Abitron Australia GmbH, et. al., v. Hetronic International, Inc.
Limiting the international reach of US trademark law, the Supreme Court held that the Lanham Act is not extraterritorial and extends only to claims where the infringing use in commerce is domestic. The Court vacated the $96 million award to Hetronic and remanded the case for further proceedings. On remand, the lower court will be required to apply a two-step framework that includes a determination of “the location of the conduct relevant to the focus” of the Lanham Act.
Hetronic International, Inc., a US company, manufactures, sells, and services radio remote controls for heavy-duty machinery around the world. Hetronic entered into a series of agreements with what became Abitron, a foreign entity, for Abitron to assemble and sell Hetronic-branded products in Europe.
When Hetronic discovered that Abitron was manufacturing and selling copycat parts abroad under the Hetronic’s trademarks in order to (according to Hetronic) “attack [Hetronic] at their doorstep in the US,” Hetronic terminated the agreements. Nonetheless, Abitron continued to sell infringing products at international tradeshows attended by US consumers, as well as through a US distributor.
Hetronic sued Abitron for breach of the agreements, trademark infringement, and various other claims. The jury returned a verdict of trademark infringement, and the district court entered a worldwide injunction prohibiting Abitron from using the Hetronic’s trademarks. The court further awarded Hetronic $96 million in disgorgement damages. Importantly, the district court rejected Abitron’s challenge to the extraterritorial application of the Lanham Act.
Of $96 million in sales made by Abitron, 97% resulted from foreign sales of products that never reached the United States and never caused confusion of US consumers as to source. The Tenth Circuit affirmed the $96 million disgorgement award, reasoning that Abitron’s infringement had “substantial effect on US commerce,” and thus, application of the Lanham Act was not extraterritorial.
Whether the US Court of Appeals for the Tenth Circuit erred in applying the Lanham Act, which provides civil remedies for infringement of US trademarks, extraterritorially to Abitron's foreign sales, including purely foreign sales of products that never reached the United States or never confused US consumers.
The Court began its analysis with the long-standing presumption against extraterritoriality of US laws. When foreign activities are implicated in claims, this presumption against extraterritoriality requires analysis under a “two-step framework.” Under step one, the court determines whether a statutory provision is extraterritorial in nature. Under step two, the court determines “whether the suit seeks a (permissible) domestic or (impermissible) foreign application of the provision.”
With regard to step one, the Court determined that the Lanham Act has no extraterritorial application. The Lanham Act has no express statement of extraterritorial application or any clear indication that the provision applies abroad. The Court rejected Hetronic’s argument that the definition of “commerce” under the Lanham Act indicates extraterritorial application because Congress may regulate foreign conduct under the Foreign Commerce Clause. The Court reasoned that the presumption against extraterritoriality is not rebutted merely because “foreign commerce” is implicated in the statute.
Concluding that the Lanham Act is not extraterritorial, the Court moved on to the second step, namely, whether the asserted claim involved permissible “domestic” application of the statutory provision. In this step, courts must determine the provision’s focus and decide whether “the conduct relevant to that focus occurred in the United States.”
Abitron argued that the focus of the Lanham Act was to prevent infringing use of trademarks. Hetronic contended that the focus was to protect goodwill of mark owners and to prevent consumer confusion. The United States as amicus curiae argued that the focus was on likely consumer confusion. The Court, instead of determining what the “focus” of the Act is, emphasized that “the ultimate question regarding permissible domestic application turns on the location of the conduct relevant to the focus… And the conduct relevant to any focus the parties have proffered is infringing use in commerce, as the Act defines it.”
Since the lower court failed to apply this two-step test or analyze whether Abitron’s allegedly infringing activities constituted “use in commerce” that occurred in the United States, the Court vacated and remanded the case.
In concurrence, Justice Jackson stated her view that the “use in commerce” of a trademark is a “source-identifying function of marks.” Thus, regardless of where the infringing mark was first affixed or sold, if the infringing mark functions as a source-identifier within the United States, the Lanham Act applies.
In a separate concurrence joined by the Chief Justice Roberts, Justice Kagan, and Justice Barrett, Justice Sotomayor criticized the majority’s “conduct-only test” under the two-step framework as too restrictive, and argued that so long as the activities are “likely to cause confusion…” in the United States, the Lanham Act applies.
As anticipated, the Court concluded that the Lanham Act has no extraterritorial application. However, since the Court did not elaborate on what the “use in commerce” is, the question remains as to what qualifies as domestic “use in commerce” when foreign activities are implicated through manufacturing processes or supply chains. Although based on this decision purely foreign activities with no effect on US commerce will unlikely be captured under the Lanham Act, case-by-case analysis will still be required under the two-step test to determine whether “domestic” use in commerce makes the Lanham Act applicable.
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