Supreme Court Vacates $96 Million Damages Award Based on Holding That Lanham Act Only Reaches Domestic Uses in Commerce

September 18, 2023

For a case in which all nine Justices agreed to vacate a jury award based on trademark infringement, the Supreme Court’s decision in Abitron Austria GmbH v. Hetronic Int’l, Inc., No. 21-1043, 2023 WL 4239255 (June 29, 2023), spawned a sharp disagreement between two camps of Justices.  The decision also leaves unanswered some key questions with which lower courts will have to grapple. 

Abitron addressed the extraterritorial scope of the Lanham Act.  Writing for a five-Justice majority that also included Justices Thomas, Gorsuch, Kavanaugh, and Jackson, Justice Alito held that two key provisions of the Lanham Act (i.e., Sections 1114(1)(a) and 1125(a)(1)) “are not extraterritorial and that they extend only to claims where the claimed infringing use in commerce is domestic” (emphasis added).  Because the jury below – and the Tenth Circuit – applied the Lanham Act such that it had extraterritorial reach, the majority vacated the jury’s award of $96 million to plaintiff Hetronic. 

Justice Sotomayor, joined by Chief Justice Roberts, Justice Kagan, and Justice Barrett, concurred in the judgment.  Justice Sotomayor’s opinion advanced an extraterritoriality analysis that diverges significantly from the majority’s test, but she too concluded that the Tenth Circuit applied the law incorrectly.  All nine Justices therefore agreed that the jury award should be vacated.  

After Abitron, uncertainty remains with regard to how lower courts should determine whether a defendant who committed some allegedly infringing acts outside the United States can be liable for trademark infringement under the Lanham Act.  Useful guidance on the question might be found in a separate concurring opinion from Justice Jackson, who joined in Justice Alito’s majority opinion, but who also offered some illustrative examples that no other Justice endorsed. 

Background 

Hetronic manufactures and sells radio remote controls for construction equipment.  Hetronic’s products have a distinctive black-and-yellow color scheme that allegedly distinguishes them from competitors’ products.  Abitron originally operated as a licensed distributor of Hetronic’s products, but later concluded that it did not need a license.  Abitron proceeded to reverse engineer Hetronic products, and then allegedly began selling Hetronic-branded products that incorporated parts sourced from third parties. 

Hetronic sued Abitron in the Western District of Oklahoma under the Lanham Act.  Hetronic invoked Section 1114(1)(1), which prohibits the unauthorized “use in commerce [of] any reproduction … of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services” when “such use is likely to cause confusion,” and Section 1125(a)(1), which prohibits the “us[e] in commerce” of a protected mark, whether registered or not, that is “likely to cause confusion.”  Hetronic sought damages under these provisions for Abitron’s infringing acts worldwide, including Abitron’s sales in the United States, Abitron’s foreign sales that ended up in the United States, and Abitron’s foreign sales that never made it to the United States.

Throughout the proceedings below, Abitron argued that Hetronic was seeking an improper extraterritorial application of the Lanham Act.  The District Court disagreed, and the jury eventually awarded Hetronic approximately $96 million based on Abitron’s global use of the Hetronic marks.  The District Court also entered an injunction preventing Abitron from using the marks throughout the world.  The Tenth Circuit narrowed the injunction, but otherwise affirmed.  The Court of Appeals held that the Lanham Act reached “all of [Abitron’s] foreign infringing conduct.”  The Supreme Court granted certiorari. 

The Majority Opinion 

Justice Alito, joined by four Justices, wrote the majority opinion that vacated the jury’s award.  Justice Alito began by explaining that the Supreme Court has historically presumed “that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States.”  The Court has generally applied that presumption in a given case pursuant to a two-step framework. 

“At step one, we determine whether a provision is extraterritorial, and that determination turns on whether ‘Congress has affirmatively and unmistakably instructed that’ the provision at issue should ‘apply to foreign conduct.’”  If Congress has “unmistakabl[y] instruct[ed] that the provision is extraterritorial, then claims alleging exclusively foreign conduct may proceed,” subject to any limitations Congress has placed on the law’s foreign application.  If a court finds that the provision in question is not extraterritorial, it should move to step two of the analysis. 

The majority wasted little time on step one, finding that the relevant provisions from the Lanham Act did not provide a clear and affirmative indication that they apply extraterritorially.  “[N]either provision at issue provides an express statement of extraterritorial application or any other clear indication that it is one of the ‘rare’ provisions that nonetheless applies abroad.  Both simply prohibit the use ‘in commerce’ … of protected trademarks when that use ‘is likely to cause confusion.’” 

Justice Alito then moved to step two.  At step two, which a court only reaches when it has found that a statute does not apply extraterritorially, the court should “resolve[ ] whether the suit seeks a (permissible) domestic or (impermissible) foreign application of the provision.”  When making this assessment, “courts must start by identifying the ‘focus of congressional concern’” underlying the statute.  This focus can “include the conduct [that the provision] ‘seeks to regulate,’ as well as the parties and interests it ‘seeks to protect’ or vindicate.” 

In a portion of the majority opinion that would prove critical to the dispute raised in Justice Sotomayor’s concurrence, Justice Alito wrote that “[s]tep two does not end with identifying statutory focus.  We have repeatedly and explicitly held that courts must ‘identify the statute’s focus’ and ask whether the conduct relevant to that focus occurred in United States territory.’” (emphasis in original).  To underscore this point, Justice Alito stated that “to prove that a claim involves a domestic application of a statute, ‘plaintiffs must establish that the conduct relevant to the statute’s focus occurred in the United States.’” (emphasis in original). 

When he turned to the parties’ arguments regarding step two, Justice Alito again emphasized that step two had two components.  He wrote that “the proper test requires determining the [statutory] provision’s focus and then ascertaining whether Hetronic can ‘establish that the conduct relevant to [that] focus occurred in the United States.’”  Alito criticized both of the parties for centering so much of their competing analyses on the “focus” of the Lanham Act’s provisions while ignoring the “conduct relevant to that focus.”  Specifically, the defendant Abitron contended that Sections 1114(1)(a) and 1125(a)(1) focus on preventing infringing uses of trademarks, and the plaintiff Hetronic argued that the provisions focus on protecting the goodwill of mark owners and preventing consumer confusion.  The United States, as an amicus, asserted that the statutory focus was on avoiding consumer confusion. 

These distinctions are important.  If consumer confusion is the relevant focal point, then foreign activities that ultimately lead to a likelihood of confusion domestically could give rise to a valid infringement claim.  Alternatively, if the focal point is protecting the mark owner’s goodwill, then foreign sales might give rise to a claim if the mark owner resides in the United States.  Or, if the Lanham Act’s key focus is preventing infringing uses, then foreign sales would likely not give rise to a claim – for those sales occur overseas.  In the end, Justice Alito found that the parties’ debate over statutory focus did “not exhaust the relevant inquiry,” and his majority opinion never resolved it.  To the contrary, Justice Alito wrote that prior Supreme Court decisions “have acknowledged that courts do ‘not need to determine [a] statute’s focus’ when all conduct regarding the violations ‘took place outside the United States.’” 

Alito then concluded that the “ultimate question regarding permissible domestic application turns on the location of the conduct relevant to the focus,” and that “the conduct relevant to any focus the parties have proffered is infringing use in commerce, as the [Lanham] Act defines it.” (emphasis in original).  In reaching this conclusion, Alito stated that, although a risk of confusion is “a necessary characteristic of an offending use,” it “is not a separate requirement” for finding liability.  Instead, because “Congress [ ] premised liability on a specific action (a particular sort of use in commerce), that specific action would be the conduct relevant to any focus on offer [by the parties] today.” 

The majority thus held that “‘use in commerce’ provides the dividing line between foreign and domestic applications of these Lanham Act provisions,” and that the provisions “extend only to claims where the claimed infringing use in commerce is domestic.”  “Use in commerce,” in turn, means the bona fide use of a mark in the ordinary course of trade, where the mark serves to identify the mark owner’s goods and indicate their source.  Because the District Court below and the Tenth Circuit did not apply this standard, and instead awarded damages based on foreign sales, the majority vacated the Court of Appeals’ judgment. 

In a footnote, Justice Alito expressly declined to “further elaborat[e]” on the “precise contours” of the phrase “use in commerce.”  The one thing his majority opinion makes clear, however, is that the relevant “use in commerce” does not hinge on having any sort of confusion associated with it.  The relevant conduct is the “use in commerce” irrespective of any confusion the conduct causes. 

Justice Sotomayor’s Concurrence in the Judgment 

Justice Sotomayor’s concurrence, which Chief Justice Roberts and Justices Kagan and Barrett joined, disagreed sharply with the majority’s analysis.  Although Justice Sotomayor “agree[d] with the majority’s conclusion that the decision below must be vacated” – because the trial court and the Tenth Circuit applied the wrong standard – she “disagree[d] … with the extraterritoriality framework that the Court adopt[ed][.]”  Justice Sotomayor reasoned that the relevant provisions of the Lanham Act “extend[ ] to activities carried out abroad when there is a likelihood of consumer confusion in the United States.”   

Justice Sotomayor began by agreeing with the majority that the Court has historically applied a two-step test when assessing extraterritoriality.  She also agreed that, at step one, the statutory language at issue did not rebut the presumption against extraterritoriality.  But the Sotomayor concurrence diverged from the majority on almost everything else. 

At step two, the concurring Justices were persuaded by the Government’s position, which Justice Sotomayor characterized as a “middle ground” between the positions advanced by the parties.  According to the Government and Sotomayor, “the focus of the [Lanham Act provisions at issue] is consumer confusion.”  Sotomayor explained that, in her view, “[b]ecause the statute’s focus is protection against consumer confusion, the statute covers foreign infringement activities if there is a likelihood of consumer confusion in the United States and all other conditions for liability are established.”  This is a significantly different interpretation than that advanced by the majority.  

Justice Sotomayor chided the majority for “transform[ing] the Court’s extraterritoriality framework into a myopic conduct-only test.  Specifically, instead of discerning the statute’s focus and assessing whether that focus is found domestically, as the Court’s precedents command, the majority now requires a third step: an assessment of whether the ‘conduct relevant to the focus’ occurred domestically, even when the focus of the statute is not conduct.”  Sotomayor wrote that the majority, in fact, made “matters even more confusing [by] skip[ping] over the middle step of this new framework, concluding that it is unnecessary to discern the focus of the Lanham Act because ‘the conduct relevant to any potential focus’ that ‘the parties have proffered’ must be ‘use in commerce,’ since that is conduct mentioned in the statute.”

Justice Sotomayor contended that the majority’s new “conduct-only” test was not merely incorrect as an academic matter.  Sotomayor warned that “[t]he Court’s transformative approach thwarts Congress’ ability to regulate important ‘interests’ or ‘parties’ that Congress has the power to regulate.”  For instance, “[s]ome statutes may have a statutory focus that is not strictly conduct and that implicates some conduct abroad.”  However, “[u]nder the Court’s new categorical rule, those statutes may not cover relevant conduct occurring abroad, even if that conduct impacts domestic interests that Congress sought to protect.”  The majority’s ruling, according to Sotomayor, suffered from this flaw. 

Justice Sotomayor also stated that tying the Lanham Act’s focus to “consumer confusion in the United States” was “consistent with th[e] international system.”  Such a focus “properly cabins the Act’s reach to foreign conduct that results in infringing products causing consumer confusion domestically while ‘leaving to foreign jurisdictions the authority to remedy confusion within their territories.’”  The majority’s “approach, by contrast, would absolve from liability those defendants who sell infringing products abroad that reach the United States and confuse consumers here.”    

Justice Jackson’s Concurrence 

Unlike Justice Sotomayor (and the Justices who joined in her opinion), Justice Jackson joined in Justice Alito’s majority opinion.  Abitron was a 5-4 decision, so Justice Jackson’s vote was critical.  But Justice Jackson also penned a separate concurrence to add some additional views.  And her concurrence was no perfunctory exercise; it fleshed out an aspect of the majority’s test by providing substantive analysis that Justice Alito expressly declined to provide. 

As noted above, although Justice Alito held that a “use in commerce” provides the “dividing line between foreign and domestic applications” of the statutory provisions at issue, he refused to define the precise contours of the phrase.  Justice Jackson wrote separately to address that issue.  Jackson gave specific examples to illustrate her thinking.   

Justice Jackson highlighted the distinction that trademark law makes between using a mark for its source-identifying function and using it for “non-trademark uses,” which might use the same symbol but not to identify source.  Jackson stated that this distinction “points to something key about what it means to use a trademark in the sense Congress prohibited – i.e., in a way likely to commit the ‘cardinal sin’ of ‘confus[ing] consumers about source.’”  This led Jackson to conclude that “a ‘use in commerce’ does not cease at the place the mark is first affixed, or where the item to which it is affixed is sold.  Rather, it can occur wherever the mark serves its source-identifying function.”  Jackson went on to explain that “even after a trademark begins to be ‘use[d] in commerce (say, when goods on which it is placed are sold), that trademark is also ‘used in commerce’ wherever and whenever those goods are in commerce, because as long as they are, the trademark ‘identif[ies] and distinguish[es] … the source of the goods.” 

Justice Jackson posed a hypothetical to clarify this.  “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.”  Jackson said that the U.S.-based company Coach would not, absent other facts, have a claim against the German company.  “The [‘Coache’] 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[.]’”   

But Justice Jackson then asks the reader to imagine one change to the fact pattern.  “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’” (emphasis in original).  Jackson believes that, on these facts, the American company Coach would have a claim against Coache, “i.e., it cannot successfully obtain dismissal of the lawsuit on extraterritoriality grounds – even though it never sold the bags in, or directly into, the United States.”  

Justice Jackson also added that, “in the internet age, one could imagine a mark serving its critical source-identifying function in domestic commerce even absent the domestic physical presence of the items whose source it identifies.”  Jackson did not further expand on this point. 

No other Justice joined in Justice Jackson’s concurrence.  It is therefore difficult to tell how much weight her remarks will carry in future litigation.     

Impact

Abitron will certainly make it more difficult for mark owners to prevail on trademark infringement claims based on conduct abroad.  Even if a defendant’s foreign actions cause confusion domestically, the mark owner will not have a claim unless it can show that the defendant committed “uses in commerce” within the United States. 

There will nonetheless be significant uncertainty with regard to the application of this rule.  The majority’s unwillingness to expand on what it contemplates a “use in commerce” to mean will lead to debate in the lower courts.  Lower court judges may turn to Justice Jackson’s concurrence for guidance, but her concurring opinion is not binding.  It therefore remains to be seen how much influence it will ultimately have in future litigation. 

Author: Marc J. Pernick