Extraterritorial Application of the Lanham Act

United States corporations operating abroad often look to the Lanham Act,11

for protection of their intellectual property. If you take almost any Fortune 100 company or company listed on the Dow Jones Industrial Average, you will probably find that it derives a sizable portion of its revenue from international operations. Moreover, its intellectual property, particularly that protected by trademark, is probably among the most valuable assets on its balance sheet.22 Yet courts have not consistently applied the Lanham Act extraterritorially to protect the intellectual property of firms based in the United States.33

Indeed, a recent Tenth Circuit decision, Hetronic Int'l, Inc. v. Hetronic Germany GmbH,44

has highlighted a rift among federal courts of appeals. With the complexion of the current Supreme Court, U.S. companies ought to watch this space very carefully.55 Until the circuit split is resolved, international corporations will have to deal with needless uncertainty. Because this split is so expensive, implicating an enormous volume of commercial activity, the Supreme Court may be motivated to resolve it sooner than later.

In the United States, companies benefit from the intellectual property protections of not only the Lanham Act, but also common law and many states’ statutes.66

But because modern corporations often rely on international operations or income streams to an equal or greater extent than they do domestic operations or income streams, intellectual property protections abroad are enormously consequential.77 Further, intellectual property laws in other countries sometimes clash with the Lanham Act in critical ways.88 The facts of Hetronic illustrate how incongruent legal regimes can work to the detriment of U.S. companies operating abroad.99 In the case, foreign defendants manufactured products identical to those of the plaintiff corporation, which had received trademark protection for these products. Id. A finding that the Lanham Act does not apply to the defendants’ conduct in this case would make relief much more difficult to obtain.

Long before Hetronic, the Supreme Court addressed extraterritorial application of the Lanham Act where a U.S. citizen sold counterfeit watches in Mexico.1010

In Steele, the Court adopted a presumption against application of the Act outside the United States but provided for such application where circumstances support the contention that Congress intended the Act to apply extraterritorially.1111 Since Steele, several frameworks for determining whether this presumption can be overcome have developed in the federal courts of appeals.1212

In brief, there are three main tests to determine whether a court has jurisdiction under the Lanham Act over a foreign party. The first is the Vanity Fair test, a three-part balancing test applied by the Second, Fifth, and First Circuits.1313

The second is the Ninth Circuit’s “jurisdictional rule of reason” test, or the Timberlane test, which adds seven elements to the Vanity Fair test and has proven cumbersome to apply.1414 The third is the McBee test, adopted in the recent Tenth Circuit Hetronic case.1515

The Vanity Fair test is relatively straightforward.1616

Courts employing this test ask whether the defendant’s conduct substantially affected U.S. commerce, if the defendant was a U.S. citizen, and whether U.S. law conflicted with trademark rights under the relevant foreign law.1717 By contrast, the Timberlane test is complex but eminently more flexible.1818 The Ninth Circuit in Timberlane introduced several factors to be considered along with the questions posed by the Vanity Fair test.1919 The additional factors are as follows:

[T]he degree of conflict with foreign law or policy, the nationality or allegiance of the parties and the locations or principal places of business of corporations, the extent to which enforcement by either state can be expected to achieve compliance, the relative significance of effects on the United States as compared with those elsewhere, the extent to which there is explicit purpose to harm or affect American commerce, the foreseeability of such effect, and the relative importance to the violations charged of conduct within the United States as compared with conduct abroad.2020

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But Timberlane did not specify how many factors must be present, and to what extent, for the Act to apply extraterritorially.2121

Into this array of tests and factors used in Lanham Act disputes comes the Tenth Circuit in Hetronic.

The relevant Lanham Act cases preceding Hetronic examined extraterritorial reach as a question of subject matter jurisdiction.2222

Meanwhile, the Hetronic court addressed the question whether a U.S. court could exercise personal jurisdiction over its foreign defendants.2323 The court borrowed a three-pronged approach from the First Circuit’s decision in McBee v. Delica Co.,2424 The Hetronic court espoused the following:

First, courts should determine whether the defendant is a U.S. citizen. Second, when the defendant is not a U.S. citizen, courts should assess whether the defendant’s conduct had a substantial effect on U.S. commerce. Third, only if the plaintiff has satisfied the substantial-effects test, courts should consider whether extraterritorial application of the Lanham Act would create a conflict with trademark rights established under foreign law.2525

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This test may appear more restrictive than its predecessors, but the Tenth Circuit ruled in favor of the plaintiff, finding that the Lanham Act applied extraterritorially.2626

However, given that the Hetronic defendants manufactured identical copycat products under the plaintiff’s brand name, this was not a particularly close case.2727 Still, the decision provides some comfort for corporations in the Tenth Circuit that might need to protect their trademarks against infringement abroad.

For United States-based international firms that depend on the fundamental protections of the Lanham Act, this split and its deepening in Hetronic create distinct challenges. Companies look to the factors outlined in these court decisions to guide them in establishing commercial relationships outside the United States. But it is increasingly unclear what factors a court will use, and to what extent, in determining the scope of extraterritorial application of the Lanham Act.2828

This circuit split is especially interesting because the Supreme Court includes three associate Justices appointed by the last president. Should the question of extraterritoriality make it to the Supreme Court, the relatively inexperienced bench, thought to be especially protective of American industry, is liable to take an aggressive stance and expand the Lanham Act’s applicability in service of U.S. corporations.2929