U.S. Supreme Court Rules: U.S. Trademark Infringement Claims Must Be Based on Domestic Use in Commerce

U.S. Supreme Court Rules: U.S. Trademark Infringement Claims Must Be Based on Domestic Use in Commerce

The U.S. Supreme Court ruled unanimously in favor of the petitioner in Abitron Austria GmbH vs. Hetronic International Inc. The jury awarded more than $90 million in damages for all of the Abitron’s sales, whether inside or outside the United States.

However, the justices were divided 5:4 as to the precise reasoning and what facts courts should consider when determining whether the Lanham Act applies to allegedly infringing conduct with a foreign component.

A five-justice majority held that the Lanham Act provisions at issue are not extraterritorial and extend only to potential infringement claims where the claimed infringing use in commerce is domestic.

It was affirmed by the Tenth Circuit that the Lanham Act applies extraterritorially to foreign sales that have a substantial effect on U.S. commerce. The Court passed the verdict on the ground that even if Abitron’s foreign sales to foreign buyers for foreign use, had a domestic effect by depriving a U.S. company of foreign sales, it otherwise would have made.

In the present case, Hetronic, a U.S. company, sued Abitron, a group of foreign companies, under the Lanham Act, alleging that Abitron sold products that infringed Hetronic’s trademarks.

It claimed that less than 0.3 percent of Abitron’s sales were made directly to U.S. buyers. Further 97 percent were made in foreign countries, to foreign buyers, for use in foreign countries; and the remainder were made in foreign countries but were designated to and ultimately did enter the United States.

Abitron argued that the Lanham Act has no extraterritorial application and was impermissibly applied to its foreign-only conduct.

The issue in the present case was whether the Lanham Act’s provisions that prohibit trademark infringement (15 U.S.C. Section 1114(1)(a) and Section 1125(a)(1)) apply extraterritorially.

The Supreme Court avowed that a permissible domestic application of the Lanham Act, can occur even when some foreign ‘activity is involved in the case,’ but the question of liability reaches when alleged infringing use in commerce of a trademark occurred in the United States.

For the five-justice majority, Justice Samuel Alito articulated a ‘conduct’-focused approach to the extraterritoriality analysis. Applying the well-established two-step framework for evaluating extraterritoriality, Justice Alito noted the statutory text and determined that Congress did not provide a ‘clear, affirmative indication’ that the relevant Lanham Act provisions would apply to foreign conduct, meaning that the presumption against extraterritoriality would apply. The Court rejected Hetronic’s argument that the Lanham Act’s broad definition of ‘commerce’ constituted such a ‘clear, affirmative indication.’

Next with respect to the step one of this framework, Justice Alito found that the Court must ‘identify the statutes focus’ and ask whether the conduct relevant to that focus occurred in United States territory. To that end, the Court identified ‘use in commerce’ as the conduct relevant to the focus and, consequently, the ‘dividing line between foreign and domestic applications’ of the Act’s provisions.

Justice Alito opined that since the Congress specified that a violation such as infringement occurs when a mark is unlawfully ‘used in commerce,’ elsewhere defined by the Lanham Act as ‘the bona fide use of the mark in the ordinary course of trade’ where the mark serves to ‘identify and distinguish the mark users goods and to indicate the source of the goods.’

Justice Samuel Alito in his judgment held, “We hold that Section 1114(1)(a) and Section 1125(a)(1) are not extraterritorial and that the infringing ‘use in commerce’ of a trademark provides the dividing line between foreign and domestic applications of these provisions.”

The Court by its 9:0 majority held that the provisions of the Lanham Act that govern infringement claims—Section 1114(1)(a) and Section 1125(a)(1)—did not reach Abitron’s foreign sales to foreign buyers for foreign use.

Pertinently the Court split 5:4 over what could be termed as a permissible ‘domestic application’ of these provisions.

A four-justice concurrence authored by Justice Sonia Sotomayor agreed that the relevant Lanham Act provisions do not apply extraterritorially, but expressed disagreement with the majority’s application of the second step and espoused a different and somewhat more expansive approach to determine what conduct is potentially actionable under the statute.

Justice Sotomayor criticized the majority’s emphasis solely on the location of a defendant’s conduct because she was of the view that the Lanham Act should extend to foreign activities when they create a likelihood of consumer confusion in the United States. As such, Justice Sotomayor expressed concern that the majority’s extraterritoriality framework establishes a ‘myopic conduct-only test’ that absolves defendants of liability for foreign conduct that nevertheless injures U.S. consumers and frustrates the Lanham Act’s purpose of protecting the U.S. consuming public, particularly given the realities of modern, globalized commerce.

The majority emphasised on the locus of a defendant’s conduct may create greater obstacles for trademark infringement to secure relief for marketing or sales of infringing products that take place abroad, even if the overseas conduct creates significant confusion among U.S. consumers.

The majority expressly rejected federal government’s position that foreign sales violated the Lanham Act’s trademark infringement provisions so long as they are likely to cause consumer confusion in the United States.

Thus, the majority was of the view that the provisions apply only when the allegedly infringing ‘use in commerce’ occurs in U.S. territory.