Tenth Circuit grapples with scope of Lanham Act
The US Court of Appeals for the Tenth Circuit has upheld a $113 million award to Hetronic, ruling that the Lanham Act can extend to foreign sales activity.
In an opinion published on Tuesday, the appellate court affirmed and reversed in part an Oklahoma court’s decision that Hetronic’s European distributor Abitron and its affiliates had infringed Hetrnoic’s marks by selling “copycat” remote control systems for cranes and other industrial equipment.
Hetronic, based in the US, filed a lawsuit against its European distributors after one of the distributor’s employees claimed that an old research and development agreement meant that they, not Hetronic, owned the rights to Hetronic’s trademarks and other IP.
As a result, the distributor began manufacturing its own identical products and selling them under the Hetronic brand. According to the court document, the distributors had made “tens of millions” of dollars selling the alleged “copycat” products.
The Oklahoma court had awarded Hetronic more than $100 million in damages, mostly related to the distributor’s infringement, and entered a worldwide injunction to bar the “copycat” products from being sold, which was ignored by the distributors.
While Hetronic has asserted numerous claims against the distributors, the tenth circuit was only concerned with trademark claims under the Lanham Act.
In the 67-page opinion, US Circuit judge Gregory Phillips wrote that the Lanham Act applied to Abitron and its affiliates as its actions had a “substantial effect on US commerce”.
The circuit concluded that the Oklahoma court had properly applied the Lanham Act to Abitron’s conduct, but narrowed the court’s expansive injunction, limiting it to the countries in which Hetronic currently markets or sells its products.
Distributor’s defence
The distributors claim that the Lanham Act can “sometimes apply extraterritorially” but insisted that the act’s reach did not extend to making foreign sales to foreign customers.
The Tenth Circuit decided to adopt a framework for assessing the Lanham Act found in McBee v Delica, a 2005 First Circuit decision that notes: “although [t]he Supreme Court has long since made it clear that the Lanham Act could sometimes be used to reach extraterritorial conduct, it has never laid down a precise test for when such reach would be appropriate.”
Using guidance from McBee, the Tenth Circuit found that the district court had “undeniably” concluded that the Lanham Act reached Abitron’s foreign conduct.
Abitron also argued that the Oklahoma court’s worldwide injunction “lacked specificity” and applied too broadly. While the circuit agreed that the worldwide injunction “reaches too far” and narrowed the injunction, it rejected the rest of the distributor’s challenges.
The circuit relied on guidance from the Supreme Court in RJR Nabisco, Inc. v. Eur. Cmty, as well as several district court cases, to resolve the territoriality issue.
RJR establishes a two-step framework for analyzing extraterritoriality issues. Firstly, asking whether “the presumption against extraterritoriality has been rebutted” and secondly, asking “whether the case involves a domestic application of the statute”.
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