Supreme Court Limits Reach of Trademarks

While everyone has been enjoying the Independence Day holiday, the Supreme Court was hard at work shaking things up. While its opinion on affirmative action grabbed most of the headlines, the Court also was busy disrupting perceptions about the reach of trademarks. Specifically, the Court ruled that trademark infringement cannot be applied to encompass foreign acts of infringement.

Abitron v. Heltronic involved a U.S. company (Heltronic) that previously had a licensing agreement foreign companies including Abitron. Abitron reverse engineered Heltronic's products and began selling the products under Heltronic's brand largely in Europe, but also in the U.S. Heltronic sued Abitron seeking to stop the infringing sales in the U.S. and abroad and sought damages for the infringement. A U.S. district court issued an injunction to stop all infringing sales worldwide and awarded $96 million in damages.

An appeals court narrowed the scope of the injunction to specific countries, but left the award in place. The Supreme Court considered the question of whether the Lanham Act can be applied outside of the U.S. on the basis of the statutory presumption that Acts of Congress do not extend to foreign conduct applying the test from its 2016 decision in RJR Nabisco v. European Community. While Heltronic and other amicus argued that the Court's prior decision in Steele v. Bulova Watch, which found infringing acts in Mexico could be reached by a U.S. court, should control, the Court noted that this decision came down before it instituted the Nabisco test. Under the Nabisco test, the Court found that the Lanham Act's definition of use in commerce did not extend application of the statute beyond the U.S.

With this ruling, the Court sent the case back to the district court to revise its decision, presumably to only consider the infringing sales in the U.S. for purposes of calculating damages and to limit the scope of the injunction.

From an IP strategy standpoint, this decision emphasizes the territorial nature of intellectual property rights. Assuming that Heltronic continues to sell its own products in Europe and maintains trademark registrations there, it will need to take the added step of bringing an infringement action in Europe to stop the infringing sales and seek damages. This creates additional expense and some uncertainty since tests for infringement and the ability to recover damages may vary from country to country or region to region. For those concerned about foreign activity competing with their own sales, the first step is to assess the need for trademark protection abroad and the requirements for obtaining protection. While the U.S. and most common law based countries require use as a prerequisite to obtaining a trademark registration, a number of countries do not. Those that don't require use, allow companies to register first and establish use later.

As part of my trademark audit service, I typically work with companies to analyze how to get the most bang for their buck in applying for foreign registration, and map current and forecasted use as part of our trademark strategy. We also consider countries and regions of interest for potential infringing manufacturers or distributors. If you have questions about this type of analysis, please contact me.

Supreme Court limits trademark reach