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Overseas Trademark Damages ‘Messiness’ Ripe for High Court Look

May 9, 2022, 9:15 AM

The U.S. Supreme Court will likely explore the extraterritorial reach of domestic trademark law for the first time in 70 years after requesting the Justice Department to weigh in, attorneys said.

Abitron Germany GmbH and related companies asked the court to take the appeal, arguing that the U.S. Court of Appeals for the Tenth Circuit overextended the Lanham Act’s reach in affirming a $90 million award to Hetronic International Inc.—an amount derived almost entirely from purely foreign sales. The justices on April 29 asked the solicitor general to give her views on the dispute.

Trademark laws vary from country to country, so the Tenth Circuit’s framework could effectively “export U.S. trademark law to other countries,” intellectual property attorney Timothy Getzoff of Holland & Hart LLP said. That could create a forum-shopping issue, with the U.S. providing “one-stop shopping if you are a U.S. trademark owner” whose mark is primarily—but not exclusively—being infringed abroad.

“It’s a remarkable opinion. It really opens the door for worldwide sales that never touched the U.S. that a plaintiff can claim for damages,” Getzoff said. “This is more extreme than any of” the other circuits’ tests.

Abitron, along with 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. That 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 say.

“It’s fascinating. It’s also likely that the court will grant cert., because it’s just a good vehicle to clarify a lot of messiness about the extraterritorial effect of the Lanham Act,” intellectual property law professor Margaret Chon of Seattle University said.

‘How Much Is Enough?’

The Lanham Act stems from Congress’ constitutional authority to regulate interstate commerce. The high court has been active in clarifying the extraterritoriality of various laws rooted in the commerce clause, said Chon, whose scholarship was cited in Hetronic’s petition for review.

Laws are presumed not to extend beyond U.S. borders unless Congress clearly intended them to, the Supreme Court said in a 2016 decision involving racketeering allegations against RJR Nabisco Inc.

Decades earlier, Bulova Watch Co. sued a U.S. citizen for making and selling knock-off watches in Mexico. The Supreme Court said a U.S. court could hear the case because the defendant was a U.S. resident and citizen who bought components of his counterfeits in the U.S., and watches found their way back across the border. The 1952 opinion didn’t address damages calculations, as it affirmed reversal of an early dismissal.

The circuit courts took over from there, with the Tenth Circuit the latest to enter the fray last August, affirming Hetronic’s $114 million verdict. That included $90 million in trademark damages calculated from infringing sales, 97% of which never touched the U.S. To justify the cross-ocean reach, the court cited the U.S. sales, however limited, while also concluding that Abitron’s foreign revenue “would have flowed into the U.S. economy” absent the knock-offs.

Abitron’s petition argued the Tenth Circuit’s affirmation represented the sixth distinct test adopted by appeals courts. Hetronic countered that claim was a bid to “grasp at trivial differences.”

All circuits generally consider whether the defendant is a U.S. citizen, the conduct’s effect on U.S. 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 U.S. commerce they require.

Intellectual property law professor Tim Holbrook of Emory University, whose research was also cited by Abitron’s petition, said circuit tests do significantly differ and that Abitron’s case would be a “pretty good vehicle” to address it.

“How much is enough? How much of the commerce has to be in the U.S.?” Holbrook said. “I don’t think the Supreme Court will completely overrule Bulova. It will probably use the RJR Nabisco framework and make Bulova consistent with it.”

Some, though, didn’t find the Tenth Circuit’s application of Steele to be so extreme.

“I think that the court is on solid ground,” trademark law professor Willajeane F. McLean of the University of Connecticut said in an email. Other attorneys also found it consistent with past rulings.

Global Commerce, Global Law

Chon noted “so much has changed” since Steele was litigated, as business increasingly moves online and crosses borders. That gives interpretations like the Tenth Circuit’s an extensive reach.

“You can make an argument that any time a product is sold anywhere, effects will bounce back and affect the trademark holder, or confuse consumers traveling abroad,” Chon said. “So with global commerce the reach of the effects is so unlimited that it’s a dangerous type of test to apply in the digital age.”

The case also raises questions involving other legal systems. Most of Abitron’s sales were in the European Union, which is “generally pretty strict on territorial lines,” Holbrook said.

The concept of damages for extraterritorial sales is “at odds” with the underlying principle of trademark rights being territorial rights, London attorney Claire Chalmers of Marks & Clerk Law LLP said in an email. There is some indication the EU and U.K. could consider overseas sales when calculating damages, but “only if there is a sufficiently direct causal link” between infringement and losses, Chalmers said.

“It’s difficult to know in what context this would apply in a case of trade mark infringement, and what would be considered to be a sufficiently direct causal nexus between the infringement and the loss which did not give rise to an act of infringement in the UK or EU,” Chalmers wrote.

Whether or not U.S. trademark jurisdiction law aligns with others countries’, attorneys in the U.S. would appreciate guidance. Trademark attorney Joel Samuels of Harness Dickey & Pierce PLC said there’s “no real clarity.”

“I don’t know why this hasn’t come up sooner,” Samuel said. As for whether the Supreme Court will grant review and hear the case, he said: “Generally you don’t call for the solicitor general’s opinion unless you are going to do something.”

To contact the reporter on this story: Kyle Jahner in Washington at kjahner@bloomberglaw.com

To contact the editors responsible for this story: Adam M. Taylor at ataylor@bgov.com; Jay-Anne B. Casuga at jcasuga@bloomberglaw.com