By James Juo.

The Tenth Circuit has held that the Lanham Act extends to extraterritorial conduct involving foreign defendants making foreign sales in Hetronic International, Inc. v. Hetronic German Gmbh, Nos. 20-6057 & 20-6100 (10th Cir. Aug. 24, 2021). Plaintiff, a US company that manufactures and sells wireless Radio Remote Controls (RRC) for industrial equipment such as construction cranes, had entered into distribution and licensing agreements with non-US Defendants to distributed Plaintiff's products in Europe; but Defendants later violated those agreements and continued to sell copycat products in Europe even after Plaintiff terminated those distribution and licensing agreements. Among other claims, Plaintiff asserted trademark infringement claims under the Lanham Act.

At trial, a jury found that Defendants willfully infringed the trademarks, and awarded over $100M in damages, most of which flowed from foreign sales damages under the Lanham Act. The district court in Oklahoma also entered an injunction barring the Defendants from selling the infringing products worldwide.

On appeal, the Tenth Circuit held that there was personal jurisdiction over the Defendants pursuant to Federal Rule of Civil Procedure 4(k)(2), adopting the Seventh Circuit's reasoning and holding that the “initial burden” is on the defendant to identify a state in which the lawsuit could proceed, and if one is not identified, then the federal court is entitled to use Rule 4(k)(2).

With respect to the extraterritorial scope of the Lanham Act, the Tenth Circuit acknowledged that there is a general presumption against extraterritoriality, but that it may be applied to foreign conduct at least in some circumstances, citing the U.S. Supreme Court's decision in Steele v. Bulova Watch Co., 344 U.S. 280, 282–285 (1952). “Still, that lone decision leaves much unanswered about the extent of the Lanham Act's extraterritorial reach—particularly, . . . as it relates to foreign defendants.”

Noting that the courts of appeals that have confronted this issue have adopted one of three tests for deciding whether the Lanham Act governs a defendant's foreign conduct, namely the Second Circuit's Vanity Fair test, the Ninth Circuit's Timberland test, and the First Circuit's McBee test.

The Tenth Circuit adopted the First Circuit's framework (which relies heavily on the caselaw governing the extraterritoriality of U.S. antitrust laws), where, for the foreign activities of a foreign defendant, whether the complained-of activities have a substantial effect on U.S. commerce. But, the Tenth Circuit also held that, in addition to the McBee analysis, the court should further consider whether the extraterritorial application of the Lanham Act would create a conflict with trademark rights established under foreign law.

Here, the Court found that Defendants' conduct had a substantial effect on U.S. commerce, based on two theories. First, many of Defendants' foreign sales have ended up in the United States where “millions of euros worth of infringing products found their way into the United States and that Defendants' efforts to sell those products caused confusion among U.S. consumers.” Second, a “diversion-of-sales theory—the idea that Defendants stole sales from Hetronic abroad, which in turn affected Hetronic's cash flows in the United States” (where Plaintiff had presented evidence that Defendants' conduct cost it tens of millions of dollars in lost sales, the lost revenues for which would have flowed into the US economy but for Defendants' conduct infringing a US trademark). Thus, the Court concluded that “the Lanham Act applies extraterritorially here to reach all of Defendants' foreign infringing conduct.”

With respect to the worldwide scope of the injunction, the Court narrowed that injunction to the countries in which Plaintiff “currently markets or sells its products” because “Hetronic isn't entitled to injunctive relief in markets it hasn't actually penetrated.”

The trademark attorneys at Thomas P. Howard, LLC are experienced in enforcing trademarks or defending against infringement claims in litigation nationwide including in Colorado.

UPDATE: The Tenth Circuit's decision was vacated by U.S. Supreme Court, which held that §1114(1)(a) and §1125(a)(1) of the Lanham Act are not extraterritorial and extend only to claims where the infringing use in commerce is domestic. Abirton Austria GmbH v. Hetronic Int'l, Inc., No. 21-1043 (June 29, 2023).