On June 29, 2023, in Abitron Austria GmbH v. Hetronic International, Inc., 600 U.S. ___ (2023), the U.S. Supreme Court held that the Lanham Act could not extend to trademark infringement that occurred almost entirely outside the United States. While it is not surprising that the Court adhered to the longstanding presumption against extraterritorial application of U.S. law, the rationale underlying its decision may complicate future U.S. trademark actions to stop foreign-sourced counterfeits.
Background
Hetronic International Inc. is a U.S. company specializing in manufacturing remote controls for construction equipment. Hetronic sued its former licensed distributor, Abitron Austria, after Abitron claimed ownership of Hetronic’s intellectual property and began using Hetronic’s trademarks on reverse-engineered Hetronic products. Abitron sold those products primarily within the EU, but also within the U.S. and elsewhere. A jury awarded Hetronic approximately $96 million for damages from foreign sales of products—some of which designated the United States as the ultimate destination—and a small percentage of direct sales to consumers in the U.S. and entered a global injunction against Abitron. The U.S. Court of Appeals for the Tenth Circuit narrowed the injunction but confirmed the damages award and concluded that the Lanham Act extended to “all of [Abitron’s] foreign infringing conduct” because the “impacts within the United States [were] of a sufficient character and magnitude as would give the United States a reasonably strong interest in the litigation.”
Decision
The Supreme Court reversed, finding that the text of the Lanham Act, as well as the presumption against extraterritoriality, confirmed that the Lanham Act lacks extraterritorial reach, and that Hetronic’s claims pertained to foreign conduct unreachable by U.S. trademark law.
In applying the presumption against extraterritoriality, the Court engaged in a two-step inquiry, i.e., (1) whether the law at issue was intended to apply extraterritorially, and (2) whether the suit sought a domestic or foreign application of the law. The Court found, first, that the Lanham Act was not intended to apply extraterritorially, as that intention is not “affirmatively and unmistakably” conveyed in the text of the Act, and, second, that the statute’s “focus”—trademark infringement—was undertaken by Abitron outside the U.S., such that Hetronic’s claims impermissibly seek to apply U.S. law abroad.
Hetronic argued that the Lanham Act applies extraterritorially because “commerce” is uniquely defined in the Act, and covers activity Congress can regulate under the foreign commerce clause. The Court rejected this reasoning, relying on past cases where the Court refused extraterritorial application of laws that expressly referred to “foreign commerce,” and concluding that, if those laws did not warrant extraterritorial application, then neither does the Lanham Act.
Hetronic also argued that its lawsuit targeted foreign infringement with domestic effects on U.S. consumers in reliance on the Court’s ruling in Steele v. Bulova Watch Co., 344 U.S. 280 (1952). In Bulova, a watchmaker’s trademark claim was allowed to proceed against a defendant that had produced and sold infringing watches in Mexico City, but had sourced watch parts within the U.S. The Court distinguished its decision in Bulova as “narrow” and “factbound,” noting that it had allowed the case to proceed due to defendant’s “essential steps” in the U.S. carried out in the course of his infringing conduct, and because defendant’s conduct “was likely to and did cause consumer confusion.”
Setting Bulova aside, the Court identified the “ultimate question regarding permissible domestic application” to be “the location of the conduct relevant to the focus,” reasoning that “[b]ecause 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.” Relying on “use in commerce” as “the dividing line between foreign and domestic applications of these Lanham Act provisions,” the Court found that the Lanham Act could not reach Abitron’s infringing conduct because it occurred outside the U.S.
Takeaways
The Court’s decision that “use in commerce” is the “dividing line” between actionable domestic conduct and non-justiciable foreign conduct seems simple enough. Yet the application of this seemingly straightforward rule may have uncertain implications.
First, while the decision undoubtedly highlights the importance of non-U.S. trademark rights to stop counterfeits and infringing sales that occur outside the U.S., what happens if and when those goods reach the U.S.? In her concurring opinion, Justice Jackson says a German COACHE bag seller does not violate the Lanham Act if a student buys it in Germany and totes it in the U.S. (which does not bode well for post-sale confusion theories premised on foreign sales), but may yet violate the Act if the student resells the bag in the U.S. Less clear is the secondary theory of infringement under which “Coache” would be found liable, assuming it neither controls nor colludes with the student.
Second, what is left of the Bulova decision that the Court distinguished, and when does a defendant undertake sufficient U.S.-centric conduct so as to commit infringement actionable under the Lanham Act? In the Abitron decision, the Court distinguished Bulova because defendant’s conduct “was likely to and did cause consumer confusion.” Would Hetronic’s cause have succeeded if supported by actual confusion?
Third, the decision may be difficult to apply in a globalized economy increasingly focused on online commerce, and to service mark infringements where the location of the infringing sale is far less clear cut. Indeed, courts have found service mark “use in commerce” in the U.S. by foreign companies that merely promote those services in the U.S. and only provide the services abroad. And while court generally agree that the phrase “use in commerce” in the context of establishing trademark rights has a different meaning than “use in commerce” in the infringement context, infringing services marketed in the U.S. but provided and transacted abroad could test the boundaries drawn by the Court’s Abitron decision.
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