The Battle of the ‘Trons’: SCOTUS Nixes Extraterritorial Application of the Lanham Act

The dispute involves Hetronic, a manufacturer of radio remote controls in the construction industry, and Abitron, a former licensee and distributor of Hetronic products, based on Abitron’s global employment of Hetronic’s trademarks. Id. at __ (slip op. at 1). The Tenth Circuit upheld a $96 million damages verdict against Abitron, concluding that the Lanham Act extends to “all of [Abitron’s] foreign infringing conduct.” Hetronic Int’l, Inc. v. Hetronic Germany GmbH, 10 F. 4th 1016, 1042 (2021). The Supreme Court disagreed.

The District Court and Worldwide

Hetronic and Abitron once had a presumably amicable business relationship. Abitron had been a licensed distributor of Hetronic, until one day Abitron decided that it (and not Hetronic) held rights to a large portion of Hetronic’s intellectual property portfolio. Abitron reverse engineered several Hetronic products and began selling them under Hetronic’s marks, mostly in European markets. Abitron, 600 U.S. at __ (slip op. at 2). Hetronic brought suit in an Oklahoma federal court, where the legal analysis focused on the issue of whether two trademark infringement provisions of the Lanham Act, §1114(1)(a), which prohibits the “use in commerce” of registered marks when such use is likely to cause consumer confusion, and §1125(a)(1), which prohibits unauthorized commercial use regardless of whether the owner derives its rights from registration or common law, applied to Abitron’s actions. Id. Hetronic prevailed, overcoming Abitron’s argument that Hetronic sought an “impermissible extraterritorial application” of the Lanham Act. Id. In addition to issuing an injunction that barred Abitron’s use of the marks, the District Court also awarded $96 million in damages based upon the defendant’s sales across the world. Id. The Tenth Circuit affirmed but limited its injunction to a narrow list of countries. Id.

Focus on Domestic “Use in Commerce”

The Supreme Court granted review to resolve a circuit split over the extraterritorial reach of the Lanham Act and the conduct of foreign parties in foreign markets. Id. at 3. The Court rooted its analysis in the presumption against extraterritoriality—the general principle that unless explicitly stated otherwise, congressional legislation applies “within the territorial jurisdiction of the United States.” Id. (citation omitted). Overcoming the presumption involves a two-step framework taken from RJR Nabisco: First, has Congress “affirmatively and unmistakably instructed” that the statute “appl[ies] to foreign conduct?” RJR Nabisco, Inc. v. European Community, 579 U.S. 325, 335 (2016). If not, second, has the plaintiff shown that “the conduct relevant to the statute’s focus occurred in the United States?” Id. at 336. On this point, all justices agreed: Hetronic could not beat the presumption.

With five justices in the majority, and four justices concurring, Hetronic lost its battle after two lower court wins. On the first step, the Supreme Court was not persuaded by Hetronic’s argument that the Lanham Act’s definition of “commerce” (i.e., all commerce lawfully regulated by Congress) necessarily included foreign commerce because of Congress’ Foreign Commerce Clause power. Abitron, 600 U.S. at __ (slip op. at 5–7). Strictly relying on precedent, the Court stated that even an express reference to “foreign commerce” in a statute’s definition of commerce is insufficient to rebut the presumption against extraterritoriality. Id. __ (slip op. at 7). As to the second step, the Court wrote that “when a claim involves both domestic and foreign activity, the question is whether the conduct relevant to the statute’s focus occurred in the United States.” Id. __ (slip op. at 10) (citation omitted). If the relevant conduct occurred in a foreign country, the Court explains, then the case “involves an impermissible extraterritorial application regardless of any other conduct that occurred in the U.S. territory.” Id. at __ (slip op. 10–11) (citation omitted). If the “use in commerce” was purely extraterritorial, it is beyond the reach of the Lanham Act. See id. at __ (slip op. 14–15). Noting the potential for “international discord,” the Court further supported this conclusion by reaffirming principles of international cooperation and noting the European Commission’s warning that the Lanham Act cannot be applied to acts of infringement occurring within the European Union. Id. at __ (slip op. 12–14).

What This Means for You

This is the first time since 1952 that the Supreme Court has addressed the extraterritoriality of the Lanham Act. The Abitron decision joins a growing body of precedent regarding the extraterritorial reach of U.S. intellectual property laws more broadly. See, e.g., WesternGeco LLC v. ION Geophysical Corp., 585 U. S. ___, ___ (2018) (slip op., at 6–8) (holding that a claim was a domestic application of the Patent Act because the infringing acts were committed in the United States). Unfortunately, while the majority opinion adds color, it is short on practical guidance regarding exactly what constitutes domestic “use in commerce.” The majority clearly dismissed the opinion stated in Justice Sotomayor’s minority concurrence that the Lanham Act reaches “activities carried out abroad when there is a likelihood of consumer confusion in the United States.” See Abitron, 600 U.S. at __ (Sotomayor, J., concurring) (slip op. at 1). And the majority had “no occasion to address” Justice Jackson’s elaboration in her solo concurrence that certain domestic conduct would support liability “even though [the defendant] never sold the [products] in, or directly into, the United States.” Id. at __ (Jackson, J., concurring) (slip op. at 4).

So while this decision may offer some support for defendants who find their use of American marks in foreign markets challenged, businesses would do well to remain cautious about using marks that are likely to cause confusion, even if their use is primarily targeted at foreign markets.

V&E assists clients in procuring, managing, and enforcing their intellectual property portfolios (including trademarks), domestically and abroad, at all stages from early advising through litigation.