On June 29, 2023, the Supreme Court adopted a restrictive view of the extraterritorial application of the Lanham Act, holding that federal trademark law cannot support a claim for trademark infringement against solely foreign conduct.
The case is Abitron Austria GmbH v. Hetronic International, Inc. Hetronic, an Oklahoma-based corporation, sells a wide range of radio remote controls in over forty-five countries, all of which are marked by their distinctive black-and-yellow trade dress. In 2006, Hetronic entered distribution and licensing agreements with Hydronic Steuersysteme GmbH (later purchased by Abitron Austria GmbH). These agreements authorized Hydronic to build and sell Hetronic-branded products so long as the parts were purchased directly from Hetronic. In 2011, Hydronic began reverse-engineering Hetronic parts and contracted new suppliers to source them. When Abitron purchased Hydronic in 2014, they began selling products identical to Hetronic’s remote controls in foreign markets with the recognizable black-and-yellow coloring. Prior to litigation, Abitron’s global sales revenue from infringing products amounted to over $90 million, of which $240,000 came from U.S. sales.
A jury in the District Court for the Western District of Oklahoma awarded Hetronic $90 million in damages for Lanham Act violations to account for their lost revenue in both the U.S. and abroad. The District Court also granted Hetronic’s motion for a permanent injunction against Abitron’s infringement activities worldwide. The Tenth Circuit affirmed the injunction but narrowed it to the countries in which Hetronic marketed and sold products.
The Supreme Court granted certiorari on the issue of whether the Lanham Act applies to infringing uses of trademarks outside of the United States. To assess the issue, the Court applied a two-step framework. The Court first asked if the statute explicitly applies to foreign conduct. The Lanham Act applies to persons who, without the consent of the trademark registrant, “use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark…[if] such use is likely to cause confusion…”. No mention is made of foreign versus domestic use of a mark, so the Court found the Lanham Act did not explicitly indicate it applies to foreign conduct.
Second, the Court considered the “focus” of the statute and whether the “conduct relevant to the focus” occurred in the U.S. Hetronic argued that the goal of the Lanham Act is to avoid consumer confusion or mistake, and so long as consumer confusion is likely to occur in the U.S., it does not matter whether the infringing products are sold in the U.S. or abroad. In response, Abitron contended – and the Supreme Court ultimately agreed – that the focus of the Lanham Act is to avoid the unauthorized use of a trademark in U.S. commerce, meaning that profits lost to trademark infringers abroad cannot be recovered in U.S. courts. “Use in commerce” is the “dividing line between foreign and domestic applications of these Lanham Act provisions.” Therefore, the basis of Abitron’s liability for infringing product sales is limited to the goods sold directly to U.S. customers, a mere $240,000.
The Court unanimously agreed that the infringement scope was limited to domestic activity but split 5-4 on the issue of when an infringing activity becomes “domestic”. Writing for the majority, Justice Alito opined that an infringing use is only domestic when the use in commerce occurs within a U.S. state or territory. Justice Sotomayor penned a concurrence in which she agreed with the overall finding but suggested that the trademark infringement provisions of the Lanham Act could extend to foreign sales when there is a likelihood of U.S. consumer confusion.
During oral argument Justice Jackson posed hypothetical questions about how the Lanham Act could apply to foreign sales of infringing goods later resold in the U.S., such as when an American traveler purchases counterfeit designer purses in another country and then resells them inside of the U.S. Justice Jackson continues this line of thinking, writing that the Lanham Act could apply to a foreign company whose goods are resold in the U.S. or who engages in online activities that penetrate U.S. commerce without a physical presence in the country.
In many ways, the decision is unsurprising. The Supreme Court’s decision aligns with the international norm of each country granting and enforcing their own trademark rights within their own borders. In the future, U.S. trademark owners will need to seek relief in foreign jurisdictions if the infringement occurs outside of the U.S. The Supreme Court’s focus on “use in commerce” also aligns with prior U.S. case law in which courts have established jurisdiction over foreign companies that sold infringing goods in the U.S. Yet, the opinion also leaves open questions. The majority opinion explicitly limited the scope of the decision, stating that the case did not present the opportunity to deeply explore the meaning of “use in commerce”, so the particulars of that phrase will be left to the lower courts, leaving some uncertainty as to what would constitute actual participation in domestic commerce.
Read the opinion here.
Special thanks to Mattie Kleinpeter, Tulane Law Class of 2024, for her research and assistance in writing this article.