Sections 32(1)(a) and 43(a)(1)(A) of the Lanham Act impose civil liability on any person who “use[s] in commerce” a trademark in a manner that “is likely to cause confusion, or to cause mistake, or to deceive.” 15 U.S.C. 1114(1)(a); 15 U.S.C. 1125(a)(1). Notably, the Lanham Act defines commerce broadly as “all commerce which may lawfully be regulated by Congress,” id. § 1127, and affords federal courts jurisdiction over all claims arising under it, id. § 1121(a).
Circuit courts have developed different tests to determine whether the scope of the Lanham Act extends to a defendant’s activity outside of the United States. Following the recommendation of the Justice Department, the United States Supreme Court accepted the petition for writ of certiorari to determine whether, under Sections 32(1)(a) and 43(a)(1)(A) of the Lanham Act, the owner of a U.S.-registered trademark may recover damages for uses of that trademark that occurred outside the United States and that were not likely to cause consumer confusion in the United States. Abitron Austria GmbH v. Hetronic International, Inc., Case No. 21-1043 (Nov. 4, 2022). The Justice Department asked the Supreme Court to grant certiorari in the case to properly limit the application of the Lanham Act so that damages are only awarded when the alleged infringement has a likelihood of causing confusion among U.S. consumers.
In Abitron Austria GmbH v. Hetronic International, Inc., 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).
In reaching this decision, the Tenth Circuit considered previous decisions of the United States Supreme Court with respect to the extraterritoriality of other federal statutes as well as the approaches taken by various circuit courts in deciding when the Lanham Act’s scope encompasses activity occurring outside of the United States.
The Supreme Court has in recent years considered the extraterritoriality of several federal statutes: the Alien Tort Statute, Nestlè USA, Inc. v. Doe, ___ U.S. ___, 141 S. Ct. 1931, 1936-37, 210 L.Ed.2d 207 (2021), and Kiobel v. Royal Dutch Petrol. Co., 569 U.S. 108, 115-17, 133 S.Ct. 1659, 185 L.Ed.2d 671 (2013); the Patent Act, WesternGeco LLC v. ION Geophysical Corp., ___ U.S. ___, 138 S. Ct. 2129, 2136-38, 201 L.Ed.2d 584 (2018); the Racketeer Influenced and Corrupt Organizations Act, RJR Nabisco, Inc. v. Eur. Cmty., 579 U.S. 325, 136 S. Ct. 2090, 2099-2103, 195 L.Ed.2d 476 (2016); section 10(b) of the Securities Exchange Act of 1934, Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247, 255-65, 130 S.Ct. 2869, 177 L.Ed.2d 535 (2010); and both the Foreign Trade Antitrust Improvements Act of 1982, F. Hoffmann-La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 163-73, 124 S.Ct. 2359, 159 L.Ed.2d 226 (2004), and its predecessor, the Sherman Act, Hartford Fire Ins. Co. v. California, 509 U.S. 764, 794-99, 113 S.Ct. 2891, 125 L.Ed.2d 612 (1993).
The last time the Supreme Court substantively considered the extraterritoriality of the Lanham Act was more than seventy years ago. Steele v. Bulova Watch Co., 344 U.S. 280, 282-85, 73 S.Ct. 252, 97 L.Ed. 319 (1952). There, the Supreme Court acknowledged the general presumption against extraterritoriality, see id. at 285, 73 S.Ct. 252, but held that the Lanham Act could apply abroad at least in some circumstances, see id. at 286, 73 S.Ct. 252. No precise test for when such a reach would be appropriate was articulated by the Supreme Court.
Since Steele, various courts of appeals have considered the extraterritoriality of the Lanham Act and adopted one of three tests to determine whether the Lanham Act governs a defendant’s foreign conduct. The first, devised by the Second Circuit and known as the Vanity Fair test, considers three factors:
(1) whether the defendant’s conduct had a substantial effect on U.S. commerce;
(2) whether the defendant was a United States citizen; and
(3) whether there was a conflict with trademark rights established under the relevant foreign law.
Vanity Fair Mills, Inc. v. T. Eaton Co., 234 F.2d 633, 642 (2d Cir. 1956). No factor is dispositive, but the absence of one of the factors “might well be determinative and … the absence of both is certainly fatal.” Id. at 643. The Eleventh and Federal Circuits have adopted the Vanity Fair test. The Fourth and Fifth Circuits have largely adopted the Vanity Fair test, but with a tweak to the first prong. Rather than asking whether the defendant’s conduct had a “substantial effect” on U.S. commerce, the Fourth Circuit asks whether the conduct had a “significant effect.” Nintendo of Am., Inc. v. Aeropower Co., 34 F.3d 246, 250 (4th Cir. 1994). The Fifth Circuit lowered the bar further requiring only “some effect” on U.S. commerce. Am. Rice, Inc. v. Ark. Rice Growers Coop. Ass’n, 701 F.2d 408, 414 n.8 (5th Cir. 1983).
The Ninth Circuit adopted its own tripartite test based on its decisions governing the extraterritorial application of antitrust law under the Sherman Act. Under what’s known as the Timberlane test, the Lanham Act applies extraterritorially according to the Ninth Circuit if:
(1) the alleged violations create some effect on American foreign commerce;
(2) the effect is sufficiently great to present a cognizable injury to the plaintiffs under the Lanham Act; and
(3) the interests of and links to American foreign commerce are sufficiently strong in relation to those of other nations to justify an assertion of extraterritorial authority.
Trader Joe’s Co. v. Hallatt, 835 F.3d 960, 969 (9th Cir. 2016). Notably, the Ninth Circuit rejected other circuits’ conclusions that the effect on U.S. commerce must be “substantial,” reasoning that Steele contains no such requirement.
Finally, the First Circuit rejected both the Timberlane and Vanity Fair tests, developing what is referred to as the McBee framework, an analysis the First Circuit tied closely to Supreme Court decisions considering the extraterritoriality of U.S. antitrust laws. McBee v. Delica Co., 417 F.3d 107, 117 (1st Cir. 2005). With the McBee analysis the court first determines whether the defendant is an American citizen because “a separate constitutional basis for jurisdiction exists for control of activities, even foreign activities, of an American citizen.” Id. If the defendant is an American citizen “the domestic effect of the international activities may be of lesser importance and a lesser showing of domestic effects may be all that is needed.” Id. at 118. The McBee court adopted a “separate test” to assess the Lanham Act’s extraterritorial reach when a plaintiff seeks damages based on “foreign activities of foreign defendants.” Id. at 111. In that situation, the court held that the Lanham Act applies “only if the complained-of activities have a substantial effect on [U.S.] commerce, viewed in light of the purposes of the Lanham Act.” Id.
After considering the various tests, the Tenth Circuit adopted the McBee framework concluding, as had the McBee court had, that the Lanham Act will usually extend extraterritorially when the defendant is an American citizen. Thus, when the defendant is an American citizen, courts may conclude that the Lanham Act reaches that defendant’s extraterritorial conduct even when the effect on U.S. commerce isn’t substantial. When, however, a plaintiff seeks to recover under the Lanham Act against a foreign national, the Tenth Circuit the plaintiff must show that the defendant’s conduct has a substantial effect on U.S. commerce.
Finally, if a plaintiff successfully shows that a foreign defendant’s conduct has had a substantial effect on U.S. commerce, the Tenth Circuit concluded that courts should also consider whether extraterritorial application of the Lanham Act would create a conflict with trademark rights established under the relevant foreign law. Although the McBee court disagreed with such an analysis, the Tenth Circuit noted that every other circuit court considered potential conflicts with foreign law in assessing the Lanham Act’s extraterritorial reach and that it should do so as part of its analysis of the extraterritorial reach of the Lanham Act in any case.
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 is 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. Depending on how the Supreme Court rules, this 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), and change the leverage equation in such disputes. We will continue to track this case and provide updates.”
