One Year After SCOTUS Lanham Act Decision – Key Takeaways from Tenth Circuit Revised Opinion

Abitron v.  Hetronic: on Remand: Takeaways from the Tenth Circuit’s Application of the Supreme Court’s Decision on Quantifying Damages Under the Lanham Act

It has been one year since the United States Supreme Court unanimously held that the Lanham Act is not extraterritorial in its reach, and that two provisions of the Act – 15 U. S. C. §1114(1)(a) and §1125(a)(1) –  extend only to claims where the infringing use in commerce is domestic. The Supreme Court’s decision in Abitron Austria GMBH, et al., v. Hetronic International, Inc.[1] vacated a verdict of $90 million in damages payable by Abitron Austria GMBH (“Abitron”) to Hetronic International, Inc. (“Hetronic”) and remanded the case to the Tenth Circuit. The Tenth Circuit issued its remand decision on April 23, 2024.[2] Below is a brief history of the case and the Supreme Court decision as well as key takeaways from the Tenth Circuit’s opinion on remand.

The Case: Abitron Austria GMBH, et al., v. Hetronic International, Inc

Hetronic designs and manufacturers distinctive remote controls used to operate construction equipment.[3]  Abitron was a foreign assembler and distributor of the Hetronic remote controls in Germany and other central eastern European countries at the time it began selling Hetronic branded products with its own reversed engineered parts built by unauthorized third parties.[4] Generally, Abitron sold the remotes to an original equipment manufacturer (“OEM”), which then installed them into machinery and sold the machinery to end-users in various countries including the U.S.[5] Because the counterfeit parts did not go through Hetronic’s quality control process, some of the parts suffered technical failures, which resulted in complaints to Hetronic.[6] After Hetronic discovered Abitron’s scheme, Hetronic terminated its distribution and licensee agreements with Abitron and Abitron subsequently began to sell imitation Hetronic products under the Abitron name.[7]

Hetronic alleged Abitron infringed its trademarks under the two provisions of the Lanham Act, which both prohibit the unauthorized “use in commerce” of a protected trademark, and sought related damages.[8] In response, Abitron argued Hetronic’s extraterritorial application of the Lanham Act was impermissible.[9] 

Ultimately, the District Court awarded Hetronic over $100 million in damages, including $90 million awarded under the Lanham Act as follows:[10]

• • $240 thousand for products sold directly into the U.S.;
  • $2 million for products sold abroad, but intended for use in the U.S.; and
  • $87 million for products sold abroad, and not intended for use in the U.S.

Abitron appealed this decision, and the Tenth Circuit largely affirmed the District Court’s decision.[11] The Supreme Court then granted Abitron’s petition to review the decision to address the extraterritorial reach of the Lanham Act.[12]

Extraterritoriality

In the U.S., the presumption against extraterritoriality applies a “commonsense notion that Congress generally legislates with domestic concerns in mind” and “serves to avoid the international discord that can result when U. S. law is applied to conduct in foreign countries.”[13] However, despite the presumption against extraterritoriality, there are certain instances where the presumption may be “rebutted,” which can be assessed under a “two-step framework.”[14] The first step simply determines if Congress has “unmistakably instructed that” the invoked provision applies to foreign conduct.[15] If the answer is yes, then the provision is extraterritorial. If the answer is no, the provision is not extraterritorial, then the trier of fact moves to step two to determine if the plaintiff seeks a permissible domestic application of the provision, which requires the plaintiff to establish “that ‘the conduct relevant to the statute’s focus occurred in the United States.’”[16]  

The Supreme Court’s Decision

In its Abitron decision, the Supreme Court held that neither §1114(1)(a) nor §1125(a)(1)(A) of the Lanham Act are extraterritorial, meaning Congress did not “unmistakably instruct” that these provisions apply to foreign conduct. [17] The Court then moved on to step two to determine whether “‘the conduct relevant to the statute’s focus’ occurred in the United States.” The Court found that both Lanham Act provisions invoked by Hetronic “prohibit the unauthorized ‘use in commerce’ of a protected trademark.”[18] Thus, because the provisions are both premised on a specific action, that of being “use[d] in commerce,” that is necessarily the “conduct relevant to the statute’s focus.”[19]  With this clarification, the Court concluded that  “‘use in commerce’ provides the dividing line between foreign and domestic applications of these Lanham Act provisions.”[20] That is, if the conduct occurred in the United States, then there is a permissible domestic application of the statue; if the conduct occurred in another country, then it is an impermissible extraterritorial application of the statue. As the Tenth Circuit’s decision was not made under this understanding of extraterritoriality, the decision was vacated and remanded.[21]

Tenth Circuit Opinion on Remand

In its opinion on remand, the Tenth Circuit emphasized and/or found the following:

• • “Use in commerce” means any use “in connection with the sale, offering for sale, distribution, or advertising of any good” that is “likely to cause confusion.”
  • The sale of $240 thousand of Arbitron imitation products sold directly into the U.S. can cause liability under the Lanham Act because the sale occurred in the U.S. and “threatened confusion among U.S. consumers.”
  • The sale of $2 million of Arbitron imitation products sold abroad, but intended for use in the U.S. cannot cause liability under the Lanham Act because the sale occurred abroad.
  • The sale of $87 million of Abitron imitation products sold abroad, but not intended for use in the U.S. cannot cause liability under the Lanham Act because the sale occurred abroad.
  • The independent sale of Abitron’s imitation products in the U.S. by OEMs does not constitute an infringing “use in commerce” by Arbitron. Independent acts by OEMS do not impute liability upon Abitron.
  • Actions Abitron took to facilitate sales in the U.S., including obtaining certifications and hiring a U.S. based distributor to service its products and market them at trade shows, are not infringing conduct if the actions did not require the use of Hetronic’s trademarks in U.S. commerce.
  • If Abitron engaged in activities “through its U.S. distributor to sell, market, advertise, or distribute infringing goods to U.S. consumers,” such activities could cause liability under the Lanham Act.
  • Any damages must “share a casual nexus with Abitron’s domestic conduct that used Hetronic trademarks in commerce.”

The Tenth Circuit remanded the case to the District Court for further proceedings consistent with the above and other considerations.[22]

Takeaways from the Decisions for Quantifying Damages Under the Lanham Act

Based on the Supreme Court’s decision and the decision of the Tenth Circuit on remand, it is essential that any damages alleged under the Lanham Act “share a causal nexus” with the domestic conduct that used the protected trademark in commerce. Thus, plaintiffs will need to distinguish potential damages caused by a domestic “use in commerce” from those caused by a foreign “use in commerce.” As the determination of these damages can become complex, especially as it relates to damages caused by the marketing, advertising, or distribution of imitation goods, a financial expert, such as those at Resolution Economics, can support counsel by 1) providing an objective, supportable, and comprehensive analysis of the trademark owner’s damages and 2) assisting in determining a reasonable and supportable allocation between foreign and domestic “use in commerce.” 

To further discuss the Abitron Austria GMBH, et al., v. Hetronic International, Inc decisions as they relate to damages incurred under the Lanham Act or for assistance with a damage analysis, please reach out to the financial experts at Resolution Economics.