U.S. Supreme Court Limits Lanham Act Infringement to Cases Where Use in Commerce Occurred in the United States

On June 29, 2023, the United States Supreme Court ruled, in a highly anticipated opinion in Abitron Austria GmbH et al. v. Hetronic International, Inc., 600 U.S. ___ (2023), that U.S. courts cannot apply the infringement sections of the federal trademark law (the Lanham Act) extraterritorially.

In addition to the opinion of the Court by Justice Alito, there were two concurring opinions in Abitron by Justices Jackson and Sotomayor. Although the Justices agreed that claims for infringement do not apply extraterritorially, there was a difference of opinion over when activity that has both U.S. and foreign components is a permissible domestic application of the Act. The majority held that claims for infringement are limited to trademarks used in commerce within the United States, and do not apply to conduct occurring exclusively outside the United States, even when those goods may cause confusion or impact goodwill domestically.

Background

Hetronic International, Inc. (Hetronic), an Oklahoma-based producer of radio remote controls for construction equipment, sued its former Austrian distributor, Abitron Austria GmbH (Abitron) in the Western District of Oklahoma. Hetronic alleged that Abitron sold reverse-engineered controls under Hetronic’s trademark in violation of Sections 1114(1)(a) and 1125(a)(1) of the Lanham Act, which prohibit unauthorized use of a federally registered mark, and use of a protected mark (whether or not registered) that is likely to cause confusion, respectively.

Despite 97 percent of Abitron’s approximately $90 million sales being purely foreign, with products never reaching the United States, the jury in that infringement action found that Abitron willfully infringed Hetronic’s mark and awarded Abitron’s worldwide sales to Hetronic. The Court of Appeals for the Tenth Circuit affirmed this portion of the lower court decision, and the Supreme Court granted Abitron’s appeal.

Not Extraterritorial

The opinion of the Court first noted that in U.S. law there is a longstanding principle that Congressional legislation, “unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States.” Morrison v. National Australia Bank Ltd., 561 U. S. 247, 255 (2010). This principle is known as the presumption against extraterritoriality.

To determine if the presumption applies, a two-step framework is applied. RJR Nabisco, Inc. v. European Community, 579 U.S. 325, 337 (2016). The first step in the framework requires that a court determine whether “Congress affirmatively and unmistakably instructed that the provision at issue should apply to foreign conduct.” If so, claims reaching foreign conduct may proceed. If not, the court considers the second step in the framework: whether the claim seeks a permissible domestic or impermissible foreign (and therefore extraterritorial) application of the provision.

The Justices all agreed that neither Sections 1114(1)(a) nor 1125(a)(1) of the Lanham Act include an express statement of extraterritorial application. All three opinions rejected Hetronic’s argument that the Act’s definition of “commerce” as meaning “all commerce which may lawfully be regulated by Congress” rebutted this presumption. This broad definition was too general to satisfy the Court’s precedent, which requires that the statute explicitly evidence Congressional intent to extend the Act to foreign conduct.

The Court then considered whether the claims involve permissible “domestic” applications of these provisions, which requires that “the conduct relevant to the statute’s focus occurred in the United States.” Here, the Justices diverged.

Justice Alito’s Majority Opinion: Lanham Act Only Applies to Domestic “Use in Commerce”

Justice Alito, with Justices Thomas, Gorsuch, Kavanaugh, and Jackson joining, agreed with Abitron and held that the Lanham Act reaches only conduct “where the claimed infringing use in commerce is domestic.”

In the majority’s view, because the provisions prohibit the unauthorized use in commerce of a protected trademark, “use in commerce” is the conduct relevant to the focus of the Lanham Act and provides the dividing line between foreign and domestic applications of Sections 1114(1)(a) and 1125(a)(1). Although the use must create a likelihood of confusion, “confusion is not a separate requirement; rather it is simply a necessary characteristic of an offending use.”

Justice Sotomayor’s Concurring Opinion: Consumer Confusion Is Lanham Act’s Focus

While concurring in the judgment that the decision below must be vacated, Justice Sotomayor, joined by Chief Justice Roberts, Justice Kagan, and Justice Barrett, disagreed with the Court’s “myopic conduct-only test” that focuses on “use in commerce.” In their view, the Lanham Act’s focus is consumer confusion. By applying the majority’s test, a defendant is absolved from liability when it sells infringing products abroad that reach the United States and cause domestic confusion.

Justice Sotomayor also argued that a confusion-focused approach is consistent with international treaties and obligations because it restricts the Lanham Act’s foreign reach to conduct resulting in domestic consumer confusion, leaving foreign jurisdictions to regulate consumer confusion within their territories.

Justice Jackson’s Concurring Opinion: A Decisive Swing Vote with Unclear Import

Justice Jackson provided the decisive fifth vote in the majority opinion and agreed that “‘use in commerce’ of a trademark provides the dividing line between foreign and domestic applications.” To Justice Jackson, “use in commerce” can occur wherever the mark serves its source-identifying function, potentially permitting liability when the infringing mark acts as a source-identifier in the United States even if the infringing goods were never sold directly into the United States.

Arguably, Justice Jackson seems to agree with the majority’s analytical framework, but her broader view of “use in commerce” might, in practice, be more similar to Justice Sotomayor’s framework. That is, many of the activities causing the effects on which Justice Sotomayor focuses might be considered domestic use under Justice Jackson’s opinion.

Justice Jackson noted that the majority “has no need to elaborate today upon what it means to ‘use [a trademark] in commerce,’ … nor need it discuss how that meaning guides the permissible-domestic-application question,” but because none joined her opinion, it is not clear how many Justices (either those who joined the majority opinion or Justice Sotomayor’s concurrence) would agree with Justice Jackson’s expansive view of use.

Abitron in the International Context

Before the Supreme Court’s decision, Abitron seemed to be a dispute between the Tenth Circuit’s extraordinarily expansive view of the Lanham Act’s reach—including a substantial portion of purely foreign activity that caused only economic losses (diverted sales) to the U.S. brand owner—and a narrower view that U.S. trademark law should be limited to infringement that causes domestic consumer harm.

The U.S. government, in an amicus curiae brief, argued that there was “no clear, affirmative indication that Congress intended those provisions to apply extraterritorially,” but that, because “the ‘focus’ of the provisions is consumer confusion … [s]ales of trademarked goods abroad therefore can violate those provisions if, but only if, those sales are likely to cause consumer confusion within the United States.”

Similarly, INTA filed an amicus curiae brief arguing that the Lanham Act may stop only foreign conduct that causes substantial impact in the United States. INTA also looked beyond the claims at issue in Abitron to note that the focus of the Lanham Act is not limited to likelihood of confusion, and encompasses domestic consumer confusion (whenever it occurs, be it point-of-sale, pre-sale, or post-sale), harm to brand owner reputation, confusion or a mistake or mistakes about affiliation or sponsorship, and dilution. Like the U.S. government, INTA argued that the Lanham Act cannot subject foreign brand owners and companies to litigation in the United States for foreign conduct that has no likelihood of confusing consumers or that has no other substantial impact in the United States.

INTA argued for a policy that could function reciprocally, consistent with international treaties, such as the Paris Convention for the Protection of Industrial Property (Article 6(3)) and the Madrid Protocol, and argued that the Tenth Circuit’s decision risked globalizing American trademark law, allowing domestic trademark protection to serve as a springboard for regulating foreign conduct that has no substantial effect on U.S. commerce.

Likewise, arguing against the Tenth Circuit’s holding, amicus briefs filed on behalf of the European Union and German intellectual property academics argued that policing allegations of infringement occurring in Germany amounted to an unseemly act of meddling in extraterritorial affairs, and that international treaties recognizing the territorial scope of trademarks only work if all participating states respect their obligations, including the limits of their own power.

In the EU, the applicable law of tort is the law of the country where the damage occurs and not the country where the event giving rise to the damage occurred and/or the country or countries in which the indirect consequences of that event occur. The relevant applicable law for claims of infringement is the law of the place where the protection is claimed (lex loci protectionis), and in the case of unitary EU-wide rights, the relevant EU regulations and, where these are silent, the law of the country in which the infringing act was committed.

Otherwise, in the EU, the focus is on the act and not on the impact. A national court has jurisdiction only over acts committed or threatened within the territory of the member state in which that court is situated—or in the case of unitary EU-wide rights, within the territory of the EU. See Case C-9/93 IHT Internationale Heiztechnik GmbH, 1994 E.C.R. I-02789 (1994) ¶ 22 (“national law can only provide relief in respect of acts performed on the national territory in question”); Case C-421/20 ACACIA S.R.L v. Bayerische Motoren Werke AG, (2022) ¶ 35,38 (“The fact that the defendant took decisions and steps in another Member State … does not preclude such an action from being brought.”).

To determine when such acts occur within a certain country and are defined as “domestic,” in Case C-421/20 ACACIA S.R.L v. Bayerische Motoren Werke Aktiengesellschaft (BMW), the Court of Justice of the EU (CJEU) ruled that “the law of the country in which the act of infringement was committed” must be understood as referring to the place where actions falling within the scope of the exclusive right take place; for example, the country where infringing goods are sold, offered for sale, or advertised, as well as all other acts to which the trademark owner has the exclusive right.

The CJEU confirmed in C98/13 Martin Blomquist v Rolex SA, Manufacture des Montres Rolex SA  that sales through the Internet from a non-EU member state into an EU member state are considered infringement in the EU member state at the time when those goods enter the member state’s territory, and if sales were actually made into the EU member state, “[i]t is not necessary, in addition, for the goods at issue to have been the subject, prior to the sale, of an offer for sale or advertising targeting consumers of that State.”

On the other hand, the CJEU has also held that “rights may be infringed where, … even before their arrival …, goods coming from non-member States are the subject of a commercial act directed at European Union consumers, such as a sale, offer for sale or advertising.” Joined Cases C446/09 and C495/09, Koninklijke Philips Elecs. NV v. Lucheng Meijing Indus. Co. Ltd [2011] E.C.R. I12435 ¶ 57. Likewise, in Case C324/09 L’Oréal SA v. eBay International AG, the CJEU confirmed that local laws apply also to trademarked goods located in a third country if they are offered for sale and the offer is targeted at consumers in the territory covered by the trademark, even if they will not necessarily be forwarded to that territory. Particularly in the situation of internet advertisements targeting EU consumers, the CJEU noted, “the effectiveness of those rules would be undermined if they were not to apply to the use… of a sign identical with or similar to a trade mark registered in the EU merely because the third party behind that offer or advertisement is established in a third State… or because the product that is the subject of the offer or the advertisement is located in a third State.”

What, if any, types of foreign conduct could justify liability in U.S. courts is unclear following Abitron. While the majority opinion in Abitron is doctrinally similar to the CJEU’s focus on the defendant’s conduct in using a mark, the CJEU cases articulate an expansive view of where that use occurs, similar to Justice Jackson’s concurrence. Lower courts may struggle to interpret the “use in commerce” requirement given that the majority’s guidance is limited to saying that the focus should be on the conduct of the defendant. Justice Jackson tried to elaborate by saying, similar to the CJEU in Blomqvist, Koninklijke, Philips and L’Oreal, 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,” and is attributable to “the person who put that trademark on the goods.” Jackson also similarly noted that a mark could have a source-identifying function even absent the domestic physical presence of the items, such as by being displayed on an Internet site available in the United States. It is unclear if the other Justices would ascribe to such a broad view when the issue is squarely before them in the future. If subsequent courts interpret the majority opinion’s focus on conduct more narrowly than Justice Jackson suggests it should be, then Abitron could surprisingly leave U.S. trademark law with a narrower application than the laws of the EU.

The Path Forward for Brand Owners … and Congress

While foreign entities may welcome the Court’s conclusion limiting the availability of relief in U.S. courts to trademarks “used in commerce” within the United States, the reality of today’s global online marketplace often means that savvy infringers do not restrict their activity within geographic borders and may strategically hide in countries without robust or reciprocal trademark protection.

Justice Sotomayor called for Congress to correct the majority’s limited reading of the Lanham Act, which she believes significantly waters down protections for U.S. trademark owners, ignores today’s increasingly global marketplace, and leaves U.S. trademark owners without adequate protection.

INTA is currently conducting a global survey on the extraterritorial reach of various nations’ trademark laws. This information will be provided to the U.S. Congress to guide its legislative efforts in the wake of the Abitron decision.

In the meantime, brand owners concerned with international and/or online enforcement should proactively register their trademarks in commercially significant jurisdictions abroad, promptly identify possible infringing and/or counterfeit activity, and seek the assistance of U.S. and foreign counsel in coordinated anti-infringement efforts, making use of local rights, laws, and procedures.

Although every effort has been made to verify the accuracy of this article, readers are urged to check independently on matters of specific concern or interest.

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