Fourth Circuit Affirms Extraterritorial Injunction in IP Dispute

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The Fourth Circuit (Judge J. Harvie Wilkinson III) recently affirmed an extraterritorial preliminary injunction in a cross-border intellectual property dispute. In dmarcian Inc. v. DMARC Advisor BV, the court engaged in distinct extraterritorial analyses of federal trademark law, federal trade secret law, and state tortious interference claims. It is a particularly well-written opinion worth reading both for its doctrinal analysis and for its broader explication of comity principles. The opinion also raises interesting questions about extraterritoriality in the Internet context and about the relationships among the presumption against extraterritoriality, choice of law, and personal jurisdiction.

The Dispute

The case involves “a broken business relationship” (as the court put it) between two software companies: dmarcian, Inc., a U.S. company headquartered in North Carolina, and DMARC Advisor BV, a Dutch company that dmarcian alleges stole its brand name, software code, and customers. After the district court issued a preliminary injunction, DMARC appealed, arguing that the preliminary injunction impermissibly applied U.S. law, in particular the Lanham Act, to its activities outside the United States. The Fourth Circuit upheld the preliminary injunction based on the domestic effects of DMARC’s trademark infringing activities. But shortly thereafter, the Supreme Court held in Abitron Austria GmBH v. Hetronic International, Inc. (2023) that the Lanham Act’s trademark protections do not apply extraterritorially, requiring instead use in domestic commerce.

The district court modified its preliminary injunction in light of Abitron, and DMARC again appealed. In its most recent opinion, the Fourth Circuit held that even in light of Abitron, dmarcian will still likely succeed on its trademark, trade secret, and state tortious interference claims. Thus, after dismissing DMARC’s other arguments for lack of appellate jurisdiction, the court affirmed the modified preliminary injunction.

Post-Abitron Trademark Claims and the Internet

In Abitron, the Supreme Court held that because the Lanham Act does not rebut the presumption against extraterritoriality, it can only be applied domestically, and that a domestic application of the statute requires an infringing use of the trademark in domestic commerce. More generally, the Supreme Court explained, permissibly domestic applications of non-extraterritorial statutes require conduct in the United States, not just effects.

Although the Fourth Circuit had previously affirmed the district court’s application of the Lanham Act based on domestic effects, it concluded that Abitron did not alter the end result because DMARC also engaged in domestic conduct. The analytical challenge is that most of DMARC’s conduct took place online—a medium that is not easily defined territorially. If DMARC set up its website with infringing content from the Netherlands, would that constitute use of the trademark in U.S. commerce? The answer cannot be, as the court acknowledged, that any website accessible from the United States can satisfy Abitron’s domestic conduct test—that would sweep too broadly.

Instead, the court first turned to the statutory language, which prohibits both “sale” of infringing products (which the court reasoned “occur[s] in the United States if the customers are in the United States”) and “offering for sale, distribution, or advertising” of an infringing product (which the court held “occur[s] in the United States if the intended recipients are in the United States”). The Court noted that DMARC had succeeded in luring at least one U.S. company to switch providers—a direct sale in the United States. But it also reasoned that DMARC had offered its infringing product for sale in the United States because the “intended recipients” of its online marketing were in the United States:

[DMARC] maintained a website that used [dmarcian’s] trademark as its domain name and was “virtually identical” to [dmarcian’s] website, all in an effort to sell “essentially the same” services as [dmarcian]. … The website was accessible in the United States and featured a button for customers in “the Americas,” and [DMARC] affirmatively sent a message to customers in the United States highlighting its software product.

This was more than just passively maintaining a website that is accessible in the United States; what made the difference here, the court explained, was the “additional evidence that [DMARC] had targeted or interacted with customers in the United States.”

The Fourth Circuit’s conclusion that the “offering for sale, distribution, or advertising” of an infringing product “occur[s] in the United States if the intended recipients are in the United States” should be read in light of this Internet context. Focusing on the location of intended recipients more generically could risk collapsing Abitron’s requirement of domestic conduct back into an effects test (though to be clear, I think Abitron overreached when it insisted on domestic conduct). Rather, the location of intended recipients helps identify when the design and management of a website, which can feel non-territorial, may nonetheless constitute conduct “in” the United States. By reaching out to U.S. customers (even if only electronically) and designing its website specifically with U.S. customers in mind, DMARC effectively advertised its infringing product and offered it for sale “in” the United States. Considering the location of intended recipients, in other words, helps bridge between the advertising medium of the Internet and the physical territory of the United States.

The Defend Trade Secrets Act’s Extraterritoriality

The analysis was different for dmarcian’s federal trade secret claim: the Fourth Circuit joined other federal courts in recognizing that the Defend Trade Secrets Act (DTSA) (unlike the Lanham Act) does rebut the presumption against extraterritoriality. The court thus reasoned that the only geographic limitation on the statute’s application is its requirement of an “act in furtherance of the offense” within the United States.

DMARC allegedly first gained access to dmarcian’s trade secrets through data stored on servers in the United States. It then used that data to replicate dmarcian’s product and marketed that replicated product to customers in the United States via its website. (Though not spelled out by the Fourth Circuit, the DTSA defines “misappropriation” as encompassing both the “acquisition of a trade secret … by improper means” and “disclosure or use of a trade secret” so acquired. The allegations suggest that both forms of misappropriation occurred in the United States.)

As prior TLB posts have noted, interpreting the DTSA’s statutory language broadly allows a minor use of a trade secret within the United States to ground liability under the DTSA for global (and predominantly foreign) sales. I thus appreciated the Fourth Circuit’s note of caution that “[i]t would be a mistake … to conclude that the DTSA’s global reach facilitates careless intervention in the affairs of other nations. The DTSA …. protects American property interests without running roughshod over international comity interests.” Its brief analysis, however, did not indicate how or where this dividing line would be drawn.

Analyzing State Common Law Claims

Turning to dmarcian’s tortious interference claims based on North Carolina law, the Fourth Circuit correctly recognized that the presumption against extraterritoriality is a federal canon of statutory interpretation and thus does not limit the reach of state common law. “Nevertheless,” the court reasoned, “state common law and federal statutory law share an essential feature: neither ‘rule[s] the world.’ [Microsoft Corp.  v. AT&T Corp. (2007)] (referring to the latter).” It continued:

A state may not simply apply its common law beyond its borders where it has no relationship to a dispute. The federal Constitution, for example, prohibits a state from applying its law to cases in which it does not have “a significant contact or significant aggregation of contacts, creating state interests.” Allstate Ins. Co. v. Hague, 449 U.S. 302, 313 (1981). Suffice it to say that state common law must abide by a similar balance to the one struck by Abitron between the rights of citizens and regard for other sovereigns.

The court easily concluded that dmarcian’s state law claims “are consistent with this balance”: dmarcian is a North Carolina company, and DMARC “sought to interfere with [dmarcian’s] existing and prospective contractual relationships by cloning [dmarcian’s] website and marketing its own services to some of the same customers,” including successfully luring away at least one existing customer.

While the Fourth Circuit reached the correct result, I worry it did so in a doctrinally muddled manner that could cause problems in future cases. The proper approach to determining whether state common law applies to a dispute is to apply the forum state’s choice of law methodology. For torts, North Carolina applies the law of the place where the injury occurs (lex loci delicti)—here, the plaintiff’s home state of North Carolina. The only limitation on the applicability of that law is that identified in Allstate: that there is a significant contact with the state that creates a cognizable state interest in the dispute. (As the Fourth Circuit put it, “A state may not simply apply its common law beyond its borders where it has no relationship to a dispute.”) That is a significantly lesser limitation on the application of state common law than that imposed on federal statutes by Abitron and the presumption against extraterritoriality.

The Fourth Circuit is not wrong that both analyses ask the same underlying question: is it reasonable for this sovereign to apply its law to this dispute? But the Supreme Court has layered many additional requirements onto that basic question in the federal context. I hope the district courts in the Fourth Circuit do not misapply this comment in dmarcian to impose those limitations backwards onto state choice of law analysis.

The Extraterritorial Injunction

Relying on “the express extraterritorial scope of the DTSA and the long arm of North Carolina tort law,” the Fourth Circuit affirmed the district court’s modified preliminary injunction in its entirety. That includes provisions that prohibit DMARC from “providing services to customers” or “providing access to any of its websites to IP addresses” from North and South America, Oceania, and part of Asia. It also includes provisions that apply globally, including prohibiting DMARC from “redirecting, encouraging, or allowing any customer to change its payment recipient” from dmarcian to DMARC and from “making any public statement about [dmarcian] except as expressly allowed or directed herein.”

The question of extraterritorial injunctions (outside the context of antisuit injunctions) is an intriguing and understudied one. I am not as confident as the Fourth Circuit that global injunctive power flows even from expressly extraterritorial federal statutes (much less from state common law). Unlike with an antisuit injunction, for example, these measures are not necessary to protect the district court’s jurisdiction. As Congress succeeds in writing more statutes that rebut the presumption against extraterritoriality (like the DTSA), the permissible scope of injunctions to enforce those provisions will become a more pressing question.

On International Comity More Generally

Overall, however, the Fourth Circuit expressed a real sensitivity to international comity and the economic realities of a global economy. As the court explained, extraterritoriality analysis balances two “longstanding” tensions: On the one hand, “[o]ther nations may see the application of United States law in their territory as a violation of their sovereignty, and businesses may find it challenging to comply with overlapping or even conflicting legal regimes”—risks that “are especially acute in the context of intellectual property law, which is generally territorial.” On the other hand, “[i]f foreign companies could operate in the United States and escape the reach of American intellectual property law by virtue of their national origin—or by virtue of their intermingled domestic and foreign operations—American companies would be left defenseless against even the most blatant acts of theft.” As it concluded later, “[r]espect for other sovereigns does not require us to countenance such behavior.”

The problem is that the Supreme Court’s caselaw on the presumption against extraterritoriality has gotten so formalistic as to distract from these first principles. I thus appreciated the Fourth Circuit’s recognition that “the fundamental question remains whether the actor has sufficient interrelationships with the United States to make it an appropriate subject of our law.”

That effort to return to first principles led the court to try to connect Abitron with Allstate’s limitations on state choice-of-law methodology (as noted above), and also with the requirement of minimum contacts and purposeful availment for personal jurisdiction. According to the Fourth Circuit, “[t]he balance struck by Abitron echoes that struck by the law of personal jurisdiction”; similarly to the personal jurisdiction analysis, “a business based abroad that purposefully avails itself of American markets opens itself up to liability under American intellectual property law.”

This passage, like the one equating Allstate with Abitron, gives me pause. The court isn’t wrong that extraterritoriality analysis, choice of law, and even personal jurisdiction all address at the most basic level whether a sovereign has a meaningful connection to a dispute. But personal jurisdiction doctrine and the presumption against extraterritoriality have accumulated doctrinal complexity that detract (in my opinion) from this core question—and that would be detrimental to carry into other doctrines. My hope is that recognizing the commonality of this core question will not lead to a leveling up across doctrines by incorporating more formalistic tests, but a leveling back down to the first principles so eloquently emphasized by the Fourth Circuit.