High Court Trademark Ruling Leaves Enforcement Avenues Murky

The US Supreme Court’s decision reining in the global reach of US trademark law left practitioners questioning brand owners’ ability to combat foreign parties indirectly selling knock-offs into the country.

While nixing a $90 million award based mostly on foreign infringement, the high court ruled that whether plaintiffs can obtain damages turns on whether the “use in commerce” that could confuse consumers was domestic—defined by the infringer’s conduct, not the consumer confusion itself.

Four justices concurred with Justice Samuel Alito’s majority opinion, agreeing that Hetronic International Inc.’s award was unwarranted, but disagreeing on why. They said trademark law is primarily focused on preventing US consumer confusion, rather than the actions that cause it.

Alito left few clues on the boundaries of “use in commerce,” raising the question of what conduct does and doesn’t qualify. Attorneys said the lack of clarity leaves complicated questions for enforcement against typical infringing supply chains in an increasingly global and digital marketplace.

Additionally, neither Alito’s opinion nor Justice Sonia Sotomayor’s dissent-like concurrence addressed secondary or vicarious liability—in which the defendant doesn’t infringe but knowingly encourages or benefits from it—adding to the ambiguity.

“I think he thought he was settling a lot, but he didn’t know all the fact patterns out there,” intellectual property law professor Rochelle C. Dreyfuss of New York University said. “Whatever was a hard question before is still a hard question.”

Those hard questions leave brand owners and practitioners unsure of what they have to do to prevent infringement that affects the US. If a foreign infringer is causing confusion in the US, Alito’s opinion seems to suggest companies have to be very active protecting their rights even in countries where they don’t operate, attorneys said.

“This has the potential to have a profound impact on trademark enforcement and how brands develop trademark portfolios internationally,” IP attorney Andrea Stein Fuelleman of Neal Gerber Eisenberg LLP said. “In the digital age, it’s hard to talk about where the sale occurred, where the conduct occurred. The conduct isn’t always squarely in one country or another. It really does blur the lines.”

‘Larger Critique’

Hetronic’s award against Abitron Germany GmbH was based almost entirely on foreign Abitron sales of radio remote controls. The US Court of Appeals for the Tenth Circuit affirmed the district court’s award, ruling that “those revenues would have flowed into the US economy” absent Abitron’s sales using the mark of its former licensor.

All nine justices disagreed with that standard.

But Sotomayor’s concurring opinion, joined by Chief Justice John Roberts as well as Justices Elena Kagan and Amy Coney Barrett, took aim at the heart of the majority’s reasoning. She argued Alito implicitly cast aside a decision that attorneys say has been a guidepost to courts for decades—the Supreme Court’s 1952 ruling in Steele v. Bulova Watch Co.

Alito said Steele was “of little assistance” because that case, involving counterfeit watches made and sold in Mexico, emphasized both US conduct and US consumer confusion. But Sotomayor found Alito’s emphasis on the location of infringing conduct and apathy toward the location of the related confusion to be in direct conflict with Steele’s emphasis on both. She, and attorneys who spoke to Bloomberg Law, found it implausible that Steele wouldn’t come out differently under Alito’s standard.

“Alito overrules Steele without saying it,” said IP law professor Jessica Silbey of Boston University.

Alito’s premise also narrows Congress’ authority in general, she added, because the notion of US effects not mattering “can be exported to almost any area of law.”

Silbey said Sotomayor noted the court has always had “proximate cause” to connect the act to the harm. “Alito doesn’t care about that. He doesn’t even say the word ‘proximate cause,’” Silbey said. “He’s divorcing it from the reason we have trademark law, to prevent consumer confusion.”

Sotomayor folded her criticism of Alito’s treatment of Steele “into a larger critique,” IP professor Christine Haigtht Farley of American University said. The concurrence is saying the majority “is going out on a limb, not bound by precedent,” and that “you’re making stuff up now,” Farley said. “It’s not so much about Steele as that larger point.”.

But Fuelleman said Hetronic was too ambiguous to truly overrule Steele, a narrow ruling involving a US citizen and US conduct that Hetronic doesn’t necessarily bar considering. She called it a “safe decision” that at least let companies know they can’t go after purely foreign infringement after Steele “left that in the air.”

Secondary Concerns

Alito’s opinion likely didn’t close off companies from attacking foreign entities that directly sell into the US online, attorneys said. As was the case before the decision, the challenge there becomes establishing jurisdiction, which is a separate question. But many instances of infringement—including counterfeiting—don’t have facts that simple.

“This will certainly come up in counterfeiting cases because these days almost all counterfeits are made outside of the US,” IP attorney Jonah M. Knobler of Patterson Belknap Webb & Tyler LLP said. “And they often are not brought into the US by the original counterfeiter. There are long and shady chains of distribution.”

Knobler said cases could hinge on whether the counterfeiter used the mark in US commerce by manufacturing in China and selling it to a distributor knowing it would then be sold illegally in the US. That invokes secondary liability, which went unmentioned in both Alito’s and Sotomayor’s opinions.

Consideration of such liability opens questions about what a plaintiff would have to show the original source knew, did, or failed to do about the infringement to establish liability. That raises questions not only about what conduct has to happen in the US for US law to reach it, but whose conduct: only the party who imported and sold a product, or also a manufacturer’s inducement of those sales?

The scenario creates a dynamic where the original creator of counterfeits isn’t a direct infringer under US law, but its distributor into the US is. If secondary liability requires the defendant—not just the direct infringer—to act in the US, attorneys say, it becomes increasingly important to actively enforce rights abroad to address even domestic confusion.

“What is an American company supposed to do?” Dreyfuss posed. “Get a trademark in every country in the world to make sure no one sells into the US? That’s incredibly expensive.”

‘Split the Baby’

In a separate concurring opinion not joined by other justices, Justice Ketanji Brown Jackson came closest to addressing secondary liability, sources said.

The nature of Jackson’s opinion and Sotomayor’s concurrence indicated to many observers that Sotomayor may have been close to a majority but ultimately lost Jackson. Silbey characterized it as a 4-1-4 opinion.

Jackson sided with the majority on the “understanding” that “‘use in commerce” could involve functioning as a trademark in the US despite a foreign original sale. In a hypothetical, she suggested a foreign counterfeiter could face liability if the party that bought the infringing goods abroad brought them into the US and resold them, as the mark the counterfeiter affixed to the product would have been “used” in US commerce.

Alito said of Jackson’s opinion, “We have no occasion to address the precise contours” of “use in commerce,” expressly rejecting the appropriateness of additional clarity. Multiple legal professionals said they appreciated Jackson diving into the weeds the other two opinions passed up, but others faulted her hypotheticals as off-base.

“Justice Jackson, I think, tries to split the baby,” Silbey said. “Her concurrence unfortunately doesn’t make a lot of sense. It omits a discussion of secondary liability.”

The case isn’t the high court’s only recent trademark ruling that leaves lower courts to flesh out the definition of a foundational concept. In Jack Daniels Properties Inc. v. VIP Products LLC the court rejected applying a First Amendment escape hatch for unlicensed use of marks in expressive works when they’re “used as a trademark,” leaving courts to grapple with what precisely that means.

Hetronic adds “use in commerce” to courts’ to-define list, legal professionals said.

“If there’s a bright side, it’s that the ‘use in commerce’ definition in the trademark is woefully under-theorized,” Silbey said. “It forces district courts to ask the hard question of what trademark use in commerce is.”