Rejecting the approaches of the Courts of Appeals for the Second and Ninth Circuits, the U.S. Court of Appeals for the First Circuit, in a case of first impression, established a new framework for determining when the Lanham Act should be applied extraterritorially. The court held that federal courts will have subject matter jurisdiction under the Lanham Act over the foreign activities of foreign defendants only if the alleged infringing activities have a substantial effect on U. S. commerce when viewed in light of the purposes of the Lanham Act. McBee v. Delica Co., Ltd., Case No. 04-2733 (1st Cir. Aug. 2, 2005) (Lynch, J.).
Cecil McBee is an American citizen and jazz bassist who tours extensively, including in Japan, and has never licensed or authorized the use of his name. McBee sued Delica, a Japanese corporation that owns and operates retail clothing stores throughout Japan under the brand name "Cecil McBee," alleging Delica violated the Lanham Act. Delica also operates Japanese language websites, which may be accessed internationally. Delica’s corporate policy is to decline orders from the United States, and Delica’s shipping company has never shipped "Cecil McBee" goods outside of Japan. Investigators hired by McBee, however, were able to purchase $2500 in goods from Delica and have the goods shipped directly to the United States.
McBee alleged claims for false endorsement and dilution under the Lanham Act and for injunctive relief, damages and attorneys’ fees. The district court held it lacked subject matter jurisdiction and dismissed all of McBee’s Lanham Act claims. McBee appealed, arguing his claims for an injunction against any sales by Delica and its broadcast of its website into the United States did not constitute extraterritorial applications of the Lanham Act. McBee conceded that U.S. courts lack jurisdiction over his Lanham Act claim for an injunction against Delica’s sales in Japan, but he contended that the district court had extraterritorial jurisdiction over damages claims against those same sales.
The First Circuit affirmed, relying on different reasoning. Determining Delica was not a U.S. citizen but a foreign entity, the court articulated a test for finding Lanham Act jurisdiction over foreign infringing activities by foreign defendants. Analyzing this situation to antitrust cases, the court held the Lanham Act grants subject matter jurisdiction over a Lanham Act claim against a foreign defendant if the plaintiff can show that the defendant’s conduct has a substantial effect on U.S. commerce. A substantial effect exists when there is evidence of economic impact within the U.S. and this impact is of a sufficient character and magnitude to give the United States a reasonably strong interest in the litigation. This "substantial effects" test must be applied in light of the purposes of the Lanham Act: to protect consumers in the U.S. from confusion and to ensure a trademark owner reaps the financial and reputational awards associated with having a desirable name or product.
The court clarified that this test is distinguishable from the Vanity Fair test used by other circuits in that it first considers whether the defendant is a U.S. citizen. If the defendant is a U.S. citizen, the court necessarily has subject matter jurisdiction because a separate constitutional basis for jurisdiction exists for control of activities, even the foreign activities, of a U.S. citizen. Similarly, if the Lanham Act plaintiff seeks to enjoin sales in the United States, there is no need to further engage in the extraterritoriality inquiry because the court has subject matter jurisdiction. But, if the defendant is a foreign national, then the court may proceed to the substantial effects analysis to determine jurisdiction.
The First Circuit’s test also is distinguishable from the Vanity Fair test because it explicitly rejects the notion that a comity analysis is a necessary part of the inquiry into subject matter jurisdiction. The court notes that comity considerations more properly determine whether a court should decline to exercise subject matter jurisdiction it already possesses. Only if the substantial effects test has been satisfied need a court consider issues of comity.
Applying this framework, the First Circuit held that because McBee could not show a substantial effect on U.S. commerce, the court lacked subject matter jurisdiction over McBee’s Lanham Act claims for an injunction against Delica’s postings on its website and for damages based on Delica’s Japanese sales. The court also held that, notwithstanding the fact the court had jurisdiction over McBee’s claims for an injunction against Delica’s sales to consumers inside the U.S., summary judgment properly was granted to Delica because there was no evidence of existing confusion or dilution. Delica’s only sales in the U.S. had been to McBee’s investigators, and there was no evidence Delica otherwise had sold or planned to sell its goods into the U.S. market.
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