United States: The Evolving Law on Application of U.S. Trademark Laws Beyond U.S. Borders

Globalized commerce is apparently here to stay. The advertising, buying and selling of goods and services recognizes no borders. As a result, enforcing territorially based trademark rights has become ever more challenging. Remote trademark owners who peacefully coexisted in a time before the internet and increasing globalism are now bumping heads. The internet also has made it easier for unscrupulous operators to deceive consumers and divert customers from established businesses by misappropriating trademarks on websites and in domain names.

U.S. federal courts have been willing to help American businesses halt trademark infringements that reaches outside the United States. This is particularly true for e-business, via the internet, and the trend toward enforcement seems to be in favor of the trademark owner. This article discusses this trend as well as the extraterritorial enforcement of trademark rights by U.S. courts under the Lanham Act. It also offers suggestions for protecting valuable trademark rights worldwide.

Enforcing trademarks extraterritorially through litigation in U.S. federal courts involves three considerations: whether the court will accept subject matter jurisdiction over the dispute under the Lanham Act; whether the court will find that it has personal jurisdiction over the alleged infringers (particularly when they are non-U.S. nationals); and whether a judgment entered by the court will be enforceable. The latter topic, enforcement, while an important consideration, is beyond the scope of this article.

The foundation for extraterritorial application of the Lanham Act by U.S. courts was first addressed by the U.S. Supreme Court in 1952 in Steele v. Bulova Watch Co., Inc.¹ In Steele the Court held that a U.S. district court had jurisdiction to award relief under the Lanham Act for infringement of a U.S. firm’s U.S. trademarks, when the infringer was a U.S. citizen operating in Mexico. The plaintiff owned a U.S. trademark registration for BULOVA for watches. The defendant registered the identical mark in Mexico. He then assembled watches in Mexico from parts obtained from the United States, applied the Bulova trademark and sold the watches exclusively in Mexico. While the defendant did not sell watches in the United States, U.S. Bulova dealers received complaints from consumers about defective watches they had purchased in Mexico and brought back across the border.

The Court first noted the Lanham Act was designed to regulate "all commerce which may lawfully be regulated by Congress," a scope which subsequent courts have read expansively.² The Court based its ruling on three factors: the defendant’s conduct had an effect on U.S. commerce; the defendant was a U.S. citizen, and international law does not bar the United States from governing the conduct of its own citizens abroad; and because the plaintiff had succeeded in canceling the defendant’s Mexican trademark registration by the time the case reached the U.S. Supreme Court, there was no conflict with any trademark right granted under Mexican law.

Most federal appeal courts have had an opportunity to apply and interpret Steele in the more than 50 years since it was decided.³ The influential U.S. Courts of Appeal for the Second and Ninth Circuits initially established quite different standards for jurisdiction under Steele. The Second Circuit’s test was fairly strict, while the Ninth Circuit’s approach was more flexible. Differences remain, but the Second Circuit has eased its requirements for extraterritorial application of the Lanham Act over the years and now tends to mirror the national trend toward expansive enforcement of the Lanham Act.

The seminal Second Circuit case on extraterritorial application of the Lanham Act is Vanity Fair Mills Inc. v. T. Eaton Co. Ltd.⁴ The Vanity Fair court evolved the factors considered in Steele into a three-part test: whether the defendant was a U.S. citizen; whether a conflict existed between the defendant’s trademark rights under foreign law and the plaintiff’s rights under U.S. law; and whether the defendant’s conduct had a substantial effect on U.S. commerce.⁵ The court determined that at least two of the three factors were necessary for extraterritorial application of the Lanham Act.

In Vanity Fair a U.S. company with a U.S. trademark registration tried to enjoin a Canadian company with a Canadian registration for the same mark from selling goods under the mark either in the United States or Canada. Applying its test, the Second Circuit found that a U.S. court could not enjoin the defendant’s activities in Canada, even if the mark in question was applied to the goods in the United States before being shipped to Canada for sale. The fact that the defendant had U.S. employees did not change the result because the court found these employees did not exercise control over the defendant. In a later case, C-Cure Chem. Co. v. Secure Adhesives Corp., the Second Circuit also refused to enjoin a Canadian company’s Canadian sales under a Canadian trademark even though the defendant purchased ingredients in the United States.⁶ The C-Cure court said, "The clear import of Vanity Fair Mills is that the Lanham Act should not be applied to a foreign citizen allegedly committing infringing acts in his or her home country."⁷

The Second Circuit has subsequently, softened its stance considerably. For example, courts in the Second Circuit have been willing to allow "constructive citizenship" to satisfy the first factor if the defendant resides in the United States and can influence the infringing behavior.⁸ Courts have also been willing to overlook pending trademark applications in jurisdictions outside the United States.⁹ In addition, courts have softened the "substantial effects" requirement to include indirect effects, such as diversion of sales,¹⁰ including from foreign licensees,¹¹ damage to plaintiff’s reputation¹² and instances when the defendant’s activity is only "supported by or related to" U.S. commerce.¹³ All these changes are apparent in Calvin Klein Indus., Inc. v. BFK Hong Kong, Ltd., a case in which the U.S. District Court for the Southern District of New York preliminarily enjoined the defendants from selling infringing goods in the United States and "such other markets as [plaintiff] may demonstrate that it has established its presence, through either direct sales or licensees."¹⁴ In fact, some commentators now question whether the Calvin Klein decision has unduly expanded the potential reach of the Lanham Act.¹⁵

In Sterling Drug Inc. v. Bayer AG,¹⁶ the Second Circuit emphasized the Vanity Fair test should not be applied mechanically because to do so could lead the court to "fail to preserve the Lanham Act’s goals of protecting American consumers against confusion, and protecting holders of American trademarks against misappropriation of their marks."¹⁷ In Sterling Drug the defendant, a German company, held the right to use the trademark BAYER in many countries but not (through a quirk of history) in the United States (at least not for consumer-oriented pharmaceuticals). Sterling, which held the U.S. trademark registration for BAYER, sued Bayer AG after efforts at co-existence in the United States failed. The district court entered an injunction prohibiting Bayer AG from conducting certain activities in the United States. The court also enjoined use of the mark in conjunction with certain extraterritorial activities (such as press announcements) in locations where Bayer AG had the legal right to use the mark so as to prevent the effects of such activities from spilling over into the U.S. market. On appeal Bayer AG asked the Second Circuit to limit the injunction to actions within the United States. While chiding the lower court for failing to make the appropriate findings under the Vanity Fair test before entering the injunction, nonetheless the court declined to forbid all extraterritorial effects of the injunction and noted that "the stringent Vanity Fair test is … unnecessarily demanding when the plaintiff seeks the more modest goal of limiting foreign uses that reach the United States." ¹⁸

Most recently, courts in the Second Circuit have also addressed the issue of trademark use on the internet. For instance, in Toys "R" Us v. Abir, the district court preliminarily enjoined a U.S. citizen from using the domain "toysareus.com" although the defendant claimed he planned to use it strictly for overseas commerce.¹⁹ However, the court may have been influenced by the defendant’s attempt to sell the domain name to the plaintiff for a large profit.

The seminal Ninth Circuit case to consider extraterritorial application of the Lanham Act is Wells Fargo & Co. v. Wells Fargo Express Co.²⁰ The court drew on its holding in an antitrust case, Timberlane Lumber Co. v. Bank of America,²¹ to devise a test for applying the Lanham Act outside of the United States. Timberlane set out a "jurisdictional rule of reason" to govern the reach of the Sherman Antitrust Act. The Wells Fargo court noted the Sherman Act used jurisdictional language as "sweeping" in scope as that of the Lanham Act, thus making the analysis similar. The court held that the "extraterritorial coverage of the Lanham Act should be gauged not so much by the locus of the activity sought to be reached … as by the nature of its effect on that commerce which Congress may regulate."²² Further, the court held that while the foreign activities must have "some effect on United States foreign commerce," the effect need not be "substantial," as the Vanity Fair court had held.

The court considered several additional factors: the degree of conflict with non-U.S. law or policy; the nationality or allegiance of the parties and the locations or principal places of business of corporations; the extent to which enforcement by either state could be expected to achieve compliance; the relative significance of effects on the United States as compared to those elsewhere; the extent to which there was explicit intent to harm or affect American commerce; the foreseeability of such effect; and the relative importance to the violations charged of conduct within the United States as compared with conduct abroad. According to the Ninth Circuit, "A court evaluating these factors should identify the potential degree of conflict if American authority is asserted."²³

The Timberlane test was applied in Ocean Garden, Inc. v. Marktrade Co., Inc.,²⁴ a case in which one U.S. company sued another for placing the plaintiff’s U.S. trademark on goods that were produced in Mexico and then shipped to the Far East via a foreign-trade zone in the United States. The court found that it had extraterritorial jurisdiction as well as jurisdiction resulting from the goods moving through the foreign-trade zone. In Ocean Garden the Timberlane test was further distilled into three criteria: there must be some effect on American foreign commerce; the effect must be sufficiently great to present a cognizable injury to plaintiffs under the Lanham Act; and the interest of and links to American foreign commerce must be sufficiently strong in relation to the interests of other nations. The seven Timberlane factors are considered part of the third prong of the test. Not surprisingly, the Ninth Circuit test has been described as the most flexible of all the circuits.²⁵

In 1999 the Lanham Act was amended to add the Anticybersquatting Consumer Protection Act (ACPA).²⁶ Under the ACPA, U.S. trademark owners have a cause of action against persons who register a domain name containing their trademark in bad faith. Of special interest in the international context is the ACPA’s in rem provision, which allows plaintiffs who cannot locate or obtain jurisdiction over a domain name’s owner to bring a suit against the name itself wherever the name’s registrar or registry is located. A registrar is a business that registers and holds domain names on behalf of their owners; a registry maintains the directory of all registered domain names for a particular domain (such as .com or .net). The registries for the .com, .net and .org domains are located in the Eastern District of Virginia. As a result, the U.S. District Court for the Eastern District of Virginia and the U.S. Court of Appeals for the Fourth Circuit have been the de facto courts of exclusive resort for in rem ACPA complaints against non-U.S.-based registrants using these domains.

Because a successful in rem suit would order the registry or registrar to transfer the domain and because the registry (and often the registrar) is located within the Eastern District of Virginia, the Fourth Circuit has not treated these cases as involving an extraterritorial application of the Lanham Act.²⁷ Thus, the Fourth Circuit has not felt obliged to defer to judgments made abroad regarding the domain name in question, which it might if it were applying a Vanity Fair-type test. For example, in Hawes v. Network Solutions, Inc., a U.S. citizen sued his registrar and a French business for "reverse domain hijacking" under 15 U.S.C. § 1114(2) (passed as part of the ACPA),²⁸ which allows a domain name owner whose domain name has been taken by another under a claim of trademark infringement to sue for its return. The Fourth Circuit found it irrelevant to the question of jurisdiction under the ACPA that a French court had ordered the domain name lorealcomplaints.com to be transferred to L’Oreal.²⁹

Even if a U.S. court decides that it has subject matter jurisdiction over foreign trademark infringement, it must still establish personal jurisdiction over the defendant. U.S. federal courts first addressed this issue with respect to websites in the context of out-of-state (versus out-of-country) defendants. Assuming the defendant is not a resident in the district in which the case is brought, the defendant must have some minimum level of contacts with the forum state, and the case must arise out of those contacts. Further, the exercise of jurisdiction over the defendant must be "reasonable." Some courts discuss the "minimum contacts" element in terms of "purposeful availment"—did the defendant purposely avail himself of some benefit of the forum state and thus make himself subject to the forum’s rules? Generally, just having a website that can be viewed within a forum is not sufficient; there must be "something more" to justify jurisdiction.³⁰

A frequently cited case, Zippo Manuf. Co. v. Zippo Dot Com,³¹ devised a "sliding scale" of website characteristics for purposes of determining whether personal jurisdiction over a website’s owner is appropriate. At one end of the scale are passive websites and at the other are those that conduct business online. If a website conducts business with residents of the forum, such as by selling goods or subscriptions, it is likely a court will find it has personal jurisdiction over the site’s owner. Somewhere in the middle are websites that are interactive—visitors may communicate with the owner through the site, for instance—but perhaps do not conduct business in the sense of selling products. While not all circuits have adopted the Zippo test, it is a frequently used method of evaluation.

It may not take much for a court to exercise personal jurisdiction as a result of internet-based activities. For example, in one case a plaintiff sued a Washington state resident in a California federal district court for defamation on the defendant’s website.³² The court found the 11 e-mails the defendant sent into

California to promote her website (i.e., 11 percent of the total e-mails sent) were sufficient to demonstrate that the defendant had directed activity into California and to subject her to personal jurisdiction.

In the international context in Quokka Sports Inc. v. Cup Int’l Ltd,³³ another California court found that operating a website from New Zealand was sufficient to justify imposing personal jurisdiction over the website’s New Zealand owners. The court noted that at least half the traffic the site received was from the United States; many of the advertisers on the site were American firms, and the owners were selling products through the site. The Quokka court also noted that where a defendant based outside the United States is not subject to the general jurisdiction of any U.S. federal district court, a court may aggregate all the defendant’s contacts with the United States, regardless of which states they took place in, to determine if personal jurisdiction is appropriate.³⁴

Given the increasing clash of trademarks globally, U.S. trademark owners may not always be on the offense. U.S. businesses may be exposed to trademark litigation abroad in connection with their global and even U.S.-based activities. Conducting business on the internet increases that risk because it decreases the control businesses have over where their trademarks are seen and, thus, "used" in commerce. In one recent case, a German court issued an injunction against a U.S. company on the basis of an infringing domain name that contained the plaintiff’s German trademark.³⁵ The German court expressly stated it had jurisdiction because currently there are no international agreements on jurisdiction for internet matters. Other German court decisions have held that a website does not create a trademark violation in Germany if the only connection to Germany is that the website can be viewed there.³⁶ However, an injunction can still be granted if a website is targeted to German customers: for instance, if the site is in German, accepts German credit cards or is advertised in Germany. Courts in other countries have also been willing to reach U.S. firms operating websites that are available in their country. For example, while not a trademark matter, Yahoo! Inc. was successfully sued before a French court because its auction site offered Nazi artifacts, a violation of French law. Among other things, the court noted the site was available in French.

There are a number of steps that companies can take to try to limit exposure from their internet presence in many jurisdictions. For instance, geo-filtering techniques (usually based on the user’s IP address) may be used to prevent certain nationals from viewing a website. Also, websites can be expressly targeted to specific national markets, thus allowing the company to argue against any violation elsewhere. Website disclaimers designating the intended reach of the website may further reduce the risk of being sued abroad.

Although the foregoing precautions may decrease the likelihood of a U.S. firm being subjected to foreign jurisdiction outside of the United States, it remains important to have an international trademark strategy to secure the right to use a mark in other countries.

While U.S. courts have been willing to help U.S. trademark owners protect their rights against extraterritorial infringement, the decision to exercise jurisdiction is often made on a fact-specific, case-by-case basis. In addition there is always a risk that a business may find itself a defendant in trademark litigation abroad. Therefore, businesses should put themselves in the most advantageous position possible to both enforce their own trademarks and minimize the potential for third-party infringement allegations on an international level. Doing so requires a carefully crafted trademark strategy in which appropriate international trademark protection and domain name registrations are pursued in tandem with U.S. rights and not as an afterthought. U.S.-based trademark owners should also carefully craft overseas license agreements to ensure a business will retain rights to its marks overseas if the relationship sours.³⁷

Establishing, implementing and enforcing such an international trademark strategy, together with accompanying measures such as website disclaimers and trademark notices, is a "best practice" for any company. Such an approach helps to effectively protect trademark owners’ property rights in global markets and safeguard against costly international litigation while preserving all options for future market expansion.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.