The Supreme Court recently ruled in Abitron Austria GmbH v. Hetronic International, Inc. that Lanham Act (Act) remedies for trademark infringement do not extend to infringing conduct that takes place outside the United States, regardless of whether the activity creates a likelihood of confusion within the United States — and in the process vacated $96 million of a $115 million jury verdict in favor of Hetronic.

Hetronic is a United States manufacturer that builds radio remote controls for construction equipment. Abitron was originally one of Hetronic’s licensed distributors abroad. But it reverse-engineered Hetronic’s products and started selling them in Europe — still under Hetronic’s trademark. Hetronic sued under the Act’s sections 1114(1)(a) and 1125(a)(1), both of which prohibit using a mark in commerce in a way that is likely to cause confusion.

Typically, the presumption against extraterritoriality means that U.S. laws apply only within U.S. territory — not to activity that takes place in foreign countries. Evaluating whether the Act can reach extraterritorial activity that impacts the U.S., the Court applied the two-step framework from RJR Nabisco, Inc. v. European Community, but it also framed the second step with a view to the conduct relevant to the Act’s focus:

• Step 1: Did Congress affirmatively and unmistakably instruct that the provision should apply to foreign conduct? If no, go to step 2.
• Step 2: Does the lawsuit seek a domestic (permissible) or foreign (impermissible) application?
  • What is the statute’s focus? What is it seeking to regulate, and who does it seek to protect?
  • Did the conduct — the conduct that is the focus of the statute — occur in the U.S.?  

Abitron argued that the focus of the Act is to prevent infringing use of marks and, thus, is limited to activity leading to a likelihood of confusion that takes place in the U.S. Hetronic argued the Act protects the goodwill of mark owners and prevents consumer confusion, and thus applies to protect domestic mark owners and U.S. consumers from confusion, regardless of where the underlying activity takes place. The Court agreed with neither party and in a majority opinion written by Justice Samuel Alito, held the more important question was where the conduct — specifically, the use in commerce that caused a likelihood of confusion — occurred. If the use in commerce occurred abroad, then the lawsuit seeks an impermissible extraterritorial application — “regardless of any other conduct that occurred in U.S. territory.”

Justice Ketanji Brown Jackson’s concurrence zeroed in on what exactly constitutes “use in commerce,” distinguishing between instances in which an item is brought into the United States and simply used there from instances in which an item is brought into the United States and subsequently resold (thus entering the stream of commerce).

Justice Sonia Sotomayor’s concurrence, on the other hand, agreed with the majority’s decision to remand the case but would eschew a focus on the place conduct occurs for the place the effect of the conduct meant to be addressed by the Act is felt, i.e., the place the likelihood of confusion arises.

The focus on “use in commerce” in Abitron could have ripple effects, including on a mark owner’s ability to utilize the Act to reach the entirety of a distribution chain that starts outside the United States and the viability of claims resting solely on “post-sale confusion,” to name two.  The full opinion can be found here.

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