In June, the US Supreme Court delivered its ruling in the case of Abitron Austria GMBH v. Hetronic Int’l, Inc., which concerned whether a US trademark owner can obtain relief for acts of infringement that take place outside the United States. Read on to learn about the impact of this decision on extraterritorial trademark infringement.
The dispute involved Hetronic, a US company that manufactures remote controllers for construction equipment. Hetronic filed suit in the Western District of Oklahoma against a group of European companies known as Abitron. Abitron, a former licensed distributor for Hetronic, claimed ownership to much of the Hetronic intellectual property, reverse-engineered the Hetronic products, and used the Hetronic trade dress to sell the products. Most of the sales took place in Europe but there were some direct sales to the US. Hetronic filed suit for trademark infringement and unfair competition in violation of Sections 1114(1)(a) and 1125(a)(1) of the Lanham Act. A jury awarded Hetronic $96 million in damages; the district court also enjoined Abitron from using the marks anywhere in the world. On appeal, the Tenth Circuit narrowed the injunction to cover only certain countries but otherwise affirmed the judgment.
Presumption Against Extra-Territoriality
The issue before the US Supreme Court concerned the extraterritorial reach of the Lanham Act. Under Supreme Court precedent, courts begin with a presumption that US statutes apply domestically. To determine whether a statute applies outside the US, courts apply a two-step test. The first step considers whether Congress affirmatively and unmistakably instructed that the provisions apply to foreign conduct. The second step considers whether the lawsuit seeks a permissible, domestic application of the statute or an impermissible foreign application. That determination requires courts to identify the “focus” of congressional concern underlying the provision at issue.
Majority: Focus on “Use In Commerce”
The majority decision, written by Justice Alito, concluded that the Lanham Act provisions did not provide an express statement of extraterritorial application, so the first step was not met. Turning to the second step, the Court found that the focus of the Lanham Act was on a defendant’s “use in commerce” of a mark that causes confusion, concluding that use in commerce “provides the dividing line between foreign and domestic applications” of the provisions at issue. Absent use in commerce of the infringing mark, there is no infringement. The decision vacated the Tenth Circuit court ruling and remanded the case for further proceedings. Justice Jackson wrote a concurring opinion arguing for a more expansive interpretation of use in commerce that considers activities that take place after a trademark owner’s initial use of a mark outside the US, such as resale in the US by third parties.
Conflicting Interpretations of Steele v Bulova
Justice Sotomayor (joined by Roberts, Kagan, and Barrett) wrote an opinion concurring in the judgment only asserting that the majority had misinterpreted the Supreme Court’s 1952 decision in Steele v. Bulova Watch. Steele concerned an American citizen (Steele) who produced fake Bulova watches in Mexico with materials that were purchased in the US. The watches, though sold in Mexico, made their way into the United States, causing actual confusion — as evidenced by representatives from Bulova receiving complaints from people who had purchased the fake watches. Although the district court had found Steele “committed no illegal acts within the United States,” the Supreme Court ruled against him, finding that he committed essential steps, like purchasing parts, in the US, and caused actual confusion in the US market. The concurring opinion argued that, following Steele, the Court should focus on whether there is confusion in the US, rather than a “myopic conduct-only test.” The United States government filed an amicus brief in the case similarly arguing that the Lanham Act applies to foreign acts that cause confusion in the US.
The majority disagreed, quoting a previous decision that the presumption against extraterritorial application “would be a craven watchdog indeed if it retreated to its kennel whenever some domestic activity is involved in the case.” If a statute could be applied whenever effects are likely to occur in the United States, the watchdog is “nothing more than a muzzled Chihuahua.” The majority concluded that its decision was consistent with Steele because Steele had committed “essential steps” in the US and his conduct was likely to and did cause confusion in the US.
On its face, the majority decision created a litmus test for infringement: if conduct occurs solely outside the US, it should not be actionable in the US, even if it causes confusion in the US. Nevertheless, numerous questions remain to be resolved. For example, does the defendant need to physically enter the United States or is it sufficient to sell products directly to the US? What if a defendant sells products to a destination outside the US and knows (or should know) they will be sold into the US? Practitioners and trademark owners will have to wait to see how these questions are handled by the lower courts.
If you have questions about the decision or would like to discuss trademark infringement more generally, please contact me.
Nancy J. Mertzel
Mertzel Law PLLC
1204 Broadway, 4th Floor
New York, NY, 10001