April 12, 2023
Authored and Edited by Jonathan Uffelman; Margaret A. Esquenet
The Supreme Court continues to show its interest in intellectual property matters, hearing oral arguments in two separate trademark cases this term. In Abitron Austria GmbH v. Hetronic International, Inc., the Court is tasked with determining the extraterritorial reach of damages under the Lanham Act. And, keeping things lively, the Justices are also tackling and the rights of companies to protect their brands from potentially confusing parodies in Jack Daniel’s Pros., Inc. v. VIP Products, LLC.
At the center of this case was Hetronic’s remote-controlled heavy-duty construction equipment. Abitron, a foreign company that had been one of Hetronic’s distributors, began manufacturing its own products that were identical to Hetronic’s and selling them under the Hetronic brand, mainly in Europe:
A jury awarded Hetronic over $90 million for Lanham Act violations, but of those products, Abitron claimed only three percent ever ended up in the U.S. market. The Tenth Circuit affirmed the district court’s conclusion that the Lanham Act applied extraterritorially on the ground that Abitron’s foreign sales had a substantial effect on U.S. commerce because they misappropriated Hetronic’s sales abroad, which affected Hetronic’s profits in the United States.
The last time the Supreme Court considered the Lanham Act’s extraterritorial reach was in 1952. Steele v. Bulova held that the Lanham Act could apply to a U.S. citizen’s foreign activities if they had a substantial effect on U.S. commerce and “essential steps” of the infringing scheme were taken in the United States. Steele, however, did not address cases where a defendant’s activities had more limited U.S. impacts or where the defendants were not U.S. citizens. The Justices therefore weighed whether ruling for Abitron would overrule Steele, or whether ruling for Hetronic would expand the Lanham Act beyond its appropriate extraterritorial scope.
Abitron argued that the text and focus of the Lanham Act require a domestic use of the mark in commerce. According to Abitron, because its foreign sales involved only uses outside the United States, they fall outside the Lanham Act’s scope. Justice Sotomayor asked why Abitron’s position doesn’t overrule Steele. According to Abitron, Steele applies only to U.S. citizens because Congress has extraordinary power to regulate U.S. citizens abroad, so if the Court simply narrowed that holding by saying extraterritoriality applies only where defendants are U.S. citizens, Steele need not be overturned.
Abitron’s argument led to a robust discussion over whether use of the mark in commerce was, in fact, the primary focus of the Lanham Act or rather, as Justice Kagan put it, “uses that confuse.” Similarly, Justice Jackson pressed Abitron as to why “confusing people . . . isn’t enough?” And given how Internet advertising crosses international borders, Justice Sotomayor opined that Abitron’s position made no sense. Foreign sellers, she argued, “are competing with the trademark owner in the U.S. to secure U.S. customers.” But Abitron held firm, arguing that though such activities might trigger contributory or vicarious liability for the foreign seller or manufacturer, direct liability requires use in U.S. commerce.
The Biden administration, represented by the Department of Justice, also argued that Steele need not be overturned but expressed concern that Abitron’s proposed narrowing would leave one rule for U.S. defendants and a different one for foreign defendants, which would open the door for bad actors abroad to abuse U.S. brands. According to the DOJ, use of a trademark that causes a likelihood of confusion in the United States is actionable, but a defendant should not be liable for transactions that confuse only foreign consumers.
The DOJ further confirmed that it believed confusion, rather than use, was the primary focus of the Lanham Act, leading Justice Thomas to ask, “how proximate does [confusion] have to be? . . . [W]hat if Petitioner sold it to one person who sold it to another who sold it to another who sold it to [] students who sold it to someone else who then brought it in the United States?” The DOJ argued that confusion must flow directly from the use, prompting another Internet question from Chief Justice Roberts: “Would listing the product . . . on the internet anywhere always constitute causing confusion?” On the Internet, the DOJ argued, such confusion would have to be “foreseeable and direct.”
But Justice Alito expressed a degree of sympathy for Abitron’s position, finding citizenship to be “quite relevant” to the holding in Steele, especially given that the concept appears in the first sentence of the opinion. According to Justice Alito, the DOJ’s position was tantamount to “asking us to overrule Steele in part.” The DOJ argued that, given consumer confusion was the “core” of the Lanham Act, Steele presented no obstacle here because this case does not present a U.S. citizen issue. As a result, the DOJ said, the Justices could “kind of take Steele out of consideration in deciding between us and [Abitron’s] position.”
Hetronic pushed to maintain the status quo. It emphasized that since 1952, the Court has repeatedly affirmed that the Lanham Act reaches infringement of U.S. marks carried out overseas. Maintaining the status quo, Hetronic argued, would allow the Lanham Act to continue to protect U.S. mark-holders with a needed remedy in cases against “foreign trademark pirates who market knockoff goods that siphon the goodwill and sales of U.S. trademark holders.” Justice Thomas once again raised proximate cause, asking Hetronic if that was a limitation on its argument. Hetronic argued that in cases involving purely foreign transactions that nonetheless affect a brand owner, the “effect needs to be substantial. Insubstantial effects don’t count.”
But Justice Alito wondered whether, given the scope of the Constitution’s foreign commerce clause, the Lanham Act could reach any activity that occurs in any foreign country and, if so, how that squared with Hetronic’s substantial effects and proximate cause limitations. Hetronic argued its argument was not inconsistent because the “substantial effects” concept is a limitation “baked in” to what Congress can regulate, and the Lanham Act provides further limitations on when a party is entitled to relief and what remedies they are entitled to.
Oral arguments made clear the Court’s decision will likely have significant impact on U.S. brand owners fighting counterfeiting abroad. If the proper balance is not struck, the Court’s decision could provide a blueprint for nefarious overseas actors seeking to capitalize on established brands.
Is it art, or is it a dog toy? Questions related to what qualifies as art, how to recognize parody, how funny a parody must be, and who gets to decide swirled like whisky in a tumbler around a case involving VIP’s “Bad Spaniels” dog toy that imitates a Jack Daniel’s bottle, while adding poop humor, such as “Old No. 2 on your Tennessee carpet” instead of “Old No. 7” and “Tennessee whiskey”:
The district court rejected VIP’s defense that its toy merited heightened protection, reasoning that the First Amendment does not protect misleading commercial speech where another’s trademark is used for source identification. Therefore, according to the district court, the standard likelihood-of-confusion analysis governed, and Jack Daniel’s won both its infringement and dilution claims.
The Ninth Circuit did not disturb the lower court’s finding of likelihood of confusion but reversed on the ground that VIP’s product qualified as an expressive work, meriting heightened First Amendment protection. Under Rogers v. Grimaldi, a 1989 Second Circuit case, an expressive work may cause confusion provided the use of the mark is artistically relevant and not explicitly misleading.
The Supreme Court focused much of its questioning on how best to provide guidance for future cases, i.e., how parody plays into the likelihood-of-confusion test, and whether Rogers should be overturned or reworked.
Jack Daniel’s argued for broad protections for brand owners. The Lanham Act’s infringement provisions contain no exceptions for expressive works, Jack Daniel’s observed, and further noted that intellectual property rights necessarily restrict speech both to protect a brand owner’s investment in goodwill and to prevent consumer confusion. It also emphasized consumer surveys that found confusion in this case and that for thirty years, the USPTO has without difficulty found parodies either confusing or not confusing based on the same analysis used by the district court.
Justice Kagan wondered why Jack Daniel’s made such a broad argument when narrower ones were available. For example, according to Justice Kagan, regardless of Rogers, this case appeared to address little more than “an ordinary commercial product using a mark as a source identifier.” Similarly, Justice Sotomayor asked whether a cleaner way to analyze the issue would be “to ask, is the artist using this mark as a source identifier, as the threshold, and, if they aren’t . . . the Lanham Act doesn’t apply . . . .” But Jack Daniel’s argued that these approaches looked a lot like importing fair use exclusions into the Lanham Act’s infringement provisions, which Congress didn’t do.
Taking on the question of confusion head on, Justice Alito asked: “Could any reasonable person think that Jack Daniel’s had approved this use of the mark?” “Absolutely,” Jack Daniel’s replied. “That’s why we won below.” As an example, Jack Daniel’s pointed to another company that once ran a Super Bowl commercial that was so inappropriate and embarrassing, they had to pull the ad, arguing: “People make dumb commercials.” Justice Alito seemed unconvinced, stating “this should be a reasonable person standard to simplify this whole thing.”
The DOJ argued the Court should remand the case to the district court for failing to consider the parodic nature of VIP’s use when applying the likelihood-of-confusion factors. Moreover, in response to direct questions from both Justices Gorsuch and Thomas, the DOJ further argued that Rogers should be overturned because it has “no sound basis in trademark law or . . . in the First Amendment.” Rather than a separate test for parody, the government urged that the Rogers factors and First Amendment concerns can be incorporated into the existing likelihood-of-confusion test.
Regarding Rogers, Justice Sotomayor expressed reservations about “doing away with something that circuits have been relying on, virtually all of them . . . .” But the DOJ disputed that all circuits apply the Rogers test to parodies, noting the Fourth, Fifth, and Seventh Circuits analyze parodies in the manner advocated by the DOJ.
Justice Alito seemed uncomfortable with the DOJ’s argument. He noted that many of the cases highlighted in the parties’ briefings presented serious First Amendment issues but, according to Justice Alito, the DOJ seemed “not to be very concerned about the free speech implications of the position [it was] taking.” In response, the DOJ maintained that the standard likelihood-of-confusion analysis could address such free-speech concerns in many cases.
VIP, on the other hand, emphasized that the First Amendment should apply to its dog toy because Jack Daniel’s objected to “Bad Spaniels” not as a confusing source identifier, but rather as a parody—i.e., to the speech itself. Going almost so as far as to say a parody can never be confusing, VIP argued for a simplified multifactor likelihood-of-confusion test that strips away the irrelevant factors and asks three questions: (1) can the product’s parodic character be perceived; (2) what is the proximity and competitiveness of the party’s goods; and (3) does the parody otherwise fail to differentiate itself from the parodied product?
Pressing VIP on its argument that expressive works can almost never be confusing, Justice Jackson asked what the result would be if the Bad Spaniels toy instead read “Jack Daniel’s.” According to VIP, that case would be easy because it would be “explicitly misleading” and therefore not entitled to First Amendment protection. Justice Gorsuch later observed, to much courtroom laughter, that if the First Amendment did not protect speech that was misleading, “[w]e wouldn’t have very much speech in this country . . . .”
But Justice Kagan just didn’t get VIP’s joke. “What is the parody here?” she asked, despite VIP’s insistence that its dog toys (which include “Doggie Walker,” “Smella R Paw,” “Canine Cola,” and “Mountain Drool”) made fun of marks “that take themselves too seriously.” Justice Kagan pressed: “So you’re just saying anytime you go out after or you use the mark of a large company, it’s a parody just by definition?” VIP insisted that many big companies do take themselves too seriously “[b]ut Jack Daniel’s would be head of the line.” In the end, Justice Kagan appeared unconvinced, reiterating: “I don’t see the parody . . . .”
Whether the Court lets the Ninth Circuit decision stand, remands on the basis that the Ninth Circuit overreached in disregarding the likelihood of confusion and dilution analyses conducted by the district court, or adopts the DOJ’s proposal to overturn Rogers, the contours of the parody defense are shifting.
The cases are Abitron Austria GmbH v. Hetronic Int’l, Inc., No. 21-1043 (Mar. 21, 2023) and Jack Daniel’s Props., Inc. v. VIP Prods. LLC, No. 22-148 (Mar. 22, 2023).
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