On June 29, the Supreme Court issued its much-anticipated decision in Abitron Austria GmbH, et al., v. Hetronic International, Inc. (No. 21-1043). We wrote about the case history previously here. Briefly, the 10th Circuit had upheld a $90 million jury verdict against Abitron—a former distributor of Hetronic—based in large part on Abitron’s conduct in Europe, on the grounds that it had a “substantial effect” on U.S. commerce. See Hetronic International, Inc. v. Abitron Austria GmbH, 10 F.4th 1016 (10th Cir. 2021). The Supreme Court vacated and remanded that decision.
Infringing use of trademarks or engaging in acts of unfair competition “in commerce” within the U.S. has always been actionable under the Lanham Act. 15 U.S.C. §§1114(1)(a), 1125(a)(1). However, the case brings to the fore whether these two provisions of the Lanham Act reach to conduct beyond the U.S.
The Supreme Court was unanimous regarding the outcome. However, the majority’s reasoning was challenged by Justice Sotomayor, who was joined by Chief Justice Roberts and Justices Kagan and Barrett in a concurrence. The Court’s stance emphasizes the presumption against extraterritoriality. This is a long-standing principle suggesting that Congressional legislation, unless it specifies otherwise, is intended to apply only within the territorial jurisdiction of the U.S. To apply the presumption, the Court used the two-step framework set forth in RJR Nabisco, Inc. v. European Community, 579 U. S. 325, 335–37 (2016). That framework requires: (1) a determination of whether the provision itself is explicitly extraterritorial, and if not, (2) whether the conduct relevant to the statute’s “focus” occurred within the U.S. Id.
In cases involving both domestic and foreign activities, the crucial factor is whether the conduct relevant to the statute’s focus occurred within the U.S. If so, it is deemed a permissible domestic application, even if other conduct occurred abroad. Conversely, if the focus-related conduct occurred in a foreign country, it is considered an impermissible extraterritorial application, regardless of any other conduct occurring domestically.
In applying the RJR Nabisco test, the majority found no explicit indication that either of the Lanham Act provisions in question apply extraterritorially. Both provisions, as they stand, merely prohibit the use “in commerce” of protected trademarks when such usage is likely to cause confusion. Given the lack of explicit extraterritoriality, the Court then assessed the location of the relevant conduct for the Congressional focus of these statutory provisions.
The Court reasoned that the conduct pertinent to these statutory provisions’ focus is the infringing use in commerce, based on the text and context of both provisions. In this light, the provisions are not extraterritorial, and the phrase “use in commerce” demarcates the boundary between foreign and domestic applications. Since the use occurred almost entirely outside the U.S., the Court vacated and remanded the verdict.
Justice Sotomayor, however, in her concurring opinion, found that the “focus” of the Lanham Act is not on the conduct (i.e., the infringing use or sales), but rather on consumer confusion. She found, “The Court’s approach . . . would absolve from liability those defendants who sell infringing products abroad that reach the United States and confuse consumers here. That resulting consumer confusion in the United States, however, falls squarely within the scope of the interests that the Lanham Act seeks to protect.”
Justice Jackson, while joining the majority opinion in full, also wrote a separate concurrence to provide a roadmap for what constitutes “use in commerce,” positing that “‘use in commerce’ does not cease at the place the mark is first affixed, or where the item to which it is affixed is first sold. Rather, it can occur wherever the mark serves its source-identifying function.” She gave the example of counterfeit purses created and sold outside the U.S., but brought into and resold within the U.S. In this example, the original manufacturer would be liable for infringement because the marks would be used in U.S. commerce upon the resale, according to Justice Jackson. She also noted in a footnote that internet sales could constitute “use in commerce” without physical presence in the U.S.
The majority dismissed the idea that any claim involving potential consumer confusion in the U.S. equates to a “domestic” application of the Lanham Act, noting that this approach would overly expand the Act’s reach. Interestingly, the majority was cautious not to reverse the Court’s decision in Steele v. Bulova Watch Co., 344 U.S. 280 (1952). That case, in a nutshell, held that sale of infringing watches in Mexico was actionable in the U.S. under the Lanham Act. The majority found that the ruling was of “little assistance” as it predated the two-step inquiry process developed to assess a statute’s extraterritorial effect, and involved actions by the defendant within the U.S. Sotomayor disagreed, stating that Steele went further than the majority would profess.
This ruling leaves open whether any conduct outside the U.S. will ever be sufficient to constitute “use in commerce” under the Lanham Act. Lower courts could use Justice Jackson’s broader definition moving forward, or follow the narrower interpretation that only the creation, advertising, or sale of infringing products or services within the U.S. is actionable. Brand owners and in-house counsel should consider investing more heavily in shoring up their foreign registrations and enforcement efforts, as they will not be able to rely on U.S. courts to enforce their rights when infringement occurs elsewhere.