WASHINGTON (CN) — The Supreme Court put domestic limits Thursday on the reach of federal trademark laws as they pertain to foreign products that enter the U.S. stream of commerce.
The dispute stems from a U.S. company that makes and sells radio remote controls used for heavy-duty construction equipment. To distribute its remote controls abroad, Hetronic International entered into a contract with five German and Austrian companies and their Austrian owner Abitron Austria GmbH.
Hetronic trademarked its remote controls, which are known to have a distinctive appearance. The trademark was registered under the Lanham Act, a federal law that places liability on those who use trademarks they do not own in a way that could cause consumer confusion.
Abitron ultimately attempted to get around the trademark by reverse-engineering Hetronic’s remote controls. The products they manufactured were identical to Hetronic’s, and Abitron even sold them under Hetronic’s brand. This scheme made Abitron tens of millions of dollars.
Hetronic brought a suit against Arbitron for violations to the Lanham Act. A jury found Abritron infringed on Hetronic’s trademark and awarded the company $90 million for the violations. That amount represented $240,000 worth of products Abritron sold abroad directly into the U.S., $2 million worth of products sold abroad to foreign buyers who intended to use those products in the U.S., and $87 million for other products sold to foreign buyers.
A panel of 10th Circuit judges affirmed the judgment, but Abritron argued at the Supreme Court that trademarks are normally considered strictly territorial.
“Allowing plaintiffs to bring U.S. trademark claims for sales in foreign markets would defy that principle, contravene treaty obligations, and threaten international friction,” the company's attorney Jeffrey Lamken with MoloLamken wrote in a brief.
Arbitron claims that the 10th Circuit's ruling — that the Lanham Act should apply in this case because Arbitron’s use of the trademark diverted sales from Hetronic — would have broad implications for U.S. commerce.
“The Lanham Act’s strictly domestic scope cannot be evaded by calling the imposition of liability for foreign use a ‘domestic application’ of the Act because of supposed ‘effects’ in this country,” Lamken wrote. “The Act reaches only domestic uses of trademarks. Foreign uses do not qualify.”
Hetronic argues Arbitron’s view would make the Lanham Act powerless to stop trademark infringement overseas.
“Statutory text and settled precedent dictate a different answer,” Matthew Hellman, an attorney with Jenner & Block representing Hetronic, wrote. “For 70 years, this Court has consistently recognized that the Lanham Act’s unusually broad language covers foreign acts of infringement, notwithstanding the presumption that federal statutes generally do not apply abroad.”
Thursday's ruling was unanimous, but only five justices signed on to Justice Samuel Alito’s majority opinion.
“‘It is a ‘longstanding principle of American law ‘that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States,’’” Alito wrote.
Alito said the court generally assumes foreign conduct falls into the domain of foreign law. There is a two-step framework for exceptions to that rule, but the court found that did not apply in this case.
“When applying the presumption, ‘we have repeatedly held that even statutes … that expressly refer to ‘foreign commerce’’’ when defining ‘commerce’ are not extraterritorial,” Alito wrote.
Because trademark laws between countries often differ, Alito said Congress did not intend to have domestic trademarks apply internationally.
“It thus bears repeating our longstanding admonition that ‘United States law governs domestically but does not rule the world,’” Alito wrote.
Justice Sonia Sotomayor — joined by Chief Justice John Roberts and Justices Elena Kagan and Amy Coney Barrett — agreed with the majority’s outcome but not their reasoning.
“The Court’s novel approach transforms the traditional inquiry at step two into a conduct-only test, in direct conflict with this Court’s jurisprudence,” Sotomayor wrote.
Attorneys for Hetronic and Abitron did not respond to requests for comment on the ruling.
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