IP Law Daily, TRADEMARK—U.S.: High Court majority holds that trademark law applies only to domestic uses, (Jun 29, 2023)

By Thomas Long, J.D.

Nine Justices agree that the Lanham Act does not generally apply extraterritorially, but four concurring Justices would extend its reach to foreign conduct that presents a likelihood of confusion in the U.S.

Trademark infringement claims brought under the Lanham Act are not extraterritorial and extend only to uses of trademarks in domestic commerce, the U.S. Supreme Court has held in an opinion authored by Justice Samuel Alito and joined by Justices Thomas, Gorsuch, Kavanaugh, and Jackson. Justice Sotomayor wrote an opinion concurring in the judgment, which was joined by Chief Justice Roberts and Justices Kagan and Barrett. These Justices would extend the reach of the Lanham Act to conduct taking place abroad that results in a likelihood of confusion within the United States. The Court vacated and remanded a decision of the U.S. Court of Appeals for the Tenth Circuit, which had affirmed a $96 million damages award related to infringing sales of remote-control devices for industrial equipment, most of which took place overseas. While both groups of Justices agreed that nothing in the Lanham Act infringement provisions indicated an intent by Congress that they should apply to purely foreign conduct, the harder question was when they should apply to a combination of domestic and foreign activity (or foreign activity having a harmful effect domestically). The majority holding limits the reach of the Lanham Act to infringing conduct that takes place in the United states, whereas the four concurring Justices would apply the statute to foreign conduct that was likely to confuse consumers in the United States, as long as other statutory elements of infringement were established as well (Abitron Austria GmbH v. Hetronic International, Inc., June 29, 2023, Alito, S.).

The parties to the dispute are businesses engaged in the manufacture and sale of radio remote controls used in heavy industrial equipment. The petitioners are related German and Austrian companies currently operating as Abitron. The respondent is Hetronic International, an Oklahoma-based manufacturer of radio remote control products under the HETRONIC house mark, various product marks, and protected by distinctive trade dresses. For nearly a decade, Abitron (then operating as Hetronic Germany GmbH) distributed Hetronic’s remote controls in Germany and other European countries. The relationship broke down when Abitron determined it owned rights to the Hetronic trademarks and began manufacturing its own products—identical to Hetronic’s—and selling them under the Hetronic brand. Abitron’s products were mostly sold in Europe, but some reached the United States. Hetronic sued Abitron in an Oklahoma federal district court, asserting trademark infringement under the Lanham Act.

After an 11-day trial, a jury returned a verdict in favor of Hetronic, awarding approximately $96 million for trademark infringement, 97 percent of which was related to sales of remote controls to foreign purchasers. In April 2020, the district court entered a permanent injunction against Abitron. In August 2022, the Tenth Circuit affirmed the damages award, finding that the infringement had a substantial effect on U.S. commerce because millions of dollars of infringing products made their way into the U.S. The appellate court found the jury’s award was warranted under a diversion of foreign sales theory. The Tenth Circuit, however, narrowed the scope of the permanent injunction to only those countries where Abitron was marketing or selling its products, reasoning that a party is not entitled to an injunction in markets it has not actually penetrated. In January 2022, Abitron filed a petition for certiorari, which the Supreme Court granted on November 4, 2022.

The question presented by Abitron’s petition was: “Whether the court of appeals erred in applying the Lanham Act extraterritorially to petitioners’ foreign sales, including purely foreign sales that never reached the United States or confused U.S. consumers.”

Presumption against extraterritoriality. Justice Alito began the majority opinion by stating the longstanding principle that federal legislation is presumed to apply only within the territorial jurisdiction of the United States, unless a contrary intent appears. The “presumption against extraterritoriality” means that exclusively foreign conduct is generally the domain of foreign law, and U.S. law does not extend to it. A reason for this presumption is to avoid “international discord.”

Applying the presumption involves a two-step inquiry. First, a determination is made as to whether a statutory provision is extraterritorial, based on whether “Congress has affirmatively and unmistakably instructed that” the provision at issue should “apply to foreign conduct.” Second, if a provision is not extraterritorial, a determination is made as to whether a claimant’s lawsuit seeks a (permissible) domestic or (impermissible) foreign application of the provision. The second step begins with identification of the provision’s “focus of congressional concern,” and then turns to the question of whether conduct relevant to that focus occurred in United States territory. The second part of the analysis, Justice Alito explained, is to separate or filter “the activity that matters from the activity that does not” with respect to claims that involve both domestic and foreign activity.

Lanham Act extraterritoriality. The majority concluded that the relevant provisions at issue—Lanham Act Sections 32(1)(a) and 43(a)(1), 15 U.S.C. §1114(1)(a) and §1125(a)(1)—did not provide “a clear, affirmative indication” that they apply extraterritorially. Neither provision contained “an express statement of extraterritorial application or any other clear indication that it is one of the ‘rare’ provisions that nonetheless applies abroad,” Justice Alito said. “Both simply prohibit the use ‘in commerce,’ under congressionally prescribed conditions, of protected trademarks when that use ‘is likely to cause confusion.’”

The Court rejected Hetronic’s contention that the Lanham Act’s definition of “commerce” as all commerce that may be lawfully regulated by commerce indicated that the infringement provisions were to be applied to conduct occurring abroad. Even statutes referring to “foreign commerce” had been deemed not extraterritorial, the majority pointed out.

“Domestic” application of statute. The Court then looked to the Lanham Act provisions’ focus and whether Hetronic could “establish that the asserted conduct relevant to that focus occurred in the United States. With respect to “focus,” Abitron argued that the trademark infringement provisions focused on preventing infringing use of trademarks; Hetronic argued that they focused both on protecting the goodwill of mark owners and on preventing consumer confusion. In the majority’s view, the emphasis on focus missed the mark and failed to give adequate attention to the conduct relevant to the focus. According to Justice Alito, the conduct relevant to any focus put forth by the parties was infringing use in commerce, as defined by the Lanham Act. “Because Congress has premised liability on a specific action (a particular sort of use in commerce), that specific action would be the conduct relevant to any focus on offer today,” he wrote. “Under step two of our extraterritoriality standard, then, ‘use in commerce’ provides the dividing line between foreign and domestic applications of these Lanham Act provisions.”

Offering criticism of Justice Sotomayor’s concurring opinion, Justice Alito explained that a framework that turns solely on whether “the object of the statute’s focus is found in, or occurs in, the United States” (quoting Justice Sotomayor’s opinion) would reach any claim involving a likelihood of consumer confusion in the United States. This interpretation, in Justice Alito’s view “would give the Lanham Act an untenably broad reach that undermines our extraterritoriality framework.”

Conclusion. “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,” the majority opinion concludes. “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.’” Because the lower court did not act accordingly, the Court vacated the Tenth Circuit’s judgment and remanded for further proceedings.

Justice Jackson’s concurrence. Although she joined the majority opinion, Justice Ketanji Brown Jackson wrote separately to address points regarding “use in commerce” for purposes of the Lanham Act’s trademark infringement provisions. According to Justice Jackson, because use in commerce as defined by the Lanham Act provides the dividing line between foreign and domestic applications of these provisions, the inquiry as to whether application of the statute is permissible should be straightforward.

“If a marked good is in domestic commerce, and the mark is serving a source-identifying function in the way Congress described, §1114(1)(a) and §1125(a)(1) may reach the ‘person,’ §1127, who is ‘us[ing that m]ark as a trademark,’” Justice Jackson wrote, quoting the Court’s opinion in Jack Daniel’s Properties, Inc. v. VIP Products, LLC, issued earlier this month. “But if the mark is not serving that function in domestic commerce, then the conduct Congress cared about is not occurring domestically, and these provisions’ purely domestic sweep cannot touch that person.”

Justice Sotomayor’s opinion concurring in the judgment. Justice Sotomayor—joined by three others—agreed with the result reached by the majority but took issue with the framework used to reach that conclusion. “In my view, she wrote, “§§32(1)(a) and 43(a)(1)(A) of the Lanham Act extend to activities carried out abroad when there is a likelihood of consumer confusion in the United States.”

The approach described in the concurrence would reach the same result in this particular case, but would provide for a broader reach by the Lanham Act’s anti-infringement provisions. “Although there is no clear indication that the Lanham Act provisions at issue rebut the presumption against extraterritoriality at step one, a domestic application of the statute can implicate foreign conduct at step two, so long as the plaintiff proves a likelihood of consumer confusion domestically,” Justice Sotomayor reasoned.

The concurring Justices sided with the majority on the insufficiency of the “use in commerce” language in the Lanham Act to rebut the presumption against extraterritoriality. However, at the second stage of the extraterritoriality test, the views of the two groups of Justices separated. Citing the government’s amicus brief, Justice Sotomayor noted that Lanham Act Sections 32(1)(a)and 43(a)(1)(A) prohibit specific types of “uses in commerce”—those that are likely to confuse or deceive. “Because the statute’s focus is protection against consumer confusion, the statute covers foreign infringement activities if there is a likelihood of consumer confusion in the United States and all other conditions for liability are established,” Justice Sotomayor asserted. Taking a swing at the majority, Justice Sotomayor wrote, “The Court’s novel approach transforms the traditional inquiry at step two into a conduct-only test, in direct conflict with this Court’s jurisprudence.”

Arguing that the “focus” of the Lanham Act included domestically occurring consumer confusion, Justice Sotomayor opined that “none of the cases upon which the majority relies establish categorically that there must be domestic conduct in order for there to be a domestic application of a statute.” She further explained that a mere “abstract” likelihood of confusion would not be sufficient for extraterritorial application of the Lanham Act; a plaintiff would have to establish other elements required for recovery, such as showing that the case involved commerce that could be lawfully regulated by Congress, as well as showing that it sustained injuries that were proximately caused by violations of the statute.

“A focus on consumer confusion in the United States is consistent with [the] international [trademark] system,” she opined. “That focus properly cabins the Act’s reach to foreign conduct that results in infringing products causing consumer confusion domestically while ‘leaving to foreign jurisdictions the authority to remedy confusion within their territories.’” In her view, applying the Lanham Act to domestic consumer confusion would promote the benefits of U. S. trademark rights in the territory of the United States.

“The Court’s approach, by contrast, would absolve from liability those defendants who sell infringing products abroad that reach the United States and confuse consumers here,” Justice Sotomayor said. “That resulting consumer confusion in the United States, however, falls squarely within the scope of the interests that the Lanham Act seeks to protect.”

Practitioner commentary. According to Timothy Getzoff, intellectual property partner at Holland & Hart, the majority opinion was unexpected, with most Court-watchers expecting a decision more in line with Justice Sotomayor’s concurrence (which Getzoff noted is more like a dissent). “This is a clear change in the law,” Getzoff said. “The majority opinion tosses 70 years of jurisprudence on this issue out the window, starting with the Bulova Watch v. Steele case, and announces a brand new test that had never been used or even articulated before.”

Getzoff explained that under the prior state of the law, “a plaintiff would try to prove that foreign infringement was having a ‘substantial effect’ on U.S. commerce, such as for example U.S. citizens buying counterfeits in Mexico and bringing them back home.” In contrast, “under the new test, it appears that a plaintiff has to prove that the counterfeits were actually sold in the U.S. for liability to occur. This decision potentially makes it far more difficult for U.S. companies to prevent infringement and counterfeiting that originates abroad but migrates to the U.S. in some fashion.”

According to Getzoff, Justice Sotomayor’s concurrence described the state of law prior to the Tenth Circuit’s opinion, which he said had been followed for 70 years. “Justice Alito’s majority articulates a new test that makes it much harder for U.S. trademark owners to fight foreign infringement,” Getzoff told Wolters Kluwer. The approach favored by Justice Sotomayor approach—focused on preventing likelihood of confusion—would, in theory, have significant practical differences from the majority’s focus on domestic mark use. “This approach would focus on whether a likelihood of confusion was occurring in the U.S. as a result of the foreign infringement,” he explained. “Plaintiffs could present survey evidence or other evidence showing that U.S. residents were actually or likely to be confused as a result of the foreign infringement. Under the new Alito test, it appears there is now a bright line test: Did any sales occur in the U.S.? If not, then there is no liability.”

Finnegan partner Mark Sommers provided insight to Wolters Kluwer about how the Court’s newest Justice factored into the decision. “The Court was clearly split, with Justice Jackson serving as the ‘swing vote,’ as she interpreted ‘use in commerce’ in a meaningfully different manner than the majority,” Sommers explained. “In her concurrence, Justice Jackson read ‘use in commerce’ more broadly than the majority and in a way that could capture a greater swath of foreign-entity infringing uses of marks on products first produced and sold outside the United States. In sum, if the product ends up within the U.S. commerce bearing an infringing mark, depending on the circumstances, it could trigger Lanham Act liability against the foreign party as that constituted ‘use in commerce.’”

Sommers added, “Although joining the majority opinion, Justice Jackson’s analysis appeared more philosophically in line with Justice Sotomayor’s concurrence, which determined the focus of the Lanham Act was on ‘likelihood of confusion’ among U.S. consumers.”

The case is No. 21-1043.

Attorneys: Jeffrey Alan Lamken (Mololamken LLP) for Abitron Austria GmbH. Matthew S. Hellman (Jenner & Block LLP) for Hetronic International, Inc. Timothy Getzoff (Holland & Hart LLP). Mark Sommers (Finnegan, Henderson, Farabow, Garrett & Dunner, LLP).

Companies: Abitron Austria GmbH; Hetronic International, Inc.

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