Two Recent Decisions Highlight Divergent Extraterritorial Application of Lanham Act and Copyright Act

The question whether and under what circumstances the Lanham Act and the Copyright Act will be applied to conduct occurring at least partially outside the United States grows increasingly important as the world economy continues to globalize and many manufacturers seek to extend their franchises across borders. Two recent federal court decisions have addressed this issue, underscoring the somewhat anomalous differences in extraterritorial enforcement of trade dress and copyright laws, as well as the ability of plaintiffs to obtain injunctive relief with extraterritorial effect.

The International Diamond Importers Decision

International Diamond Importers, Inc. d/b/a I.D.I. Design, Inc. v. Med Art, Inc., et al., 2017 WL 3271706 (S.D.N.Y. June 29, 2017), involved claims under both the Lanham Act and the Copyright Act.  The plaintiff (“IDI”) is a New York-based designer, manufacturer, and seller of jewelry that enjoys trademark and copyright protection.  The defendants—a New York Corporation, a Turkish Corporation, and the Turkish citizen who serves as CEO of both companies—were alleged to have infringed that IP in connection with jewelry they sold in 2016 at an international jewelry fair in Hong Kong, allegedly attended by New York buyers.

After finding that it had personal jurisdiction over all the defendants, the Court addressed the plaintiff’s infringement claims.  With respect to the Lanham Act, the Court assessed the extraterritorial applicability of the Lanham Act under the three-factor test articulated in Vanity Fair Mills, Inc. v. T. Eaton Co., 234 F.2d 633 (2d Cir. 1956): (i) whether the defendant is a U.S. citizen; (ii) whether there exists a conflict between the defendant’s trademark rights under non-U.S. law and the plaintiff’s trademark rights under U.S. law; and (iii) whether the defendant’s conduct has a “substantial effect” on U.S. commerce.  While IDI alleged that the defendants had targeted U.S. customers and had caused consumer confusion, its allegation of a “substantial effect” of their “infringing conduct” in Hong Kong on U.S. commerce was unsupported by any allegations of fact.  The Court thus dismissed IDI’s Lanham Act claim with leave to amend to make more detailed allegations of an effect on US commerce.

The Court then addressed IDI’s copyright claims, reaching a similar conclusion but through a different analysis. The Vanity Fair test means in essence that the Lanham Act applies extraterritorially where certain U.S.-based facts exists.  The Court noted, by contrast, that the U.S. Copyright Act had no extraterritorial applicability at all—although it might apply to conduct outside the country where different U.S.-based facts exist.  Specifically, it observed that an “exception” to the domestic limitation on copyright claims exists where actions in the United States constitute infringement and enable further “infringement” to occur in other countries.  See, e.g., Update Art, Inc. v. Modiin Publ’g Ltd., 843 F.2d 67, 73 (2d Cir. 1988).  No such U.S. conduct was alleged in this case, and the claim of copyright infringement was dismissed.  The Court found irrelevant that the defendants may have targeted U.S. retailers and consumers while they were in Hong Kong, or that the defendants’ conduct may have had an effect on U.S. commerce.

The Blumenthal Distributing Decision

A different approach to application of the Lanham Act was taken in Blumenthal Distributing, Inc. d/b/a Office Star v. Herman Miller, Inc., 2017 WL 3271706 (C. D. Cal. August 1, 2017).  That case involved claims by Herman Miller that the plaintiff (“Office Star”) was selling inferior, knock-off copies of Miller’s iconic Eames® and Aeron® chairs in violation of the Lanham Act.  Office Star sought a declaratory judgment of noninfringement.  Herman Miller counterclaimed and prevailed at trial with respect to its rights to the Eames® chair; the jury found the company’s trade dress for the Aeron® chair invalid.  The parties filed extensive post-trial motions, including as pertinent here Herman Miller’s request for a permanent injunction prohibiting Office Star’s sale of “colorable imitations” of the Eames® chair anywhere in the world.

The Court overruled Office Star’s objection that this language was unduly vague, but was more respectful of its argument that a worldwide injunction was unwarranted. The Court identified a three-part test for entry of the extraterritorial injunction: (i) whether the non-U.S. sales had “some effect on American foreign commerce”; (ii) whether the effect was “sufficiently great to present a cognizable injury” to Herman Miller; and (iii) whether “the interests of and links to American foreign commerce [are] sufficiently strong in relation to those of other nations to justify an assertion of extraterritorial authority.” Id. at *36.  The Court found tests (i) and (ii) satisfied by evidence that Herman Miller sold almost 100,000 units of the infringing chairs overseas, generating approximately $88 million in revenues.  As to the third test, the Court articulated seven factors to be considered:

[T]he degree of conflict with foreign 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 can be expected to achieve compliance, the relative significance of effects on the United States as compared with those elsewhere, the extent to which there is explicit purpose 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.

Id. (citations omitted). The Court concluded that a number of these factors weighed against entry of the injunction, noting that Herman Miller had come forward with no evidence of “infringement” in other jurisdictions likely to cause further infringement in the United States, the importation of infringing chairs, or “law enforcement interests of other nations.” Id.  Nor, importantly, did Herman Miller own registered trade dress rights to the chairs in “certain” foreign countries.  But while this analysis foreclosed an injunction against all foreign sales, the Court asked “whether the interests of American foreign commerce are sufficiently strong to warrant injunctive relief” as to foreign activities, and found that standard satisfied as to sales in Canada.  Canada, the Court recited, accounted for almost half of the company’s $88 million in overseas revenues between 2000 and 2016, and during that period unit sales of the Eames® chair to that country were more than eight times the sales of the chair to any other country.  The Court thus enjoined sales by Office Star of “colorable imitations” of the Eames® chair in Canada, but in no other country outside the United States.

Discussion

The juxtaposition of these cases underscores a few notable points regarding the extraterritorial application of the two principal U.S. “soft” IP statutes. First, the analysis of the issue differs tremendously as between copyright and Lanham Act claims.  As a technical matter, the Copyright Act has no extraterritorial application, period.  The Lanham Act, by contrast, may apply extraterritorially, depending on the facts and application of a test that (at least in the Ninth Circuit) boasts three parts, one of which requires consideration of seven factors.  Whether this widely disparate treatment is warranted is very much open to debate.  The U.S Supreme Court established the extraterritoriality of the Lanham Act 65 years ago, in Steele v. Bulova Watch Co., 344 U.S. 280 (1952).  Since then, the Court has fundamentally altered the framework for determining whether a statute should be applied to conduct outside the United States, requiring an “affirmative and unmistakable instruction” from Congress that such application was intended, and narrowing the circumstances in which extraterritorial status is granted. See Morrison v. Nat’l Austl. Bank, 561 US 247, 261 (2010).  Especially with three different tests in the Circuits applying Bulova Watch, an effort to offer the Supreme Court a chance to update the law may well be rewarded. See, e.g., McBee v Delica Co., 417 F.3d 107 (1st Cir. 2005) (rejecting the two then-prevailing tests).

Second, notwithstanding the label attached, both Lanham Act and copyright claims are routinely found to apply to activities where there is at least some foreign “infringing” conduct. Many cases, like International Diamond Importers, require at least some unlawful activity in the United States.  The Lanham Act is not so restrictive, as the Blumenthal Distributing case reveals. See also Trader Joe’s Co. v. Hallatt, 835 F.3d 960 (9th Cir. 2016) (upholding Lanham Act claim based only on foreign sales where a U.S. effect was alleged).

Many important and unsettled issues remain in the extraterritorial application of the Copyright Act and the Lanham Act. Equally important, the absence of clear and workable standards and seemingly inconsistent results from courts confounds efforts to provide reliable advice to foreign and U.S.-based companies alike.  Absent clarification—not on the horizon—situations in which alleged infringement occurs outside the U.S. will prove fertile grounds for potential claims.