Gucci America, Inc. v. Guess?, Inc., 09 Civ. 4373 (S.D.N.Y. 2011)(SAS)(JLC), discusses the growing issue in international litigation of the “extraterritorial” application of federal laws, in this case the Lanham Act’s prohibition of trademark infringement/false advertising.
Gucci sued Guess? for trademark infringement and related claims arising from the use of certain trademarks, logos, and designs. Discovery in the suit sought disclosure of sales and cost data relating to each allegedly infringing product. This decision by the Magistrate Judge denied the discovery, one ground being that the federal Lanham Act did not apply to the activities claimed in the suit. That Act “confers broad jurisdictional powers upon the courts of the United States” and has even been read to reach infringing activity abroad “when necessary to prevent harm to commerce in the United States.
Second Circuit authority (Vanity Fair Mills, Inc. v. T. Eaton Co., 234 F.2d 633 (2d Cir. 1956)), following the seminal Supreme Court decision in Steele v. Bulova Watch Co., 344 U.S. 280 (1952), articulated three factors for courts to consider in determining whether the Lanham Act can reach infringing activity taking place abroad:
(1) whether the defendant is a United States citizen; (2) whether there is a conflict between the plaintiffs trademark rights in the United States and the defendant’s trademark rights under foreign law; and (3) whether the defendant’s conduct has a “substantial effect on United States commerce.”
The Court also reiterated the Second Circuit’s view that the absence of both the first two factors are fatal to exercising such jurisdiction; the fact is that no case in the Second Circuit has applied the Lanham Act extraterritoriality absent a substantial effect on United States commerce.
It is also settled, says the Guicci Court, that “a showing of consumer confusion or harm to plaintiff’s goodwill in the United States is sufficient to demonstrate a substantial effect on interstate commerce”. The Court looked for evidence of, for example, diverted non-U.S. sales, or re-entry of goods into the U.S. The Court also addressed whether a defendant’s “domestic commercial activity can support a finding of substantial effect on U.S. commerce”. The Court found that it did not — at least not in this case. For example, the Court found that
“Evidence that certain Defendants have domestic facilities for foreign shipping or that some decision-making regarding Defendants’ foreign activities takes place in the United States does not by itself constitute a substantial effect on United States commerce.”