The blog provides a detailed analysis of the U.S. Supreme Court’s June 29, 2023 decision in Abitron Austria v. Hetronic International, a case which involves international trademark rights. Justice Sotomayer’s concurrence, reading more like a dissent, is, in this commentator’s opinion, the correct legal application of the Lanham Act.
Quick Overview of Abitron’s Take Home Points:
- More than ever before, trademark owners will likely need to protect their marks abroad by registering the mark in the countries in which the goods/services will be sold and/or even manufactured.
- Contracts between U.S. companies and foreign parties need to clearly specify ownership and use of the relevant IP globally to clearly provide a contractual basis for trademark infringement liability related to conduct outside of the U.S.
Analysis
U.S. trademark law is governed by the Lanham Act (“Act”). The Lanham Act was enacted at a time when international commerce was far less common than it is today. Sections 1114(1)(a) and 1125(a)(1) of the Act specify remedies for trademark infringement. The former section pertains to situations when a person without the consent a trademark registrant uses in commerce a reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offer for sale, distribution, or advertising of any goods or services or in connection of such use is likely to cause confusion, cause a mistake or deceive with a registered is used in commerce. The latter section pertains to situations where any person, who on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device or any false designation of origin, false, or misleading description of fact or false or misleading representation of fact is likely to cause confusion, cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person as to the origin, sponsorship, or approval of his or her goods.
Registered marks are enforceable under the laws of the country in which they are registered. As for infringement activities, neither of the above referenced Lanham Act sections define what is meant by “in commerce.” That is, does “in commerce” pertain to infringing activities of a U.S. registered mark only in the United States for a U.S. registered mark? Or does it “in commerce” include commerce within foreign jurisdictions?
The underlying case involved Hetronic’s radio remote controls, which are used to operate heavy-duty construction equipment, such as cranes. An agreement between Hetronic and Abitron allowed Abitron to make and sell Hetronic-branded products that contained genuine Hetronic parts. In 2015, Hetronic sued Abitron and its affiliates in Oklahoma federal court, alleging they breached the contracts by making and selling products with unauthorized parts. The district court awarded Hetronic a permanent injunction blocking Abitron from further infringement worldwide. The jury’s $96 million dollar award was upheld by the Tenth Circuit Court of Appeals even though Abitron had argued that 99.98% of its infringing sales happened abroad.
In affirming the district court, the appeals court found that a significant amount of Abitron’s foreign sales of the infringing products ended up in the U.S. and Hetronic provided evidence that these sales caused confusion among U.S. customers and “even Abitron Germany’s own U.S. distributor.” In finding for Hetronic, the appellate court also stated that the fact that only a small percentage of Abitron’s products made it into the U.S. was irrelevant. “Otherwise, billion-dollar-revenue companies could escape Lanham Act liability by claiming millions of dollars of their infringing products from entering the U.S. represented only a fraction of their sales.” The opinion also emphasized that the Lanham Act applied because Abitron “diverted tens of millions of foreign sales from Hetronic that otherwise would have ultimately flowed into the U.S.”
Abitron appealed to SCOTUS arguing that the Lanham Act is not applicable when infringement occurs outside of the U.S. for a U.S. registered mark and does not cause likelihood of confusion within the U.S. Arbitron again emphasized its “small” percentage of U.S. sales.
SCOTUS construed the “in commerce” references in Sections 1114(1)(a) and 1125(a)(1) as providing no express statement of [the Act’s] extraterritorial application beyond U.S. borders or any other clear indication that [the Act] is one of the ‘rare’ provisions that do apply abroad. Having found that the Lanham Act provisions are not extraterritorial, SCOTUS next determined whether Hetronic’s claims involved domestic (i.e., in the U.S.) conduct. According to the majority, Arbitron’s use in commerce (i.e., conduct) was not in the U.S. As such, there could be no likelihood of confusion in the U.S and the Tenth Circuit’s decision was thus vacated.
Justice Sotomayer’s concurring opinion argued that the analysis should actually include a two-pronged approach. She agreed that there is no indication that the Lanham Act’s “in commerce” provision has an extraterritorial reach. However, a “domestic application of the statute can implicate foreign conduct in prong two of the analysis so long as the plaintiff proves a likelihood of confusion domestically.” She concluded that the case should be vacated not because of the majority’s reasoning but because the Tenth Circuit and the district court did not apply the proper two-prong test. As she emphasized, for a plaintiff to prevail on the second prong of such an analysis, the plaintiff must offer proof of likelihood of confusion by U.S. consumers as a result of the defendant’s extraterritorial infringing activities. The majority’s statement that such a test would open the floodgates for confusion by the lower courts in applying the Lanham Act is thus misplaced. Instead, the majority’s conduct-focused test on remand is improper because that test “is not supported by either the Lanham Act or this Court’s traditional two-step extraterritoriality framework.”
In reaching its conclusion, the Court did not rely on its decades-old previous decision on the Lanham Act’s extraterritorial reach in Steele v. Bulova Watch Co. Inc., 344 U.S, 280 (1952). That case involved both domestic conduct by a U.S. citizen and the likelihood of domestic confusion. The Steele case involved a San Antonio, Texas resident who purchased unfinished Bulova watches and took them to Mexico for finishing. When he learned that Bulova had not registered its mark in Mexico, he obtained a Mexican trademark which was later cancelled by the Mexican trademark agency. His watches, sold in Texas and Mexico, were of inferior quality.
The Steele Court held that, “[w]here as here, there can be no interference with the sovereignty of another nation (because the defendant no longer had a Mexico-registered trademark), the District Court, in exercising its equity powers, may command persons properly before it to cease or perform acts outside its territorial jurisdiction.”
The Supreme Court in Abitron noted that the Steele and Abitron cases involve a different set of facts; in Steele, the plaintiff’s “in commerce” conduct within the U.S. was clear. Even so, unfortunately, the Abitron decision now seemingly immunizes all trademark infringement that originates abroad regardless of whether that infringement (“the conduct”) also causes adverse effects (a damaging result”) in the U.S. The various circuit courts of appeal had relied on Steele v. Bulova to develop different tests for applying the Lanham Act extraterritorially. Will these courts now need to reevaluate their tests in light of the Arbitron decision?
Moreover, the Arbitron decision arhttps://www.law.cornell.edu/uscode/text/15/1125guably misses the Lanham Act’s point: that the focus should be on whether consumer confusion (the result) ultimately occurs in the U.S., not whether the defendant’s use (the conduct) was abroad or domestic. SCOTUS in essence has established a bright-line test, overturning over 60 years of jurisprudence from the various circuits since Steele. If the defendant’s use in commerce occurs abroad, then no claim can seemingly now be made under Abitron. Yet with our global economy, the possibility of extraterritorial infringement has increased dramatically including promoting the importation of counterfeit goods into the U.S. Abitron, as a foreign infringer, may not have intended that its problematic goods ever end up in the U.S., but some did as the district court case found.
The Act’s Section 1125(b) does cover importation of imported counterfeit goods (goods marked or labeled in contravention of the provisions of Section 1125(b) wherein such goods are not to be imported into the U.S. and may be seized by customs and border patrol. The port of Miami alone seizes millions of dollars of counterfeit goods on an annual basis. Obviously, the manufacture of such goods is an extraterritorial activity. But here, the Act clearly is intended to prevent a U.S. effect from happening in the first place. Unfortunately, foreign counterfeiting of major U.S. brands continues to be a significant problem particularly in the areas of electronics, pharmaceuticals, and fashion. The Arbitron opinion may well make it more difficult for U.S. companies to enforce their trademarks and stem the flow of counterfeit goods into the U.S. (which happened with Arbitron’s counterfeit products as the jury found) when such items make it past customs and border control.
Conclusions
After Abitron, trademark registration strategies even by smaller companies should consider the possibility of registration in appropriate foreign jurisdictions. For example, had Hetronic had an Austrian registered mark or an EU registered mark, it would have had an action for trademark infringement in Austria or any EU member country where the infringement occurred. Please also see the take home points presented at the beginning of this blog. Contact Susan at 305-279-4740 for a complimentary consultation on international trademark registration strategy. We liaise with law firms abroad to protect our clients rights on an international basis.
THANK YOU FOR YOUR INTEREST IN THIS BLOG. AS USUAL THE CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT LEGAL ADVICE.
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