Stare Decisis and Extraterritoriality
January 10, 2023
“Antique Bulova 1930s Men’s Watch” by France1978
is licensed under CC BY-SA 2.0.
In a recent post, Curt Bradley suggested that the hardest problem the Supreme Court faces as it revisits the geographic scope of the Lanham (Trademark) Act in Abitron Austria GmbH v. Hetronic International, Inc. is what to do about existing precedent. In Steele v. Bulova Watch Co. (1952), the Court held that the Act applies to at least some uses of U.S. trademarks abroad, using a different approach to extraterritoriality than the Court employs today. How much does Steele limit what the Court can do in Abitron?
My answer is “not much.” As I explain in an amicus brief filed in Abitron, stare decisis applies to Steele’s holding: that the Lanham Act applies to some uses of U.S. trademarks abroad. But stare decisis does not apply to the methodology that Steele used to reach that holding. So, the Supreme Court is free to apply its current “two-step framework” to determine the geographic scope of the Act. Because the focus of the Act is preventing consumer confusion, applying the current framework leads to the conclusion that the Act reaches uses of U.S. trademarks—including uses abroad—that are likely to cause consumer confusion in the United States. That interpretation is consistent with Steele.
Although the right result in Steele seems clear, the case raises some fascinating interpretive questions. The Lanham Act was passed in 1946, when the Supreme Court was (inconsistently) applying a different version of the presumption against extraterritoriality. Should the Court apply the version of presumption that prevailed in 1946 or the version that prevails today? Additionally, the Supreme Court interpreted the geographic scope of the Act in 1952 using a different approach than it does today. How does stare decisis figure into the analysis? For students of statutory interpretation, Abitron is a goldmine.
Changing Canons of Interpretation
As I have explained in detail elsewhere, the presumption against extraterritoriality has changed repeatedly over two centuries. It began as a presumption that Congress would not violate the international law limits on jurisdiction to prescribe. When international law evolved to permit more extraterritorial regulation, the Court retooled the presumption as an instrument of international comity, holding in American Banana Co. v. United Fruit Co. (1909) that “that the character of an act as lawful or unlawful must be determined wholly by the law of the country where the act is done.” For the next four decades, the Court applied this conduct-centered presumption inconsistently, using it to limit labor laws to employment in the United States but ignoring it when conduct abroad caused effects in the United States. It was during this period that Congress passed the Lanham Act.
In 1952, in Steele, the Supreme Court applied the Lanham Act to conduct abroad that caused effects in the United States, over the dissent of Justices Reed and Douglas, who urged the Court instead to adhere to American Banana. For the next four decades, the presumption against extraterritoriality fell into disuse. It was not until 1991, that the Court resurrected a conduct-centered version of the presumption in Aramco, which it again applied inconsistently until 2010.
In 2010, the Supreme Court adopted a new approach to the presumption against extraterritoriality in Morrison v. National Australia Bank, an approach that detached the presumption from the location of the conduct and instead determined the geographic scope of a provision based on its “focus.” Building on Morrison, the Court in RJR Nabisco v. European Community articulated a “two-step framework.” At step one, a court looks for a clear indication of geographic scope and, if it finds one, applies the provision as Congress has indicated. In the absence of a clear indication, at step two, the court determines the focus of the provision and considers the application of the provision to be domestic if that focus occurs in the United States. Statutory provisions often focus on something other than conduct. For examples, in Morrison, the Court held that the focus of § 10(b) of the Securities Exchange Act is the transaction, and in RJR Nabisco, the Court held that the focus of RICO’s private right of action is injury to business or property.
As many other scholars have noted, rules of statutory interpretation are constantly evolving. This raises an interesting interpretive question: should a court construe a statutory provision according to the rules of interpretation that prevailed when the statute was enacted, or should it apply the current rules of statutory interpretation retroactively? In Abitron, for example, should the Court apply American Banana’s conduct-based version of the presumption, which the Court was applying inconsistently in 1946, or should it apply the current focus approach adopted in Morrison and RJR Nabisco?
From a theoretic perspective, both textualists and purposivists should want to apply the interpretive rules at the time of enactment, as Dean John Manning has suggested, because they aim to uncover the original meaning or purpose of a provision which can only be understood in light of the then-existing interpretive rules. But this is not what judges do, nor what they should do. As Justice Scalia once noted, to announce rules for prospective application only would be “incompatible with the judicial role, which is to say what the law is, not to prescribe what it shall be.” When the Supreme Court changes a canon of statutory interpretation, or develops a new one, it routinely applies that changed canon retroactively to the earlier enacted statute. The retroactive application of changed canons constitutes a form of dynamic statutory interpretation, which I have termed “methodological dynamism.”
The Court has already applied the current presumption against extraterritoriality retroactively to the Securities Exchange Act of 1934 in Morrison and to the Racketeer Influenced and Corrupt Organizations Act of 1970 in RJR Nabisco. The Court will undoubtedly do the same thing in Abitron, applying the two-step framework that it has developed since 2010 to determine the geographic scope of the 1946 Lanham Act.
Changing Canons and Stare Decisis
But in Morrison and RJR Nabisco, the Supreme Court had not previously addressed the geographic scope of the provisions at issue. In this respect Abitron is different because Steele has already construed the geographic scope of the Lanham Act. There, the Court held that the Lanham Act applied to use of a U.S. trademark in Mexico based on several factors, including the U.S. nationality of the defendant, his purchase of parts in the United States, and the harmful effects of his sales abroad on the reputation of Bulova’s trademark in the United States. As Bradley correctly observes “[t]he analysis in Steele does not fit well with the modern framework for statutory extraterritoriality.”
Stare decisis has “special force in the area of statutory interpretation.” The Supreme Court has refused to overturn statutory precedents even when the rules of statutory interpretation on which those precedents rest have changed. In Hartford Fire Insurance v. California (1993), Justice Scalia noted that the extraterritorial application of U.S. antitrust law was “governed by precedent” and therefore not subject to reconsideration under the newly revived presumption against extraterritoriality. Steele held that the Lanham Act applies to uses of a U.S. trademark abroad in at least some circumstances. Under principles of stare decisis, the Court should adhere to that holding, just as it adhered in Hartford to prior decisions holding that the Sherman Act applies to anticompetitive conduct abroad that causes substantial effects in the United States.
But the “special force” of statutory stare decisis extends only to the holding of a case and not to the interpretive methodology used to reach the holding. As Justice Gorsuch recently noted, “we do not regard statements in our opinions about such generally applicable interpretive methods, like the proper weight to afford historical practice in constitutional cases or legislative history in statutory cases, as binding future Justices with the full force of horizontal stare decisis.” The Supreme Court is free to apply its current presumption against extraterritoriality to determine the geographic scope of the Lanham Act in Abitron so long as it adheres to Steele’s holding that the Lanham Act reaches at least some uses of U.S. trademarks abroad.
Applying the Current Presumption Against Extraterritoriality
That should not be difficult to do. Applying the current presumption against extraterritoriality leads to the conclusion that the Lanham Act applies to uses of U.S. trademarks that are likely to cause consumer confusion in the United States, regardless of whether those uses occur within the United States or abroad. Steele’s holding is thus consistent with the result the Court should reach by applying the current presumption.
The two provisions of the Lanham Act at issue in Abitron confer a cause of action against any person who “use[s] in commerce” the plaintiff’s trademark in a way that “is likely to cause confusion, or to cause mistake, or to deceive.” Although the Act defines commerce as “all commerce which may lawfully be regulated by Congress,” the Supreme Court has consistently held that definitions of commerce do not provide the clear indication of geographic scope that step one of the two-step framework requires.
Turning to step two, the Supreme Court will have to decide whether “uses in commerce” or consumer confusion was the “focus of congressional concern.” Petitioners argue that the focus of these two provisions is use in commerce, while the Solicitor General (SG) argues that the focus is consumer confusion. I agree with the SG. The structure of the two Lanham Act provisions parallels the structure of Securities Exchange Act § 10(b), which the Court construed in Morrison. Section 10(b) makes it unlawful to use “any manipulative or deceptive device” “in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered.” Morrison concluded “that the focus of the Exchange Act is not upon the place where the deception originated, but upon purchases and sales of securities in the United States.” The Court explained:
Section 10(b) does not punish deceptive conduct, but only deceptive conduct “in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered.” Those purchase-and-sale transactions are the objects of the statute’s solicitude. It is those transactions that the statute seeks to “regulate”; it is parties or prospective parties to those transactions that the statute seeks to “protect.” And it is in our view only transactions in securities listed on domestic exchanges, and domestic transactions in other securities, to which § 10(b) applies. (Cleaned up; citations omitted)
By the same token, the two Lanham Act provisions at issue in Abitron do not create liability for “uses in commerce” generally but only for uses in commerce that are “likely to cause confusion, or to cause mistake, or to deceive.” The “object of their solicitude” is consumer confusion, and the provisions therefore apply to uses of trademarks that are likely to cause confusion in the United States.
Should the use in commerce also have to occur in the United States? I argue not. Although RJR Nabisco’s articulation of step two says that applying a provision should be considered domestic when “the conduct relevant to the statute’s focus occurred in the United States,” the Supreme Court has looked for conduct in the United States only when the focus of the provision itself was conduct, as in WesternGeco LLC v. ION Geophysical Corp. and Nestlé USA, Inc. v. Doe.
When, by contrast, the focus of a provision has been on something other than conduct, the Supreme Court has required only that the focus occurs in the United States and has not imposed any additional domestic-conduct requirement. In Morrison, for example, the Court found that the focus of § 10(b) is transactions in securities and adopted a “transactional test,” asking “whether the purchase or sale is made in the United States, or involves a security listed on a domestic exchange.” In RJR Nabisco, the Court found that the focus of RICO’s private right of action was injury to business or property and held that it “requires a civil RICO plaintiff to allege and prove a domestic injury to business or property and does not allow recovery for foreign injuries.” In neither case did the Court make any mention of requiring conduct relevant to the focus to occur in the United States.
I hope that the Court will use this case as an opportunity to eliminate the “conduct relevant to” language from its statement of the presumption against extraterritoriality. When the focus of a provision is conduct, that language is redundant. When the focus of a provision is something other than conduct, that language threatens to frustrate congressional intent by excluding from the provision’s reach some of the cases that were the “focus of congressional concern.”
Abitron is a complex case theoretically because it presents questions about the retroactive application of changed canons and the scope of stare decisis. But it should be a simple case practically. Applying the current presumption against extraterritoriality, the Court should hold that the Lanham Act applies to uses of U.S. trademarks—both in the United States and abroad—that are likely to cause consumer confusion in the United States. That holding would also give stare decisis effect to Steele. The case is set to be argued on March 1, and a decision is likely in May or June.