Supreme Court to Revisit Extraterritorial Scope of Trademark Law
January 3, 2023
On March 1, the Supreme Court will hear argument in Abitron Austria GmbH v. Hetronic International, Inc., which concerns the extraterritorial scope of the Lanham (Trademark) Act. In resolving this case, the Court will need to decide what to do about an old precedent that appears to be inconsistent with the Court’s modern approach to extraterritoriality. If the Court retains the precedent, it seems likely that it will limit its scope, and the Court’s approach to the extraterritorial application of antitrust law may be instructive for this purpose.
The Decision Below
In this case, Hetronic International, a U.S. company that makes radio remote controls for heavy-duty construction equipment, sued foreign defendants for selling copies of Hetronic’s products under the same trademarks, mainly in Europe. Hetronic relied on two provisions of the Lanham Act, which (among other things) 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.”
After a jury trial, a federal district court in Oklahoma awarded over $100 million to Hetronic and entered a worldwide injunction against the defendants’ use of the trademarks. On appeal, the U.S. Court of Appeals for the Tenth Circuit upheld the damage award, reasoning that the Lanham Act has some extraterritorial application, the scope of which depends in part on the citizenship of the defendant. The Court adopted the following framework of analysis:
First, courts should determine whether the defendant is a U.S. citizen. Second, when the defendant is not a U.S. citizen, courts should assess whether the defendant’s conduct has a substantial effect on U.S. commerce. Third, only if the plaintiff has satisfied the substantial-effects test, courts should consider whether extraterritorial application of the Lanham Act would create a conflict with trademark rights established under foreign law.
Applying that framework, the court found that, even though the defendants were foreign, extraterritorial application of the Act was proper because the defendants’ conduct had a substantial effect on U.S. commerce and applying the Act would not create a conflict with foreign trademark law. As for the effects prong of the framework, the court noted that some of the defendants’ products had ended up in the United States and caused confusion here. In addition, the court relied on a diversion-of-sales theory—that is, that the defendants’ sales abroad diverted foreign sales away from the plaintiff, the proceeds of which otherwise would have flowed into the United States. Most of the damage award was based on those lost foreign sales.
Steele v. Bulova Watch Co.
An important but dated precedent is the Supreme Court’s 1952 decision in Steele v. Bulova Watch Co. In that case, a U.S. citizen was selling watches in Mexico under the trademark “Bulova,” without the permission of the U.S. owner of the mark. Some of these watches, moreover, were turning up on the U.S. side of the border and causing confusion.
In holding that the Lanham Act applied to the defendant’s conduct, the Court acknowledged that it had “often stated that the legislation of Congress will not extend beyond the boundaries of the United States unless a contrary legislative intent appears.” But it emphasized that the defendant was a U.S. citizen and that his conduct was having effects in the United States. The Court also noted that the Lanham Act refers broadly to uses of marks “in commerce” and that “commerce” is defined in the Act as “all commerce which may lawfully be regulated by Congress.” Finally, the Court pointed out that, during the litigation, the defendant’s registration of the mark in Mexico had been found invalid by Mexican courts. Justice Reed, joined by Justice Douglas, dissented, arguing that Congress had not shown a sufficient intent for the Lanham Act to apply extraterritorially.
Even though the Court in Steele emphasized the broad commerce language in the Lanham Act, lower courts have not interpreted the decision as allowing for application of the Act to the full extent of Congress’s authority to regulate international commerce. Instead, they have developed a variety of tests for determining when the Lanham Act applies to foreign conduct. These tests typically consider factors such as whether the defendant’s conduct had effects on U.S. commerce, whether the defendant was a U.S. citizen, and whether extraterritorial application would create a conflict with foreign trademark rights. The lower courts have differed over the required degree of effects on U.S. commerce, however, and over whether the degree should depend on whether the defendant is a U.S. or foreign citizen. As noted above, the Tenth Circuit in Abitron adopted a version of this multifactored approach.
The Supreme Court’s Current Approach to Extraterritoriality
In decisions during the past three decades, the Court has adopted a strict presumption against extraterritoriality that it has applied to a wide range of statutes, concerning, for example, employment discrimination, securities fraud, and international human rights claims. The Court has explained that the presumption “rests on the perception that Congress ordinarily legislates with respect to domestic, not foreign matters” and that it “helps ensure that the Judiciary does not erroneously adopt an interpretation of U.S. law that carries foreign policy consequences not clearly intended by the political branches.” The Court now views the presumption as a rule of statutory interpretation to be applied “in all cases, preserving a stable background against which Congress can legislate with predictable effects.”
As a result of the presumption, the Court has said that a statute will not be applied to foreign conduct unless “Congress has affirmatively and unmistakably instructed that the statute will do so.” Broad statutory definitions of commerce, the Court has suggested, are insufficient to provide the requisite clear indication of extraterritorial intent. Nor is the presumption against extraterritoriality overcome merely because the defendant is a U.S. citizen or corporation. For example, in a 1991 decision, EEOC v. Arabian American Oil Co., the Court declined to apply federal antidiscrimination provisions to a U.S. company’s employment practices abroad, reasoning that there was insufficient evidence that Congress intended such application. Finally, the Court has said that, although the presumption helps avoid “unintended clashes between our laws and those of other nations which could result in international discord,” it applies regardless of the likelihood of a conflict with foreign law.
Even when the presumption against extraterritoriality is not rebutted, and a statute thus applies only domestically, courts will sometimes need to consider a second question: whether there are contacts with the United States that fall within the focus of the statute. If so, application of the statute to the defendant will not be considered extraterritorial. The Court highlighted this “focus” question in a 2010 decision, Morrison v. National Australia Bank Ltd. In that case, the Court held that a securities fraud statute did not apply extraterritorially, despite several decades of lower court decisions assuming that it did. Because there was “no affirmative indication in the [statute that it] applies extraterritorially,” said the Court, “we therefore conclude that it does not.” The additional “focus” inquiry arose in that case because the defendants had allegedly engaged in deceptive actions in the United States that facilitated the foreign securities fraud. Because of this U.S. conduct, there was an argument that applying the securities fraud statute there would not have been improperly extraterritorial. The Court ultimately rejected this argument, however, because it found that the focus of the securities fraud statute is on the purchase and sale of securities and that all the relevant purchases and sales occurred outside the United States.
Steele as Precedent
The analysis in Steele does not fit well with the modern framework for statutory extraterritoriality. The Court there did not insist on a clear indication of extraterritorial intent and, in construing the scope of the Lanham Act, gave more weight to general commerce language than is given in modern extraterritoriality decisions. In addition, unlike the modern approach, the Court in Steele treated the U.S. citizenship of the defendant as a justification for extraterritorial application of the statute, even though nothing in the text of the Act makes that distinction. It also emphasized the lack of a conflict with Mexican trademark law, but the modern Court has said that the presumption against extraterritoriality applies even in the absence of a conflict with foreign law.
In some ways, the Abitron case looks a lot like Morrison. Both cases involve statutes that might be thought of as designed to protect the U.S. market, and in both cases the lower courts had long applied the statutes extraterritorially, using multifactored tests that considered in part the effects in the United States. This similarity might suggest that the Court should conclude that the Lanham Act, like the securities fraud statute, does not operate extraterritorially. But a key difference between Abitron and Morrison is that in Abitron there is a Supreme Court decision holding that the Lanham Act has some extraterritorial application, whereas in Morrison there was no Supreme Court decision holding that the securities fraud statute had extraterritorial effect. The doctrine of stare decisis is especially strong in the area of statutory interpretation (as opposed to constitutional interpretation), since Congress can always amend the statute if it disagrees with the decision. It is also worth noting that the Court has referred to Steele in passing in more recent decisions without indicating any disapproval of the decision. Indeed, in its 1991 Arabian American Oil decision, the Court specifically distinguished Steele, noting that the Lanham Act has broader commerce language than the employment discrimination statute at issue there.
Assessment
Even if the Court gives stare decisis effect to Steele, however, it is likely to limit the scope of the decision given the inconsistency of Steele’s reasoning with the modern approach. In thinking about how to do so, the Court might draw lessons from antitrust law. As with the Lanham Act, antitrust statutes lack a clear indication of congressional intent to apply extraterritoriality (although a 1982 statute, the Foreign Trade Antitrust Improvements Act, provides better evidence of such intent than a mere definition of commerce). Nevertheless, in part due to precedent, the Court held in a 1993 decision, Hartford Fire Insurance Co. v. California, that antitrust law applies to “foreign conduct producing a substantial intended effect in the United States.” In dissent, even Justice Scalia accepted that, although it was not clear that the antitrust statute should be construed to overcome the presumption against extraterritoriality, the matter was “governed by precedent.” The Court later held in F. Hoffman-La Roche Ltd. v. Empagran S.A., however, that, although antitrust law applies to foreign conduct that causes “domestic antitrust injury,” it does not apply to anticompetitive conduct abroad that causes independent foreign harm.
Given that the relevant harm under the Lanham Act is consumer confusion, an analogy to antitrust law might suggest that, for the Act to apply to foreign conduct, there must be a showing that the conduct is causing or is likely to cause consumer confusion in the United States. That conclusion is similar to the views of the Solicitor General’s Office (SG), which supported the grant of certiorari in Abitron. The SG argued that the Lanham Act should sometimes apply to foreign conduct, but only with respect to “those uses of a trademark . . . that are likely to have the ultimate effect of confusing or deceiving consumers in the United States.” Under the SG’s view, therefore, the Tenth Circuit erred in holding that the plaintiff could recover damages for foreign sales regardless of whether those sales were likely to cause consumer confusion in the United States.
It is possible that the Court could come to the same conclusion—that is, distinguishing between foreign uses of a mark that cause consumer confusion in the United States and those that do not—even if it holds that the Lanham Act applies only domestically. The argument might be (to pick up on a concept highlighted in Morrison) that the “focus” of the Lanham Act is consumer confusion, so if such confusion occurs in the United States, applying the Lanham Act to protect against it would not be extraterritorial. The SG’s argument is along these lines, as is the argument made by my friend Bill Dodge in an amicus brief. It is an intriguing approach, but I am skeptical: although the harm that the Lanham Act is concerned about is consumer confusion, it seems to me that the focus of the statute is, by its terms, on uses of marks, and most such uses in Abitron occurred outside the United States. By analogy, applying antitrust law to foreign restraints of trade is still considered extraterritorial under the Court’s current approach even when those restraints have potentially harmful effects in the United States. It also seems like a stretch to me to interpret Justice Scalia’s opinion in Morrison—an opinion that strictly applied the presumption against extraterritoriality—as creating a broad workaround that allows non-extraterritorial statutes to be applied to foreign conduct.
Conclusion
One of the first articles I wrote as a law professor concerned the extraterritoriality of intellectual property law. In that 1997 piece, I noted that the extraterritoriality of trademark law seemed anomalous in light of the more territorial approach that courts had taken with respect to copyright and patent law. I also argued that “the reasoning of Steele is difficult to reconcile with the Supreme Court’s recent extraterritoriality jurisprudence.” If anything, the Court’s approach to statutory extraterritoriality has become even more restrictive than when I wrote that article. It will be interesting to see what the Court decides to do with its old precedent.