Foreign Sales to Foreign Customers Are Not Actionable Under the Lanham Act

By on May 9, 2024
Posted In Trademarks

Issuing a revised opinion following the Supreme Court’s 2023 decision in Abitron Austria GmbH v. Hetronic Int’l, Inc., the US Court of Appeals for the Tenth Circuit determined that none of the defendant’s purely foreign sales to foreign customers can premise liability for the plaintiff’s Lanham Act claims and that any permanent injunction issued against the defendant cannot extend beyond qualifying domestic conduct. Hetronic International, Inc. v. Hetronic Germany GmbH; Hydronic-Steuersysteme GmbH; ABI Holding GmbH; Abitron Germany GmbH; Abitron Austria GmbH; Albert Fuchs, Case Nos. 20-6057; -6100 (10th Cir. Apr. 23, 2024) (Murphy, McHugh, Phillips, JJ.)

Hetronic is a US company that manufactures radio remote controls for heavy-duty construction equipment. Hetronic sued its foreign distributors and licensees (collectively, Abitron) in the US District Court for the Western District of Oklahoma for trademark infringement when, following termination of the Hetronic distribution and license agreements, Abitron reverse-engineered Hetronic’s products and began manufacturing and selling their own copycat products bearing Hetronic’s trade dress (a “distinctive black-and-yellow color scheme”). Abitron’s sales of the copycat products took place primarily in Europe. In the first rounds of this dispute, the district court rejected Abitron’s argument that Hetronic sought an impermissible extraterritorial application of the Lanham Act, and a jury awarded Hetronic $96 million in damages related to Abitron’s global use of Hetronic’s marks. Abitron was also permanently enjoined from using the marks anywhere in the world. Abitron appealed to the Tenth Circuit.

As a matter of first impression, the Tenth Circuit fashioned its own test to determine the extraterritoriality of the Lanham Act, upholding the district court’s ruling but narrowing the injunction to only the countries where Hetronic marketed or sold its products. Abitron appealed to the Supreme Court.

The Supreme Court granted certiorari to resolve a circuit split over the Lanham Act’s extraterritorial reach. Specifically, the Supreme Court was asked to decide whether the Lanham Act applies to “purely foreign sales that never reached the United States or confused U.S. customers” and considered its long-standing presumption against extraterritoriality, with the first step of its analysis consisting of asking whether Congress has “affirmatively and unmistakably instructed” that a particular statute “should apply to foreign conduct.” As the second step, the Supreme Court determined whether a claim seeks a permissible domestic or impermissible foreign application of a statute.

The Supreme Court held that Sections 32(1)(a) and 43(a)(1)(A) of the Lanham Act are not extraterritorial and that the infringing conduct – being “use in commerce” of a trademark – determines the dividing line between foreign and domestic application of the Lanham Act. The Supreme Court vacated the Tenth Circuit’s findings and remanded for further proceedings, instructing the Tenth Circuit to reevaluate which of Abitron’s allegedly infringing activities count as use in commerce under the Supreme Court’s exterritoriality frameworks and to determine on which side of the dividing line Abitron’s conduct falls.

With the Supreme Court having already determined step one, on remand, the Tenth Circuit started with step two of the extraterritoriality analysis and found that the focus of the relevant provisions of the Lanham Act is to punish unauthorized commercial uses of US-registered trademarks that harm American businesses and consumers by causing confusion or a likelihood of confusion as to the source or origin of a product or service. Under this statutory focus, the relevant conduct implicated is the use of a trademark “in commerce” in a manner likely to cause confusion. Here, the Tenth Circuit established that Abitron’s infringing uses in commerce include its direct US sales and marketing, advertising and distributing that caused a likelihood of confusion among US consumers. To assess whether Lanham Act penalties attach, the Court then had to consider if the infringing use occurred domestically or overseas.

Under this directive, and leaning on the jury’s original findings, the Tenth Circuit concluded that all of Abitron’s direct US sales were actionable under the Lanham Act because those sales used Hetronic trademarks in domestic commerce in a manner likely to cause confusion among US customers. As to foreign sales, under the Supreme Court’s new Abitron framework, the analysis must pertain to the location of the conduct relevant to the focus of the statute and not where the foreign sales “ended up” – even if they ended up in the United States. Under this rubric, the Tenth Circuit found that Abitron’s purely foreign sales to foreign customers are not actionable under the Lanham Act.

Turning to disgorgement of profits, the Tenth Circuit explained that Hetronic must identify the total sales that resulted from Abitron’s infringing activity with reasonable certainty. Hetronic also bears the burden of proving the connection between Abitron’s domestic infringing conduct and its foreign sales. The Tenth Circuit determined that it is up to the district court to interpret which of Abitron’s domestic activities meet the infringing “uses in commerce” threshold under the Supreme Court’s Abitron decision. Additionally, the Tenth Circuit instructed the district court to review and modify the permanent injunction, which the Tenth Circuit originally limited to the countries in which Hetronic markets or sells its products. As such, the Court reinstated all other aspects of its prior opinion apart from its Lanham Act discussion and remanded Hetronic’s federal claims under the Lanham Act and the associated remedies to the district court for further proceedings consistent with the revised opinion.

Sarah Bro
Sarah Bro is the office managing partner for the Firm’s Orange County office. She focuses her practice on trademark prosecution, enforcement and brand portfolio management, as well as licensing, due diligence, copyright, right of publicity and domain name matters. Read Sarah Bro's full bio.