U.S. Brand Owners Have More Limited Options to Curb Foreign Infringement following Supreme Court’s Abitron Ruling

Sunstein LLP

On June 29, 2023, the Supreme Court issued a much-anticipated trademark decision in Abitron Austria v. Hetronic International concerning the global reach of the Lanham Act. The Court determined that U.S. law does not extend to infringing conduct that solely occurs abroad, no matter how much confusion that conduct may lead to in the United States.

The Supreme Court overturned and remanded a Tenth Circuit Court of Appeals decision upholding a $96 million damages award to Hetronic. Hetronic, a manufacturer of remote controls used for construction equipment, sued foreign distributors collectively known as Abitron for trademark infringement, among other claims. Abitron had initially been a licensed distributor for Hetronic, but later decided it held the rights to much of Hetronic’s intellectual property and began selling Hetronic-branded products without a trademark license. The vast majority of Abitron’s Hetronic-branded products did not end up in the United States.

At issue in the case was whether Lanham Act sections §§ 1114 (1)(a) (prohibiting counterfeit goods) and 1125(a)(1) (prohibiting false designation of origin) apply to sales of goods bearing US trademarks when they occur on foreign soil. Applying the presumption against extraterritoriality, Justice Alito, writing for the majority, cited prior cases creating a presumption against extraterritorial reach of US laws and said that Congress never “affirmatively and unmistakably instructed” that the Lanham Act provisions at issue should apply to foreign conduct. Justice Alito ruled that these sections of the Lanham Act are thus not extraterritorial and extend only to claims where the conduct that is the focus of the provisions – namely, the “infringing use in commerce” – is domestic. Interestingly, Justice Alito seemed swayed by perceived foreign tensions and pointed to the Amicus brief filed by the European Commission warning the Court against “unseemly” acts of “meddling in extraterritorial affairs.”

Although the ruling itself was a 9-0 decision, both Justices Jackson and Sotomayor filed concurring opinions, with some very different viewpoints concerning how they arrived at their decisions. For her part, Justice Sotomayor’s concurrence reads much more like a dissent. While she agrees with the ultimate outcome vacating the 10th Circuit decision, Justice Sotomayor, along with Justices Roberts, Kagan, and Barrett who joined her, takes fundamental issue with the framework applied by the majority. In her view, the focus of U.S. trademark law is consumer confusion, not the locus of the defendants’ conduct. Under that analysis, these provisions of the Lanham Act should extend to “activities carried out abroad when there is a likelihood of consumer confusion in the United States.” In response to this proposed theory, the majority warns that the “watchdog” that prevents U.S. law from overreaching abroad would be “nothing more than a muzzled Chihuahua” if the Lanham Act were to apply to every case in which there is a mere “likelihood of an effect” in this country.

While the immediate effects of the Abitron decision remain to be seen, this ruling will likely embolden more foreign actors to adopt U.S. marks without fear of being sued in the U.S., so long as their sales of infringing products remain on foreign soil. Brand owners will be more limited in their ability to curb bad actors in foreign countries, even where that foreign use clearly causes domestic consumer confusion. As a result, U.S. brand owners will need to act more proactively and aggressively in protecting their trademarks abroad, particularly in jurisdictions that award trademark rights to the first party to file the trademark registration. Brand owners that work with foreign manufacturers and distributors should also ensure their contracts clearly address ownership and use of IP globally, thereby providing another potential avenue to assert liability for conduct occurring abroad.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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