Written by Brandon E. Hughes

The U.S. Supreme Court is poised to review the extraterritorial reach of the Lanham Act in a case that may significantly impact the manner in which trademark owners police and protect their marks abroad.  In Abitron Austria GmbH, et al. v. Hetronic International, Inc., No. 21-1043, 2022 WL 16703748 (U.S. Nov. 4, 2022), the Court will consider whether the Tenth Circuit Court of Appeals properly limited the extraterritorial scope of sections 32 and 43 of the Lanham Act, 15 U.S.C. §§ 1114(1), 1125(a)(1), to purely foreign infringement.

Background

Plaintiff Hetronic U.S. (“Hetronic”) manufactures radio remote controls. Defendants (including petitioner Abitron Austria GmbH) were Hetronic’s foreign distributors.  After nearly a decade of collaboration, Defendants adopted a new interpretation of their contract with Hetronic and concluded that they owned the foreign rights to the Hetronic’s trademarks. Defendants manufactured their own products using Hetronic’s brand name and sold those products in certain European markets. 

In 2014, Hetronic filed suit in the U.S. District Court for the Western District of Oklahoma, alleging trademark infringement under the Lanham Act (among other claims).  After trial, a jury awarded Hetronic $115 million in damages, $96 million of which related to Defendants’ Lanham Act violations.  The district court subsequently imposed a worldwide injunction enjoining Defendants’ infringing foreign activities.

Defendants appealed, asserting that the district court erred because the Lanham Act does not apply extraterritorially to foreign defendants making sales to foreign consumers. 

The Court of Appeals Ruling: the Substantial Effects Test and the Worldwide Injunction

The Tenth Circuit affirmed in part and reversed in part. Noting that “a foreign infringer’s direct U.S. sales don’t factor into our analysis of whether the Lanham Act applies abroad,” the court applied a “substantial effect” test, by which, “to prevail, [a plaintiff] must show that [d]efendants’ foreign infringing conduct had a substantial effect on U.S. commerce.” Hetronic Int’l, Inc. v. Hetronic Germany GmbH, 10 F.4th 1016, 1042 (10th Cir. 2021), cert. granted sub nom. Abitron Austria GmbH v. Hetronic Int’l, Inc., No. 21-1043, 2022 WL 16703748 (U.S. Nov. 4, 2022). Applying the test, the court of appeals held that Hetronic had met its burden of demonstrating a substantial effect on U.S. commerce. Id. at 1044. The court held that millions of euros worth of Defendants’ infringing product found its way into the U.S., causing consumer confusion in the U.S.—a fact that alone met the substantial effects test. Id. The Court also found that Hetronic had satisfied the substantial effects test because Defendants had diverted Hetronic’s sales abroad, causing monetary injury in the U.S. Id. at 1045.

However, the court of appeals further held that the district court’s worldwide injunction was impermissibly broad. Id. at 1046-47. In doing so, the court noted that the injunction extended beyond the countries where Hetronic sold its products. Id. Reasoning that market confusion was an impossibility in countries where Hetronic lacked a commercial presence, the court narrowed the injunction accordingly. Id.

The U.S. Supreme Court Grants Certiorari

On November 4, 2022, the Supreme Court granted certiorari to decide the following issue:  “Whether the court of appeals erred in applying the Lanham Act extraterritorially to petitioners’ foreign sales, including purely foreign sales that never reached the United States or confused U.S. consumers.” Defendants not only argue that the Lanham Act does not apply to purely foreign sales, they assert that, properly construed, the Lanham Act does not apply extraterritorially at all.

Defendants contend that there is a split of circuit authority. According to Defendants, the split of authority breaks down as follows:

• The Second and Eleventh Circuits analyze three factors when determining whether the Lanham Act should be applied extraterritorially: (1) whether “the defendant’s conduct had a substantial effect on United States commerce”; (2) whether the defendant was “a United States citizen”; and (3) whether “there was no conflict with trade-mark rights established under foreign law.” See Vanity Fair Mills, Inc. v. T. Eaton Co., 234 F.2d 633, 642 (2d Cir. 1956); International Café, S.A.L. v. Hard Rock Café Int’l (U.S.A.), Inc., 252 F.3d 1274, 1278 (11th Cir. 2001).
• The Fourth Circuit asks whether there is a “significant effect on United States commerce.” Nintendo of Am. Inc. v. Aeropower Co., Ltd., 34 F.3d 246, 250 (4th Cir. 1994). The Fifth Circuit asks whether there is “some effect” on U.S. commerce.  American Rice, Inc. v. Ark. Rice Growers Co-Op. Ass’n, 701 F.2d 408, 414 & n.8 (5th Cir. 1983).
• Under Ninth Circuit law, the Lanham Act applies extraterritorially if: (1) the infringing conduct has “some effect on American foreign commerce”; (2) “the effect [is] sufficiently great to present a cognizable injury to the plaintiffs under the Lanham Act”; and (3) “the interests of and links to American foreign commerce [are] sufficiently strong in relation to those of other nations.” Trader Joe’s Co. v. Hallatt, 835 F.3d 960, 969 (9th Cir. 2016).
• The First Circuit automatically applies the Lanham Act if the defendant is a United States citizen.  McBee v. Delica Co., Ltd., 417 F.3d 107, 110 (1st Cir. 2005).  If not, courts apply the “substantial effect” test.  Id. at 121.

Hetronic, on the other hand, contends that there is no true circuit split at all as every court of appeals “recognizes that the Lanham Act can apply to foreign sales by foreign defendants where there is domestic consumer confusion.” In granting review, the Supreme Court must have concluded that that a true circuit split exists or that, regardless, the issue needs clarification (or both).

Takeaway

The Supreme Court will now decide whether the Tenth Circuit erred in applying the Lanham Act extraterritorially to Defendants’ conduct.  A reinforcement of the “substantial effects” framework may simply maintain the status quo.  A rejection of the test could signal a major shift in trademark owners’ ability to protect their intellectual property abroad, as well as the ability to bring foreign infringement into U.S. courts or seek broader remedies against a defendant where infringement occurs beyond U.S borders.  Mitchell Silberberg & Knupp LLP will continue to watch this case as it develops.