The following post is by my FIU colleague Hannibal Travis, to whom I turn for all things IP.
The United States has enacted a patchwork of trademark and patent laws that make it confusing to determine whether a particular transnational course of conduct can be litigated in federal courts. Suppose the publicity surrounding a foreign corporation’s widespread counterfeiting of U.S. products, completed entirely within a foreign country, damages the fame or goodwill of a U.S. brand. Or imagine that U.S. consumers purchase misbranded jewelry or handbags in foreign countries and see it fall apart upon their return from vacation, and then develop a poor reputation of the U.S. manufacturer when it refuses to repair or replace these copycat products. Finally, assume that a course of conduct amounting to patent infringement begins in the United States but is only completed with the final assembly and sale of the infringing devices overseas: may the U.S. patent holder recover damages on foreign sales?
The Supreme Court, according to Justice Sotomayor, joined by the Chief Justice Roberts and two other concurring justices, has recently developed new, short-sighted, and groundless rules for governing such disputes. Rather than the place of the conduct, the allegiances of the parties, or the extent of the injury inside the United States, the majority in Abitron Austria GmbH v. Hetronic International, Inc., 143 S. Ct. — (2023), uses a disjunctive “clear statement” and “domestic conduct” test. The first part of the test invokes a presumption going back at least a century, and articulated in the famous case of the United Fruit Company monopoly buying up land and controlling politicians in Central America. To paraphrase Justice Holmes in that case, if the United States “should happen to lay hold of the actor, to treat him according to its own notions rather than those of the place where he did the acts, not only would be unjust, but would be an interference with the authority of another sovereign, contrary to the comity of nations, which the other state concerned justly might resent.” The second part of the test deals with whether the conduct “relevant to the statute’s focus” took place in the United States. Even if the presumption of U.S. coverage only is not rebutted, domestic application of a statute may be allowed. What conduct a statute is aimed at can be a complex question, however, because statutes are not atomistic but must be analyzed together with the rest of the statutory scheme.
In applying the two-step framework in two recent cases, the Court came to different conclusions. In the unanimous judgment in Abitron, a U.S. manufacturer of remote controls used around the world on construction equipment could not recover tens of millions of dollars on foreign sales simply by using a small percentage of infringing domestic sales as a jumping-off point. The problem was that Congress did not expressly refer to foreign conduct or effects in drafting statutes that regulated the use in interstate or foreign commerce of trademarks or false statements, and its general goal of extending U.S. trademark law to the international trade of the United States was not adequately clear as a statement of an intention to override the comity of nations. In WesternGeco LLC v. Ion Geophysical Corp., 138 S. Ct. 2129 (2018), by contrast, the Court (over a dissent by Justices Gorsuch and Breyer) permitted a U.S. developer of a system for generating better data about the ocean floor for oil and gas exploration and the like to recover lost profits on the infringer’s lucrative foreign sales. In that case, the Federal Circuit would basically have ruled for the defendant for reasons to those relied upon by the majority in Abitron: the presumption that the U.S. does not rule the world applies, whether in cases of fully foreign patent infringement or in those involving manufacture of noninfringing components in the United States for infringing assembly and sale abroad. The Supreme Court reversed, essentially because Congress had expressed a clear intention to override the default rule in patent cases that the assembly of components has to occur inside the United States to be an infringing manufacture or sale of a system or machine. The statute was specifically drawn to a form of exports involving foreign assembly, in other words, unlike the Lanham Act or trademark statutes which the Abitron majority deemed to be “domestic” in orientation.
Jurisprudentially, Abitron and WesternGeco sit at the crossroads of three important debates. First, the four-justice concurrence in Abitron emphasizes the vast case law on subject matter jurisdiction based on the domestic effects of foreign conduct. For example, the antitrust laws “reflect a legislative effort to redress domestic antitrust injury that foreign anticompetitive conduct has caused.” Thus, in the United Fruit case, Justice Holmes remarked that many countries “punish any one, subject or not, who shall do certain things, if they can catch him, as in the case of pirates on the high seas. In cases immediately affecting national interests they may go further still and may make, and, if they get the chance, execute similar threats as to acts done within another recognized jurisdiction.” Justice Sotomayor’s concurrence (like the brief amicus curiae of the United States upon which it draws for support) would have rejected a bright-line rule that there must be “domestic conduct in order for there to be a domestic application of a statute.” A domestic effect tethered to statutory text, in other words, should suffice for domestic application of a U.S. law to foreign acts even when Congress is not altogether clear on extraterritoriality.
Second, the majority adheres to past precedent sharply circumscribing broad statutes’ effect on conduct inside foreign jurisdictions, ranging from sales of securities to foreign purchasers, to the plunder of natural resources and killing of persons abroad with the complicity of U.S. multinational corporations, to conspiring with transnational organized crime and alleged international terrorist organizations. There is a normative if not a strictly doctrinal parallel here with decisions of some courts that applying the U.S. Constitution to the conduct abroad of U.S. officials who violate the rights of foreign persons would be abnormal in comparative perspective and unintended by the Constitution’s drafters and ratifiers. (Boumediene v. Bush departed from this line of decisions, based in significant part on the distinctive history of the writ of habeas corpus, but with a dissent joined by the justices who wrote for the Court in both Abitron and WesternGeco. Professor Jordan Paust and Professor Andrew Kent described the stakes of this debate well in 2001/2003 and 2012, respectively.) One might (with the ABA) imagine a more flexible approach balancing two or more factors to assess whether a statute or constitutional right or provision applies extraterritorially: the citizenship of the parties to the controversy, the effect on U.S. commerce or U.S. persons’ rights, and any conflict with foreign national or multi-national laws.
In economic terms, Congress confronts problem of drafting “incompletely realized” legislation. Should it cover every eventuality and controversial potential application in a costly drafting process, or agree efficiently on broad principles, leaving it to courts and agencies to fill gaps? With the pace of legislation in Congress slowing, the problem is becoming more serious. Abitron was one of three or four cases in 2023 in which the Court used some version of a clear statement rule to address a question of critical economic significance, the others including the wetlands case (EPA overly broadly construed “waters of the United States”), the student loan waiver case (Biden administration claimed authority it did not have to “modify” student loans), and the Navajo Nation’s water rights case (treaty said to be unclear about duties of the United States to guarantee adequate water to Navajo homes and buildings). The four cases involve clear statement rules allocating different types of authority: the authority of coordinate national sovereigns in Abitron, the authority of Congress and executive agencies and departments in Sackett v. EPA and the student loan case of Biden v. Nebraska, and the water rights of the Navajo Nation versus the discretion of the United States and Arizona to manage the waters of the Colorado River Basin in Navajo Nation v. Arizona.
The opinion for the Court explains persuasively that an effect in the United States involving the “likelihood of confusion” that the trademark laws aim at would be an insufficient basis, given the territorial nature of trademarks, to dispense with the need for registration or protection in multiple jurisdictions. The concurring justices agree that a U.S. trademark confers no rights in other countries, in contrast arguably to a patent with the benefit of WesternGeco. The International Trademark Association, ABA, and Second Circuit, on the other hand, would apparently allow a remedy in the United States for at least some foreign conduct not expressly permitted in a foreign country, which has a “substantial effect on U.S. commerce….” This argument enjoys some support in the trademark law’s reference to the constitutional scope of congressional power – which extends beyond conduct committed on U.S. soil – but threatened to undermine the territorial registration and protection regime under the Paris Convention for the Protection of Industrial Property and the Madrid Protocol on cross-border registration of marks. An effects-based balancing test seems better suited to antitrust, securities, and other areas where there are not difficult questions concerning overlapping rights, priority, and the like.
Third, the decision in Abitron arguably loses sight of the complex textualism called for by the Court’s earlier decisions. As the International Trademark Association pointed out, Congress specified the type of commerce it intended to regulate in the civil liability provisions relating to federal trademark infringement: all the commerce which may be constitutionally regulated by Congress, which of course includes the “foreign commerce” of the United States. Other statutes, relating to interstate communications, fur labeling, and milk products, for example, define their jurisdictional scope as including only commerce among the States, districts, territories, and possessions of the United States. Justice Sotomayor’s concurring opinion emphasizes that the two provisions at issue in Abitron should have been read together with the rest of the U.S. Code to construct a coherent whole, rather than in a “vacuum.” The majority opinion arguably fails to give effect to each contrasting definition of commerce enacted by Congress, contrary to a canon the Court applies that Congress knows how to use precise language in one statute and not in another, and probably does so on purpose. As Justice Gorsuch explained for four justices in another case, the Court does or should “not normally suppose that Congress blithely includes words in its laws that perform no work.” Yet this is what the Court’s reading of the jurisdictional provisions of the trademark, securities, and international-torts statutes may do
Posted by Howard Wasserman on July 7, 2023 at 10:37 AM