Ninth Circuit Rules Trader Joe’s May Pursue Infringement Claim Against Infringing Activity in Canada

The Ninth Circuit recently became the latest appeals court to address the extraterritorial reach of the Lanham Act, holding that a U.S. trademark holder can pursue a Lanham Act claim in the U.S. against infringing activity that occurred mainly in Canada.

The defendant in the case, Michael Norman Hallatt, was a lawful permanent resident of the United States and was thus allowed to live and work legally in the U.S. Hallatt purchased Trader Joe’s-branded goods in Washington state, transported them to Canada, and resold them in his store named “Pirate Joe’s.” Hallatt used Trader Joe’s trademarks in his Canadian advertising, used a font similar to the Trader Joe’s insignia for his “Pirate Joe’s” sign, and sold perishable goods that were not transported or stored in accordance with Trader Joe’s strict quality control standards. Trader Joe’s received at least one complaint from a customer who became sick after eating a Trader Joe’s branded product purchased from Pirate Joe’s.

Trader Joe’s sued for trademark infringement and unfair competition. The District Court dismissed the Lanham Act claims for lack of subject matter jurisdiction, concluding that the Lanham Act did not apply to the defendant’s activities in Canada. Trader Joe’s appealed.

To determine whether the Lanham Act could reach Hallatt’s conduct in Canada, the Ninth Circuit examined two questions: (1) is the extraterritorial application of the Lanham Act an issue that implicates federal courts’ subject-matter jurisdiction; and (2) were Trader Joe’s allegations that Defendant’s conduct had an impact on American commerce sufficient to invoke the Lanham Act’s protections?

With respect to the first question, the Ninth Circuit held that the extraterritorial reach of the Lanham Act is a merits question, in contrast to subject matter jurisdiction which refers to the court’s power to hear a case. The Lanham Act’s “use in commerce” element and its broad definition of “commerce” give the statute its extraterritorial reach, and these elements derive from Congress’s power to regulate interstate and foreign commerce under the Commerce Clause. Because the “use in commerce” element of the Lanham Act is not connected to its jurisdictional grant in 15 U.S.C. 1121(a), that element is not a jurisdictional requirement.

With respect to the second question, the Ninth Circuit applied a three-part test. The Lanham Act can apply extraterritorially if: (1) the alleged violations create some effect on American foreign commerce; (2) the effect is sufficiently great to present a cognizable injury under the Lanham Act; and (3) the interests of and links to American foreign commerce are sufficiently strong in relation to those of the foreign jurisdiction to justify the assertion of extraterritorial authority. Trader Joe’s allegations met all three elements.

Trader Joe’s satisfied the first two elements because it sufficiently alleged a nexus between Hallatt’s foreign conduct and American commerce. Its Lanham Act claim was based, in part, on the allegation that Hallatt transported and sold Trader Joe’s products without using the proper quality control measures. Further, Hallatt’s infringing scheme including sourcing his inventory entirely from the United States. The Ninth Circuit observed, “There is nothing implausible about the concern that Trader Joe’s will suffer a tarnished reputation and resultant monetary harm in the United States from contaminated goods sold in Canada.”

Trader Joe’s satisfied the third element even though most of Hallatt’s infringing activity occurred in Canada because Trader Joe’s alleged, among other things, that (1) Hallatt subjected himself to U.S. law by virtue of his permanent resident status, (2) the harm to Trader Joe’s was foreseeable, and (3) Trader Joe’s trademarks are well-known in Canada.

The case is Trader Joe’s Company v. Hallatt, Case No. 14-35035 (9th Cir.).