The US Supreme Court unanimously overturned a $90 million verdict for trademark infringement under the Lanham Act, 97% of which was attributed to purely extraterritorial conduct. While the holding attempts to draw a bright-line rule focused on the location of the “use in commerce,” the concurrences call into question how the rule will operate when conduct occurs both in the United States and abroad.

BACKGROUND

The Supreme Court issued on June 29, 2023 a decision reversing and remanding Abitron Austria GMBH et al. v. Hetronic International, Inc. Petitioner Abitron, a German entity, appealed a Tenth Circuit Court of Appeals decision and jury verdict of $90 million for infringement in violation of the Lanham Act.

Of the $90 million award, $240,000 concerned products sold from abroad to the United States; $2 million concerned products sold abroad but to buyers who indicated the United States as the final destination for the products; and the remaining $87 million, or 97% of the verdict, concerned products sold abroad that never entered the United States.

PRIOR CASE LAW

Decided in 1952, the Supreme Court’s holding in Steele v. Bulova Watch Co. is read to establish that the Lanham Act applies to extraterritorial conduct that causes confusion in the United States. In Steele, the Court held that liability under the Lanham Act reached the actions of a US citizen in Mexico who assembled and sold watches bearing a mark that infringed on a US trademark, where the watches trickled back into the United States and caused confusion in the United States.

THE SUPREME COURT’S HOLDING IN ABITRON

Post-Steele, the Supreme Court developed in other decisions a two-part framework for analyzing statutes and matters involving extraterritorial claims, which asks (1) whether there is a “clear affirmative indication” that Congress intended the law to apply extraterritorially and, (2) if not, whether the “focus” of congressional concern underlying the provision at issue occurs within the United States.

Applying the framework in Abitron, the nine Justices agree under the first part that there is no clear affirmative indication that the Lanham Act applies extraterritorially, and so the query then turns to whether the “focus” of the Lanham Act occurs domestically.

The opinion of the Court, written by Justice Alito and joined by Justices Thomas, Gorsuch, Jackson, and Kavanaugh, holds that the “focus” of the Lanham Act is infringing “use in commerce.” In so holding, the opinion attempts to cabin the application of the Lanham Act to “infringing use in commerce” that occurs within the United States.

The majority did not elaborate as to what may constitute “use in commerce” and instead relied on the statutory definition, stating “[u]nder the Act, the ‘term ‘use in commerce’ means the bona fide use of a mark in the ordinary course of trade,’ where the mark serves to ‘identify and distinguish [the mark user’s] goods . . . and to indicate the source of the goods.’”

The majority specifically declined to “address the precise contours of that phrase here.” Justice Alito noted that this decision is in line with Steele because the defendant in Steele committed “essential steps” in the course of his infringing conduct in the United States.

Justice Jackson joined the majority and also wrote a separate concurrence to elaborate as to the meaning of “use in commerce.” She wrote:

a ‘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 wherever the mark serves its source-identifying function. So, even after a trademark begins to be ‘use[d] in commerce’ (say, when goods on which it is placed are sold), that trademark is also ‘use[d] in commerce’ wherever and whenever those goods are in commerce, because as long as they are, the trademark ‘identif[ies] and distinguish[es] . . . the source of the goods.’

The majority opinion expressly declined to comment on this elaboration.

Justice Sotomayor issued a concurring opinion, joined by Chief Justice Roberts, Justice Kagan, and Justice Barrett, opining that the Lanham Act “extends to activities carried out abroad when there is a likelihood of consumer confusion in the United States.”

Justice Sotomayor calls the focus on “use in commerce” myopic and instead adopts the position offered by the government, namely that the “focus” of the Lanham Act is “likelihood of confusion,” and as such the Lanham Act should apply to both US and international conduct when it results in a likelihood of consumer confusion in the United States. Regarding Steele, Justice Sotomayor argues that, contrary to the majority’s opinion, no conduct occurred in the United States and therefore the majority opinion is inconsistent with Steele.

TAKEAWAYS

The opinion of the Court limits the reach of the Lanham Act to “use in commerce” in the United States. This conduct may include any conduct that amounts to the use of a mark as a source identifier. This bright-line rule appears to limit the ability of US trademark owners to protect against infringing conduct that occurs only abroad but causes confusion in the United States.

At the same time, it may mitigate the risk of liability for owners of global portfolios operating outside the United States on the assumption that the trademark laws are territorial and therefore actions in other countries should not create liability in the United States. Going forward, questions remain regarding what constitutes “conduct” that causes a likelihood of confusion, particularly when conduct occurs both in the United States and abroad.

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