** Drew Engel, a Summer Associate in NRF’s Minneapolis office, assisted with this article. Drew is supervised by attorneys who are licensed in the state of Texas.**
The Tenth Circuit’s recent decision in Hetronic Int’l Inc. v. Hetronic Germany GmbH is the latest in the Abitron v. Hetronic trademark conflict. Abitron was a licensed distributor of Hetronic’s radio remote controls for heavy duty construction equipment. However, after the distribution agreement ended, Abitron reverse engineered Hectronic’s products and used Hetronic’s marks on the products it sold outside of the United States, believing that it, and not Hetronic, owned the IP associated with those products. Hetronic sued Abitron for trademark infringement and unfair competition under the Lanham Act. At trial, Hetronic prevailed and was awarded $ 90 million in damages. The district court entered a worldwide injunction restraining future use of Hectronic’s marks and entered judgment consistent with the jury verdict rejecting Abritron’s arguments that the Lanham Act did not extend to sales made outside of the United States. Abitron appealed the district court’s decision to the United States Court of Appeals for the Tenth Circuit.
On appeal, Abitron argued that it was not liable under the Lanham Act because the bulk of the sales made were made outside of the United States, where Hetronic had no trademark rights, and the Lanham Act did not apply outside of the United States. The Tenth Circuit disagreed. The Court affirmed the decision of the district court concluding that the displacement of Hetronic’s sales abroad had a substantial effect on U.S. commerce, triggering application of the Lanham Act to all of Abitron’s conduct, including that which occurred outside of the United States. Abitron sought review and the Supreme Court granted certiorari to review the extraterritorial application of the Lanham Act.
For more on case history, please see our previous blog post here.
The Presumption Against Extraterritoriality Framework
The Presumption Against Extraterritoriality is a long-standing presumption that unless Congressional Legislation specifies otherwise, legislation is only intended to apply within territorial U.S. jurisdiction. When applying the presumption, the Court uses a two-step framework. Step one requires the Court to decide “whether a provision is extraterritorial.” Hetronic Int’l Inc. v. Hetronic Germany GmbH, LEXIS 9741, at *10 (10th Cir. April 23, 2024). If a court decides the relevant provision does not have the express intent to apply outside the United States, then its analysis continues to step two. This second step requires the court to decide if the claim “alleges a permissible (domestic) or impermissible (foreign) application of the provision.” Id. This step is composed of two prongs: (1) the court must evaluate the intended focus of the provision(s) and (2) the court must determine if the conduct relevant to that focus occurred in the U.S. Id. at 10-11.
The Supreme Court’s Decision
Last year, the Supreme Court used step one of the presumption against extraterritoriality framework (“the framework”) and interpreted both § 1114(1)(a) and § 1125(a)(1) of the Lanham Act to not have the express intent to apply extraterritorially. Abitron Austria GmbH v. Hetronic Int’l Inc., 600 U.S. 412 (2023). Although the decision was unanimous, Justice Sotomayor challenged the Majority’s reasoning in a concurrence joined by Chief Justice Roberts and Justices Kagan and Barrett. Id. at 432-46. Justice Jackson wrote her own concurrence to provide a roadmap to describe what constitutes “use in commerce.” Id. at 429-32.
Ultimately, the Court vacated the judgment of the Tenth Circuit and remanded the case for proceedings consistent with its opinion, i.e. to consider step two of the framework to evaluate if Abitron had the requisite domestic conduct to which the Lanham Act would apply. Id. at 428.
For more on last year’s Supreme Court ruling, please see our previous blog post here.
The Tenth Circuit’s Decision
As directed, the Tenth Circuit reviewed step two of the framework to determine whether there was a “domestic anchor” which would trigger liability under the Lanham Act. Hetronic Int’l Inc. v. Hetronic Germany GmbH, LEXIS 9741, at 23-24 (10th Cir. April 23, 2024). Ultimately, the Tenth Circuit determined Abitron’s infringing uses of the Hetronic mark abroad lacked the requisite domestic anchor to create Lanham Act liability. Hetronic Int’l Inc. v. Hetronic Germany GmbH, LEXIS 9741 (10th Cir. April 23, 2024).
The Tenth Circuit’s Reasoning
Under the first prong of the extraterritoriality analysis, the Tenth Circuit reiterated that the intended focus of the Lanham Act was “to punish unauthorized commercial uses of U.S.-registered trademarks that harm American businesses and consumers by causing confusion (or a likelihood of confusion) about the true origin of a product.” Id. at 14. And as directed by the Supreme Court, the Tenth Circuit took up its analysis of the second prong to consider whether there was “ use of a trademark in commerce in connection with any goods or services,” specifically “the sale, offering for sale, distribution, or advertising,” in a manner “likely to cause confusion.” Id. at 14.
Beginning with Abitron’s U.S. activities, the Tenth Circuit found that all Abitron’s domestic sales, advertising, marketing, and distribution remained sufficient to show Lanham Act liability. Id. at 15-23. In explanation, the Tenth Circuit “decline(d) to decide at this late stage that $ 185,463.82 of Abitron’s direct sales posed no likelihood of confusion.” Id. at 23-24. Then, the Tenth Circuit’s analysis proceeded to review Abitron’s “solely foreign” conduct. Hetronic argued “where a foreign entity sells to a foreigner with the expectation that the goods will be sold downstream in the United States, that sale is sufficiently domestic” under the Lanham Act. Id. at 27. The Tenth Circuit found Hetronic’s argument unpersuasive. It declined to hold Abitron liable under the Lanham Act for its foreign activities because there was no “domestic anchor” for those activities which were sufficient to create liability. Id. at 24. The Tenth Circuit held that a product sold abroad and shipped to the U.S. is not sufficient conduct to create a domestic anchor. Id. at 28-29.
Consistent with the limited scope of the Lanham Act in the case, the Tenth Circuit concluded that any permanent injunction against Abitron is cannot exceed its “qualifying domestic conduct.” Id.at 39 The Tenth Circuit also remanded to the District Court the proper measure of damages in view of Abitron’s domestic conduct. Id. at 41.
