Supreme Court questions whether foreign trademark infringement verdict should stand

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A domestic manufacturer urged the Supreme Court on March 21 to uphold a $90 million award against a foreign company for trademark infringement almost all of which took place outside the United States.

The case concerns the reach of the Lanham Act of 1946, a federal law that regulates trademarks and unfair competition. The presumption in the United States is that U.S. laws do not apply to foreign conduct but that presumption is called into question here because the conduct that took place outside the country had an effect on U.S. commerce.

The court is being asked to determine if the law, which was enacted at a time when the domestic economy was less globally integrated than it is nowadays, covers conduct infringing trademarks that takes place outside the United States. Foreign governments have expressed concern about the extraterritoriality of U.S. laws.

The case is Abitron Austria GmbH v. Hetronic International Inc., court file 21-1043.

Abitron, of Altheim, Austria, argues the Lanham Act does not reach extraterritorial conduct; Oklahoma-based Hetronic argues that in some situations it does.

Hetronic, which makes and sells radio remote controls for construction equipment, is the owner of U.S. trademarks covering distinctive features of the remote controls.

As Hetronic’s European distributor, Abitron was licensed to assemble and sell Hetronic’s remote controls under Hectronic’s brand. Abitron was required by contract to buy parts from Hetronic.

But Hetronic claims Abitron clandestinely used proprietary information it obtained through the licensing pact to reverse-engineer Hetronic’s products.

“Abitron then sold those products to Hetronic’s customers as if they were genuine Hetronic devices. Hetronic further alleges that Abitron continued selling Hetronic-brand products even after the parties’ licensing agreements were terminated,” according to a SCOTUSblog summary of the case.

Although the misconduct happened overseas, Hetronic filed suit against Abitron in the U.S. for trademark infringement under the Lanham Act.

A federal jury in Oklahoma found for Hetronic, awarding it $114 million, about $90 million of which was for trademark infringement. Out of the $90 million, just $240,000 was for items Abitron sold in U.S. markets and around $2 million was for sales to foreign purchasers who said the United States was the intended destination for the products.

The U.S. Court of Appeals for the 10th Circuit affirmed the verdict.

During oral arguments on March 21, Hetronic attorney Matthew Hellman said the Lanham Act covers activity outside the country.

“Since 1952, this Court has held and repeatedly reaffirmed that the Lanham Act’s uniquely broad language reaches infringement of U.S. marks that is carried out overseas. And during those 70 years, Congress has amended the Act 36 times, and it has never pulled back on the Act’s extraterritorial reach,” he said.

Hellman was referring to the Supreme Court’s ruling in Steele v. Bulova Watch Co. (1952), which involved a watchmaker’s complaint about counterfeits manufactured and sold in Mexico. A U.S. court was found to have jurisdiction to hear the case because the defendant was a U.S. citizen and some of the counterfeits found their way to the United States.

Hellman said the Act has protected U.S. trademark holders by providing “a much-needed remedy in cases just like this one against foreign trademark pirates who market knockoff goods that siphon the goodwill and sales of U.S. trademark holders.”

“Seventy years of experience shows that the floodgates haven’t opened and that the Lanham Act has instead served as a bulwark against infringement,” Hellman said.

Justice Clarence Thomas questioned how far the statute could reach.

“Beyond your jurisdictional point, I don’t see what the outer limits are,” Thomas said.

Justice Samuel Alito asked if Hellman agreed “that the world takes a territorial approach to trademark law.”

The lawyer replied: “I do agree with that, but I don’t agree with what that means for this case.”

The territorial approach to trademark law “simply means that each nation is the ultimate arbiter of its own trademark laws. The Germans decide what a German mark is, and the U.S. decides what a U.S. mark is,” Hellman said.

Abitron attorney Lucas Walker said the Lanham Act does not apply to the company’s “use of trademarks in foreign countries because nothing in the Act provides the clear, affirmative, and unmistakable indication needed to overcome the presumption against extraterritoriality, especially as to foreign defendants” like Abitron.

“The text of the statute never says it applies to uses of trademarks outside the United States. And it is a foundational principle of both U.S. and international trademark law, embodied in multiple treaties, that trademark protections are inherently territorial and do not extend beyond the borders of the country granting protection,” Walker said.

“Extending the Lanham Act’s reach into foreign countries would create the very risk of international friction that this court’s current extraterritoriality doctrine seeks to avoid,” the lawyer said.

Justice Amy Coney Barrett asked if the Steele case would be decided the same way if it were heard today.

Walker replied: “I think probably not.”

“U.S. citizens are also entitled to the presumption against extraterritoriality, and Steele’s reasoning is really out of step with how this court deals with extraterritoriality now,” he said.

The Supreme Court may rule on the case by June.

This article by Matthew Vadum appeared March 21, 2023, in The Epoch Times.

Photo: Supreme Court Justice Clarence Thomas