Does the Lanham Act Have International Reach?
15 U.S.C. §§ 1051 et seq., otherwise known as the Lanham Act, was enacted by Congress in 1946. The Lanham Act established federal standards for trademark protection, in hopes of protecting consumers and promoting free and fair competition.[1] While the Lanham Act provides unquestioned jurisdiction for events occurring within the United States, questions have arisen regarding its application to trademark infringement that takes place outside the United States.[2] This issue was first analyzed by the Supreme Court in 1952 when a suit was brought by Bulova Watch Company against Sidney Steele, an American citizen, for producing and selling fraudulent “Bulova” watches in Mexico.[3] In Steele, the Court concluded that the Lanham Act encompassed the defendant’s conduct despite the fact that the actions took place outside the territorial limits of the United States.[4] Key to the Court’s decision was the effect that Steele’s operation had on the United States market in particular; the inferior and fraudulent Bulova watches filtered through the Mexican border into the United States, thereby damaging the trade reputation Bulova Watch Company worked hard to cultivate through years of advertising.[5]
Recently, a similar question arose when Hetronic, a company based in Oklahoma, sued Abitron, a foreign company, for infringement that occurred outside the United States.[6] Hetronic alleged that Abitron secretly used confidential information it had access to under an earlier licensing agreement to reverse-engineer Hetronic’s products, which it then sold as genuine Hetronic devices.[7] After an eleven-day trial in the Western District of Oklahoma, the jury returned a verdict for Hetronic and awarded Hetronic over $115 million in damages.[8] Additionally, the court granted Hetronic a permanent injunction order, enjoining Abitron’s infringing activities worldwide.[9]
Abitron then appealed the ruling, arguing that the district court erred in concluding that the Lanham Act applied extraterritorially to reach their foreign activities.[10] The Tenth Circuit Court of Appeals approached this question carefully and used a two-step framework for analyzing the extraterritoriality issue.[11] First, the court asked, “whether the presumption against extraterritoriality has been rebutted—that is, whether the statute gives a clear, affirmative indication that it applies extraterritorially.”[12] The court then relied on Steele, which said that the Lanham Act could apply extraterritorially.[13] However, the court makes clear that even when the presumption against extraterritoriality has been rebutted, the scope of an extraterritorial statute is still in question, i.e., just because a statute can apply extraterritorially doesn’t mean that it always will.[14] Thus, the next relevant question the court had to address was what are the limits of the Lanham Act’s extraterritorial reach?[15]
The Tenth Circuit Court of Appeals concluded that Steele only provided a partial answer to this question since it only held that the Lanham Act should apply extraterritorially in that particular case.[16] However, the facts here are somewhat distinguishable since Abitron is a foreign citizen, while Sidney Steele was an American citizen.[17] Thus, the Tenth Circuit adopted a new framework for resolving the question of when the Lanham Act should apply extraterritorially. First, a court should ask whether the defendant is an American citizen.[18] If so, an independent basis of jurisdiction exists, and a court may conclude that the Lanham Act reaches that defendant’s extraterritorial conduct even when the effect on United States commerce isn’t substantial.[19] However, when a plaintiff seeks to recover under the Lanham Act against a foreign national, the plaintiff must show that the defendant’s conduct has a substantial effect on United States commerce.[20] The Tenth Circuit viewed this as an adequate framework since it is squarely in line with the Supreme Court’s stance on extraterritorial application of the Sherman Act (antitrust law) and general principles of foreign relations law.[21] Upon applying the framework it set forth, the court concluded that Hetronic has shown that Abitron’s infringing conduct has a substantial effect on United States commerce.[22] Thus, the court held that extraterritorial reach of the Lanham Act applied to Abitron’s foreign conduct.[23]
After the Tenth Circuit Court of Appeals issued its decision, Abitron filed a petition for writ of certiorari, which was granted by the Supreme Court.[24] Thus, it remains to be seen whether the Supreme Court will adopt the Tenth Circuit’s framework or provide a separate framework and rationale of its own. On the one hand, if the Tenth Circuit’s decision is affirmed, American trademark holders with global operations will receive stronger trademark protection, assuring those trademark owners that they will reap the financial and reputational rewards associated with their desirable name or product.[25] On the other hand, if the Supreme Court were to weaken the Lanham Act’s extraterritorial reach, then those trademark holders may have no recourse against many foreign infringers, thereby disincentivizing investment on in a global economy.[26] One thing is certain however—this case will have major consequences for American trademark holders.
Footnotes
