The Supreme Court of the US (SCOTUS) has released its decision in Abitron Austria GmbH v. Hetronic International, holding that two provisions in the Lanham Act that prohibit trademark infringement “are not extraterritorial and that they extend only to claims where the claimed infringing use in commerce is domestic”.

The case concerns a trademark dispute between US company Hetronic and six foreign parties (collectively Abitron). Hetronic manufactures remote controls for construction equipment. Abitron, once a licensed distributor for Hetronic, claimed ownership of the rights to much of Hetronic’s IP and began employing Hetronic’s marks on products it sold.

When Hetronic sued Abitron for trademark infringement, Abitron argued that Hetronic sought an “impermissible extraterritorial application of the Lanham Act”.  The district court rejected Abitron’s argument and a jury later awarded Hetronic approximately $96m in damages related to Abitron’s global employment of Hetronic’s marks. Abitron was also served with an injunction preventing it from using Hetronic’s marks anywhere in the world.

The US Court of Appeal for the Tenth Circuit narrowed the injunction, but affirmed the judgment, concluding that the Lanham Act extended to “all of [Abitron’s] foreign infringing conduct”.

SCOTUS, however, found last week that the two related provisions were “not extraterritorial” and apply only to claims where the infringing use in commerce is domestic. The court vacated the judgment of the Court of Appeals and remanded the case for further proceedings consistent with this opinion.

Joyce Liou, co-chair of the trademark group at Morrison Foerster, said until now, many courts have viewed the Lanham Act as an extraterritorial statute, allowing litigants to bring US claims and obtain injunctions against defendants over infringing acts abroad.

She added that SCOTUS’s unanimous decision changes the landscape for cross-border cases entirely. By ruling that the Lanham Act’s infringement provisions are not extraterritorial, the Supreme Court has curtailed their application to only domestic uses, meaning the defendant’s use in commerce of the plaintiff’s mark must be domestic.

Throughout the majority opinion, delivered by Justice Alito, the judges stressed the principle “which we call the presumption against extraterritoriality”. The presumption “serves to avoid the international discord that can result when US law is applied to conduct in foreign countries”.

Hetronic had maintained that the Lanham Act’s definition of “commerce” – “all commerce which may lawfully be regulated by Congress” – rebutted the presumption against extraterritoriality.

Howver, the opinion said the court had “repeatedly held that even statutes… that expressly refer to ‘foreign commerce’” when defining “commerce” are not extraterritorial.

“This conclusion dooms Hetronic’s argument,” it added.

Liou added: “This is a significant ruling because multiple circuit courts – not just the Tenth Circuit whose decision was overturned – have looked to an earlier Supreme Court decision in Steele v. Bulova to develop different tests for applying the Lanham Act extraterritorially.

“In its decision, the Supreme Court distinguished Steele on the basis that the facts there included both domestic and foreign conduct. Now those circuit courts will need to reevaluate their tests in light of the Abitron decision.”

Timothy Getzoff, an IP partner at Holland & Hart, said the opinion was “largely unexpected by practitioners and may create significant uncertainty going forward” given that the new test “creates a higher obstacle” for US companies seeking to stop counterfeiting and other trademark infringement that originates abroad.

Although most watchers expected SCOTUS to overrule the Tenth Circuit opinion, he added, the majority opinion significantly restricts the ability of US trademark owners to enforce their trademarks against infringement and counterfeiting that finds its way back into the US. “In doing so, Judge Alito effectively overruled 70 years of jurisprudence on this issue,” he said.

Although it was a majority opinion, Getzoff believed that Justice Sotomayor’s concurrence was essentially a dissent, as “she correctly characterises the majority view as ‘myopic’.”

Justice Sotomayor indicated she would have simply overruled the Tenth Circuit and “pulled the law back” to the prior standard of Bulova Watch v. Steele, perhaps clarifying the various “substantial effects” tests that the circuit courts had applied. This is what trademark practitioners expected, Getzoff concluded.