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. 

A Couple of Upcoming Speaking Engagements

1.  In two weeks, Chung-lun Shen and I will be presenting our paper Destruction, Proportionality, and Sustainability: A Law-and-Economics Analysis at the 2023 ATRIP Congress in Tokyo.  Here is a link to the conference program.  I am looking forward to getting some feedback on our paper, meeting some old friends (including my former colleague Professor Ruth Okediji), and making some new ones.  I'm also particularly interested in hearing the other presentations on remedies, including Łukasz Żelechowski's Damages for IP infringement: What is the interface between the general principles of liability in civil law and liability for damages in IP law from a European perspective?, and some of the papers discussing the enforcement of IP rights through criminal law.

2. On October 12, I will be on a panel titled "Major U.S. Supreme Court Patent Decisions," at IPIC 2023's annual conference in Winnipeg, Canada (program here).  My co-panelists will be William Milliken and Lilian Wallace, with Ben Hackett moderating.  I'm looking forward to it-- never been to Winnipeg before.  

Love and Helmers on Holdout

Brian Love and Christian Helmers have posted a paper on ssrn titled Patent Hold-Out and Licensing Frictions: Evidence from Litigation of Standard Essential Patents, forthcoming in the International Journal of Industrial Organization.  Here is a link to the paper, and here is the abstract:

The theory of patent “hold-out” posits that frictions in the market for licensing standard-essential patents (SEPs) provide incentives for prospective licensees to opportunistically delay taking licenses with the goal of avoiding or reducing royalty payments. We construct measures of pre- and in-litigation hold-out from information disclosed in U.S. cases filed 2010-2019. Relying on both SEP and a matched control set of non-SEP disputes, we explore whether frictions in the market for licensing are associated with hold-out. We find some evidence of an association between hold-out and both SEP portfolio size and enforcement uncertainty; however, we find no evidence associating pre- or in-litigation hold-out with the international breadth of SEP rights.

 

From Around the Blogs

1. I've been on vacation, but while I was away word leaked out that Mr. Justice Marcus Smith had authored a (until just recently still unpublished) 283-page decision in in Optis v. Apple.  (Two of the commentaries mentioned below state that the citation for the decision is [2023] EWHC 1095 (Ch.), but I'm still not seeing the decision listed on BAILII's website.  However, the EPLaw Blog today published a a copy of the redacted decision, which I can now begin reading for myself.)  According to commentary on EPLaw, FOSS Patents, JUVE Patent, and Kluwer Patent, the decision awards Optis $56.43 million ($5.13 million per year) plus interest for Apple's past and future global access to Optis' portfolio of FRAND-committed SEPs; rejects the SSPPU rule and Apple's assertion that Optis abused a dominant position; but also rejects Optis' argument that Apple was an unwilling licensee, and Optis' proposed comparables as a basis for calculating the royalties due.  283 pages will be a lot to slog through, but I am looking forward to reading the decision and intend to provide some commentary on it in due course.  

2. On Bloomberg Law, Michael Shapiro published an article titled Idaho’s Anti-‘Patent Troll’ Law Challenged in Federal Appeal.  The article discusses an appeal recently filed by Longhorn IP LLC and Katana Silicon Technologies LLC from a judgment finding that Idaho’s anti-troll law is not preempted by federal law, and requiring the posting of an $8 million bond to continue litigation.  The appeal will go to the Federal Circuit, which has not yet addressed this issue. 

3. On JUVE Patent, Mathieu Klos published an article titled 10x Genomics and Bardehle achieve rare AASI in biotech dispute against NanoString.  The case implicates infringement actions filed by 10x Genomics against NanoString in the U.S. and Germany; the patent in suit in Germany relates to "compositions and methods for analyte detection."  In April, NanoString had filed, in the U.S. District Court for the District of Delaware, an application for an antisuit and antienforcement injunctions relating to the German actions.  The author states that the Munich Regional Court issued an anti-antisuit injunction, and that this may be the first such case in a patent dispute in Europe outside the mobile telecommunications/SEP sector.

4.  On IP Watchdog, Tobias Wuttke published the fifth installment of his series on the UPC, titled Countdown to the Unified Patent Court, Part V: Five Predictions for the UPC on Day One.  The article predicts, among other matters, that “the UPC will adopt a generous practice for preliminary injunctions (PIs),” in the wake of the CJEU’s decision in Phoenix Contact (previously discussed on this blog here, here, and here); will not impose a strict urgency requirement (as has generally been the practice in Germany, as recently discussed on this blog here); and may adopt a liberal cross-border injunction practice patterned after Dutch practice.

5. On Law360, Eliana Garces, Joshua White and John Jarosz published an article titled Global Issues In EU's Licensing Plans For Essential Patents, regarding the European Commission' s draft SEP regulation; and Alex Baldwin published Top UK Court To Hear Apple's Appeal In Global FRAND Spat.  At issue in the latter is whether the owner of a FRAND-committed SEP can obtain an injunction unless the implementer agrees to a court-determined FRAND license, and whether such an injunction is proper where the implementer alleges that the owner abused its dominant position.  A bit hard to imagine how this could come out differently than Unwired Planet, but we'll see.

Blogging Break

 I will be taking a blogging break the next two weeks, with plans to resume the week of June 19. 

Cotter and Shen on Destruction, Proportionality, and Sustainability

Chung-lun Shen and I have posted a paper on ssrn titled Destruction, Proportionality, and Sustainability: A Law-and-Economics Analysis.  We will be presenting it at the 2023 ATRIP Congress at the University of Tokyo in July.  Here is a link to the paper, and here is the abstract:

 This paper undertakes a law-and-economics analysis of the remedy of destruction (and, subsidiarily, the related remedies of recall and removal) of products that infringe intellectual property (IP) rights. We begin with a brief survey of international, regional, and domestic law and practice, observing that (1) courts generally are believed to be more likely to order the destruction of copyright- and trademark-infringing than of patent-infringing goods, and (2) the frequency with which courts order the destruction of patent-infringing goods varies from one country to another. Our observations lead us to present two principal theses.

 

The first is that a comparative reluctance to order the destruction of patent-, as opposed to copyright- or trademark-infringing goods, would be consistent with economic considerations. From an economic standpoint, destruction can be viewed as both a complement to injunctive relief, and as a substitute (albeit an imperfect one) for the ongoing monitoring of an infringer's compliance with the terms of an injunction. The social benefits arising from substituting destruction for monitoring, however, are likely to be lower—on average, and perhaps subject to regional variation—for patent-infringing goods than for products that infringe other IP rights. In addition, although observers have long noted that the private and social costs of destruction provide a rationale for withholding that remedy when it would cause disproportionate harm to the defendant or third parties, these costs may be unusually high in patent cases—particularly that subset of cases in which the risk of patent holdup is substantial. In view of these factors, the social costs of ordering the destruction of patent-infringing goods are likely to outweigh the social benefits in a comparatively broader swath of cases.

 

Our second thesis can be best understood if we first pose a question: given that courts generally have authority to consider proportionality when deciding whether to order the destruction of infringing goods, why are legislatures and courts (other than in the United States, and to some degree other common-law countries) so unwilling to consider proportionality when deciding whether to grant injunctive relief? One obvious reason is that a stay or denial of injunctive relief imposes greater costs on the judiciary, insofar as a court that stays or denies an injunction must be prepared to set the terms of an interim or ongoing royalty; in addition, a stay or denial may introduce additional error costs, to the extent courts impose over- or undercompensatory royalties. We propose, nonetheless, that the factors that sometimes persuade courts to deny requests for destruction should render them at least marginally more receptive than they currently are to staying or denying injunctions, particularly when there is a substantial risk of holdup. In addition, environmental costs may be reduced if, in appropriate cases, courts were more willing to stay injunctions pending the sell-off or design-around of infringing products, rather than requiring their destruction or long-term storage.

Comments welcome.  Thanks also for a shout-out from Professor Larry Solum, on his Legal Theory blog earlier this week!