SCOTUS to Hear Case Connected to 10th Circuit Trademark Decision

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The U.S. Supreme Court will hear a case decided by the 10th Circuit Court of Appeals connected to foreign nationals and a damages award under the Lanham Act. / Law Week file.

The U.S. Supreme Court will hear a case March 21 involving trademarks and a decision from the 10th Circuit Court of Appeals.

The Lanham Act protects the owners of federally registered marks against the use of similar marks which could cause consumer confusion or lead to the dilution of a famous mark.

According to the petition for a writ of certiorari, the case centers around U.S. trademarks and trade dress for radio remote controls used to operate heavy equipment. 

In the 1980s, German company Hetronic Steuersysteme GmbH invented radio remote controls. In 2000, Hetronic Steuersysteme’s founder Max Heckl moved to the U.S. and started Hetronic International, Inc. as a U.S. corporation, according to the petition. Hetronic International was in a research and development agreement with Hetronic Steuersysteme and two co-developers. The agreement provided that Hetronic Steuersysteme and the co-developers were the sole owners of everything that is done by Hetronic International. That included the trademarks and trade names.

The petition noted Heckl sold Hetronic International in 2008 to Methode Electronics and it didn’t include Hetronic Steuersysteme, which had since been renamed Hetronic Deutschland. Heckl sold Hetronic Steuersysteme (i.e. Hetronic Deutschland) to petitioner Hetronic Germany in 2010. 

After the acquisition of Hetronic Steuersysteme, petitioners Hetronic Germany and Hydronic-Steuersysteme, which are both owned by Albert Fuchs, licensed rights to the Hetronic name from Hetronic International. They agreed to act as Hetronic International’s distributors. At that time, Fuchs wasn’t aware of the research and development agreement that confirmed Hetronic Steuersysteme owned the trademarks and trade dress for the products being distributed, according to the petition.

In 2011, a Hetronic Germany employee discovered the agreement. Hetronic Germany determined it, not Hetronic International, owned all the technology under the agreement, the petition added. Hetronic International then terminated the distribution agreements. 

Fuchs formed two new companies, petitioners Abitron Austria and Abitron Germany, which bought Hydronic-Steuersysteme and Hetronic Germany. On the understanding they owned the trademarks for products developed under the research and development agreement, the companies competed with Hetronic International outside of the U.S. almost entirely, according to the petition.

Hetronic International sued the petitioners, all German and Austrian nationals, in Oklahoma federal court making claims under the Lanham Act. Hetronic International alleged the petitioner’s sales of 10 types of radio remote controls infringed on its registered U.S. trademarks in violation of 15 U.S. Code 1114(1)(a), unregistered trademarks and trade dress in violation of 1125(a)(1), or both.

According to the petition, almost all of the accused sales happened in foreign countries for use there. About 3% of the petitioners’ roughly $90 million in worldwide sales ended up in the U.S.

A jury awarded Hetronic International about $90 million in damages for Lanham Act violations, according to the petition. The figure included the petitioners’ total worldwide sales of accused products. The petition also said the award reflected gross sales without a deduction for cost of goods. 

The district court also entered a worldwide permanent injunction under 15 U.S. Code 1116 that prohibited the petitioners from using marks and trade dress for the 10 accused products. That court also rejected arguments that the extraterritorial application of the Lanham Act was inappropriate by refusing to limit its injunction to U.S. sales or products that would end up in the U.S.

The 10th Circuit Court of Appeals affirmed. Relevant to the appeal, it upheld the approximate $90 million in damages holding the petitioners foreign activities could be enjoined, while limiting the injunction to countries where Hetronic International sells or markets its products, according to the petition. The 10th Circuit held the Lanham Act applied extraterritorially to all of the petitioner’s foreign sales, the petition continued.

Under the 10th Circuit’s structure for the case, the petition contended the court created a sixth test to determine whether the Lanham Act governed a defendant’s foreign conduct after modifying the 1st Circuit’s approach. 

Under this test, a court first needs to consider whether the defendant is a U.S. citizen. If that’s the case, the Lanham Act applies to foreign activities without further inquiry. If the defendant isn’t a U.S. citizen, the courts need to ask whether the defendant’s conduct has a big impact on U.S. commerce. If that occurs, courts should consider whether extraterritorial application of the Lanham Act created a conflict with trademark rights under foreign law, the petition added.

The 10th Circuit recognized the petitioners were all foreign citizens but held the Lanham Act applied extraterritorially to their foreign conduct because the foreign sales allegedly had a large impact on U.S. commerce.

“The 10th Circuit’s decision to extend the Lanham Act extraterritorially to foreign defendants’ foreign sales to foreign customers concededly conflicts with decisions of other circuits,” the petition said. “Trademarks are territorial. A U.S. trademark gives its owner rights to the mark in this country, but not in foreign countries; conversely, a foreign trademark does not confer rights in the United States.”

The question presented before the U.S. Supreme Court is whether the 10th Circuit erred when applying the Lanham Act extraterritorially to the petitioners’ foreign sales, including those that never reached the U.S. or caused confusion to U.S. consumers. The petition was filed in January 2022 and was granted in November that same year.

Law Week Colorado discussed the case with a Colorado-based trademark attorney to get her perspective on it.

Tamara Pester Schklar, founder and managing attorney of TMBTQ Trademark Law Boutique in Denver, said trademark law usually involves federal rights if there’s a use of interstate commerce. Schklar noted a ruling in this case shouldn’t impact companies doing business only in Colorado.

The U.S. Solicitor General filed an amicus curiae brief for the case,  asking that the petition be granted. The U.S. Solicitor General later filed a brief supporting neither party. A motion for the U.S. Solicitor General for leave to take part in oral argument as amicus curiae, for divided argument, was also granted.

“The court of appeals upheld a $90 million monetary award without analyzing whether 97% of petitioners’ sales were likely to cause U.S. consumer confusion,” a brief said. “That decision risks globalizing U.S. trademark law, allowing U.S. trademark protection to serve as a springboard for regulating foreign conduct that has no likelihood of affecting consumer perceptions in the United States.”

Schklar agreed with the solicitor general’s approach that the extraterritoriality of the Lanham Act should apply only when the use of the mark abroad would likely cause confusion in the U.S.

As for how this will impact Schklar’s practice, she noted a decision either way wouldn’t likely have a huge impact on her practice.

“Litigation is rarely the most efficient or effective way to resolve a dispute,” Schklar wrote. “My clients typically don’t want to spend hundreds of thousands of dollars on litigation. Instead, we’d examine whether a negotiated settlement could be achieved — perhaps involving some small payment, a promise to no longer manufacture or offer the problematic goods or services, or some sort of coexistence.”

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