Opinion ID: 201739
Heading Depth: 2
Heading Rank: 1

Heading: Framework for Assessing Extraterritorial Use of the Lanham Act

Text: 29 By extraterritorial application of the Lanham Act, we mean application of the Act to activity (such as sales) of a defendant outside of the territorial boundaries of the United States. In addressing extraterritorial application of the Lanham Act, we face issues of Congressional intent to legislate extraterritorially, undergirded by issues of Congressional power to legislate extraterritorially. Usually in addressing questions of extraterritoriality, the Supreme Court has discussed Congressional intent, doing so by employing various presumptions designed to avoid unnecessary international conflict. See, e.g., Spector v. Norwegian Cruise Line Ltd., ___ U.S. ___, ___, 125 S.Ct. 2169, 2177, ___ L.Ed.2d ___, ___ (2005); F. Hoffman-La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 124 S.Ct. 2359, 2366-73, 159 L.Ed.2d 226 (2004); see also EEOC v. Arabian Am. Oil Co., 499 U.S. 244, 248, 111 S.Ct. 1227, 113 L.Ed.2d 274 (1991) (It is a longstanding principle of American law that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States. (internal quotation marks and citation omitted)). 30 The parties characterize the extraterritoriality issue as, at least in part, one of subject matter jurisdiction under the Act, and it is often viewed that way. See, e.g., Levi Strauss & Co. v. Sunrise Int'l Trading Co., 51 F.3d 982, 984 (11th Cir.1995); Ocean Garden, Inc. v. Marktrade Co., Inc., 953 F.2d 500, 502 (9th Cir.1991); see also United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942, 945-51 (7th Cir.2003) (en banc) (question whether Sherman Act applied extraterritorially under the Foreign Trade Antitrust Improvements Act (FTAIA), 15 U.S.C. § 6a, went to subject matter jurisdiction of court). 31 The Supreme Court has long since made it clear that the Lanham Act could sometimes be used to reach extraterritorial conduct, but it has never laid down a precise test for when such reach would be appropriate. 5 Steele v. Bulova Watch Co., 344 U.S. 280, 73 S.Ct. 252, 97 L.Ed. 319 (1952); see also Arabian Am. Oil Co., 499 U.S. at 252-53, 111 S.Ct. 1227 (distinguishing Steele ). The circuit courts have established a variety of tests for determining when extraterritorial application of the Lanham Act is appropriate, treating different factual contexts as all subject to the same set of criteria. See Vanity Fair Mills v. T. Eaton Co., 234 F.2d 633, 642 (2d Cir.1956); see also Int'l Cafée, S.A.L., v. Hard Rock Cafe Int'l (U.S.A.), Inc., 252 F.3d 1274, 1278-79 (11th Cir.2001) (applying Vanity Fair ); Nintendo of Am., Ltd., v. Aeropower Co., 34 F.3d 246, 250-51 (4th Cir.1994) (adopting the Vanity Fair test, although requiring a significant effect rather than a substantial effect on United States commerce); Reebok Int'l, Ltd. v. Marnatech Enters., Inc., 970 F.2d 552, 554-57 (9th Cir.1992) (applying the jurisdictional rule of reason from Timberlane Lumber Co. v. Bank of Am., 549 F.2d 597 (9th Cir.1977): plaintiff must show (1) some effect on United States commerce, (2) an effect that is sufficiently great to be a cognizable injury to plaintiff under the Lanham Act, and (3) the interests and links to American commerce must be sufficiently strong in relation to those of other nations to justify, in terms of comity, an extraterritorial application of the act); Am. Rice, Inc. v. Ark. Rice Growers Coop. Ass'n, 701 F.2d 408, 414 & n. 8 (5th Cir. 1983) (modifying Vanity Fair's first prong to require only some effect on United States commerce). This court has not previously addressed the question. 32 Steele found that there was Lanham Act jurisdiction over a defendant, selling watches in Mexico, who was a United States citizen and whose operations and their effects were not confined within the territorial limits of a foreign nation. 6 344 U.S. at 286, 73 S.Ct. 252. Defendant made no sales within the United States. The Court held that the Lanham Act conferred broad jurisdiction in that its purpose was to regulate commerce within the control of Congress. 15 U.S.C. § 1127. The Act prohibits the use of certain infringing marks in commerce. 15 U.S.C. § 1114(1); Id. § 1125(a). Importantly, commerce is defined in the Act as all commerce which may lawfully be regulated by Congress. Id. § 1127. 33 The Steele Court did not define the outer limits of Congressional power because it was clear that the facts presented a case within those limits. The Steele Court explicitly and implicitly relied on two different aspects of Congressional power to reach this conclusion. First, it explicitly relied on the power of Congress to regulate the conduct of its own citizens, even extraterritorial conduct. Steele, 344 U.S. at 285-86, 73 S.Ct. 252. This doctrine is based on an idea that Congressional power over American citizens is a matter of domestic law that raises no serious international concerns, even when the citizen is located abroad. See id. at 285-86, 73 S.Ct. 252 (citing Skiriotes v. Florida, 313 U.S. 69, 73, 61 S.Ct. 924, 85 L.Ed. 1193 (1941) (Florida state criminal law banning taking of sponges from high seas) and Branch v. Federal Trade Comm'n, 141 F.2d 31, 35 (7th Cir.1944) (federal unfair competition law)); see also F. Hoffman-La Roche Ltd., 124 S.Ct. at 2367; Cook v. Tait, 265 U.S. 47, 54-56, 44 S.Ct. 444, 68 L.Ed. 895 (1924) (income tax law); Restatement (Third) of Foreign Relations Law of the United States § 402(2) (1986) ([A] state has jurisdiction to prescribe law with respect to ... the activities ... of its nationals outside as well as within its territory.). 7 34 Second, Steele also implicitly appears to rely on Congressional power over foreign commerce, although the Foreign Commerce clause is not cited—the Court noted that the defendant's actions had an impact on the plaintiff's reputation, and thus on commerce within the United States. See 344 U.S. at 286-87, 288, 73 S.Ct. 252. The Steele Court concluded that an American citizen could not evade the thrust of the laws of the United States by moving his operations to a privileged sanctuary beyond our borders. Id. at 287, 73 S.Ct. 252. 35 For purposes of determining subject matter jurisdiction, we think certain distinctions are important at the outset. The reach of the Lanham Act depends on context; the nature of the analysis of the jurisdictional question may vary with that context. Steele addressed the pertinent Lanham Act jurisdictional analysis when an American citizen is the defendant. In such cases, the domestic effect of the international activities may be of lesser importance and a lesser showing of domestic effects may be all that is needed. We do not explore this further because our case does not involve an American citizen as the alleged infringer. 36 When the purported infringer is not an American citizen, and the alleged illegal activities occur outside the United States, then the analysis is different, and appears to rest solely on the foreign commerce power. Yet it is beyond much doubt that the Lanham Act can be applied against foreign corporations or individuals in appropriate cases; no court has ever suggested that the foreign citizenship of a defendant is always fatal. See, e.g., Sterling Drug, Inc. v. Bayer AG, 14 F.3d 733, 746 (2d Cir.1994); Wells Fargo & Co. v. Wells Fargo Express Co., 556 F.2d 406, 429 (9th Cir.1977). Some academics have criticized treating the Lanham Act differently from patent and copyright law, which generally are not applied extraterritorially. See C. Bradley, Extraterritorial Application of U.S. Intellectual Property Law, 37 Va. J. Int'l L. 505 (1997); but see R. Schechter, Comment, The Case For Limited Extraterritorial Reach of the Lanham Act, 37 Va. J. Int'l L. 619 (1997). Nonetheless, the Supreme Court recently reaffirmed the Steele approach to extraterritorial jurisdiction under the Lanham Act by distinguishing it in Arabian American Oil Co. See 499 U.S. at 252-53, 111 S.Ct. 1227. The question becomes one of articulating a test for Lanham Act jurisdiction over foreign infringing activities by foreign defendants. 37 The decisions of the Supreme Court in the antitrust context seem useful to us as a guide. The Court has written in this area, on the issue of extraterritorial application, far more recently than it has written on the Lanham Act, and thus the decisions reflect more recent evolutions in terms of legal analysis of extraterritorial activity. As the Court noted in Steele, Lanham Act violations abroad often radiate unlawful consequences into the United States, see 344 U.S. at 288, 73 S.Ct. 252; see also Schecter, supra, at 629-30. One can easily imagine a variety of harms to American commerce arising from wholly foreign activities by foreign defendants. There could be harm caused by false endorsements, passing off, or product disparagement, or confusion over sponsorship affecting American commerce and causing loss of American sales. Further, global piracy of American goods is a major problem for American companies: annual losses from unauthorized use of United States trademarks, according to one commentator, now amount to $200 billion annually. See Schecter, supra, at 634. In both the antitrust and the Lanham Act areas, there is a risk that absent a certain degree of extraterritorial enforcement, violators will either take advantage of international coordination problems or hide in countries without efficacious antitrust or trademark laws, thereby avoiding legal authority. 38 In Hartford Fire Ins. Co. v. California, 509 U.S. 764, 113 S.Ct. 2891, 125 L.Ed.2d 612 (1993), the Supreme Court addressed the issue of when a United States court could assert jurisdiction over Sherman Act claims brought against foreign defendants for a conspiracy that occurred abroad to raise reinsurance prices. It held that jurisdiction over foreign conduct existed under the antitrust laws if that conduct was meant to produce and did in fact produce some substantial effect in the United States. Id. at 796, 113 S.Ct. 2891; see also United States v. Nippon Paper Indus. Co., 109 F.3d 1, 4 (1st Cir.1997); Doe I v. Unocal Corp., 395 F.3d 932, 961 (9th Cir.2002) (applying the substantial effects test to determine whether jurisdiction should be asserted over foreign securities fraud). 8 The Hartford Fire Court also held that comity considerations, such as whether relief ordered by an American court would conflict with foreign law, were properly understood not as questions of whether a United States court possessed subject matter jurisdiction, but instead as issues of whether such a court should decline to exercise the jurisdiction that it possessed. See id. at 797-98 & n. 24, 113 S.Ct. 2891. 39 The framework stated in Hartford Fire guides our analysis of the Lanham Act jurisdictional question for foreign activities of foreign defendants. We hold that the Lanham Act grants subject matter jurisdiction over extraterritorial conduct by foreign defendants only where the conduct has a substantial effect on United States commerce. 9 Absent a showing of such a substantial effect, at least as to foreign defendants, the court lacks jurisdiction over the Lanham Act claim. Congress has little reason to assert jurisdiction over foreign defendants who are engaging in activities that have no substantial effect on the United States, and courts, absent an express statement from Congress, have no good reason to go further in such situations. See 1A P. Areeda & H. Hovenkamp, Antitrust Law ¶ 272f (2d ed. 2000) (When a government's interest in a transaction is remote, minor, tangential, or otherwise insignificant, that government would presumably not seek to control it.); 1 W. Fugate, Foreign Commerce and the Antitrust Laws § 2.13, at 99-100 (5th ed.1996). 40 The substantial effects test requires that there be evidence of impacts within the United States, and these impacts must be of a sufficient character and magnitude to give the United States a reasonably strong interest in the litigation. See, e.g., 1 Fugate, supra, §§ 2.9, 2.12, 2.13; see also 1A Areeda & Hovenkamp, supra, ¶ 272f2; United Phosphorus, 322 F.3d at 952-53. The substantial effects test must be applied in light of the core purposes of the Lanham Act, which are both to protect the ability of American consumers to avoid confusion and to help assure a trademark's owner that it will reap the financial and reputational rewards associated with having a desirable name or product. See, e.g., Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 33-34, 123 S.Ct. 2041, 156 L.Ed.2d 18 (2003); see also Atl. Richfield Co. v. ARCO Globus Int'l Co., 150 F.3d 189, 193-94 (2d Cir.1998). The goal of the jurisdictional test is to ensure that the United States has a sufficient interest in the litigation, as measured by the interests protected by the Lanham Act, to assert jurisdiction. 41 Of course, the Vanity Fair test includes a substantial effects inquiry as part of its three-part test. 10 We differ from the Vanity Fair court in that we disaggregate the elements of its test: we first ask whether the defendant is an American citizen, and if he is not, then we use the substantial effects test as the sole touchstone to determine jurisdiction. 42 If the substantial effects test is met, then the court should proceed, in appropriate cases, to consider comity. We also transplant for Lanham Act purposes Hartford Fire's holding that comity considerations are properly analyzed not as questions of whether there is subject matter jurisdiction, but as prudential questions of whether that jurisdiction should be exercised. See Hartford Fire, 509 U.S. at 798 n. 24, 113 S.Ct. 2891. Our analysis differs again from Vanity Fair on this point. See Vanity Fair, 234 F.2d at 642. Vanity Fair and other cases have considered as part of the basic jurisdictional analysis whether the defendant acted under color of protection of the trademark laws of his own country. We disagree and do not see why the scope of Congressional intent and power to create jurisdiction under the Lanham Act should turn on the existence and meaning of foreign law. 43 Congress could, of course, preclude the exercise of such Lanham Act jurisdiction by statute or by ratified treaty. Or it could by statute define limits in Lanham Act jurisdiction in such international cases, as it has chosen to do in the antitrust area. See 15 U.S.C. § 6a. It has not done so.