Supreme Court Limits Foreign Reach of U.S. Trademark Law

In a fractured decision, the U.S. Supreme Court held on June 28, 2023 that two key provisions of the Lanham Act that prohibit trademark infringement do not extend to conduct that occurs outside the United States. Although all nine justices agreed that the Lanham Act does not apply extraterritorially, the Justices split five-to-four on the proper extraterritoriality framework. Writing for the majority, Justice Samuel Alito stated that extending the Lanham Act to conduct that occurs outside the United States is “wrong,” even if the conduct creates a likelihood of confusion in the United States, and that the contrary rule “would give the Lanham Act an untenably broad reach that undermines our extraterritoriality framework.” In contrast, Justice Sonia Sotomayor argued in an opinion concurring in the judgment that the majority decision “significantly waters down protections for U.S. trademark owners”, and called for “Congress to correct the Court’s limited reading of the Act.” Abitron Austria GmbH v. Hetronic Int’l, Inc., 600 U.S. _ (2023).

Hetronic, a U.S. company that manufactures remote controls for construction equipment, sued six related foreign defendants (collectively Abitron) for trademark infringement and other claims. Hetronic sought recovery for Abitron’s infringing acts worldwide, the District Court rejected Abitron’s attempts to exclude conduct that occurred outside the United States, and a jury ordered Abitron to pay $96 million in damages related to Abitron’s global conduct. On appeal, the Tenth Circuit affirmed the judgment, concluding that the Lanham Act extended to “all of [Abitron’s] foreign infringing conduct.” The Supreme Court vacated the Tenth Circuit decision and remanded for further proceedings consistent with its opinion.

Justices Thomas, Gorsuch, Kavanaugh, and Jackson joined Justice Alito’s majority opinion, holding that the Lanham Act only applies to uses in commerce that occur within the United States. Applying the presumption against extraterritoriality, Alito wrote that the relevant provisions of the Lanham Act lack any “clear, affirmative indication” that Congress meant for them to apply outside the United States. Alito held that the “focus” of these Lanham Act provisions is “use in commerce”, and that proper domestic application therefore requires that infringing use in commerce occur within the United States.

Chief Justice Roberts and Justices Kagan and Barrett joined Justice Sotomayor’s opinion concurring in the judgment, but not in the reasoning. Justice Sotomayor agreed that the presumption against extraterritoriality applies to the relevant Lanham Act provisions, but disagreed with Justice Alito’s extraterritoriality framework. The proper “focus” of the Lanham Act, Justice Sotomayor argued, is protecting against consumer confusion. Therefore, the relevant Lanham Act provisions apply even if the infringing acts took place outside the United States “if there is a likelihood of consumer confusion in the United States.” Justice Sotomayor emphasized that, in addition to showing likelihood of confusion in the United States, a successful plaintiff must establish all other conditions for liability, including “use in commerce,” personal jurisdiction over the defendant, and that injuries were proximately caused by violations of the statute.

Justice Jackson joined Justice Alito’s majority opinion and also wrote a separate concurrence to explain that, in her view, “‘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. Rather, it can occur whenever the mark serves its source-identifying function.” As an example, Justice Jackson wrote that if a German company sold “Coache” handbags in Germany to American students who brought the bags into America, the U.S. handbag company Coach would not have grounds to sue under the Lanham Act because the sale took place outside the United States. But if the American students resold the bags in the United States, Coach would have grounds to sue the German company because the resale constitutes “use [of the mark] in commerce” in the United States. Accordingly, in Justice Jackson’s view, a foreign company could be liable under the Lanham Act even if it never sold or directed infringing goods in the United States. Justice Jackson further noted that “in the internet age, one could imagine a mark serving its critical source-identifying function in domestic commerce even absent the domestic physical presence of the items whose source it identifies.”

This decision likely will drive trademark owners to put more emphasis on seeking trademark protection and enforcing rights outside the United States.

By David J. Byer and Eric W. Lee