Supreme Court finds trademark owners can’t sue for foreign infringement
The U.S. Supreme Court has limited the reach of the Lanham Act, the federal trademark law, beyond American borders. The Court’s ruling in Abitron Austria GmbH v. Hetronic Int’l, Inc. could make trademark owners more vulnerable to global piracy of their goods.
Hetronic International Inc. is a U.S.-based manufacturer of radio remote controls that operate heavy-duty construction equipment. It owns U.S. trademarks for the remote controls’ distinguishing features.
The defendants, none of whom are U.S. citizens, distributed Hetronic’s products, mostly in Europe. Eventually, they decided that an earlier research-and-development agreement gave them ownership of Hetronic’s trademarks.
They began manufacturing their own products, identical to Hetronic’s, and selling them under the Hetronic brand, again mostly in Europe. They continued to make tens of millions of dollars from selling copycat products even after Hetronic terminated the distribution agreements.
Hetronic sued the defendants for, among other things, trademark infringement under the Lanham Act. A jury awarded Hetronic more than $115 million in damages, $96 million of which related to the Lanham Act violations.
On appeal, the defendants argued that, while the Lanham Act can sometimes apply outside of the United States, it didn’t extend to their conduct because the conduct generally involved foreign defendants making sales to foreign consumers. The case was the first time the U.S. Court of Appeals for the Tenth Circuit had faced the issue.
The appeals court concluded that the trial court properly applied the trademark law to the defendants’ conduct because the conduct had a substantial effect on U.S. commerce by diverting sales from Hetronic. The defendants applied for review by the Supreme Court, and the high court agreed to hear the case.
The Court’s framework
The Supreme Court began its analysis by citing the presumption against extraterritoriality. The presumption reflects the longstanding principle that Congressional legislation doesn’t apply outside the United States absent a contrary intent.
Applying the presumption involves a two-step framework. The first step considers whether Congress has clearly indicated that the provision in question should apply to foreign conduct. If not, the provision isn’t extraterritorial and a court must consider whether a lawsuit seeks a domestic or foreign application of the provision. Domestic application is acceptable, while foreign application isn’t. To show that a claim involves a domestic application, the plaintiff must establish that “the conduct relevant to [the provision’s] focus occurred in the United States.”
Here, the Court concluded that the provisions of the Lanham Act that prohibit the use in commerce of protected trademarks in a way likely to cause confusion don’t clearly indicate that Congress intended extraterritorial application.
As for the second step, the ultimate question regarding permissible domestic application turns on the location of the “conduct relevant” to the focus of the provisions. The conduct relevant under the Lanham Act, the Court said, is “use in commerce,” not likely consumer confusion.
In other words, to apply the Lanham Act to the foreign use in commerce of a protected trademark would be an impermissible extraterritorial application — and Hetronic shouldn’t receive damages for purely foreign sales.
A court divided
It’s worth noting that the four-justice concurrence expressed concern that the majority’s reasoning leaves U.S. trademark owners inadequately protected in a global marketplace. In their view, the Lanham Act should extend to foreign conduct that results in infringing products causing a likelihood of confusion in the United States.