Abitron Austria GmbH v. Hetronic International, Inc.

Issues

Does the Lanham Act apply extraterritorially to trademark infringement by a foreign entity’s conduct outside of the United States, including those foreign commercial activities that never took place in the United States or confused U.S. consumers?

Oral argument:

Court below:

United States Court of Appeals for the Tenth Circuit

This case asks the Supreme Court to determine whether the Lanham Act (“the Act”), a federal trademark law, applies extraterritorially to trademark infringement outside the United States by a foreign entity. Abitron argues that the Act does not apply to foreign sales, because such an extensive reading of the Act’s scope is not supported by statutory interpretation or case law. Hetronic counters that both the Act’s language and the Court’s precedent about Congress and the Act’s expansive power leaves no doubt about its extraterritorial reach. The outcome of this case has heavy implications for the territoriality principle in international law and the rights and remedies of U.S. trademark owners.

Questions as Framed for the Court by the Parties

Whether the U.S. Court of Appeals for the 10th Circuit erred in applying the Lanham Act, which provides civil remedies for infringement of U.S. trademarks, extraterritorially to Abitron Austria GmbH’s foreign sales, including purely foreign sales that never reached the United States or confused U.S. consumers.

Facts

In the 1980s, a German engineer developed radio control products and established a German company, Hetronic Steuersysteme GmbH, which was the predecessor of one of the parties in this case, Abitron Austria GmbH, et al. (“Abitron”). Brief for Petitioners, Abitron Austria GmbH, et al. at 8. The German engineer later established Hetronic International, Inc. (“Hetronic”), headquartered in Oklahoma, which manufactures radio remote controls used to operate heavy-duty construction equipment and then sells and services these products in forty-five countries. Id. at 8; Hetronic Int’l., Inc. v. Hetronic Ger. GmbH at 1024. Abitron’s predecessor (“Hetronic Germany”) distributed radio controls manufactured by Hetronic between 2006 and 2014, and Abitron and Hetronic are now owed by separate entities. Brief for Petitioners at 8.

Hetronic Germany sold the “Hetronic” trademarks to Hetronic in 2006. Id. Hetronic entered into distribution and licensing agreements with Hetronic Germany in 2006 and 2007, respectively, allowing Hetronic Germany to exclusively assemble and distribute the remote control products manufactured by Hetronic in more than twenty countries in Europe under the Hetronic brand. Hetronic Int’l. at 1024–25. In return, Hetronic Germany agreed to purchase all parts from Hetronic and further agreed not to compete with Hetronic. Id. at 1025.

In 2011, one of Hetronic Germany’s employees discovered that Hetronic previously entered into a research-and-development agreement with Hetronic Germany and two co-developers. Id. Hetronic Germany concluded that the agreement gave it and its co-developers sole ownership of all intellectual property any party developed. Id. Hetronic Germany (and later Abitron) determined that they “owned all the technology developed under or before the agreement” and subsequently began competing with Hetronic by reverse-engineering and selling products identical to Hetronic’s, using Hetronic’s brand name and identical product names. Brief for Petitioners at 9; Hetronic Int’l. at 1023, 1025. More than 99 percent of Abitron’s sales were outside of the U.S., mostly in Europe. Brief for Petitioners at 9. Abitron intended to compete with Hetronic in the U.S. market briefly before Hetronic brought the lawsuit. Hetronic Int’l. at 1024. Once Hetronic learned what Hetronic Germany was doing, Hetronic terminated the licensing and distribution agreements. Id. at 1025. Abitron continued to sell products under the Hetronic brand, generating several hundred thousands of dollars’ worth of sales in the United States. Id. at 1026.

Hetronic initially sued Abitron’s predecessors for breach of contract in 2014 in the Western District of Oklahoma. Id. In 2015, Hetronic added new defendants and included a new claim under the Lanham Act (“the Act”), which establishes a federal trademark registration system and protects federally registered trademark owners against the use of similar trademarks under certain conditions. Id. Abitron moved for summary judgment on the Act claim, arguing that the Act does not apply extraterritorially, or outside of the United States, when alleged infringements occur overseas and do not substantially affect U.S. commerce. Id. Abitron argued that its conduct did not in fact substantially affect U.S. commerce and thus the claim should be dismissed. Id. The district court denied the motion. Id. At trial, the jury awarded Hetronic $96 million for the Act violation, among other damages. Id. at 1027. The district court also granted Hetronic’s motion to permanently enjoin Abitron’s infringement globally. Id. On appeal, the Tenth Circuit affirmed in part, holding that the Act should apply extraterritorially to all of Abitron’s infringement overseas because such infringement had a substantial effect on U.S commerce. See id. at 1044. Abitron petitioned the Supreme Court for certiorari, and the Supreme Court granted certiorari on November 4, 2022. Brief for Petitioners at 2.

Analysis

STATUTORY INTERPRETATION OF THE STATUTE’S BREADTH

Abitron argues that the Lanham Act does not extend to foreign sales. See Brief for Petitioners, Abitron Austria GmbH, et al. at 17–19. Abitron makes this argument by pointing to the text of the Act itself. Id. Abitron also refers to the Supreme Court’s statement in RJR Nabisco, Inc. v. European Cmty, which held that a federal statute may regulate foreign conduct only if Congress has “affirmatively and unmistakably instructed that the statute will do so.” Id. Abitron contends that the statute does not overcome this strong presumption against extraterritorial application because the Act’s text never mentions its extraterritorial application. See id. at 17–18. Abitron recognizes that the broad definition of “commerce” in the Act, which covers “all commerce which may lawfully be regulated by Congress,” may potentially enable Congress to regulate foreign sales. See id. at 25. However, Abitron claims that this language, in its historical context, is meant to prevent Congress from interfering with commerce outside of its reach. See id. at 26. Abitron therefore claims that this language limits, rather than broadens, the scope of the Act, and should not be applied to foreign sales. See id.

Hetronic counters that a statutory interpretation of the Act’s text “leaves no doubt” about its extraterritorial reach. See Brief for Respondent, Hetronic International, Inc. at 19, 21–22. Hetronic asserts that the Act’s expansive language and the unique definition of “commerce” within the Act confirms this extensive reading. Id. Hetronic points to terms like “all” and “the whole of” in the statute’s definition of the conduct it regulates. See id. at 20. Hetronic interprets these as “maximally broad” terms which indicate that Congress has power under the Act to “the full extent allowable under the Constitution.” See id. To support this conclusion, Hetronic compares the Act’s broad language to language seen in a state’s long-arm statute: when a state uses similar language, the state’s power extends to the maximum constitutional limit. See id. In addition, Hetronic contends that the definition of “commerce” in the Act extends rather than limits its scope. See id. at 22. In support of this reading, Hetronic compares the Act’s “commerce” definition to its counterparts in other federal statutes and concludes that other statutes use “boilerplate,” categorical definitions of commerce, while the Act uses an extensive, scope-conscious one. See id. at 22–23. Therefore, Hetronic argues that the Act’s definition of “commerce” is intended to give Congress a broad power over patent regulations. See id.

PRECEDENT CASE LAW AND STARE DECISIS

Abitron argues that precedent case law does not dictate that the Act has extraterritorial reach. See Brief for Petitioners at 33. Abitron rejects the Tenth Circuit’s opinion that this case is similar to Steele v. Bulova Watch Co., in which the Court held a U.S. citizen liable under the Act for selling watches stamped with Bulova’s name in Mexico. See Brief for Petitioners at 33. Abitron argues that Steele does not apply here because Steele concerned a domestic defendant, and the selling conduct at stake in Steele involved essential preparations in the United States. Id at 33–34. Therefore, Abitron contends Steele merely holds that Congress has the authority to establish and enforce standards of conduct of its own citizens in foreign countries, and thus does not concern foreign sales by a foreign entity. See id. Abitron further claims that this Court has rejected most of Steele’s reasoning in subsequent Lanham-Act cases and should thus overturn Steele because it is an outlier that creates unworkable standards in the Lanham-Act jurisprudence. See id. at 35–37.

Hetronic claims that Steele does apply to this case and argues that under stare decisis, the Court should thus hold that the Act thus applies extraterritorially here. See Brief for Respondent at 39–40. Hetronic argues that Abitron’s interpretation of Steele is too narrow and counters that Steele’s holding is broad enough for the Act to regulate foreign sales notwithstanding the factual differences Abitron emphasizes. See id. at 39. Hetronic further claims that the Supreme Court has twice recognized that Steele’s holding grants the Act a broad power that can extends abroad. See id. Hetronic points to a Title VII case that held that Title VII does not apply extraterritorially, even though the Act does, because Title VII does not have as extensive a definition of commerce as the one in the Act. See id. at 39. Therefore, Hetronic argues that the extraterritorial application in Steele is really not an outlier, but a settled principle. See id. Moreover, Hetronic rejects Abitron’s proposal to overturn Steele and emphasizes the importance of stare decisis in this case. See id. at 40. Hetronic contends that overturning a Supreme Court case is “extraordinary” and claims that Abitron does not justify this proposal. See id. Moreover, Hetronic underscores the fact that courts have applied the Act extraterritorially to foreign trademark infringement for over 70 years in reliance on Steele. See id. at 40–41. Therefore, Hetronic finds that there is no compelling reason to overturn Steele. See id. at 41.

THE “USE” TEST VERSUS THE “EFFECT” TEST IN REGULATING FOREIGN CONDUCT

Abitron argues that the Act cannot regulate foreign conduct even if the foreign conduct produces negative effects within the United States. See Brief for Petitioners at 39. Abitron asserts that, because the “use” of trademarks in commerce establishes the “foundation for obtaining, maintaining, and enforcing trademark protections” under the Act, the Act’s focus is thus to regulate these “uses” in the United States. See id. at 40–41. Therefore, Abitron argues that any “use” that happens outside of the United States is outside of the Act’s scope. See id. at 41. Moreover, Abitron contends that interpreting the focus of the Act to be the “conduct”––in this case the “use” of trademarks––is also consistent with the holdings of other extraterritoriality cases. See id. at 42–43. Abitron notes that in another case, the Supreme Court refused to apply U.S. law to foreign conduct notwithstanding a substantial “effect” that the foreign conduct produced in the United States. See id. at 42.

Hetronic counters that the Act focuses on the “effect” rather than the “use” of trademarks because the purpose of the Act is to prevent certain negative effects of trademark infringement on U.S. mark owners and consumers. Brief for Respondent at 45. Hetronic reads Abitron’s “use” test as excluding the application of the Act to any foreign infringement and contends that this view is inconsistent with previous Supreme Court cases. See id at 48. Hetronic cites Morrison v. National Australia Bank, RJR Nabisco, and other cases relating to the extraterritorial application of federal laws, which all held that a federal statute may have a domestic application when a plaintiff alleges a “domestic injury to business or property,” even if none of the defendant’s conduct occurs in the United States. See id. Hetronic also claims that looking to the effects of foreign conduct within the United States is consistent with Congress’s commerce power. See id. at 24, 28. To support this argument, Hetronic cites the application of the substantial “effect” standard in cases involving Congress’s regulation of overseas activities, proving the test’s relevance in determining whether a federal statute can apply to foreign conduct for the domestic effect it generates. See id. at 28–29.

Discussion

INTERNATIONAL LAW AND THE INTERNATIONAL TRADEMARK REGIME

Professor Guido Westkamp, in support of Abitron, stresses that a ruling for Hetronic will defeat territoriality as a fundamental and longstanding principle in the UK’s intellectual property regime. Brief of Amicus Curiae Professor Guido Westkamp, in Support of Petitioners at 4–5. German Law Professors, et al., also in support of Abitron, echo that the German intellectual property regime considers territoriality as a bedrock and internationally recognizable principle that limits the effect of a national right to within the country. Brief of Amici Curiae German Law Professors et al., in Support of Petitioners at 6–7. German Law Professors assert that this principle respects each country’s legislative sovereignty, allows for independent economic and social policymaking, and avoids legal uncertainty created by each trademark holder enforcing their rights abroad. Id. at 8–9. Professor Dr. Louis Pahlow, in support of Abitron, suggests that Congress intends for the Act to comply with international obligations and that a deviation from territoriality violates international law. Brief of Amicus Curiae Professor Dr. Louis Pahlow, in Support of Petitioners at 3, 11, 13–14. The European Union, in support of neither party, also calls for the U.S. courts to respect sovereign boundaries and avoid disrupting the international trademark regime established upon treaties that the Act itself implements. See Brief of Amicus Curiae European Commission on Behalf of The European Union, in Support of Neither Party, at 28, 31–32.

In contrast, the American Bar Association (“ABA”), in support of Hetronic, suggests that no international law opposes extraterritorial trademark enforcement against an infringement abroad that substantially affects domestic commerce, because a country is entitled to regulate foreign conduct that substantially affects purely domestic affairs. Brief of Amicus Curiae American Bar Association (“ABA”), in Support of Respondent at 16. The ABA asserts that a ruling for Hetronic respects norms of comity and protects foreign defendant’s trademark rights in jurisdictions overseas. Id. at 19–20. Furthermore, Stussy, Inc. (“Stussy”), in support of Hetronic, argues that it is impractical to sue trademark infringers in every country because infringers usually sell copycats in many different countries at the same time. Brief Amicus Curiae Stussy, Inc. (“Stussy”), in Support of Respondent at 29–30. Stussy also notes that many countries do not have practical and robust enforcement against infringement. Id. at 29–30. Thus, Stussy opposes a strict distinction between enforcing against domestic and foreign infringement because it would make recovery for infringement more difficult. Id. at 26–28.

PROTECTIONISM AND REMEDIES FOR U.S. TRADEMARK HOLDERS

Abitron argues that it is protectionist to extend the Act to consider the diversion of foreign sales, instead of focusing on uses and consumer confusion on a purely domestic level. Brief for Petitioners at 45–46. Abitron contends that such a ruling would allow U.S. plaintiffs to sue competitors overseas for trademark violations by asserting lost foreign sales, whereas foreign plaintiffs could not make the same claim in the United States. Id. at 46–47. Abitron further contends that this protectionist interpretation of the Act would also cover unfair competition, and such a lopsided interpretation “cannot be right.” Id. at 47. The Federal Circuit Bar Association (“FCBA”), in support of neither party, also cautions that a sweeping ruling in the case at hand would have broad impacts on the trademark infringement and unfair competition jurisprudence regarding the domestic remedy of extraterritorial acts. Brief of Amicus Curiae The Federal Circuit Bar Association, in Support of Neither Party at 3. The FCBA suggests that the current International Trade Commission jurisprudence only covers articles imported into the U.S., whereas a ruling for Hetronic in this case will expand that by considering acts that may not have touched the U.S. for remedies. Id. at 7. The FCBA also contends that a ruling for Hetronic could affect the ongoing disputes about liability for foreign activities when considering remedies under the Patent Act. Id. at 12–13.

The ABA, in support of Hetronic, emphasizes that extending the Act to activities that substantially affect U.S. commerce will make the Act neither too broad nor too narrow, because it can both protect U.S. trademark owners from foreign infringement and exclude foreign conduct that has only trivial effects on U.S. commerce. Brief of Amicus Curiae ABA at 13, 15–16. The ABA further points out that restricting the Act’s extraterritorial application will overburden trademark owners—particularly small- and medium-sized businesses—with redundancies, uncertainties, and inconsistencies in suing the same infringers both at home and abroad, because they have to sue in every jurisdiction where the infringers generate sales. Id. at 8–9. The ABA further suggests that a ruling for Hetronic will strike a delicate balance between the presumption against extraterritoriality and protection for U.S. consumers and trademark holders. Id. at 19–20.