The United States Supreme Court heard arguments on Tuesday, March 21, 2023, on the international limitations, if any, of the Lanham Act. In Abitron Austria GmbH, et al., v. Hetronic International, Inc. (No. 21-1043), the Court heard arguments not only from counsel for the parties, but also the Biden administration, on whether the Lanham Act could extend its prohibitions outside of the United States and, if so, under what circumstances.
Hetronic, a manufacturer of radio remote controls for heavy duty construction equipment, sued its former distributor Abitron for trademark infringement as Abitron continued to use the Hetronic trademark to market and sell Abitron’s own remote controls after the distribution agreement was terminated. The district court jury returned a verdict of willful infringement and awarded damages totaling $90 million. The damages award was based in large part on sales Abitron made in Europe and not in the United States. The damages award included $240,000 for infringing products sold directly into the United States, $2 million for infringing products sold to foreign customers who intended to ultimately sell those products into the United States, and $87 million for infringing products sold abroad and that were not designated for resale into the U.S., although a portion of those sales displaced foreign sales for Hetronic. The district court entered a final judgment consistent with the jury’s verdict and entered a worldwide permanent injunction restraining future use of the Hetronic trademark.
Abitron’s appeal to the United States Court of Appeals for the Tenth Circuit was unsuccessful. The Tenth Circuit agreed with the trial result, concluding that Abitron was in fact liable for all of the infringing sales it had made outside of the United States on grounds that if a foreign defendant’s conduct has a substantial effect on U.S. commerce, the conduct warrants damages under the Lanham Act. The Tenth Circuit agreed with Abitron, however, that the worldwide permanent injunction required modification. See Hetronic International, Inc. v. Abitron Austria GmbH, 10 F.4th 1016 (10th Cir. 2021).
Viewing the evidence as a whole, the Tenth Circuit held that Hetronic had presented more than enough evidence to show that Abitron’s foreign infringing conduct had a substantial effect on U.S. commerce. Besides the millions of euros worth of infringing products that made their way into the United States after initially being sold abroad, the Tenth Circuit noted that Abitron had also diverted tens of millions of dollars of foreign sales from Hetronic that otherwise would have ultimately flowed into the United States. Moreover, though much of Hetronic’s evidence focused on consumer confusion abroad, the Tenth Circuit pointed to record evidence of numerous incidents of confusion among U.S. consumers. On balance, the Tenth Circuit concluded that Hetronic had presented evidence of impacts within the United States of a sufficient character and magnitude as would give the United States a reasonably strong interest in the litigation. Accordingly, the Lanham Act applied extraterritorially to reach all of Abitron’s foreign infringing conduct.
In granting review, it has been expected that the Supreme Court will confirm that the Lanham Act, like other federal statutes, may have extraterritorial effect. Whether there is any extraterritorial effect, and the scope of that effect, is likely to be the subject of the Supreme Court’s opinion as made clear by questions posed from the various members of the Court during the hearing. Arbitron’s counsel advocated that its client should not be liable for any conduct outside of the United States as the Lanham Act simply did not apply to the claims pled and the record evidence. Instead, Arbitron’s counsel suggested that brand owners need to secure trademark protection in other jurisdictions to protect rights outside of the United States. These arguments were questioned by Justices Elena Kagan and Ketanji Brown Jackson in view of the Lanham Act’s goals of protecting U.S. consumers from confusion based upon goods available to U.S. consumers, or seen by U.S. consumers, which are likely to lead to confusion as to their source or sponsorship.
The U.S. Solicitor General’s office, arguing on behalf of the Biden administration, argued that U.S. law should apply only if the foreign acts are likely to confuse consumers in the United States and that in the present case the 10th Circuit’s decision gave the law “sweeping extraterritorial reach.” This position was challenged as well by various justices who were focused on the potential scope of the Lanham Act and whether that which was advocated had any cognizable limits.
Depending on how the Supreme Court rules, the decision could have a significant impact on U.S. brand owner’s enforcement strategy. Foreign businesses who intentionally “get too close” to a U.S. brand owner’s mark and think they will be safe doing so outside the U.S. (and others who may not be doing so intentionally), may need to re-consider the leverage equation to avoid liability even when acting outside of the United States.
