The Lanham Act, its Extraterritorial Reach, and How It Can Be Used to Protect Trademarks from Being Exploited Outside of the United States

As technology makes the word smaller, it becomes more and more important for companies to protect trademarks.  The Lanham Act (15 U.S.C. §1051) protects owners of registered trademarks from use in commerce by another that is “likely to cause confusion or mistake or to deceive purchasers as to the source of origin of the other’s good or services.”  The United States Federal Court has become increasingly willing to find jurisdiction to resolve disputes that occurred almost solely outside of the United States.

The Lanham Act has been used to protect trademarks in extraterritorial cases when applying the rule of substantial effect

Extraterritorial Protection

Although the jurisdiction of the United States Federal Courts are limited, the Federal Courts will allow jurisdiction of some primarily extraterritorial disputes when a United States trademark or copyright is exploited outside of the United States.  As technology expands sales of many United States companies outside of the United States the Lanham Act can be an effective tool to combat the sale of forgeries.  [1]  There are statutory penalties, meaning penalties even if there are no actual damages, of up to $100,000 for each infringing act.

The Lanham Act

The first instance in which the United States Supreme Court applied the Lanham Act extraterritorial occurred in 1952.  The Supreme Court originally held that the Lanham Act confers jurisdiction over extraterritorial disputes involving trademark infringement and unfair competition when: 1) Defendant is a United States corporation; 2) the foreign activity had substantial effects in the United States; and 3) exercising jurisdiction would not interfere with the sovereignty of another nation.  Steele v. Bulova Watch Co., 344 U.S. 280 (1952).  As technology has progressed, Courts have interpreted Bulova to be a broader standard, thus potentially putting more and more foreign companies under the Lanham Act umbrella, making the act a useful tool for protecting trademarks from foreign infringers

Bulova was originally interpreted narrowly by the First Circuit.  Vanity Fair Mills, Inc. v. T. Eaton Co., 234 F.2d 633 (2d Cir. 1956).  In Vanity Fair, the defendant was a foreign company who applied for the “Vanity Fair” trademark in a foreign country a year after the plaintiff company received the trademark in the United States.  Although the Second Circuit recognized that the foreign company’s actions had a substantial effect on commerce, the court held the Lanham Act did not apply when the foreign corporation acted under a valid foreign trademark.

The Vanity Fair test has been applied differently when the infringing company was an American company infringing on other American company’s trademarks in foreign countries.  For instance, in Am. Rice, Inc. v. Ark. Rice Growers Co-operative Ass’n, 701 F.2d 408 (5th Cir. 1983), the Fifth Circuit recognized that the Vanity Fair factors, while important, are not dispositive and the failure of one factor does not necessarily preclude the Lanham Act from granting jurisdiction over the foreign company.  Am. Rice dealt with two American companies, with the defendant infringing on the plaintiff’s trademark in Saudi Arabia.  While the court admitted the defendant’s actions did not have a substantial effect on American commerce, it still held the Lanham Act applied and instead held there only needed to be “more than [an] insignificant” effect.  The Fifth Circuit reasoned the law did not bar the United States from governing the conduct of its own citizens in foreign countries when the rights of other nations are not infringed.

Foreign Defendents

Conversely, when the defendant company is not an American company and the defendant company has registered the mark in their foreign country the analysis has been different.  In McBee v. Delica Co., 417 F.3d 107 (1st Cir. 2005), the First Circuit tackled with the issue of whether the Lanham act applied to a foreign company who sold an American company’s trademarked products through its website.  The defendant was a Japanese company who had a valid Japanese trademark on the products.  With the defendant being a foreign company, the First Circuit put greater weight on the foreign company’s effect on American commerce.  The court held that the website’s small amount of sales to the United States ($2,500) was not enough to grant jurisdiction through the Lanham Act.  While the court recognized that the website was accessible in the United States, a website being accessible in the United State was not enough to have the required “substantial effect” on American commerce.

However, even if a foreign company’s own website does not ship a trademarked product, the “substantial effect” factor can be satisfied through third-parties.  In Airwair Int’l LTD v. Vans, Inc., No. 5:12-CV-05060-EJD (N.D. Cal. July 17, 2013), the Northern District of California held that the Lanham Act applied to a foreign company even when the manufacturing, advertising, and selling of the trademarked product occurred outside the United States.  The court held that the defendant’s infringement had the required substantial effect on American commerce due to popular third party blogs and websites recommending customers obtain the products either through a third party seller (like ebay.com) or friends traveling to the foreign company’s area to transport the products back into the United States.  This third party publicity, although not under the control of the defendant, still affected American commerce enough to extend the extraterritorial arm of the Lanham Act to apply to the defendant.

The Eleventh Circuit

The Eleventh Circuit has repeatedly found that the Lanham Act extraterritorially applies where some component of the alleged infringement has taken place within the United States.  For example, in Levi Strauss & Co. v. Sunrise International Trading, Inc., 51 F.3d 982 (11th Cir. 1995), the Eleventh Circuit recognized that shipping products through the United States can be enough to have a “substantial effect” on commerce even when the products are manufactured and sold elsewhere. Shipping materials used to create infringing products thorough the United States can also substantially affect commerce.  Babbit Electronics v. Dynascan Corp., 38 F.3d 1161 (11th Cir. 1994).   The Lanham Act also allows a court to exercise jurisdiction over a foreign company when the company uses an agent within the United States to conduct “substantial business” with customers inside the United States.  TNT USA Inc. v. TrafiExpress, S.A. de C.V., 434 F. Supp. 2d 1322, 1328 (S.D. Fla. 2006).  In TNT, the Southern District of Florida held that the Lanham Act extraterritorially applied to a foreign company for unauthorized use of the plaintiff’s trademarked logo.  The court recognized that the defendant’s conduct (using an agent within the United States to procure business and shipping products in the United States using the plaintiff’s logo) satisfied Bulova’s substantial effect requirement.

Recent Example

Recently, the Federal Courts were asked to resolve a dispute between Trader Joe’s, a United States grocer, and a Canadian company operating as Pirate Joe’s.  Trader Joe’s Co. v. Hallatt, 835 F.3d 960 (9th Cir. 2016).  Trader Joe’s was upset because a Canadian citizen that owned a business in Canada that did business as Pirate Joe’s was traveling to the Trader Joe’s in Washington State and buying large quantities of Trader Joe’s products and selling them at inflated prices in the Pirate Joe’s in Canada.  In Trader Joe’s, a test that was applied minimized the substantial effect requirement and put an emphasis on the potential harm to the American company.  The test applied was as follows:

(1) The alleged violations…create some effect on American foreign commerce; (2) the effect [is] sufficiently great to present a cognizable injury to plaintiffs under the Lanham Act; and (3) the interests of and links to American foreign commerce [are] sufficiently strong in relation to those of other nations to justify an assertion of extraterritorial authority.

Id. at 969 citing Love v. Assoc. Newspapers, Ltd., 611 F.3d 601, 613 (9th Cir. 2010)

Trader Joe’s is a good example of how the United States Courts are increasingly more likely to apply the Lanham Act to any extraterritorial act that has even a minimal effect on United States commerce.  In Trader Joe’s there was really no damage alleged by Trader Joe’s but the Court was influenced that United States Commerce was implicated because someone in Canada could get sick because of Pirate Joe’s low levels of quality control and that the person that became sick from eating products from Pirate Joe’s may believe Trader Joe’s was at fault.

Conclusion

The extraterritorial arm of the Lanham Act can be extremely useful for companies trying to protect trademarks from infringement occurring outside of the United States.  For the Lanham Act to apply to extraterritorial disputes, there needs to be some effect on American commerce and at least a sufficient great chance that the infringement will result in a cognizable injury to the owner of the mark.  Simply put, if there is some United States involvement in the infringement there is a good likelihood the Lanham Act will be implicated.  Implication of the Lanham Act could result from something as simple as shipping products or materials through the United States, having an agent within the United States, exporting product from the United States, or having a United States company sell infringing products (even if these infringing products never touch United States soil) overseas.  If a United States company finds that their trademark is being infringed upon in other countries an attorney should be consulted to determine if action can be taken in the United States and if the protections afforded by the Lanham Act apply.


[1] In addition to the Lanham Act, most countries also have their own trademark laws and most marks can be independently registered in foreign countries.  This article addresses the need to utilize United States Trademark law as aggressively as possible because of the great cost and expense of fully protecting a mark “worldwide” by utilization of trademark law in multiple foreign countries.


Authors:
D. Brad Hughes, Esq.
John Rutledge, J.D. Candidate

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