U.S. Supreme Court Limits Extraterritorial Reach of U.S. Trademark Law

AbitronAustria GmbH v. Hetronic Int’l, Inc. is hardly the most consequential U.S. Supreme Court decision this week—and this blog is mostly about patent remedies, not IP generally—but I have mentioned the case here previously, because of its potential impact on the extraterritorial reach of U.S. IP law, including possibly remedies for the infringement of U.S. patents.  I’m sure that the case and its implications will command considerable attention going forward, so for present purposes I’ll be as brief as possible in just setting out the contours of the decision. 

The defendants in this case (collectively, Abitron) are foreign companies that allegedly engaged in the unauthorized commercial use of Hetronic’s U.S. trademarks in Germany.  Some of the allegedly infringing products were intended for export to the U.S., but most were not.  The Tenth Circuit, adopting an expansive reading of the Supreme Court’s 1952 decision in Steele v. Bulova Watch, concluded that the Lanham Act reached the defendant’s conduct and awarded $96 million in damages--covering damages not only for products that the defendants directly sold in the U.S., or sold to companies that designated them for export to the U.S., but also for "foreign sales of products that did not end up in the United States" (p.2)--on the theory that the plaintiff, a U.S. corporation, suffered financial injury in the United States.  The Supreme Court unanimously reverses (no surprise there, in my view), but fractures 5-4 on the question of precisely what conduct the Lanham Act proscribes.  Justice Alito writes for the majority, joined by Justices Thomas, Gorsuch, Kavanaugh, and Jackson.  Justice Jackson also files a separate concurring opinion.  Justice Sotomayor, joined by the Chief Justice and Justices Kagan and Barrett, files an opinion concurring the judgment.

All of the justices agree that the governing principle is to be found in the two-step test articulated in cases such as WesternGeco v. ION, the 2018 decision in which the Court held that a U.S. patent owner can recover damages, where the defendant violates Patent Act § 271(f) by exporting components from the United States to be combined abroad, and the resulting extraterritorial combination deprives the patent owner of the profit it would have earned on extraterritorial sales it would have made but for the infringement.  Starting from an underlying presumption against the extraterritorial application of U.S. law, the two-step framework directs a court to consider, first, whether Congress has affirmatively stated that the statutory provision at issue should apply to foreign conduct.  (Here, the Court concludes, Congress has not affirmatively displaced the presumption against extraterritoriality, rejecting Hetronic's argument that the statutory definition of "commerce" in the Lanham Act includes foreign commerce.)  If not (or if, as in WesternGeco, the Court chooses not to address the first issue but rather to skip directly to the second), the question then is to identify the “focus” of the statute, and to determine if the conduct relevant to that focus is domestic foreign or domestic.  It is on this second step that the majority opinion and the concurring opinion by Justice Sotomayor part company.  The majority concludes that, whatever the “focus” of Lanham Act §§ 32 and 43 may be, the conduct relevant to that focus is the use of the mark in commerce in the United States, that is, the “bona fide use of a mark in the ordinary course of trade, where the mark serves to identify and distinguish the mark user’s goods and to indicate the source of the goods” (p.14, internal quotation marks and ellipsis omitted).  On this reading, consumer confusion in the United States standing alone (much less financial injury to a U.S. corporation) is not sufficient.  Justice Sotomayor’s concurring opinion, by contrast, would conclude that conduct occurring abroad that causes a likelihood of confusion in the United States is within reach of the Lanham Act, because the "focus" of the statute is consumer confusion, even if the conduct relevant to that confusion occurs outside the U.S.  The majority rejects this position, reasoning that it would result in there being a domestic application of the statute whenever “particular effects are likely to occur in the United States” (majority op. at 12, internal quotation marks omitted), while the concurrence refers to the majority's view as a "myopic conduct-only test" (concurrence at 7).

Justice Jackson’s separate concurrence tries to elaborate a bit on what “use in commerce” means, but I'm not sure I agree with her analysis.  She posits a hypothetical where some U.S. students buy handbags in Germany marked “COACHE” and bring them back to the U.S.  She concludes that the German company isn't using the mark in commerce in the U.S. as long as the students keep the bags, but that if they resell them in the U.S. the German seller then would be using the mark in commerce in the United States.  This seems to raise unaddressed questions, however, about the scope of the first-sale doctrine, as well as why the German seller's "use" of the mark in commerce in the United States should depend on what the students do.  In any event, it will now be up to the lower court to sort out whether the defendants are responsible for the products that indirectly made their way to the U.S.