trader joes and the lanham actIf you thought that you were immune from prosecution for infringing a U.S. registered trademark in a foreign country, be forewarned.

In late 2011, Michael Norman Hallatt, a Canadian citizen and U.S. Lawful Permanent Resident, began visiting a Bellingham, Washington Trader Joe’s (“TJ’s”) store several times a week to buy large quantities of Trader Joe’s products.  This caught the eye of TJ’s employees so Hallatt was questioned about his purchases.  Hallatt admitted to taking TJ’s products to Canada for resale to Canadian customers.  TJ’s later learned that Hallatt opened a store in Canada, which he named “Pirate Joe’s” where he resold marked-up TJ’s goods purchased in Washington state. Perhaps, believing that he was immune to suit from TJ’s for trademark infringement in Canada, he advertised his products with TJ’s trademarks and published a website displaying “Pirate Joe’s” using a font similar to that used in TJ’s trademarks.  Hallatt’s chutzpah didn’t stop there. TJ’s demanded that Hallatt stop reselling TJ’s products and stopped serving him at the Bellingham store.  Undeterred, Hallatt resorted to disguises and patronizing other TJ’s stores in Seattle, Portland and California, where he would not be recognized.  Hallatt also paid others to purchase TJ’s products on his behalf.  Clearly, this was a profitable business!

TJ’s ran out of patience and sued Hallatt for trademark infringement and unfair competition under the Lanham Act (U.S. Trademark Act) and Washington state law. The district court dismissed the Lanham Act claims for lack of subject-matter jurisdiction because Hallatt’s allegedly infringing activity took place in Canada. The district court dismissed Trader Joe’s’ state law claims for similar reasons.  TJ’s appealed to the United States Court Of Appeals for The Ninth Circuit on the question of the extraterritorial reach of the Lanham Act.  In other words, TJ’s asked the court to determine whether the trademark act applies to infringing conduct that does not occur in the United States?

The court’s short answer is, yes, it does but only if the plaintiff can establish a connection between the infringing activity and U.S. commerce.  TJ’s, which recognized that simply reselling branded products is not illegal under the Act, alleged that Hallatt violated the act “by transporting and selling Trader Joe’s goods without using proper quality control measures or established product recall practices.”  The court agreed such conduct had a direct effect upon U.S. commerce and also concluded that “Hallatt’s alleged attempt to pass as an authorized Trader Joe’s retailer could … harm Trader Joe’s’ domestic reputation and diminish the value of its American-held marks.”

All this my sound very hyper technical but the bottom line is that making a buck on the back of a famous trademark may lead to serious consequences even if you’re doing business in a foreign country.

— Adam G. Garson, Esq.

*Orginally posted on October 18, 2016