After 70 Years, Supreme Court Will Once Again Weigh in on The Exterritorial Reach of Lanham Act

The U.S. Supreme Court will weigh in on the reach of the Lanham Act and whether it can protect against the infringement of a U.S. trademark in a foreign territory. Scott Hervey and Josh Escovedo discuss this case in this episode of The Briefing by the IP Law Blog.

Watch this episode here.

Show Notes:

Scott:
What’s the reach of the Lanham act? Can it protect against the infringement of a U.S. trademark in a foreign territory? The U.S. Supreme Court is taking up the appeal of a 10th Cir case of Abitron Austria GmbH v. Hetronic International, Inc. to hopefully shed light on the matter. This is what we are talking about on this installment of the Briefing by the IP Law Blog.

Scott:
Here are the underlying facts of Abitron Austria GmbH v. Hetronic International, Inc. Hetronic International, Inc., a U.S. company, manufactures radio remote controls—used to remotely operate heavy-duty construction equipment.  The Defendants distributed Hetronic’s

Products in Europe. The distributor relationship deteriorated, and the Defendants began manufacturing their own products—identical to Hetronic’s—and selling them under Hetronic.

Brand in Europe. Hetronic sued Abitron in the U.S., and a jury in the Western District of Oklahoma awarded Hetronic over $100 million in damages, most of which related to Defendants’ trademark infringement relating to sales outside of the US. Then on Hetronic’s motion, the district court entered a worldwide injunction barring Defendants from selling their infringing products.  On appeal to the 10th Circuit, the defendants insist that the Lanham Act’s reach doesn’t extend to their conduct, which generally involved foreign defendants making sales to foreign consumers.

Josh:
The Lanham Act governs federal trademark and unfair competition disputes. It subjects to liability 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. The sole Supreme Court case on the exterritorial application of the Lanham Act is the 70-year-old case of Steele v. Bulova Watch Co., That case involved a Lanham Act claim brought by the Bulova Watch Company, against Sidney Steele, a U.S. citizen residing in Texas. Using component parts he had procured from the United States and Switzerland, Steele 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 ‘Bulovas’ which upon inspection often turned out not to be products of that company.  The Supreme Court held that Steele’s activities were covered by the Lanham Act. The fact that [Steele] affixed the mark ‘Bulova’ in Mexico City rather than in the US was not determinative..” The Court explained that Steele’s “operations and their effects” were “not confined within the territorial limits of” Mexico. Steele had bought components for his watches in the United States.  And Steele’s watches filtered through the Mexican border into the US,” and those “competing goods could well reflect adversely” on Bulova’s “trade reputation in markets cultivated by advertising here as well as abroad.”. The Court further noted that because Steele did not have trademark rights to the “Bulova” mark under Mexican law, applying the Lanham Act to his conduct would not create any conflict with foreign law.

Scott:
Presently a number of federal circuits have different frameworks for the exterritorial application of the Lanham Act.  The 10th circuit ended up adopting the framework from the First Circuit’s McBee v. Delica Co. Under McBee, where the case is about the “foreign activities of foreign defendants,” 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.”  The 10th Circuit also noted, in adopting this test, that if a plaintiff successfully shows that a foreign defendant’s conduct has had a substantial effect on U.S. commerce, courts should also consider whether the extraterritorial application of the Lanham Act would create a conflict with trademark rights established under the relevant foreign law.

Josh:
The lower court found that the defendant’s conduct had a substantial effect on U.S. commerce.

Scott:
Right. The district court noted that Hetronic presented more than enough evidence to show that the defendants’ foreign infringing  conduct had a substantial effect on U.S. commerce,” The district court that  “Besides the millions of euros worth of infringing products that made their way into the United States after initially being sold abroad, defendants also diverted tens of millions of dollars of foreign sales from the defendants  that otherwise would have ultimately flowed into the United States.”  Ultimately, the jury in the district court awarded Hetronic $113 Million in damages resulting mostly from the defendant’s foreign activity; the verdict was appealed to the 10th circuit, where it was upheld (although the 10th circuit trimmed the worldwide injunction issued by the lower court to apply to only the countries in which Hetronic currently markets and sells its products.

Josh:
In January 2022, Abitron Austria and related companies petitioned the supreme court for a review of the 10th circuit’s ruling; Abitron argued that 97% of the sales were for  products made “in foreign countries, by foreign companies, to foreign customers, for use in foreign countries,” The appeals court’s decision to award damages for all of the defendants’ worldwide sales on the grounds that 3% substantially affects U.S. commerce “would allow a very small tail to wag a very large dog,” In May 2022, the Supreme Court asked the Biden administration for the solicitor general to file a brief for the “views of the United States.”

Scott:
In September 2022, the US Solicitor General filed a brief supporting the Supreme Court’s review of the case. Interestingly, the Solicitor General noted a failure in not only the framework adopted by the 10th Cir for determining the extraterritorial reach of the Lanham Act but the framework adopted by all other circuits…. that each of the tests adopted by the courts of appeals has failed to focus on whether a foreign use is likely to cause U.S. consumer confusion.

Josh:
The Solicitor General also noted that the ruling in the 10th Circuit conflicts with the Fourth

Circuit’s decision in Tire Engineering & Distribution, LLC v. Shandong Linglong Rubber Co., In Tire Engineering. In that case, the Fourth Circuit rejected a Lanham Act claim that relied on a

diversion-of-sales theory, concluding that “harm to a U.S. company’s income from foreign infringement” did not support the application of the Lanham Act where the defendant that used the mark was a foreign company.

Scott:
In early November 2022, the Supreme Court agreed to review Abitron Austria GmbH et al. v. Hetronic International Inc. As is customary, the Supreme Court offered no commentary on its grant of review, and a briefing schedule will be issued later

Josh:
Thanks, Scott.