The Supreme Court unanimously ruled on June 29 that a trademark law does not regulate the use of U.S. trademarks outside the United States.
At the same time, the justices split 5–4 on whether the holder of an infringed trademark could still seek damages domestically for the trademark infringement that took place abroad if it caused consumer confusion in the United States. The four-justice minority said the injured party should be able to seek damages in the United States.
The case concerns the reach of the Lanham Act of 1946, a federal law that regulates trademarks and unfair competition. The presumption in the United States is that U.S. laws do not apply to foreign conduct, but that presumption was called into question here because the conduct that took place outside the country allegedly had an effect on U.S. commerce.
The court was being asked to determine if the statute, which was enacted at a time when the domestic economy was less globally integrated than it is nowadays, covers conduct infringing trademarks that takes place outside the United States. Foreign governments have expressed concern about the extraterritoriality of U.S. laws.
Abitron, of Altheim, Austria, argued the Lanham Act does not reach extraterritorial conduct; Oklahoma-based Hetronic argued that in some situations it does.
Hetronic, which makes and sells radio remote controls for construction equipment, is the owner of U.S. trademarks covering distinctive features of the remote controls.
As Hetronic’s European distributor, Abitron was licensed to assemble and sell Hetronic’s remote controls under Hectronic’s brand. Abitron was required by contract to buy parts from Hetronic.
But Hetronic claimed Abitron clandestinely used proprietary information it obtained through the licensing pact to reverse-engineer Hetronic’s products, and that this led to confusion among consumers.
“Abitron then sold those products to Hetronic’s customers as if they were genuine Hetronic devices. Hetronic further alleges that Abitron continued selling Hetronic-brand products even after the parties’ licensing agreements were terminated,” according to a SCOTUSblog summary.
Although the misconduct happened overseas, Hetronic filed suit against Abitron in the United States for trademark infringement under the Lanham Act.
Permanent Injunction
A federal jury in Oklahoma found for Hetronic, awarding it $114 million, about $90 million of which was for trademark infringement. The federal district court entered a permanent injunction blocking Abitron from using the trademarks anywhere in the world.
The U.S. Court of Appeals for the 10th Circuit affirmed the verdict. That court ruled Hetronic was entitled to all sales revenue the distributor brought in on products using the trademarked branding, despite 97 percent of its sales taking place outside the United States, finding that all of the sales damaged the company. The circuit court also narrowed the injunction so it covered only certain countries.
During oral arguments on March 21, Hetronic attorney Matthew Hellman of Jenner and Block in Washington said the law covers activity outside the country.
“Since 1952, this court has held and repeatedly reaffirmed that the Lanham Act’s uniquely broad language reaches infringement of U.S. marks that is carried out overseas. And during those 70 years, Congress has amended the act 36 times, and it has never pulled back on the act’s extraterritorial reach,” he said.
Mr. Hellman was referencing the Supreme Court’s ruling in Steele v. Bulova Watch Co. (1952), which involved a watchmaker’s complaint about counterfeits manufactured and sold in Mexico. A U.S. court was found to have jurisdiction to hear the case because the defendant was a U.S. citizen and some of the counterfeits found their way to the United States.
Mr. Hellman said the act has protected U.S. trademark holders by providing “a much-needed remedy in cases just like this one against foreign trademark pirates who market knockoff goods that siphon the goodwill and sales of U.S. trademark holders.”
“Seventy years of experience shows that the floodgates haven’t opened and that the Lanham Act has instead served as a bulwark against infringement,” Mr. Hellman said.
Majority Opinion
The Supreme Court’s opinion (pdf) in Abitron Austria GmbH v. Hetronic International Inc. (court file 21-1043), issued June 29, was written by Justice Samuel Alito. It vacated the decision of the 10th Circuit and remanded the case “for further proceedings consistent with this opinion.”
“This case requires us to decide the foreign reach of 15 U.S.C. §1114(1)(a) and §1125(a)(1), two provisions of the Lanham Act that prohibit trademark infringement,” Mr. Alito wrote.
“Applying the presumption against extraterritoriality, we hold that these provisions are not extraterritorial and that they extend only to claims where the claimed infringing use in commerce is domestic.”
Mr. Alito’s majority opinion was joined by Justices Clarence Thomas, Neil Gorsuch, Brett Kavanaugh, and Ketanji Brown Jackson. Ms. Jackson filed her own concurring opinion.
Justice Sonia Sotomayor filed an opinion concurring with the court’s judgment that the Hetronic award should be set aside, but differing with the majority by saying the location of the consumers confused by the trademark use was at the heart of the infringement.
Ms. Sotomayor’s opinion was joined by Chief Justice John Roberts, along with Justices Elena Kagan and Amy Coney Barrett.
Ms. Sotomayor’s position was that the foreign conduct that caused confusion in the United States, which the Lanham Act was enacted to protect, could lead to damages under the statute.
Mr. Alito, on the other hand, wrote that the act’s focus was on “use in commerce.” The confusion among consumers was “not a separate requirement” but “simply a necessary characteristic of an offending use,” the justice wrote.
Ms. Sotomayor wrote that the majority had changed the extraterritoriality framework “into a myopic conduct-only test.”
“[T]he Court’s new rule frustrates a key function of the presumption against extraterritoriality: to discern congressional meaning and ‘preserv[e] a stable background against which Congress can legislate with predictable effects’ to protect domestic interests,” she wrote.
Mr. Alito wrote that Ms. Sotomayor’s approach was “wrong” and “would give the Lanham Act an untenably broad reach that undermines our extraterritoriality framework.”
The Epoch Times reached out for comment to Abitron counsel Lucas Michael Walker of MoloLamken in Washington and Hetronic counsel Matthew Hellman but had not received a reply from either as of press time.
The Epoch Times also sought comment from the U.S. Department of Justice but had not received a response at the time of publication.
Fara Sunderji, a partner at the international law firm of Dorsey and Whitney, commented on the business ramifications of the Supreme Court decision.
“The bottom line for trademark owners is that obtaining rights in foreign jurisdictions remains an important part of any intellectual property protection strategy,” she said by email.
“Domestic rights only go so far, specifically to the borders. Coordinating protection with trademark counsel in America, Europe, Asia, and beyond will be money well spent for many brands in this global economy.
From The Epoch Times