditional two-step extraterritoriality framework.”

Sotomayor rejected the majority’s contention that her “focus-only” approach would create chaos for lower courts, negate the presumption against extraterritoriality, and threaten international discord. “The Court’s conclusion…is based on the incorrect assumption that ‘merely a likelihood of an effect in this country’ would be sufficient to hold a defendant liable under the Act,” wrote Sotomayor. “What the Lanham Act requires is a likelihood of confusion in the United States, not some abstract and undefined ‘effect.’”

Defining Use in Commerce

Justice Jackson also authored a concurring opinion to explain that she joins the Court’s opinion in full but wanted to elaborate further than the majority upon the definition of “use in commerce.” Jackson said:

“Because it is ‘use in commerce’—as Congress has defined it—that ‘provides the dividing line between foreign and domestic applications of’ these provisions, ante, at 14, the permissible-domestic-application inquiry ought to be straightforward. If a marked good is in domestic commerce, and the mark is serving a source-identifying function in the way Congress described, §1114(1)(a) and §1125(a)(1) may reach the ‘person,’ §1127, who is ‘us[ing that m]ark as a trademark,’ Jack Daniel’s, 599 U. S., at ___ (slip op., at 14). But if the mark is not serving that function in domestic commerce, then the conduct Congress cared about is not occurring domestically, and these provisions’ purely domestic sweep cannot touch that person.”

Reactions

Monica Riva Talley of Sterne Kessler said the decision is not a surprise and reaffirms the extraterritoriality principle:

“This ruling is consistent with the application of trademark law around the globe, in which each country is empowered to grant trademark rights and police infringement within its borders. As a practical matter, what this means for U.S. trademark owners is that they will need to use and register their marks outside of the U.S. in order to enforce those rights in other countries.”

But Timothy Getzoff of  Holland & Hart took a darker view, and said the majority opinion represents “a curveball” for U.S. companies:

“The majority opinion essentially rejected the Bulova Watch standard (despite saying that it wasn’t), overruled decades of jurisprudence from the various circuit courts, and announced a new test that focuses on the location where the alleged infringing “use in commerce” occurs.  The opinion tries to set a bright line test:  if the defendant’s use in commerce occurred abroad, then no claim can be made.  If the defendant’s use in commerce occurred in the U.S., then liability may exist.

I believe Justice Sotomayor’s concurrence correctly characterizes this view as “myopic.”  In my view, Justice Sotomayor’s opinion should be characterized as a dissent.  She only agreed with the outcome of reversing the 10th Circuit, but she completely disagrees with the majority’s analysis…..  Judge Alito’s new test essentially immunizes trademark infringement that originates abroad, even if that infringement causes substantial adverse effects in the United States, such as, for example, counterfeit goods that are brought back to the U.S. by U.S. citizens traveling abroad.

The negative implications for U.S. trademark owners could be significant and I do not believe the opinion will be well received by U.S. brand owners or U.S. trademark practitioners for several reasons. Foreign counterfeiting of major U.S. brands continues to be a significant problem, and this opinion makes it more difficult for U.S. companies to enforce their trademarks and stem the flow of counterfeit goods into the U.S.  Judge Alito’s opinion will ironically cause more confusion among attorneys and U.S. courts, in that his analysis does not answer.”

Robert LeBlanc of Haynes Boone also thought Sotomayor got it right and said “the Majority opinion missed the mark.” LeBlanc explained:

“The focus should be on whether consumer confusion ultimately occurs in the United States, not whether the defendant’s use was abroad or domestic. Indeed. the Majority decision loses sight of the core focus and impetus behind the Lanham Act—protecting against consumer confusion in the U.S.—in that, under the Majority decision, solely foreign uses which cause domestic consumer confusion are no longer actionable. As a result, brand owners are now limited in their ability to rely on U.S. trademark rights to protect their consumers from a likelihood of confusion caused by bad actors in foreign countries.”

As a result, said LeBlanc, U.S. companies will need to protect their trademarks abroad “now, more than ever”; and “make sure that their contracts with foreign parties clearly address ownership and use of relevant IP globally to provide a contractual basis for liability related to conduct occurring outside of the U.S.”

Joyce Liou of Morrison Foerster said the “decision changes the landscape for cross-border cases entirely,”and that the Court “has curtailed [the Lanham Act’s infringement provisions] to only domestic uses, meaning the defendant’s use in commerce of the plaintiff’s mark must be domestic.” She added:

“This is a significant ruling because multiple circuit courts—not just the Tenth Circuit whose decision was overturned—have looked to…Steele v. Bulova to develop different tests for applying the Lanham Act extraterritorially….. Now those circuit courts will need to reevaluate their tests in light of the Abitron decision.”

And Jonah Knobler  of Patterson Belknap Webb & Tyler noted that “Justice Jackson’s solo concurrence leaves significant uncertainty about how Abitron will actually be applied in the Lanham Act context.” While the majority opinion made no comment on Jackson’s concurrence, her view that “the relevant ‘conduct’—the ‘use [of the trademark] in commerce’—is not limited to the defendant’s initial sale of the product, but encompasses subsequent resales of the product by third parties” is “a surprisingly broad view of the ‘conduct relevant to [the statute’s] focus,’ since it encompasses ‘conduct’ that the defendant took no part in and took no affirmative steps to aid or abet.” This leaves open the question of “whether a foreign defendant that never enters or purposefully targets the United States can still be sued under the Lanham Act—and if so, under what circumstances,” Knobler said. He continued:

“In this respect, Abitron seems like a missed opportunity for the Justices to provide a clear and workable rule for practitioners and lower courts. These internal divisions may explain why it took until the end of June for the Court to release the Abitron decision—something that surprised a number of commentators, given the case’s lack of political or ideological valence compared to other decisions released this week.” 

This article has been updated to include additional commentary.

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