On Tuesday, the Supreme Court will consider whether federal trademark law applies to trademark infringement that takes place outside the United States. In Abitron Austria GmbH v. Hetronic International, Inc. the justices will have to apply a modern two-step test – and a 70-year-old case – to determine whether a federal law applies extraterritorially to the Lanham Act, the federal trademark law that was passed in 1946 – a point at which the global economy was far less interconnected than it is today.
Predictably, the party that owns the trademarks in question, Hetronic International, advocates for a maximalist position that would allow it to recover for conduct that took place abroad. On the other hand, Abitron – the alleged infringer – argues that Congress had no intent to extend the Lanham Act beyond the boundaries of this country. The Biden administration takes a middle ground, arguing that the Lanham Act applies only to extraterritorial conduct that results in consumer confusion or mistake in the United States.
The facts
Hetronic, based in Oklahoma, manufactures and sells radio remote controls that operate heavy-duty construction equipment. It owns U.S. trademarks for the distinguishing features of its remote controls. Abitron agreed to serve as Hetronic’s distributor in Europe. It was authorized to assemble and sell Hetronic’s remote controls under Hetronic’s brand, but was contractually required to purchase parts from Hetronic.
Hetronic alleges that Abitron secretly used confidential information to which it had access under the licensing agreement to reverse-engineer Hetronic’s products; Abitron then sold those products to Hetronic’s customers as if they were genuine Hetronic devices. Hetronic further alleges that Abitron continued selling Hetronic-brand products even after the parties’ licensing agreements were terminated.
Even though the misconduct took place in Europe, Hetronic sued Abitron in the United States for trademark infringement pursuant to the Lanham Act. A jury in Oklahoma City awarded Hetronic more than $90 million. Of that amount, only $240,000 was for products that Abitron had sold directly from abroad into the United States. About $2 million was for products that had been sold abroad to foreign buyers who listed the United States as the ultimate destination where the products were intended to be used. The balance ($87 million, or almost 97% of the jury award) was for products that Abitron had sold abroad to foreign buyers for use outside the United States. In other words, an American jury found against Abitron, a foreign company, principally for infringement that occurred outside the United States.
The presumption against extraterritoriality
The Lanham Act imposes civil liability upon a person who “uses in commerce” a trademark that he or she does not own in a manner that is likely to cause consumer confusion. The question for the court is whether the law reaches infringing conduct outside the United States. Over the last few decades, the court has honed a two-step test to determine whether Congress intends for a law to apply outside the United States. The test starts from the premise that Congress is presumed to legislate only with domestic concerns in mind, and federal law ordinarily does not cover conduct abroad. The court asks if there is a “clear, affirmative indication” from the face of the statute that Congress intended the law to apply extraterritorially. If there is no such clear indication, then the presumption is not rebutted. The court then proceeds to the second step, looking to the law’s “focus” to determine whether the case implicates a domestic application of the law. The court’s precedent states somewhat vaguely that a law’s focus “is the object of its solicitude which can include the conduct it seeks to regulate, as well the parties and interests it seeks to protect or vindicate.” In a recent case that provided more questions than answers, the court held that the “focus” of a provision of the Patent Act “is on the act of exporting components” from the U.S. and the plaintiff can recover for foreign lost profits. The court rejected the argument that the focus is on the award of damages which would not have reached the foreign conduct at issue in that case.
Therefore, a party claiming that a federal statute applies extraterritorially can have essentially two bites at the apple. It can first claim that the Congress intended to apply the law globally. Alternatively, it can argue that regardless of congressional intent, its lawsuit is about the domestic focus of the statute.
Has Congress directly spoken here?
The text of the Lanham Act does not say that it applies to conduct outside the United States. But Hetronic argues that the definitional section of the statute defines “commerce” broadly to mean “all commerce which may lawfully be regulated by Congress.” According to Hetronic, because Congress has the unquestioned constitutional authority to regulate foreign commerce, this broad definition (which it argues is unique among federal statutes) indicates a congressional intent to apply the Lanham Act extraterritorially.
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Justices to consider international reach of U.S. trademark law
