Supreme Court Holds that Trademark Statute Applies Only to Domestic Conduct

Photo by Ian Hutchinson on Unsplash

Last week, in Abitron Austria GmbH v. Hetronic International, Inc., the Supreme Court held that the federal trademark statute—known as the Lanham Act—applies only to domestic conduct infringing U.S. trademarks. The case involved foreign companies that put U.S.-protected trademarks on products that they made in Europe, most of which were sold to customers abroad, but some of which were ultimately sold to customers in the United States. The Court unanimously concluded that the Lanham Act did not reach all these sales.

But the Court divided sharply over how to formulate and apply the presumption against extraterritoriality. Writing for a five-Justice majority, Justice Alito emphasized the need for conduct in the United States, absent a clear indication from Congress that a statutory provision applies extraterritorially. Justice Sotomayor, writing for four and concurring only in the judgment, wrote that conduct in the United States was not required if the focus of the provision was something other than conduct—here the likelihood of consumer confusion. (Disclosure: I filed an amicus brief supporting the position that Justice Sotomayor adopted.)

Justice Jackson also wrote a concurrence and provided the fifth vote for Justice Alito’s majority. Though a reasonable way to resolve this particular case, Justice Jackson’s opinion loses sight of the larger issues at stake, specifically the formulation of the presumption against extraterritoriality, which lower courts will use to determine the geographic scope of federal statutes in scores of cases that will never reach the Supreme Court.

In this post, I describe the three opinions and offer a few comments and explanations. In a future post, I will turn to consider the broader implications of how the majority reformulated the presumption in Abitron.

The Presumption Against Extraterritoriality

The presumption against extraterritoriality is a canon of statutory interpretation. As I have at length explained elsewhere, there have been several different versions of the presumption. Before 1909, the presumption was based on international law. In American Banana Co. v. United Fruit Co. (1909), the Supreme Court reformulated the presumption as a territorial clear-statement rule based on international comity rather than international law, and the Court applied this presumption somewhat inconsistently to federal statutes for the next four decades.

In Steele v. Bulova Watch Co. (1952), the Court had to determine the geographic scope of the Lanham Act, the same statute at issue in Abitron. Over a strong dissent, the majority did not apply the presumption in Steele. Instead, it held that the Act applied to a U.S. citizen who put the Bulova trademark on watches he manufactured and sold in Mexico largely based on harmful effects to Bulova’s reputation in the United States. Over the next four decades, the presumption fell into disuse, with the Supreme Court abandoning it and lower courts developing alternative tests for the geographic scopes of U.S. antitrust and securities laws.

The Court resurrected the presumption in EEOC v. Arabian American Oil Co. (Aramco) (1991), a case holding that Title VII did not apply to employment discrimination, even by U.S. employers, outside the United States. Aramco’s presumption was a territorial clear-statement rule, much like American Banana’s, and again the Court proceeded to apply it inconsistently to federal statutes until 2010.

In Morrison v. National Australia Bank (2010), the Supreme Court adopted what I have called “the new presumption against extraterritoriality.” Specifically, Morrison added a second step to the presumption analysis, asking whether application of a statutory provision is domestic or extraterritorial based on the “focus” of the provision. Justice Alito restated the Court’s new “two-step framework” in RJR Nabisco v. European Community (2016):

At the first step, we ask whether the presumption against extraterritoriality has been rebutted—that is, whether the statute gives a clear, affirmative indication that it applies extraterritorially…. If the statute is not extraterritorial, then at the second step we determine whether the case involves a domestic application of the statute, and we do this by looking to the statute’s “focus.” If the conduct relevant to the statute’s focus occurred in the United States, then the case involves a permissible domestic application even if other conduct occurred abroad; but if the conduct relevant to the focus occurred in a foreign country, then the case involves an impermissible extraterritorial application regardless of any other conduct that occurred in U.S. territory.

Applying step two to RICO’s private right of action in RJR Nabisco, Justice Alito held that, because its focus was injury to business or property, the provision “requires a civil RICO plaintiff to allege and prove a domestic injury to business or property and does not allow recovery for foreign injuries.” He said nothing about requiring that conduct relevant to the provision’s focus occurred in the United States. (The Supreme Court interpreted and applied this holding two weeks ago in Yegiazaryan v. Smagin.)

The Abitron Case

Respondent Hetronic International, a U.S. company headquartered in Oklahoma, makes radio remote controls for heavy construction equipment. Petitioners, five Austrian and German companies, initially served as respondent’s European distributors but later began producing remote controls of their own and selling them under respondent’s brand. Respondent sued for trademark infringement under the Lanham Act. The jury found in its favor and awarded more than $90 million in damages based on petitioners’ worldwide sales, although only 3% of those sales were destined for the United States.

Section 32(1)(a) of the Lanham Act imposes civil liability on anyone who “use[s] in commerce” a registered trademark when “such use is likely to cause confusion, or to cause mistake, or to deceive.” Section 43(a)(1)(A) imposes civil liability on anyone who “uses in commerce” an unregistered trademark that “is likely to cause confusion, or to cause mistake, or to deceive.”

Arguably, the focus of these provisions is consumer confusion. Although sales to customers abroad are unlikely to cause confusion in the United States, sales destined for customers in the United States could. Yet the petitioners manufactured their products and affixed the trademarks outside the United States. Thus, Abitron presented the question whether a statutory provision’s application should be considered domestic and permissible when the focus of the provision occurs in the United States but conduct relevant to the focus does not.

Justice Alito’s Majority Opinion

Quoting Kiobel v. Royal Dutch Petroleum Co., Justice Alito began by characterizing the presumption against extraterritoriality as a “presumption against application to conduct in the territory of a foreign sovereign.” He then restated the two-step framework for the presumption, quoting heavily from RJR Nabisco.

In restating step two, Justice Alito wrote that “courts must start by identifying the ‘“focus” of congressional concern’ underlying the provision at issue.” Next came the doctrinal twist that divided Justice Alito’s approach from Justice Sotomayor’s. “Step two does not end with identifying statutory focus,” Justice Alito continued. “We have repeatedly and explicitly held that courts must ‘identif[y] the statute’s focus and as[k] whether the conduct relevant to that focus occurred in United States territory’” (Alito’s emphases; some quotation marks removed).

Applying this framework to the Lanham Act, Justice Alito observed with respect to step one that “It is a ‘rare statute that clearly evidences extraterritorial effect despite lacking an express statement of extraterritoriality.’” The two provisions at issue in Abitron had no express statement and no other clear indication of extraterritoriality. Congress’s broad definition of “commerce”—“all commerce which may lawfully be regulated by Congress”—was insufficient.

Turning to step two, Justice Alito noted the parties’ disagreement over the “focus” of the two provisions (summarized here). Abitron argued that the provisions focus on use of the trademark; Hetronic responded that the provisions focus on protecting goodwill and preventing consumer confusion; and the United States as amicus argued that the provisions focus on preventing likely consumer confusion. “Much of the parties’ dispute in this case,” Justice Alito commented “centers on the ‘focus’ of the relevant provisions without regard to the ‘conduct relevant to that focus.’”

In his view, both the text and context of the statute indicated that the conduct relevant to any focus is the infringing use of a trademark in commerce. “Both provisions prohibit the unauthorized use ‘in commerce’ of a protected trademark when, among other things, that use ‘is likely to cause confusion,’” he noted. “This conduct, to be sure, must create a sufficient risk of confusion, but confusion is not a separate requirement; rather, it is simply a necessary characteristic of an offending use.” He concluded: “Under step two of our extraterritoriality standard, then, ‘use in commerce’ provides the dividing line between foreign and domestic applications of these Lanham Act provisions.”

Justice Alito defended his conduct-based approach as providing clear guidance for lower courts. He also argued that such an approach was necessary to prevent “international discord.” The territoriality of trademark law, he wrote (citing the Paris Convention), “has long been enshrined in international law.” “The use of a mark—even confined to one country,” he continued, “will often have effects that radiate to any number of countries.” If enough countries were to apply their laws based on such effects, “the trademark system would collapse.” Justice Alito also invoked amicus briefs filed by the European Commission and foreign law professors, observing that “[t]his tension has not been lost on other sovereign nations.”

Justice Sotomayor’s Concurrence

Writing for herself, Chief Justice Roberts, Justice Kagan, and Justice Barrett, Justice Sotomayor would have framed and applied the presumption against extraterritoriality differently. There was little disagreement with respect to step one, at least as applied in this case. Justice Sotomayor agreed that the Lanham Act’s broad definition of commerce was insufficient to rebut the presumption.

But Justice Sotomayor understood step two differently, as not requiring conduct in the United States unless the focus of the provision was conduct. “An application is domestic,” she wrote, “when the object of the statute’s focus is found in, or occurs in, the United States.” She agreed with the U.S. amicus brief that the focus of the two Lanham Act provisions at issue is consumer confusion, which meant applying these provisions “‘is a permissible domestic application of the Act, even if the defendant’s own conduct occurred elsewhere’” (quoting U.S. brief).

Justice Sotomayor criticized the majority’s approach for adopting “a myopic conduct-only test.” In her view, Justice Alito had added a third step to RJR Nabisco’s framework: “an assessment of whether the ‘conduct relevant to the focus’ occurred domestically, even when the focus of the statute is not conduct.” She pointed out (correctly) that the Court had not required this third step in RJR Nabisco itself, requiring only “domestic injury” under RICO’s private right of action and not conduct relevant thereto. She also pointed out (again correctly) that in other cases invoking the “conduct relevant” language—like WesternGeco and Nestlé—the Court had either held or assumed that the focus of the provision at issue was conduct.

The majority’s conduct-based approach would, Justice Sotomayor argued, only frustrate Congress’s intent, particularly when Congress wanted to do something other than regulate conduct. “The likelihood-of-confusion test,” she pointed out, “comes straight from the statute’s text.” Moreover, a successful plaintiff would still have to show “use in commerce” and proximate cause.

Nor was the majority’s approach necessary to prevent “international discord” she argued. First, the territorial principle of trademark law simply recognizes that a trademark has a separate legal existence in each territory where it is registered. As the United States argued, the Paris Convention permits the United States to apply its trademark law to foreign conduct that is likely to cause consumer confusion in U.S. territory. What the European Commission’s brief warned against was not applying the Lanham Act to foreign conduct that causes confusion in the United States, but rather applying the Lanham Act to foreign conduct that causes confusion in the European Union. U.S. courts had been applying the Lanham Act to foreign conduct for 70 years, she noted, with no evidence of “international tension.”

Justice Jackson’s Swing Vote

Justice Jackson provided the crucial fifth vote for Justice Alito’s majority opinion but also wrote a separate, concurring opinion. She agreed with Justice Alito that “use in commerce” “‘provides the dividing line between foreign and domestic applications of’ these provisions” (quoting majority). But she cautioned that “a ‘use in commerce’ does not cease at the place the mark is first affixed, or where the item to which it is affixed is first sold.”

She illustrated with an example of the sort that many of the Justices raised at oral argument. “Imagine that a German company begins making and selling handbags in Germany marked ‘Coache’ (the owner’s family name). Next, imagine that American students buy the bags while on spring break overseas, and upon their return home employ those bags to carry personal items.” Even if seeing the bags in the United States would be likely to cause confusion, the Germany company could not be sued because the mark was not used in commerce in the United States. But if “[t]he American students tire of the bags six weeks after returning home, and resell them in this country, confusing consumers and damaging Coach’s brand. Now, the marked bags are in domestic commerce.”

Precedent

Both Justice Alito and Justice Sotomayor invoked the Court’s past extraterritoriality decisions. Alito accused Sotomayor of “straying from established precedent,” whereas Sotomayor accused Alito of ignoring what “the Court’s precedents command” and “retreat[ing] to a distorted reading of the Court’s past decisions.”

With all due respect, on this point they are both wrong. Although lower courts certainly treat the Supreme Court’s pronouncements about interpretative methodology as precedential, the Court itself has not done so. For example, as Justice Gorsuch has pointed out, statements in majority opinions about the use of legislative history have never been considered binding.

What is binding on the Supreme Court, and ought to be, is its interpretation of the geographic scope of various statutes. Even when rules of statutory interpretation have changed, the Court has in the past abided by its prior interpretations of statutory text.

This brings us back to the Court’s 1952 decision in Steele, which both Justice Alito and Justice Sotomayor discussed. Justice Alito considered the decision largely irrelevant, in part because it “understandably did not follow the two-step framework that we would develop decades later” and partly because it involved some conduct in the United States. As Justice Sotomayor pointed out, however, Steele “addressed the weighty question whether the Lanham Act ‘extend[s] beyond the boundaries of the United States’” (quoting Steele) and held that it did.

The Court should be bound by that holding. In my view, Steele left it open to the Court to hold that the Lanham Act applies only when there is a likelihood of consumer confusion in the United States. But Steele did not leave it open to hold that the Lanham Act never applies to foreign conduct, as the Abiton majority seems to have done.

Explaining the Votes

At first glance, the line-up of the Justices seems odd. Justice Alito wrote for a majority joined by Thomas, Gorsuch, Kavanaugh, and Jackson. Justice Sotomayor was joined by Roberts, Kagan, and Barrett. Although I can’t read minds, I can read opinions and law review articles, and so I hazard a few guesses about the breakdown.

As I wrote last week after Justice Alito’s dissent in the Smagin case, he is a litigation isolationist (Pam Bookman’s term). Despite his invocation of “international discord” in Abitron, this seems like no more than a rhetorical device. The United States amicus brief explained that there would be no harm to U.S. foreign relations from applying the Lanham Act extraterritorially. As Justice Sotomayor correctly notes, he had to misread the European Commission’s amicus brief to manufacture even a hint of international “tension.” For Justice Alito, there is a deeper principle at work. For him, international comity means “that we should not lightly give foreign plaintiffs access to U.S. remedial schemes that are far more generous than those available in their home nations.”

Justice Thomas, who fully joined Justice Alito’s dissent in Smagin and presumably assigned him the majority opinion in Abitron, is likely in the same camp. Justice Gorsuch may be too, although he did not join Alito fully in Smagin.

Justice Kavanaugh is more complicated. He recently joined Justice Sotomayor’s majority opinion in Smagin and clearly sees value in a more flexible approach on at least some questions of extraterritoriality. On the other hand, Judge Kavanaugh had previously written in favor of converting the presumption against extraterritoriality into a clear statement rule.

On the other side, Sotomayor has emerged as a strong voice against litigation isolationism, writing strong dissenting opinions in two Alien Tort Statute cases—Jesner and Nestlé—and building a six-Justice majority in Smagin for a more flexible reading of RICO’s private cause of action. Justice Kagan generally seems to agree.

The Chief Justice may be skeptical of international human rights litigation (recall that he wrote the majority opinion in Kiobel). But his votes in Smagin and Abitron show that he is not always opposed to the extraterritorial application of federal statutes. I presume that Justice Barrett is generally in the same camp. And although she said nothing about this either at oral argument or by penning an opinion in Abitron, as an academic textualist she was highly skeptical of normative canons of statutory interpretation like the presumption against extraterritoriality.

That leaves Justice Jackson. Although there is not much to go on so far, her comments at oral argument and her joining the majority in Smagin do not signal isolationist tendencies. Rather, I think she had a distinctive answer in this case and thought it aligned better with Justice Alito’s opinion than Justice Sotomayor’s.

But it still puzzles me that she would join Justice Alito’s opinion in full rather than simply concurring in the judgment. Her opinion reads as though the only thing at stake in this case was the interpretation of these provisions of the Lanham Act. But the majority’s formulation of the presumption against extraterritoriality will now be applied by lower courts in scores of cases regarding other federal statutes, and most of those cases will never reach the Supreme Court. Although the Supreme Court is not bound by precedent on canons of statutory interpretation, lower courts behave as though they are.

Conclusion

Abitron holds that the Lanham Act does not apply to foreign conduct. But more importantly, we now have yet another version of the presumption against extraterritoriality to govern the geographic scope of federal statutes. Is it a new “new presumption” or a return to an older version of the presumption? I plan to explore these questions in a future post.