SCOTUS rules Lanham Act does not have extraterritorial reach

Trademark stamp under magnifying glass on a world map

In the United States, trademarks are governed on the federal level by the Lanham Act (also known as the Trademark Act of 1946), which was enacted on July 5, 1946, and is codified at 15 U.S.C. § 1051 et seq. The Lanham Act provides for a national system of trademark registration and creates federal causes of action for trademark infringement, trademark dilution, false advertising, and cybersquatting. The primary provisions of the Lanham act prohibiting trademark infringement are Sections 1114(1)(a) and 1125(a)(1).

Until recently, federal courts have been divided as to the extraterritorial scope of the Lanham Act. For example, the Tenth Circuit Court of Appeals and other federal appeals courts have allowed a trademark to be enforced in the United States with respect to allegedly infringing conduct that occurs outside of the United States if, for example, such conduct has a substantial impact on U.S. commerce.

In a case originally filed in federal court in Oklahoma City, the Supreme Court of the United States has now resolved the split among the courts. On June 29, 2023, in Abitron Austria GmbH v. Hetronic International, Inc. (No. 21-1043), the Court overturned a $96 million damages award to Oklahoma-based Hetronic International and concluded that the provisions of the Lanham Act that prohibit trademark infringement do not have an extraterritorial scope and apply only in cases in which the alleged infringing “use in commerce” of a trademark is domestic in nature.

The Abitron case stemmed from a trademark dispute between Hetronic International, Inc. (“Hetronic”) and six foreign parties (five affiliated companies and one individual) (collectively “Abitron”) and involved Abitron’s foreign sales of remote controls for construction equipment. Hetronic is an Oklahoma City-based company that designs and manufactures a variety of goods, including the remote controls at issue. Abitron is a former licensed distributor of Hetronic’s products in Europe.

In 2011, Abitron reverse engineered Hetronic’s products and began manufacturing and selling the products in association with Hetronic’s brand on its own, primarily in Europe but also to some extent in the United States. In response, Hetronic terminated Abitron’s distribution and licensing agreements and sued Abitron in federal court in Oklahoma City for trademark infringement under §1114(1)(a) and §1125(a)(1) of the Lanham Act, seeking damages for worldwide infringement (even though the bulk of the allegedly infringing sales occurred in Europe). A jury found in favor of Hetronic and awarded Hetronic more than $96 million in damages for trademark infringement.1

On appeal, the Tenth Circuit narrowed the injunction put in place by the district court, but otherwise affirmed the judgment, including the damages award. The Tenth Circuit rejected Abitron’s argument that it should not be liable because it is a foreign company and nearly all of the allegedly infringing sales occurred in Europe. The appeals court 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.” By its ruling, the Tenth Circuit joined the U.S. Courts of Appeals for the First, Second, Fourth, Fifth, Ninth, Eleventh, and Federal Circuits in concluding that the Lanham Act applies to foreign activities having varying degrees of effect on commerce in the United States.

The Supreme Court granted certiorari to resolve the circuit split over the extraterritorial reach of the Lanham Act. Hetronic argued that conduct inextricably tied to U.S. commerce should be governed by the Lanham Act. Abitron, on the other hand, argued that the Lanham Act did not apply to extraterritorial conduct, period. For example, Abitron argued that if found liable, it should only be on the hook for $240,000, the damages that resulted from sale of infringing goods sold to customers located in the United States.

In an opinion written by Justice Alito and joined by Justices Thomas, Gorsuch, Kavanaugh and Jackson, the Supreme Court vacated and remanded the Tenth Circuit’s decision, holding:

“This case requires us to decide the foreign reach of 15 U. S. C. §1114(1)(a) and §1125(a)(1), two provisions of the Lanham Act that prohibit trademark infringement. Applying the presumption against extraterritoriality, we hold that these provisions are not extraterritorial and that they extend only to claims where the claimed infringing use in commerce is domestic.”

In reaching its decision, the Supreme Court used a two-step framework to apply its long-standing presumption against the extraterritoriality of federal statutes in general. In connection with the first step, the Court concluded that Congress has not “affirmatively and unmistakably” instructed that the provisions of the Lanham Act in question apply extraterritorially. As to the second step, according to Justice Alito, the proper test requires first determining the “focus” of the provisions at issue and then ascertaining whether the conduct relevant to that focus occurred in the United States. The Court concluded that the “use in commerce” is the conduct relevant to the focus of the provisions in question and, because the infringing sales in question were in Europe, not the United States, the Tenth Circuit’s affirmance of the damages award could not stand. In conclusion, the Court stated:

“In sum, we hold that §1114(1)(a) and §1125(a)(1) are not extraterritorial and that the infringing “use in commerce” of a trademark provides the dividing line between foreign and domestic applications of these provisions. Under the Act, the “term ‘use in commerce’ means the bona fide use of a mark in the ordinary course of trade,” where the mark serves to “identify and distinguish [the mark user’s] goods . . . and to indicate the source of the goods.” §1127.6 Because the proceedings below were not in accord with this understanding of extraterritoriality, we vacate the judgment of the Court of Appeals and remand the case for further proceedings consistent with this opinion.”

In an opinion concurring with the judgment and joined by Chief Justice Roberts and Justices Kagan and Barrett, Justice Sotomayor agreed that the Tenth Circuit erred in reaching its opinion, but disagreed with the majority’s approach. According to Justice Sotomayor, the focus of the Lanham Act is consumer confusion and covers foreign infringement activities if there is a likelihood of confusion in the United States. Justice Jackson entered a separate concurring opinion that elaborated on the definition of “use in commerce” as defined by the Lanham Act, stating that the inquiry into “use in commerce” is not limited to where the mark is first affixed or the item is first sold but, rather, “can occur wherever the mark serves its source-identifying function.”

Takeaways

  • Although the Supreme Court’s decision certainly limits the foreign reach of the Lanham Act (i.e., it now only applies where the allegedly infringing use in commerce is domestic such that purely foreign infringing conduct is not covered), it leaves some questions unanswered. For example, exactly what constitutes “use in commerce” in the United States when foreign sales are involved? What about foreign sales that ultimately result in distribution of the goods in the United States? It is important to note that Justice Sotomayor and three other Justices agreed that foreign conduct can create confusion for U.S. consumers and that the Lanham Act could apply thereto, even though it did not in this particular case.
  • For now, the focus should be on “use in commerce” of the mark in the United States as opposed to merely the impact of the allegedly infringing conduct (e.g., where resulting confusion has occurred). Justice Jackson’s concurring opinion may offer some guidance on this issue. Actions for allegedly infringing conduct that occurs only outside the U.S. may now need to be brought where such conduct occurs, even if the conduct causes substantial confusion in the United States.
  • The Supreme Court’s decision emphasizes the need for U.S. trademark owners to proactively register their trademarks in all regions and countries in which the mark is now or may be used or licensed in the future. For example, marks can be registered internationally under the Madrid Protocol2, in the European Union3 and on a country-by-country basis4. A registration can generally be obtained under the Madrid Protocol, in Europe and in most individual countries even though the mark has not been used.5
  • Finally, the Supreme Court’s decision offers guidance when considering the extraterritorial reach of other statutes.

 


1This amount thus included damages from Abitron’s direct sales to consumers in the United States, its foreign sales of products for which the foreign buyers designated the United States as the ultimate destination, and its foreign sales of products that did not end up in the United States. Abitron emphasized that 97% of the damages related to products that never entered the U.S.

2The Madrid Protocol, officially “The Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks,” is an international treaty that became effective in the United States in November of 2003 and allows a single application to be filed in a single location to ultimately obtain trademark protection in approximately 130 countries (covered by the Madrid System’s current 114 members). For example, a Madrid Protocol application can be filed in the United States Patent and Trademark Office (USPTO).

3A European trademark registration covering current and future Member States of the European Union (currently 27 member states) can be obtained by filing a trademark application in the European Union Intellectual Property Office (EUIPO).

4A separate trademark registration can be obtained in most countries by filing a trademark application directly therein.

5A registration obtained under the Madrid Protocol and in most countries can generally only be cancelled by a third party for non-use after three (3) consecutive years of non-use of the mark. A European trademark registration can generally only be cancelled by a third party for non-use after five (5) consecutive years of non-use of the mark.