On the 29th day of June, 2023, the Supreme Court of our United States, speaking with a single voice, threw down a decision on Abitron Austria GmbH v. Hetronic International, Inc. They shackled the far-reaching arms of the Lanham Act that had been trying to throttle trademark infringement on global shores. The court, in its stern wisdom, embraced a two-pronged analysis. First, they cast their gaze on whether 15 US Code § 1114(1)(a) and § 1125(a)(1) — pieces of the Lanham Act forbidding trademark infringement — hold sway over foreign soil. Their verdict: they do not. They then decided that the true heart of these provisions was not the aftermath of the alleged trademark infringement, the swirling chaos of consumer confusion, but the act of infringement itself — the stark, bare fact of the trademark’s use in commerce.
The Background of the Matter
Hetronic, an American blacksmith of remote controls, chose to mark its creations with a unique blend of black and yellow. Abitron, a gaggle of foreign companies, first served as a dutiful, licensed distributor of Hetronic’s wares. However, ambition seeped into their hearts, and they began to craft and peddle their own goods, cloaking them in Hetronic’s distinct black and yellow colors. While their commercial exploits mainly took place in Europe, they also smuggled some products into the welcoming arms of the US.
The Legal Tussle
A lawsuit was brought by Hetronic against Abitron, accusing them of crossing the line drawn by the Lanham Act. The lower court, in its initial judgment, deemed Abitron guilty and ordered them to pay a hefty $96 million for their sins of trademark infringement. This price took into account not just Abitron’s direct sales into the land of the free, but also their foreign sales which ended up on American shores and those that never did. On appeal, the 10th Circuit Court of Appeals upheld the ruling, agreeing that the Lanham Act’s reach extended to all of Abitron’s foreign misdeeds due to their ripple effect on the US.
Applying the Presumption Against Extraterritoriality
In the face of appeal, the Supreme Court had to determine the degree to which 15 USC § 1114(1)(a) and § 1125(a)(1) applied beyond our shores. The presumption against extraterritoriality is a beast that must be wrestled in two stages:
- The court must determine whether the provision in question has extraterritorial claws.
- If not, the court then decides if the lawsuit seeks to apply the provision domestically or beyond our borders.
The court, in its wisdom, found no clear mandate from Congress that the Lanham Act should rule over foreign soil. The Act’s reference to “commerce” was not a strong enough rope to tie it to foreign activities.
The Court’s Interpretation
Having declared the provisions domestic, the court moved on to decide whether Hetronic sought to apply the provisions at home or overseas. The deciding factor was the “focus” of the provisions and whether the relevant conduct connected to that focus occurred within the bounds of the US.
Justice Sonia Sotomayor, in her separate note of agreement, argued that the main thrust of the two Lanham Act provisions was the potential for consumer confusion. If the infringing conduct stirred up confusion within the US, she believed, it mattered little where the actual infringement had occurred.
The Court’s Final Word
The majority of the court saw things differently. Since both provisions were designed to stop the unauthorized use of a protected trademark in commerce, they decided the relevant conduct is the “use in commerce”. It must indeed cause confusion to be worth a fight, but this was simply a “necessary characteristic of an offending use,” not a separate requirement. They declared that it is the place where this commercial use actually occurs, not where the effects of confusion are felt, that marks the boundary between foreign and domestic applications of these provisions.
What This Means Going Forward
The Supreme Court’s decision sends a clear message that will likely limit US trademark owners’ ability to hunt down trademark infringement happening entirely beyond our borders, even if it sows seeds of confusion back home. Although the decision does not rein in the Lanham Act when the offending goods or services are sold directly into the US, conduct that happens purely on foreign soil is not subject to the control of 15 USC § 1114(1)(a) or § 1125(a)(1).
Advice for US Trademark Owners
For those US trademark owners who find themselves facing infringement conduct that’s happening outside of our nation’s boundaries, they may need to pack their bags and bring their fight to the foreign jurisdictions where the infringement is happening. This might mean having to secure trademark registrations in those specific foreign lands. Therefore, US brands should give serious thought to seeking trademark registrations beyond our shores, especially in places where they do business or where counterfeiting is known to lurk.
If this decision has stirred up any questions or if you’re unsure about what this might mean for your brand, don’t hesitate to reach out to a member of the Montague Law team.
Implications for Technology Startups
For technology startups, the recent Supreme Court decision demands an urgent reassessment of global trademark strategies. As these young companies typically operate in a highly globalized and internet-oriented market, they must bear in mind that the Lanham Act’s protective reach has now been clearly defined as domestic. As such, any wrongful use of their trademarks beyond U.S. borders will not be shielded by this Act. This puts a particular onus on tech startups, which are often pioneers of innovation, to diligently file for trademark registrations not just domestically, but in every jurisdiction where they operate or intend to do business.
Additionally, due to the high rate of digital proliferation, these startups often find their products and services replicated or counterfeited across the globe at a rapid pace. As such, they might need to take extra measures and invest more in international trademark protection and enforcement. This may involve collaborating with legal teams overseas and dealing with different legal systems, an often complex and costly affair. Therefore, a solid understanding of this ruling and its implications on their business operations and growth strategies is crucial for tech startups. It’s wise to consult with legal experts, such as the team at Montague Law, to guide them through these complex waters.
Relevance to Cryptocurrency Companies
Cryptocurrency companies operate in a uniquely global market. Blockchain technology, upon which cryptocurrencies are based, doesn’t respect geographical boundaries. Transactions and the dissemination of tokens happen worldwide, regardless of the domicile of the issuing company. This implies that these businesses face a unique challenge when it comes to protecting their intellectual property, including trademarks, as demonstrated by the recent Supreme Court decision.
In the realm of cryptocurrency, trademark infringement could take many forms. A crypto company may, for instance, have its unique logo or brand name misused by an offshore entity trying to dupe unsuspecting investors. If this illicit activity is conducted outside the U.S., the Lanham Act’s protective shield no longer applies, even if the confusion among consumers occurs within the U.S.
This makes it critical for cryptocurrency businesses to pursue trademark protections in all jurisdictions where they operate or intend to do business, or where they have a substantial user base. Since the crypto market is inherently global, these businesses may need to invest heavily in international trademark registration and enforcement. This move could be complicated and costly due to the cross-jurisdictional nature of crypto business and the variability in intellectual property laws across different countries.
Furthermore, these crypto companies should stay abreast of regulatory changes globally, given that the legal landscape around cryptocurrencies is rapidly evolving worldwide. They need to engage with legal professionals who specialize in intellectual property rights and who understand the specific challenges of the crypto industry to navigate these legal complexities. If you’re part of a cryptocurrency company and need advice on this matter, consider reaching out to the knowledgeable team at Montague Law.