SCOTUS ruling on foreign reach of Lanham Act 'leaves more questions'

The US Supreme Court (SCOTUS) has clarified the foreign reach of trademark rights in the US, in a 9-0 decision that will transform how cross-border disputes are decided.

The case centres upon a closely watched feud between Hetronic International—a US industrial radio remote control company—and its former European distributor Abitron Germany, which was accused of making and selling ‘copycat’ industrial remote control products outside of the US.

The decision, delivered yesterday, June 29, comes more than seven months after SCOTUS  announced that it would reconsider a federal court’s 2020 decision to award $114 million in damages to Oklahoma-based Hetronic.

The majority ($96 million) of those damages, decided by a jury in the US District Court for the Western District of Oklahoma, related to an infringement of US trademark law.

The US Court of Appeals for the Tenth Circuit affirmed the lower court’s decision in 2021, which signalled the first time that this court had examined whether the Lanham Act applies to foreign defendants selling its products to international customers.

But the federal court’s verdict was overturned and remanded by Justice Samuel Alito, who ruled that two provisions of the Lanham Act that prohibit trademark infringement—§1114(1)(a) and §1125(a)(1)—do not extend beyond the US.

Those provisions, explained Alito, prohibit the unauthorised use in commerce of protected marks when, inter alia, that use is likely to cause confusion.

Changing landscape

The decision will significantly impact the outcome of cross-border disputes. Further, circuit courts will now need to rethink how they test the extraterritorial application of the Lanham Act, according to  Joyce Liou, co-chair of the Trademark Group and partner in the Intellectual Property Group at Morrison Foerster.

“The Supreme Court’s unanimous decision changes the landscape for cross-border cases entirely,” she tells WIPR.

“Until now, many courts have viewed the Lanham Act as an extraterritorial statute, allowing litigants to bring US claims and obtain injunctions against defendants over infringing acts abroad.

“By ruling that the Lanham Act’s infringement provisions are not extraterritorial, the Supreme Court has curtailed their application to only domestic uses, meaning the defendant’s use in commerce of the plaintiff’s mark must be domestic.”

Liou adds that the ruling is “significant” because multiple circuit courts—not just the Tenth Circuit whose decision was overturned—have looked to an earlier Supreme Court decision in Steele v Bulova (1952) to develop different tests for applying the Lanham Act extraterritorially.

“In its decision, the Supreme Court distinguished Steele on the basis that the facts there included both domestic and foreign conduct,” she explains. “Now those circuit courts will need to reevaluate their tests in light of the Abitron decision.”

A 'consistent' ruling

Monica Riva Talley, head of the trademark and brand protection practice at Sterne Kessler, adds that the court’s decision was “not unexpected”.

“The court confirmed that ‘use in commerce’ of a trademark provides the dividing line between whether a claimed infringement is foreign or domestic,” she says.

“This ruling is consistent with the application of trademark law around the globe, in which each country is empowered to grant trademark rights and police infringement within its borders.

“As a practical matter, what this means for US trademark owners is that they will need to use and register their marks outside of the US in order to enforce those rights in other countries.”

Exploitation risk

But, while the decision makes application of the Lanham Act unambiguous, it raises more questions than answers, according to Haynes Boone partner Robert LeBlanc.

“Today’s decision makes clear that US trademark rights are territorial. It resolves a growing circuit split and draws a clear line in the sand—right at the US border.”

However, LeBlanc adds that while Justice Alito’s opinion adopts a seemingly clear test, this strict line raises more questions than answers for many international brand owners.

“US trademark law no longer serves as a vehicle for enforcement related solely to foreign acts—even if domestic infringement occurs,” he explains. “This departure from the long-understood extraterritorial application of the Lanham Act leaves brand owners more vulnerable than ever to exploitation by bad actors abroad.”

Combating uncertainty

LeBlanc adds that in a global economy marked by the growth of e-commerce and the internet, “it is quite unclear how application of this ‘conduct only within US borders’ test will play out.”

He asks: “Are foreign manufacturers still liable for resale of any goods within the United States as Justice Jackson’s concurrence suggests?

“What should a company do if they don’t have strong existing international trademark rights in all jurisdictions in which they operate?”

Megan Bannigan, partner at Debevoise & Plimpton, chimes with this view.

“As Justice Sotomayor points out in her concurrence, the majority opinion’s narrow conception of ‘domestic conduct’ and holding that Sections 32(1)(a) and 43(a)(1)(A) extend only to claims where the claimed infringing use in commerce is domestic,” she tells WIPR.

This, she adds, “leaves little room for addressing conduct that occurs on foreign soil but causes a likelihood of consumer confusion within the US (as we have historically seen in cases involving conduct near US borders).

“Particularly in a technological age in which consumers are exposed to goods from around the world, the majority’s approach may undercut the value of trademarks within the US and cabin brand owners’ intellectual property rights.”

Global game plan

To quell uncertainty, LeBlanc believes it is vital that brand owners quickly reconsider their current global IP protection game plan.

He suggests key strategies could include: