Saturday, August 06, 2005

1st Circuit decision re extraterritorial application of Lanham Act

Adding yet another take on when it's OK to apply the Lanham Act to foreign defendants and/or foreign activities, the 1st Circuit recently decided not to follow the kinda seminal decision of the Second Circuit in Vanity Fair Mills v. T. Eaton Co., 234 F.2d 633 (2d Cir. 1956). Back during the days of McCarthyism and "duck-and-cover," Vanity Fair held that courts should assess (without really saying HOW to assess) (1) whether the defendant is a US citizen; (2) whether the defendant's actions have a substantial effect on US commerce; and (3) whether relief would create a conflict with foreign law.

In a long and scholarly opinion in McBee v. Delicia Co., No. 04-2733 (1st Cir. Aug. 2, 2005) (click on link, click "opinions", type in the case number "04-2733", and click "submit search"), the 1st Circuit decided that the Vanity Fair factors needed to be "disaggregated." It thought that the first Vanity Fair factor (whether the defendant is a US citizen), should be the preliminary inquiry. The 1st Circuit suggested that the answer to that question would have an impact upon how much of an effect the defendant's foreign activities would be required to have on US commerce (US citizen, less; foreigner, more). (The court also briefly noted that US activities of foreign defendants are automatically within the subject matter jurisdiction of US courts over Lanham Act claims).

Because the defendant in the case was foreign company, and the activities at issue (with a minor exception I won't tell you about) were purely foreign activities, the 1st Circuit then went on to put a finer point on how much of an effect on US commerce is required for subject matter jurisdiction over such foreign activities of foreign defendants. Looking for guidance more from recent Supreme Court antitrust decisions than from the Supreme Court's much older Bulova Watch Lanham Act decision, the 1st Circuit decided that there has to be "a substantial effect on United States commerce" -- which, of course is the second Vanity Fair factor. The court said this test needs to be applied with an eye toward the dual goals of the Lanham Act: protecting US consumers from being confused, and protecting the goodwill of trademark owners in their marks.
The 1st Circuit then "disaggregated" the third Vanity Fair factor (comity with foreign law), saying that issue wasn't a question of subject matter jurisdiction, but rather was a question of whether that jurisdiction, if it exists, ought to be exercised.

Applying the new test, the 1st Circuit said there wasn't subject matter jurisdiction over the plaintiff's claim concerning the defendant's Japanese language website because few Americans can read Japanese and there wasn't any evidence of Americans going to the website and being confused. Nor was there jurisdiction over the plaintiff's claim concerning the Japanese company's sales in Japan because there was virtually no evidence that Americans either were exposed to and confused by the defendant's mark in Japan or that the defendant's goods sold in Japan were making their way back into the US in substantial amounts.

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