The Supreme Court's Remand of Steel v. Bull of a Watch Company

The U.S. Supreme Court recently decided that trademark infringement claims under the Lanham Act only apply if the infringing “use in commerce” occurs in the United States. Scott Hervey and Tara Sattler talk about this case on this installment of The Briefing.

Watch this episode on the Weintraub YouTube channel here.

Show Notes:

Tara:
Extraterritorial? Not quite for the Lanham Act. The U.S. Supreme Court recently decided that trademark infringement claims under the Lanham Act only apply if the infringing “use in commerce” occurs in the United States. This is what we will be discussing on this installment of the Briefing.

Scott:
We talked about the facts of this case, Abitron Austria GmbH, v. Hetronic International, Inc., and the holdings of the lower courts on an earlier episode of “The Briefing,” so Tara, why don’t you give us a quick reminder of the facts and how this case came before the U.S. Supreme Court.

Tara:
Sure, Hetronic International, Inc., is a U.S. company that manufactures radio remote controls used to operate heavy-duty construction equipment. Abitron, the defendant, distributed Hetronic’s products in Europe. When the distributor relationship ended, Abitron started manufacturing their own products that were identical to Hetronic’s and that included the Hetronic trademark. The defendant sold their products with the Hetronic branding in Europe, so Hetronic sued Abitron. A jury in the Western District of Oklahoma awarded Hetronic over $100 million in damages, most of which tied to the defendants’ trademark infringement based on sales outside of the U.S. as 97% of the defendant’s sales were made “in foreign countries, by foreign companies, to foreign customers, for use in foreign countries”. On appeal to the 10th Circuit, the defendants insisted that the Lanham Act’s reach for trademark infringement doesn’t extend to their conduct because their conduct generally involved foreign defendants making sales to foreign consumers. And now, the Supreme Court has remanded the case and held that liability for trademark infringement under the Lanham Act extends only to infringing “use in commerce” in the United States.

Scott:
The Lanham Act governs federal trademark and unfair competition disputes. It imposes liability on any person who uses in commerce any . . . “colorable imitation of a registered mark,” or “[a]ny person who . . . uses in commerce any” word, false description, or false designation of origin that “is likely to cause confusion . . . or to deceive as to the affiliation,” origin, or sponsorship of any goods. The Act defines commerce broadly as “all commerce which may lawfully be regulated by Congress. In the U.S. Supreme Court’s holding, they focused specifically on the “use in commerce” language in the Lanham Act, in holding that “use in commerce” must occur in the United States in order to constitute trademark infringement under the Lanham Act.

Tara:
That’s right. The focus on “use in commerce” is different than the holdings that some of the other federal circuits have taken on the extraterritorial application of the Lanham Act. Some federal circuits looked instead to whether the foreign activities of foreign defendants have a “substantial effect” on U.S. commerce. In fact, the only other Supreme Court case that addresses the extraterritorial application of the Lanham Act also discussed the effects of the alleged infringement on U.S. commerce.

Scott:
That case is Steele v. Bulova Watch Co. and was decided in 1952. In that case, Steele, a Texas man, procured component parts from the United States and Switzerland, assembled watches in Mexico City, and branded them  ‘Bulova’. The Bulova Watch Company’s Texas sales representative received numerous complaints from retail jewelers in the Mexican border area of Texas whose customers brought in for repair defective ‘Bulova’ watches, but upon inspection, it often turned out that the watches weren’t Bulova watches at all. The Supreme Court held that Steele’s activities were covered by the Lanham Act and looked to the impact of Steele’s activities on U.S. commerce.

Tara:
So, the Supreme Court made sure to distinguish the Abitron case from the Steele case in its recent decision. The court clarified that the Steele case “implicated both domestic conduct and the likelihood of domestic confusion” as compared to the Abitron case, where 97% of sales were made in foreign countries, to foreign buyers, for use in foreign countries.

Scott:
This case will have broad implications for U.S. companies that sell products overseas, and best practices will probably lead to the registration of trademarks in strategic international jurisdictions. And it seems like this case would also raise concerns for foreign companies who sell products online in the U.S.

Tara:
That’s right. And Justice Jackson wrote a concurring opinion on that point, suggesting that “use in commerce” in the U.S. would not necessarily require a company to be physically present in the U.S.