The US Supreme Court will have an opportunity to tailor the scope of the Lanham Act’s global reach as it weighs a $90 million award almost entirely derived from foreign trademark infringement profits to Hetronic International Inc.
The justices agreed Nov. 4 to review a Tenth Circuit ruling favoring radio remote control-maker Hetronic that the US government called “symptomatic of widespread confusion in the lower courts.” The high court granted former Hetronic licensee and accused infringer Abitron Germany GmbH’s petition to hear its case for slashing the lost profits award granted under the Lanham Act, which governs trademark law.
Hetronic convinced a federal jury in Oklahoma that Abitron and other related entities sold infringing products, including some in the US. The US Court of Appeals for the Tenth Circuit upheld the jury’s $114 million award, including $90 million in trademark damages. To justify the extraterritorial reach, the Tenth Circuit cited the limited US sales, and also foreign infringement revenue that the court said would have flowed to Hetronic and into the US economy.
Attorneys have been dubious about the Tenth Circuit decision since it was issued. Now that the high court has taken up the case on the recommendation of the US government, some attorneys said they expect the justices to reverse the decision and clarify that the Lanham Act’s reach is designed to be domestic.
“I think the Tenth Circuit is going down in flames on that one,” trademark attorney Nadine Jacobson of Fross Zelnick Lehrman & Zissu P.C. said. “The case law on the Lanham Act says you have to show an impact on commerce in the US. It has to affect reputation, sales—a significant effect. I don’t think they’ve done that in this case.”
Dan Harris of Harris Bricken Sliwoski LLP called the dispute “one of the most interesting cases I’ve ever read,” and deals with several “important issues” that affect work he’s done in his international-minded trademark practice. He said “it seems like the courts have been sloppy” about whether the Lanham Act’s reach extends to completely foreign activity involving US marks.
“The answer is most certainly no,” he said. “Maybe that’s what they want to make clear.”
Hetronic filed its 2014 lawsuit in Oklahoma against Abitron Germany GBH and five other affiliated foreign companies that distributed its products in Europe. The Oklahoma court awarded Hetronic its massive award based mostly on foreign infringement, then ordered a worldwide injunction that was subsequently ignored, according to the 2021 appeals court opinion upholding the award.
Abitron’s petition for high court review argued trademarks are territorial and the Lanham Act’s protections don’t apply to purely foreign sales. It said just 3% of the $90 million in contested Arbitron remote-control radio product sales ever reached the US, and only $240,000 worth were sold directly to US buyers.
The Justice Department agreed, urging the high court in a brief from the solicitor general to nix any damages not tied to US consumer confusion. The brief said US laws are presumed to govern only domestic conduct, and the Lanham Act is directed at preventing confusion among US consumers.
The appellate opinion’s logic also risks globalizing US trademark law, allowing US courts to serve as a springboard for regulating foreign conduct with no effect on US consumers, the DOJ added.
“This is a case where they probably should have explored suing in Germany, because to the extent they have viable claim, the German courts would have been very fair-minded in granting them relief,” Jacobson said. “The German courts are often quite plaintiff-friendly.”
‘Might Have a Point,’ but...
Abitron, various attorneys, and academics said the decision widens a circuit split over how to apply the high court’s guidance in the 70-year-old Steele v. Bulova Watch Co. decision.
In that case, the Supreme Court said a US court could hear a watchmaker’s case because the defendant was a US resident and citizen who bought components of his counterfeits in the country, and the watches found their way back across the border. It didn’t address damages.
Inconsistent application of that case leaves litigants uncertain what damages for transnational infringement might be available in different federal courts, so additional instruction from the Supreme Court would be helpful, attorneys have said.
All circuits generally consider whether the defendant is a US citizen, the conduct’s effect on US commerce, and whether extraterritorial reach would create conflict with trademark rights established under foreign law.
Some apply a three-factor test, while others separately use citizenship as a threshold that creates jurisdiction, only bothering with the other factors for foreign infringers. Abitron argued that the rubrics vary widely on how much effect on US commerce they require.
Hetronic, meanwhile, argued that the case is a bad one for the Supreme Court to use to tackle the issue because the manufacturer “didn’t really fight the numbers” to establish with any precision its lost sales, Harris noted.
“They might have a point there,” Harris said. “Except the Supreme Court might just send it back to the lower court and say, ‘You have to distinguish this.’”
MoloLamken LLP represents Abitron. Jenner & Block LLP and Ogletree Deakins Nash Smoak & Stewart PC represent Hetronic.
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