The Long-Arm Reach of U.S. Trademark Law – We’ll Soon Learn Just How Long It Is

Extended Arm

One may correctly assume that United States trademark law under the Lanham Act applies to conduct in the United States. That, of course, makes sense. But what if you are a U.S. company exporting goods abroad and your trademark is infringed by one of your foreign customers? Does the Lanham Act apply to the lawsuit you may file in the United States? That is the question before the United States Supreme Court this month. It’s a rather technical issue but one that has great significance for adjudicating trademark infringement by U.S. companies, most of which have an understandable proclivity for filing trademark infringement actions in the U.S. Here is a brief, and hopefully not too technical, summary of the issues.

Hetronic International, Inc. is a United States company that manufactures and sells controls for operating heavy-duty construction equipment for which it owns various U.S. trademarks. Its European distributor, Abitron, is alleged to have used confidential information to reverse engineer Hetronic’s products and sell them to Hetronic’s customers as genuine – and continued to do so even after its relationship with Hetronic ended. Even though Abitron’s conduct occurred in Europe, Hetronic sued Abitron in the United States for trademark infringement. The lower court awarded it $100 million in damages. Interestingly, only $240,000 was attributable to products that Abitron sold abroad to buyers who claimed that the United States was the destination for those products. Ninety-seven percent of the award was for products that Abitron sold to foreign buyers for use outside of the United States. Thus, the bulk of the verdict was for conduct that occurred in Europe or elsewhere but not the United States.  Abitron appealed the judgment to the United States Court of Appeals for the 10th Circuit. In its appeal, Abitron claimed that the Lanham Act does not apply to conduct involving foreign defendants and foreign consumers. The Court of Appeals disagreed.

The Court pointed out that the last time the U.S. Supreme Court considered the extraterritoriality of the Lanham Act was in 1952 in the case of Steele vs. Bulova Watch Company, a case that raised more questions than it answered, particularly with respect to foreign defendants. Without wading into the details of its analysis, the Court of Appeals observed that, in modern times, the question of extraterritoriality of a U.S. statute had not been addressed in the Ninth Circuit and that its sister Circuits used varying and different tests. Adopting a framework used in the First Circuit in the McBee case, which applied the “substantial effects test,” the court concluded that there was sufficient evidence that “Defendant’s foreign infringing conduct had a substantial effect upon commerce” and, therefore, the Lanham Act applied. Abitron successfully appealed the decision to the U.S. Supreme Court. If you are interested in a summary of the parties’ arguments, see the article in the Scotus blog. We will report on the Supreme Court’s decision when it comes down.

— Adam G. Garson, Esq,