August 2023
In its decision released on June 29, 2023, the United States Supreme Court unanimously held that U.S. trademark protections under the Lanham Act are not extraterritorial. The court was divided, however, on the appropriate standard for determining whether a trademark owner’s infringement claims involve a domestic “use in commerce.”
Background
The recent decision, in Abitron Austria GMBH v. Hetronic Int’l, Inc., No. 21-1043, aimed to resolve the long-standing issue of the extraterritorial reach of the Lanham Act (i.e., the U.S. comprehensive trademark statute). Prior to the Abitron decision, the 1952 decision of Steele v. Bulova Watch Co. – some 70 years ago – held that U.S. courts have jurisdiction to award relief to an American corporation against acts of trademark infringement and unfair competition consummated in a foreign country by a citizen of the United States and that reached U.S. consumers. In other words, the Steele decision introduced the idea that the Lanham Act could reach beyond the borders of the United States, but nevertheless left some unresolved questions. Consequently, the decision resulted in a circuit split on the extraterritoriality reach of the Lanham Act.
The Facts
The case centered on a trademark dispute between Hetronic (a U.S. company) and its former foreign distributors (collectively, “Abitron”). After reverse engineering Hetronic’s products, Abitron began to sell Hetronic-branded products that incorporated parts sourced from third parties. Abitron mostly sold its products in Europe, but it also made some direct sales into the United States. Hetronic sued Abitron in the Western District of Oklahoma, claiming trademark violations under Sections 1114(1) and 1125(a) of the Lanham Act. As a defense, Abitron claimed its foreign sales did not violate the Lanham Act because the statute did not have extraterritorial reach. A jury awarded Hetronic $96 million in damages, largely based on Abitron’s foreign sales. The Tenth Circuit upheld the award, concluding that the Lanham Act extended to Abitron’s foreign conduct because the “impacts within the United States [were] of a sufficient character and magnitude as would give the United States a reasonably strong interest in the litigation.”
The Supreme Court then granted certiorari on the distributors’ question of “whether the court of appeals erred in applying the Lanham Act extraterritorially to petitioners’ foreign sales, including purely foreign sales that never reached the United States or confused U.S. consumers.” The Court vacated the Tenth Circuit’s judgment and remanded for further proceedings.
The Court’s Ruling
Under modern statutory construction principles, courts apply a two-step framework to determine whether a statute can be applied to conduct outside of the United States. The first question is whether there is a “clear, affirmative indication” that the law was intended to apply abroad. If not, there is a presumption against extraterritorial application. Here, the Court unanimously agreed that the statutory language does not provide such a clear statement and thus the Lanham Act provisions are not extraterritorial.
Turning to the second question, the Court considered whether the claims involve a permissible “domestic application” of the statute. This is where the justices were divided, issuing three opinions: a majority (5-4) opinion by Justice Alito and two separate concurring opinions by Justice Sotomayor and Justice Jackson. The majority ruled that these provisions apply only when the infringing “use in commerce” occurs in the United States. In other words, a claim may advance if the pertinent “commercial use” took place within the United States, but it cannot if that is not the case.
In Justice Sotomayor’s concurrence, joined by Justices Kagan and Barret, and Chief Justice Roberts, she identified a consumer-confusion focus where the Lanham Act would govern “foreign infringement activities if there is a likelihood of confusion in the United States.” Justice Jackson’s concurring opinion adopted the federal government’s position as amici curiae, stating that even if a foreign company sells products in a foreign country, it could still be subject to the Lanham Act. This could be the case if the purchaser resells the products in the United States, or if the foreign company participates in other actions over the internet that could be deemed “use in commerce” within the United States, even without a physical presence in the United States. As the concurrences demonstrate, open questions remain about how lower courts should interpret the “use in commerce” standard.
Next Steps
The Abitron decision underscores the importance of U.S. companies operating internationally to consider the trademark law of the countries in which they do business in order to develop strategies to protect their trademarks in those countries. Companies with commercial activities outside the United States should thus consult with trademark counsel about ways to protect their brands in other countries.
Please reach out to us if you need any assistance in implementing new brand protection, developing trademark enforcement strategies or would like assistance in registering your trademarks (domestically or internationally).
For more information, please contact Lynn M. Humphreys.
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