U.S. Trademark Law "Does Not Rule the World" – The Arbitron Case
In yet another of several recent IP cases the Supreme Court of the United States has taken an interest in, this summer the Supreme Court has answered the question of whether United States law allows trademark owners to enforce U.S. trademarks against otherwise infringing conduct when that conduct occurs outside the United States. And the answer to this question is “No.” As the Court put it, it “bears repeating” that “United States law governs domestically but does not rule the world.”
In Arbitron Austria GmbH v. Hetronic Int’l., Inc.,[1] Hetronic, a U. S. manufacturer of radio remote controls for construction equipment, sued Arbitron, an entity that was formerly a licensed Hetronic distributor. Hetronic’s products have “a distinctive black-and-yellow color scheme to distinguish them from those of its competitors” and are sold in more than 45 countries. At some point Arbitron decided that it held the rights to much of Hetronic’s intellectual property and began selling Hetronic-branded products made from third-party-sourced parts. Arbitron sold most of its products in Europe, but also had some direct United States sales.
Hetronic sued Arbitron for a variety of alleged statutory and common law violations, including trademark infringement under the U.S. Lanham Act and, more particularly, for violation of 15 U.S.C. § 1114(1)(a) (infringement of a registered trademark) and 15 U.S.C. § 1125(a)(1) (federal unfair competition). Throughout the proceedings in the trial court, Arbitron argued that Hetronic sought an impermissible extraterritorial application of the Lanham Act, but the trial court disagreed. After a jury trial, Hetronic was awarded approximately $96 million in damages related to Arbitron’s global use of Hetronic’s marks, and the trial court awarded a permanent injunction preventing Arbitron from using the marks anywhere in the world. Although an appellate court narrowed the geographic scope of the injunction to cover only certain countries, it otherwise affirmed the judgment against Arbitron.
Because different federal appellate courts in the United States have reached different conclusions regarding the extraterritorial reach of the Lanham Act, the Supreme Court of the United States granted certiorari to resolve that split of precedential authority.
The Supreme Court began its analysis with the “longstanding principle of American law” that “legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States.” There is, therefore, a presumption against extraterritoriality, or “a presumption against application to conduct in the territory of another sovereign.” This presumption “serves to avoid the international discord that can result when U.S. law is applied to conduct in foreign countries.” It also reflects the “commonsense notion that Congress generally legislates with domestic concerns in mind.” Applying a two-step framework to determine whether the Lanham Act should apply extraterritorially, the Supreme Court concluded that it does not. The first question was whether the relevant provisions of the Lanham Act provide “a clear, affirmative indication” that they apply extraterritorially, to which the Court found they did not. The next question was to determine the relevant provisions’ focus and ascertain whether Hetronic could “establish that the conduct relevant to that focus occurred in the United States.” On this question the parties had the greatest dispute, arguing for different focuses, none of which the Court ultimately agreed with.
The Supreme Court found that the focus of the relevant Lanham Act provisions was on the conduct captured by the phrase “use in commerce” as defined in the Lanham Act. The Court explained that “use in commerce” was the most straightforward focus because Congress deemed a violation of either provision of the Lanham Act to occur each time a mark is used in commerce as described by Congress, which only contemplates use in U.S. commerce—not international use. Recognizing the long-enshrined principle that “each country is empowered to grant trademark rights and police infringement within its borders,” the Court emphasized the territorial nature of trademarks in reaching its decision, as well as acknowledged the probability of international conflict and discord that extraterritorial application of U.S. law would bring.
Ultimately, the Court held that § 1114(1)(a) and § 1125(a)(1) of the Lanham Act are not extraterritorial and that the infringing “use in commerce” of a trademark provides the dividing line between foreign and domestic applications of these provisions. According to the Supreme Court, the term “use in commerce” as used in the Lanham Act means “the bona fide use of a mark in the ordinary course of trade,” where the mark serves to “identify and distinguish the mark user’s goods and to indicate the source of the goods.” The Court then vacated the appellate court’s judgment because it was not in accord with this understanding of extraterritoriality.
What does this mean for practitioners and clients? For companies operating outside the U.S. that do not have sales entering the United States, there may be some collective sighs of relief. There now appears to be more clarity at least as to some questions regarding liability for U.S. trademark infringement. Because of this case, for example, we know that a U.S. trademark owner cannot collect damages in a U.S. court against a non-U.S. company for non-U.S. sales that otherwise would infringe a U.S. trademark. That does not mean, of course, that there cannot be liability in other countries under other countries’ laws. Similarly, this case is a good reminder for trademark and brand owners as to the importance of proper global portfolio and enforcement strategy—having only U.S. trademarks is not enough for those participating in global markets. Ultimately, while the holding of Arbitron may not be too surprising, it is a good reminder of the importance of being strategic and purposeful in global IP management.
