Supreme Court limits reach of trademark law to domestic infringement: Three practical considerations

In Abitron Austria GmbH, et. al., v. Hetronic International, Inc., the Supreme Court resolved a circuit split regarding the scope of the Lanham Act’s extraterritorial reach, holding that the two provisions governing trademark infringement “are not extraterritorial” and “extend only to claims where the claimed infringing use in commerce is domestic.” In doing so, the Court vacated a $96 million jury award intended to compensate Hetronic for Abitron’s global use of its trademarks. 

 

While the Court’s decision limits the Lanham Act’s reach where purely foreign conduct is involved, it does not clearly define when an infringing “use in commerce” is “domestic.”  The decision also leaves intact prior authority that permits brand owners to enforce rights in the United States against foreign entities that market and sell products to domestic consumers.  Nonetheless, rightsholders should carefully evaluate their trademark portfolios to ensure adequate coverage exists to enforce their rights against infringement abroad.

 

The district court decision

 

Domestic company Hetronic sued its former distributor, Abitron, a foreign entity, for trademark infringement under 15 U.S.C. § 1114(a) and § 11125(a).  Hetronic claimed that Abitron reverse engineered its products and subsequently began to sell competing goods under the Hetronic brand. While over 95 percent of Abitron’s sales were in Europe, it made some direct sales into the US.  Hetronic, however, did not confine its damages claim to the US sales but rather sought monetary remuneration for Abitron’s foreign infringing acts. 

 

The district court in Oklahoma rejected Abitron’s argument against extraterritoriality, and a jury awarded Hetronic approximately $96 million in damages related to Abitron’s infringing global use of Hetronic’s marks. The award included damages stemming from Abitron’s (1) direct sales to US-based consumers; (2) sales of products for which the foreign buyers designated the United States as the ultimate destination; and (3) foreign sales of products intended for use abroad.  The District Court also entered a permanent injunction that enjoined Abitron’s US and foreign conduct.

 

The Tenth Circuit decision

 

On appeal, the Tenth Circuit narrowed the permanent injunction to only certain countries and otherwise affirmed the judgment in favor of Hetronic.  The Tenth Circuit concluded that the Lanham Act extended to “all of [Abitron’s] foreign infringing 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 Court’s majority decision

 

In a majority opinion penned by Justice Samuel Alito, the Court began with a presumption against extraterritorial application of the statute and applied a two-step framework set forth in RJR Nabisco, Inc. v. European Community, 579 U. S. 325, 335 (2016).  The first step asks whether Congress has “affirmatively and unmistakably instructed” that the statute “should apply to foreign conduct.” If Congress provided such instruction, then the provision is extraterritorial. If not, the analysis moves to step two, which looks at whether a claim seeks a domestic or foreign application of the statute.  The trial court identifies the “focus” of the examined statute and asks whether the conduct relevant to that focus occurred in the United States. 

 

Applying the first step, the Court found neither Sections 1114 or 1125 of the Lanham Act provide any express instruction about extraterritorial application, nor do they provide any indication that they would nevertheless apply abroad.  The Court thus moved to the second step and examined the focus on those sections and whether Hetronic established that Abitron’s conduct relevant to the statute’s focus occurred in the United States. In doing so, the Court distinguished (but did not overrule) Steele v. Bulova Watch Co., 344 U.S. 280 (1952), which applied the Lanham Act to infringing conduct that occurred both in the United States and Mexico and caused consumer confusion in the United States, finding that Bulova, unlike the instant facts subject to further factfinding on remand, involved “domestic conduct and a likelihood of domestic confusion.”  The Court concluded that the focus of the Lanham Act for the purposes of the second step of the RJR Nabisco test is the location of the alleged infringing “use in commerce” of a trademark.  The Court vacated the judgment below and remanded: on remand, the district court must, among other things, determine the “location of the conduct relevant” to the Lanham Act’s focus, that is, the location of the infringing “use in commerce.”

 

Justice Jackson’s concurrence

 

Justice Ketanji Brown Jackson agreed with the majority and elaborated on the meaning of use of a trademark in commerce and how that use may guide the question of permissible domestic application of the Lanham Act.  Justice Jackson suggested that a foreign company selling goods in a foreign company could still be engaged in “use in commerce” subject to the Lanham Act.  In Justice Jackson’s view, the “use in commerce” occurs wherever a mark serves a source-identifying function and does not necessarily depend on where the mark is first affixed or where the item is first sold.  Some examples include when a buyer resells goods it purchased abroad in the United States, or when the company is engaged activities in the “internet age” that constitute “use in commerce” (such as presumably the advertising of goods on a website and/or offering goods for sale to consumers in the United States) even without a domestic physical presence.

 

Justice Sotomayor’s concurrence

 

Justice Sonia Sotomayor, joined by Chief Justice John Roberts, Justice Elena Kagan and Justice Amy Coney Barrett, concurred in the judgment, but articulated that they would have adopted the government’s proposed test of whether the infringing conduct abroad resulted in a likelihood of consumer confusion in the United States.  The concurrence reasoned that because the Lanham Act’s focus is to protect against consumer confusion, it properly governs use abroad that results in a likelihood of consumer confusion in the United States. (According to the majority, this approach would improperly “give the Lanham Act an untenably broad reach” and would threaten “international discord.”)

 

Practical considerations

 

The location of “use in commerce” will be a battleground.  The decision does not provide clear guidance for when the “use in commerce” focus is domestic, and when it is not.  Arguments could find support in Justice Jackson’s concurring opinion which suggests that certain foreign activities will still be subject to the Lanham Act’s reach. In the first court order to cite Abitron, the District of Delaware distinguished the decision and rejected argument that plaintiff is prevented from using evidence of foreign infringing conduct to prove domestic infringement; in particular, evidence that defendant sold counterfeit goods to customers in Europe as “circumstantial evidence” of defendant’s counterfeit sales in the United States.  Rockwell Automation, Inc. v. Parcop S.R.L. d/b/a WiAutomation, No. CV 21-1238-GBW-JLH, 2023 WL 4585952 (D. Del. July 18, 2023).  We can expect that the district courts will encounter similar creative arguments around foreign and domestic conduct and will begin to define what conduct constitutes a domestic “use in commerce” when there is some nexus between infringement and foreign activity.

 

Brand owners can still pursue foreign counterfeiters in the United States.  Abitron does not eviscerate prior decisions that establish a cause of action (and jurisdiction) against foreign entities that sell infringing products to United States consumers.  Indeed, the Court distinguished—but did not expressly overrule—Steele, which held the Lanham Act applies to non-domestic conduct when (1) there is relevant domestic conduct and (2) a likelihood of domestic consumer confusion.  Further, as Justice Jackson’s concurrence suggests, rightsholders may still pursue a broader range of conduct that could be considered infringing “use in commerce” and “domestic,” under Sections 1114 and 1125 even if the foreign defendant never sold goods in or into the United States. 

 

Brand owners should examine their trademark portfolios and consult foreign counsel in key jurisdictions.  Most foreign countries require trademark registrations to enforce trademark rights.  In light of Abitron, brand owners should take a fresh look at the reach of their portfolios in key commercial markets and in jurisdictions where defensive filings are recommended and consider investing in filing additional trademark applications where necessary.  A bespoke global trademark strategy is even endorsed by the Court, which stated “each country is empowered to grant trademark rights and police infringement within its borders.” 

 

Going forward. DLA Piper is a global law firm with a deep bench of accomplished trademark attorneys in several countries.  To learn more or should you wish to discuss your trademark strategy, please contact the authors of this article.

 

The authors thank Lucas Uhm (DLA Piper 2023 summer associate) for his assistance with this article.