In divided opinion, U.S. Supreme Court resolves circuit split to hold that trademark infringement claims under sections 32(1)(a) and 43(a)(1) of Lanham Act do not reach extraterritorial conduct and that infringing marks must be “used in commerce” domestically to be actionable under these provisions.
Hetronic International Inc. is an American manufacturer of radio remote controls for construction equipment. Hetronic sued Abitron Austria GMBH, a former licensed distributor of Hetronic products, in federal district court in Ohio after Abitron reverse-engineered Hetronic’s goods and sold those products using Hetronic’s marks. Hetronic brought claims under sections 32(1)(a) and 43(a)(1) of the Lanham Act, seeking damages for Abitron’s direct sales to consumers in the United States, Abitron’s foreign sales of products for which the foreign buyers designated the United States as the ultimate destination and Abitron’s foreign sales of products that never ended up in the United States. Following a jury trial, Hetronic obtained a permanent worldwide injunction and a monetary award of $96 million, encompassing Abitron’s domestic and foreign sales. On appeal, the Tenth Circuit narrowed the injunction to cover only certain countries and affirmed the monetary award, concluding 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.’”
The Supreme Court granted certiorari to resolve a circuit split over the extraterritorial reach of the Lanham Act. In a majority opinion authored by Justice Alito and joined by justices Thomas, Gorsuch, Kavanaugh and Jackson, the Court applied a two-step framework to determine whether the Lanham Act provisions at issue overcome the general presumption against extraterritoriality. The first step, at the threshold, is to “determine whether a provision is extraterritorial,” which turns on whether Congress has “affirmatively and unmistakably instructed” that the provision at issue should apply to foreign conduct. Here, the majority concluded, “neither provision at issue provides an express statement of extraterritorial application or any other clear indication” of extraterritorial reach, despite the Lanham Act’s regulation of “all commerce” within Congress’ authority to regulate.
Turning to the second step, used to determine “whether the suit seeks a (permissible) domestic or (impermissible) foreign application of the provision,” the majority explained that courts both identify the “focus” of the statute and determine “whether the conduct relevant to that focus occurred in United States territory.” Largely setting aside the issue of the Lanham Act’s focus, the majority reasoned that here, “[t]he ultimate question regarding permissible domestic application turns on the location of the conduct relevant to the focus.” And looking to the text of the relevant provisions, the Court noted that only “specific action” regulated by sections 32(1)(a) and 43(a)(1) of the Lanham Act is “use in commerce,” and thus concluded that “‘use in commerce’ provides the dividing line between foreign and domestic applications of these Lanham Act provisions.” Accordingly, the majority held that use in commerce, as defined in the Lanham Act, occurring abroad is not actionable, and vacated the judgment on this basis.
In a concurring opinion that could take on significance given the bare majority, Justice Jackson further elaborated on the circumstances in which use in commerce in the United States could be established. Her concurrence explained that “a ‘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” but can occur “wherever the mark serves its source-identifying function.” Where the mark serves its source-identifying function in the United States, Justice Jackson further elaborated, “the trademark is being used by the ‘person’ who put that trademark on the goods ‘to identify and distinguish’ them in commerce.” Thus, as a hypothetical, a German company selling infringing handbags in Germany could become liable under the Lanham Act if its consumers sold those bags in the secondary market in the United States. In this scenario, “the German company may be subject to liability for this domestic conduct … even though it never sold the bags in, or directly into, the United States.” Justice Jackson declined to enumerate every way in which domestic use in commerce could be established but, in a footnote, noted that “in the internet age, one could imagine a mark serving its critical source-identifying function in domestic commerce even absent the domestic physical presence of the items whose source it identifies.”
Justice Sotomayor, joined by Chief Justice Roberts and justices Kagan and Barrett, concurred solely in the judgment and issued a separate opinion disagreeing with the majority’s analysis. While agreeing that the Lanham Act does not apply extraterritorially, the minority objected to the Court’s conduct-centric formulation in differentiating between domestic and foreign applications of the Lanham Act, explaining that “[a]n application is domestic when the object of the statute’s focus is found in, or occurs in, the United States.” The focus of the Lanham Act, the minority concluded, is consumer confusion. And “[b]ecause the statute’s focus is protection against consumer confusion, the statute covers foreign infringement activities if there is a likelihood of consumer confusion in the United States and all other conditions for liability are established.” The majority’s approach, according to Justice Sotomayor, “would absolve from liability those defendants who sell infringing products abroad that reach the United States and confuse consumers here.”
Summary prepared by Wook Hwang and Edward Delman