Following closely on the heels of the Supreme Court's most recent trademark decision in the Jack Daniel's case, the Court delivered yet another landmark trademark decision. While not as whimsical as the dog toys at issue in Jack Daniel's, the Supreme Court in Abitron Austria GmbH v. Hetronic International, Inc. provided important guidance on the extraterritorial scope of the Lanham Act—holding that “§ 1114(1) and §1125(a)(1) of the Lanham Act are not extraterritorial and extend only to claims where the infringing use in commerce is domestic,” (emphasis added.) The Supreme Court's decision will likely serve as a lifeline for those accused of infringing the trademarks of U.S. companies while operating abroad by shielding profits made abroad from disgorgement. But not all is lost for such enforcement efforts as the Court's decision still leaves room for much interpretation as to what constitutes a “domestic” use in commerce sufficient to bring foreign profits back into the damages calculation.
Background
The relevant players here are U.S.-based Hetronic International, Inc. and Austrian based Abitron Austria GmbH. Hetronic manufacturers and sells radio remote controls for construction equipment in the United States and abroad. Abitron previously acted as a licensed distributor for Hetronic, but it later began to sell reverse-engineered Hetronic-branded products that it sold mostly in Europe with some direct and indirect sales to the United States.
Hetronic sued Abitron for trademark infringement in the Western District of Oklahoma pursuant to both 15 U.S.C. §§ 1114(1)(a) and 1125(a)(1). Section 1114(1)(a) prohibits the “use in commerce [] any reproduction, counterfeit, copy, or colorable imitation of a registered mark” that “is likely to cause confusion” with that registered mark, and Section 1125(a)(1) prohibits, in relevant part, “use in commerce [of] any word, term name, symbol, or device,” registered or not, that “is likely to cause confusion.” Hetronic's claims were not limited to infringement in the United States; Hetronic sought damages for Abitron's infringing acts worldwide.
The District Court rebuffed Abitron's arguments that Hetronic was seeking an impermissible extraterritorial application of the Lanham Act by seeking damages for Abitron's alleged infringement outside of the United States. A jury eventually awarded Hetronic $96 million in damages for Abitron's global infringement, and the District Court permanently enjoined Abitron's infringement worldwide. The damages encompassed in this figure included (1) Abitron's sales to consumers in the United States; (2) Abitron's foreign sales of products that ended up in the United Sates; and (3) Abitron's foreign sales of products that never made it to the United States.
On appeal, the Tenth Circuit largely affirmed, concluding that the Lanham Act extended to all of Abitron's foreign conduct because the “impacts [of that conduct] 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 Tenth Circuit only deviated from the District Court on the scope of the injunction, limiting the injunction against Abitron to certain countries.
Abitron petitioned the Supreme Court for certiorari to finally determine the foreign reach of 15 U.S.C. §§ 1114(1)(a) and 1125(a)(1), on which there was a Circuit split.
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The Supreme Court's Unanimous, But Divided, Decision
At first glance, it appears the Justices were largely on the same page with their opinions—Justice Alito penned the opinion of the Court, with Justices Thomas, Gorsuch, Kavanaugh and Jackson joining (the “Majority”); Justice Jackson authored a concurring opinion on her own; and Justice Sotomayor filed another concurring opinion joined by Justices Roberts, Kagan, and Barrett (the “Concurrence”). Looks, however, can be deceiving. All nine Justices agreed that the lower decisions awarding Hetronic $96 million in worldwide damages for its infringement must be vacated. But the Majority and Concurrence differed substantially on the test each group believed should apply to determine what constitutes a permissible domestic (versus impermissible foreign) application of the Lanham Act.
To understand the dueling approaches, it is first important to understand the framework from which the Justices were operating. Both the Majority and Concurrence started from the same place—the “longstanding principle of American law that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States,” which is called the “presumption against extraterritoriality.” Both also agreed that applying this presumption involves a two-step framework. Step one requires a court to determine whether a statutory provision is extraterritorial, which in turn requires a determination of whether Congress has “affirmatively and unmistakably instructed that” a provision should apply extraterritorially. If there is no affirmative instruction, the court moves to step two, which resolves whether the suit seeks a domestic or foreign application of the relevant statute by determining the “focus” of congressional concern underlying that provision.
There was no dispute as to how step one of this test applied to the Lanham Act. Both the Majority and Concurrence agreed that Congress had not made “a clear, unmistakable indication” that §§ 1114(1)(a) and § 1125(a)(1) apply extraterritorially. Hetronic argued that because Congress defined “commerce” as used in these sections as “all commerce which may lawfully be regulated by commerce,” and because Congress can lawfully regulate foreign commerce under the Foreign Commerce Clause, this definition of “commerce” rebuts the presumption against extraterritoriality. The Majority and Concurrence disagreed with Hetronic for the same reason—the Supreme Court has held in the past that even explicit references to “foreign commerce” in a statute do not satisfy step one, so a definition of “commerce” that merely refers to the ability to regulate foreign commerce is certainly not enough here.
With both the Majority and Concurrence agreeing that the §§ 1114(1)(a) and 1125(a)(1) are not per se extraterritorial, the Justices turned to step two, where the real deviation between the two opinions occurs.
The Majority Opinion
According to the Majority (which governs, with five of nine Justices joining), to determine whether courts should apply a statute to a defendant's foreign conduct, they must look to the “focus” of congressional concern underlying the relevant statute. But the analysis does not end there. Courts must not only identify the statute's “focus;” they also must “ask whether the conduct relevant to that focus occurred in the United States territory. The Majority thus concluded that “to prove that a claim involves a domestic application of a statute, plaintiffs must establish that the conduct relevant to the statute's focus occurred in the United States.”
Both parties (and amici) directed their arguments to the first part of the Majority's test—the “focus” of congressional concern underlying §§ 1114(1)(a) and 1125(a)(1) of the Lanham Act—but disregarded the second part—the “conduct relevant to that focus.” Abitron argued the focus of these sections was on preventing infringing use of trademarks; Hetronic argued the focus is to protect the goodwill of mark owners and prevent consumer confusion; and the United States (as amicus curiae supporting no party) argued the focus was limited to preventing likely consumer confusion. Each party relied on the Supreme Court decision Steele v. Bulova Watch Co., 344 U.S. 280 (1952) in some way or another for support, but the Majority was not persuaded that Steele was applicable and set that case aside. In Steele, an individual living in Mexico produced watches made from parts imported from the United States and stamped with the BULOVA trademark. After some of these watches made it into the United States, Bulova sued for trademark infringement. The Supreme Court found that the individual was liable for infringement under the Lanham Act. Hetronic relied heavily on Steele, claiming it supported the application of the Lanham Act here to prevent Abitron's foreign conduct causing damage to Hetronic in the United States. The Majority, however, disagreed and distinguished Steele because it “implicated both domestic conduct [i.e., importing watch parts from the United States] and a likelihood of domestic confusion.”
Having found Steele of little use, the Majority turned to other precedent to find that, no matter which of the “focuses” posited by the parties was chosen, the “conduct relevant” to all of them is “infringing use in commerce,” as both relevant Lanham Act provisions preclude the unauthorized “use in commerce” of a protected trademark. And while the Majority acknowledged that likely confusion is a necessary component, it went on to say that it is not a “separate requirement,” just a “necessary characteristic of the offending use.” According to the Majority, then, “‘use in commerce' provides the dividing line between foreign and domestic applications of these Lanham Act provisions. In other words, unless an allegedly infringing trademark is used in U.S. commerce, the Lanham Act will not apply.
The Concurring Opinion
The Concurrence vehemently disagreed with the Majority's step-two test. First, the Concurrence chastised the Majority for refusing to take a stance of the parties' arguments regarding the “focus” of these Lanham Act provisions. For its part, the Concurrence adopted the United States' position, finding that the “statute's focus is protection against consumer confusion.” As a result, the Concurrence disagreed that use in U.S. commerce is required for a domestic application of the Lanham Act. To the contrary, according to the Concurrence, “the [Lanham Act] covers foreign infringement activities if there is a likelihood of confusion in the United States and all other conditions for liability are established.” So, under the Concurrence's proposed test, “even where the [infringing] conduct originates abroad,” that allegedly infringing conduct would still be actionable if it creates a likelihood of confusion in the United States.
As it relates to the Majority's use-in-commerce dividing line, the Concurrence criticized the Majority for transforming the extraterritoriality framework from a “focus”-driven test “into a myopic conduct-only test” that ignores the “focus” of the statute. The Concurrence viewed the Majority's “conduct” analysis as a newly created third step to the longstanding two-step extraterritoriality analysis, which the Concurrence argued is not supported by any precedent. And not only did the Concurrence claim the Majority opinion is unsupported by precedent, it also argued the Majority improperly disregarded the Steele decision, which the Concurrence understood to stand for the proposition that alleged infringement arising from a foreign act (i.e., stamping the watches with BULOVA in Mexico) is actionable under the Lanham Act where it creates a likelihood of confusion in the United States, regardless of whether the infringing mark was actually used in U.S. commerce. The Concurrence chided the Majority for setting this case aside, saying “[t]he Court should not put aside the Court's precedent merely because it is convenient to do so.”
Finally, the Concurrence contended that its proposed test, contrary to the Majority's claims, is consistent with the international trademark system, where trademark rights are territorial and granted protection in each country based on each country's trademark laws. The Concurrence claimed its test properly cabins the Lanham Act's reach only to foreign conduct that results in infringing products causing consumer confusion in the United States, thus leaving foreign countries the authority to remedy confusion in their territory. The Concurrence even went so far to say that the Majority did not offer sufficient protection to U.S. trademark owners, who now could not enforce their marks against those foreign operators causing confusion abroad. The Concurrence emphasized that this problem is particularly acute where, in today's modern world, “multinational brands have an online presence” that could create confusion in the United States without any use in U.S. commerce.
The Majority's Response to the Concurrence
The Majority framed the Concurrence and its proposed test as one that “threatens to negate the presumption against extraterritoriality” altogether. The Majority went on to quote an earlier decision explaining 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.” Here, the Majority believed that the Concurrence's proposed likelihood-of-confusion focus would turn the presumption into “nothing more than a muzzled chihuahua” by diminishing, if not eliminating, the presumption altogether because “it would not even be necessary that ‘some' domestic activity be involved” for trademark infringement to arise.
The Majority also claimed that the Concurrence's test threatened international discord, citing to various foreign amici that “gravely warned” the Court against applying the Lanham Act to acts of infringement outside the United States.
Implications
While the Majority and Concurrence's vigorous disagreement about the application of the second step of the extraterritoriality framework may make for interesting academic debate as to which side “got it right,” the practical affect is likely straightforward. The Majority's test governs, as it was joined by five of the nine Justices. This means that §§ 1114(1)(a) and 1125(a)(1) of the Lanham Act will only apply where the allegedly infringing use in commerce is domestic.
What does that mean? Enter Justice Jackson.
In her concurring opinion, Justice Jackson acknowledged the Court had “no need to elaborate [on] . . . the permissible-domestic-application question in a particular case.” But perhaps recognizing that courts and litigants around the country will likely struggle to determine when a use in commerce is domestic such that the Lanham Act applies, Justice Jackson wrote separately to provide some guidance. In doing so, she provided a useful hypothetical. Consider a German entity selling handbags under the mark COACHE. And consider further that German entity sold one of its COACHE bags to an American student visiting Germany who then takes that bag back to the United States. If that student simply uses the bag in the United States, Coach would have no claim against the German entity because there was no use in U.S. commerce. If, however, the student re-sold the bag after returning to the United States, the COACHE bag would have entered U.S. commerce within the meaning of the Lanham Act, and Coach could sue the German entity for trademark infringement.
Justice Jackson also recognized, in a footnote that, “in the internet age,” “one could imagine” a situation where a mark is used in U.S. commerce “even absent the domestic physical presence of the times whose source it identifies.” It is thus possible that, even under the Majority's test (which Justice Jackson joined), the Lanham Act could reach beyond the physical borders of the United States because of infringing use on the internet.
With the Majority's new test as to when the Lanham Act reaches foreign conduct in place, and with Justice Jackson's guidance, District and Circuit Courts alike will now be tasked with defining the boundaries of what constitutes infringing use in U.S. commerce.
The case is Abitron Austria GmbH et al. v. Hetronic International, Inc., No. 21-1043 (June 29, 2023).
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