Establishing Borders on the Extraterritorial Reach of US Trademark Law

The U.S. Supreme Court issued an opinion on June 29 in Abitron Austria GmbH v. Hetronic Int'l, Inc. (Case No. 21-1043) delineating the extraterritorial reach of U.S. trademark law when foreign conduct is involved. While technically a 9-0 decision to vacate and remand the case, Justice Sotomayor, joined by Chief Justice Roberts and Justices Kagan and Barrett, concurred in the judgment only, while offering a contrasting analysis. The issue of the reach of the U.S. Trademark Act (the Lanham Act) is one the circuit courts had not reconciled, and oral argument before the Court had reflected views all over the map, making it a challenge to predict how the Court would ultimately decide. A clear line has been drawn now finding that the Lanham Act provisions at issue are not extraterritorial and extend only to claims where the infringing use is domestic. 

Brief Background

Hetronic, a U.S. company, had sued Abitron and four other foreign companies and a foreign individual in the Western District of Oklahoma alleging, among other claims, trademark infringement under Lanham Act 15 U.S.C. §§ 1114(1)(a) and 1125(a)(1). Abitron had sold most of its products in Europe but also made some direct sales into the United States. A jury awarded Hetronic approximately $96 million in damages related to Abitron’s use of Hetronic’s marks, which included damages from Abitron’s directs sales to consumers in the United States, its foreign sales for which the foreign buyers had designated the United States as the ultimate destination, and its foreign sales that did not end up in the United States. The district court also entered a permanent injunction preventing Abitron from using the marks anywhere in the world, which the Tenth Circuit Court of Appeals narrowed on appeal to cover certain countries.

Majority Opinion

Writing for the majority, Justice Alito made clear these provisions of the Lanham Act are not extraterritorial and extend only to claims where the claimed infringing use in commerce is domestic; specifically, “that the infringing ‘use in commerce’ of a trademark provides the dividing line between foreign and domestic applications of these provisions.” 

The starting point in the analysis is the presumption against extraterritoriality; the “longstanding principle of American law” that legislation of Congress is meant to apply only within the United States unless a contrary intent appears. Both the majority and Justice Sotomayor agree that the first factor – whether Congress has affirmatively and unmistakably instructed that the statutory provision should apply to foreign conduct – does not apply here. But that does not end the analysis. At step two, the court must decide whether the case seeks a domestic (permissible) or foreign (impermissible) application of the statutory provision. To do so, the courts must first identify the “‘focus’ of congressional concern” underlying the statutory provision.  This “focus” is where the majority and Justice Sotomayor diverge. 

The majority emphasized that the Court has “repeatedly and explicitly held that courts must ‘identif[y] the statute’s “focus”’ and as[k] whether the conduct relevant to that focus occurred in United States territory” (emphasis in original). Here, the plaintiff must prove that the conduct relevant to the statute’s focus occurred in the United States (“use in commerce”), in other words, that the infringing act occurred in U.S. commerce. The Court held: “‘use in commerce’ provides the dividing line between foreign and domestic applications of these Lanham Act provisions.” 

Justice Sotomayor’s Concurrence in Judgment Only

Justice Sotomayor concurred in the judgment only, and would find that the “Lanham Act extends to activities carried out abroad when there is a likelihood of consumer confusion in the United States.” In other words, “uses of a mark in commerce are actionable when they cause a likelihood of consumer confusion in the United States, even when the conduct originates abroad.” Justice Sotomayor takes issue with the majority’s emphasis on where the conduct complained of occurred, arguing instead that the emphasis of the analysis should be the “focus” of the provision irrespective of where the conduct occurred. According to Justice Sotomayor, the focus of the provisions is protection against consumer confusion, and thus the determination is whether the effects of the alleged infringement are being felt in the United States. 

The majority rebutted Justice Sotomayor’s assertion, arguing “[t]his approach is wrong, and [] would give the Lanham Act an untenably broad reach that undermines our extraterritorial framework.” Further, the majority asserted, “a focus-only approach would create headaches for lower courts required to grapple with this new approach” and “threaten ‘international discord.’” By comparison, “the location of the conduct relevant to the focus provides a clear signal at both steps of our two-step framework.” Rather than focusing on whether the effects of the alleged infringement are being felt in the United States, which “expansive understanding” the majority argues “threatens to negate the presumption against extraterritoriality,” the majority said the focus should be on whether the complained of infringing use is occurring in U.S. commerce.

Both the majority and Justice Sotomayor addressed the Court’s heretofore seminal decision in this area, Steele v. Bulova Watch Co. (1952), but applied their own distinct readings of the decision to support their views.

Justice Jackson’s Concurrence

Justice Jackson wrote separately to join the majority’s opinion in full, but to express her own understanding of “use in commerce.” Specifically, Justice Jackson remarked: “a ‘use in commerce’ does not cease at the place the mark is first affixed, or where the item to which it is affixed is first sold. Rather, it can occur wherever the mark serves its source-identifying function.” By way of illustration, Justice Jackson provided a hypothetical wherein American students buy handbags in Germany marked “Coache” (“the seller’s family name”), tire of the bags after returning home and sell them in the United States, “confusing consumers and damaging Coach’s [(the U.S. company)] brand.” According to Justice Jackson, the German company would continue to use the mark in commerce within the meaning the Lanham Act, thereby triggering potential liability under these provisions at issue here. Under this reading, the German company may be subject to liability for this type of “domestic conduct” even though it did not sell bags in or directly to the United States. The majority noted in a final footnote only that Justice Jackson had “proposed a further elaboration of ‘use in commerce,” “but we have no occasion to address the precise contours of that phrase here.”

Takeaways

While the majority has drawn a clear line now on when these Lanham Act provisions may apply (where there is infringing use in U.S. commerce); given the concurring opinions which represent the views of a silent majority of the Court, it remains to be seen if and how this holding may evolve over the coming years. For the present time, companies should take some solace that their activities occurring entirely outside the United States (outside U.S. commerce) likely would not automatically trigger potential liability for trademark infringement in the United States under these provisions.