Business Law Journal

The case involved a falling-out between a manufacturer of radio remote controls for heavy-duty construction equipment and its once-licensed international distributor.  At some point in the relationship, the distributor claimed ownership of the rights to much of the manufacturer’s intellectual property and began selling products bearing the manufacturer’s mark throughout Europe and, to a lesser extent, the United States.  The manufacturer argued that that it was entitled to damages for the distributor’s U.S. and European sales and provided evidence that the distributor’s international activities had caused consumer confusion and reputational harm inside the United States.  The Western District of Oklahoma ultimately agreed with the manufacturer and upheld a 2020 jury award of over $115 million in damages ($96 million attributable to the distributor’s worldwide infringing sales).  On appeal, the Tenth Circuit agreed with the lower court’s rationale and upheld its award of monetary damages.  Abitron subsequently appealed to the Supreme Court, which granted certiorari “to resolve a Circuit split over the extraterritorial reach of the Lanham Act.”  Abitron, 2023 WL 4239255, at *3.

Prior to the Court’s opinion on Thursday, no uniform standard for determining extraterritorial application of the Lanham Act existed.  However, the various tests[1] used by the Circuits all incorporated some form of the Substantial Effects Test, which weighs the domestic effect of international infringement on U.S. consumers and trademark holders against the Court’s long-held presumption against extraterritorial exercise of U.S. laws.  Specifically, the various tests allowed U.S. trademark holders to sue infringers who sold, offered for sale, or advertised anywhere in the world so long as the trademark holder could show that those actions confused consumers in the United States and/or diminished the value of the mark in the United States.  That is no longer the case.

Although it will be up to trial courts to implement Abitron into their existing legal frameworks, the Court’s test is essentially that U.S. trademark holders may assert claims under the Lanham Act only against infringers who “use [a trademark] in commerce,” within the United States.  Critically, however, the Court neglected to define the term “use in commerce.”  If “use” is interpreted literally to mean the act of selling, offering for sale, or advertising, then the Court’s new Abitron Test allows infringers to avoid all liability for any harmful effect their actions cause in the United States so long as they do not conduct their operations in the United States.  As noted by Justice Sotomayor in her concurrence, this version of the Court’s new Abitron Test represents a marked departure from the principle of territoriality that underlies the existing international system, which authorizes foreign jurisdictions to remedy confusion within their own territories.  Abitron, 2023 WL 4239255, at *16.  For example, the European Union will enforce its trademark laws against an international infringer upon a showing that the infringer’s conduct creates a likelihood of consumer confusion within the European Union.  Id.

In her concurrence, Justice Ketanji Brown Jackson offers a definition of “use in commerce” that would preclude this result.  The Majority, however, declined to embrace or reject it, stating only in footnote that “Justice JACKSON has proposed a further elaboration of ‘use in commerce,’ but we have no occasion to address the precise contours of that phrase here.”  Id. at *9 n.6 (internal citation omitted).  Justice Jackson offered an example to illustrate the intended effect of her proposed definition:

Imagine that a German company begins making and selling handbags in Germany marked “Coache” (the owner's family name). Next, imagine that American students buy the bags while on spring break overseas, and upon their return home employ those bags to carry personal items. Imagine finally that a representative of Coach (the United States company) sees the students with the bags and persuades Coach to sue the German company for Lanham Act infringement, fearing that the “Coache” mark will cause consumer confusion. Absent additional facts, such a claim seeks an impermissibly extraterritorial application of the Act. The mark affixed to the students’ bags is not being “use[d] in commerce” domestically as the Act understands that phrase: to serve a source-identifying function “in the ordinary course of trade,” § 1127.

Now change the facts in just one respect: The American students tire of the bags six weeks after returning home, and resell them in this country, confusing consumers and damaging Coach's brand. Now, the marked bags are in domestic commerce; the marks that the German company affixed to them overseas continue “to identify and distinguish” the goods from others in the (now domestic) marketplace and to “indicate the source of the goods.” Ibid. So the German company continues to “use [the mark] in commerce” within the meaning of the Act, thus triggering potential liability under § 1114(1)(a) and § 1125(a)(1). This result makes eminent sense given the source-identifying function of a trademark.

Id. at *10.  In short, Justice Jackson’s definition of “use in commerce” would hold responsible the international originator of infringing products for subsequent sales that occur inside the United States.  This solves the harsh, literal interpretation of the Majority’s new Abitron Test—which deprives U.S. trademark holders of any recourse for international infringement that causes consumer confusion in the U.S.—but effectively reincorporates the Substantial Effects Test that the majority just struck down.  Indeed, likelihood of confusion resulting from the proliferation of infringing goods inside the U.S. by entities other than the international originator is exactly the type of domestic effect that the Substantial Effects Test targeted.  This tension may explain why the Majority was reluctant to embrace or reject Justice Jackson’s definition of “use in commerce.”

Moreover, permutations of Justice Jackson’s example could cause further confusion.  Consider the example of an infringing advertisement or offer for sale created internationally that rapidly proliferates within the U.S.  Under the Majority’s opinion, the U.S. trademark holder presumably has no recourse regardless of the amount of consumer confusion caused domestically, for example, by demonstration of an inferior product bearing the holder’s mark and/or trade dress.

It remains to be seen what practical meaning the lower courts will ascribe to “use in commerce,” and whether their interpretations of Abitron will be consistent with one another.  For now, the new Abitron Test appears to leave American trademark holders with fewer tools to fight unfair competition abroad than they had a week ago. 

AALRR has a dedicated group of attorneys on its Intellectual Property Team with the experience and expertise to vigorously enforce your trademarks and defend you against claims of trademark infringement and other business disputes.  Attorneys on the Firm’s Intellectual Property Team can also assist you with registration of your trademarks with the United States Patent and Trademark Office.  Contact the authors or another member of the AALRR Intellectual Property Team for assistance with your trademark or any other intellectual property needs. 

[1] See, e.g., Fair Mills, Inc. v. T. Eaton Co., 234 F.2d 633, 642 (2d Cir. 1956) (defining the Vanity Fair test, later adopted in some version by the Fourth, Fifth, Eleventh and Federal Circuits, to include consideration of whether “intrastate and entirely foreign commerce . . . has a substantial effect on commerce between the states or between the United States and foreign countries.”); Wells Fargo & Co. v. Wells Fargo Express Co., 556 F.2d 406, 427–28 (9th Cir. 1977) (defining the Timberlane Test in relevant part: “[f]oreign activities must have some effect on United States foreign commerce before they can be reached under the Lanham Act, but the effect need not be ‘substantial.’”); McBee v. Delica Co., 417 F.3d 107, 117–20 (1st Cir. 2005) (defining the McBee Test in relevant part: “Lanham Act grants subject matter jurisdiction over extraterritorial conduct by foreign defendants only when such conduct has substantial effect on United States commerce”).

This AALRR post is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other AALRR publication does not create an attorney-client relationship. AALRR is not responsible for inadvertent errors that may occur in the publishing process. 

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