At a glance, a unanimous Supreme Court, holding that two provisions of the trademark-governing Lanham Act (15 U.S.C. §§ 1114(1)(a) and 1125(a)(1)) do not apply extraterritorially and extend only to alleged infringement in domestic commerce, does not appear groundbreaking. Nor does it appear to have any effect on the metaverse. Yet, the two worlds do collide, and the courts and legislature will need to consider extra-tangible applications more frequently at a time in history when virtual reality is just a couple clicks away.

Numerous Supreme Court decisions have reached the same conclusion as Abitron Austria GmbH et al v. Hetronic International, stressing the importance of the “presumption against extraterritoriality,” and reasoning that the laws of the United States should not reach too far abroad. Similarly, preceding decisions have used the same two-step framework applied in this case to evaluate the extraterritorial reach of a statute and to determine if the case merits any redress, asking first (1) whether the statute at issue clearly and affirmatively rebuts the presumption against extraterritoriality; and if not, (2) asking whether the case involves a domestic application of the statute. If step two uncovers a domestic infringement of rights covered by the disputed statute, then there is potential that the alleged harm may be remedied.

Nine justices concluding that the Lanham Act does not reach extraterritorially, and treading a well-worn path to get there, should provide a rather ho-hum decision, right?

Not quite.

Context: Facts of the Case

Hetronic International, Inc., a U.S. company, contracted with six foreign parties (Abitron Austria GmbH, et al.) to distribute Hetronic’s products, mostly in Europe. The relationship deteriorated when Abitron decided that it, not Hetronic, owned the rights to Hetronic’s trademarks and other intellectual property. Abitron began manufacturing products identical to Hetronic and selling those products under the Hetronic brand. Hetronic terminated the contractual relationship, but Abitron continued to manufacture and sell the lookalike products. Hetronic sued in federal district court under the Lanham Act and won approximately $96 million and a worldwide injunction. On appeal, the trial court’s decision was affirmed.

Abitron turned to the Supreme Court in hopes of a different result, and presented the question: does the Lanham Act permit the owner of a U.S.-registered trademark to recover damages for the use of that trademark when the infringement occurred outside the United States and is not likely to cause confusion in the United States?

A Split Unanimity

Justice Alito’s majority opinion was the majority by a margin of just one justice, teaming up with Justices Kavanaugh, Gorsuch, Thomas, and Jackson. Chief Justice Roberts and Justices Kagan and Barret joined Justice Sotomayor’s concurrence in the result. So, the “unanimity” factor here appears more strained than a typical 9-0 result. While the two sides reached the same conclusion, the paths taken to get there vigorously differed.

Both sides agreed at step one of the extraterritoriality two-step: the Lanham Act does not clearly and affirmatively rebut the presumption against extraterritoriality, therefore, it should not apply abroad.

At step two, however, the iceberg split. Justice Alito’s slight majority understood step two to focus solely on whether infringing “conduct” had occurred in domestic commerce within the United States. The slim majority subscribed to a conduct-based approach at step two because, when a claim involves “both domestic and foreign activity, the question is whether ‘the conduct relevant to the statute’s focus occurred in the United States.’”

In other words, after determining a statute’s focus, Alito argued that courts should determine whether actual activity relevant to the statute’s focus occurred within the defined bounds of United States territory. If the activity occurred outside the United States, courts could end their analysis; at that point, the case could be presumed extraterritorial and out of reach of the statute(s) governing the lawsuit.

Again, in the majority’s understanding, location of conduct, and not the location of the resulting confusion or lost profits, dictates whether any claims should be classified as extraterritorial or domestic.

The majority reasoned that the relevant conduct alleged in Abitron, under the trademark-focused Lanham Act, was infringing use of a trademark in commerce. Whether that conduct fell within or outside of the bounds of the United States would be a question returned to the lower courts to unravel based on the conduct-focused understanding of the extraterritoriality two-step. Because the Abitron proceedings in the lower courts were not in accord with the majority’s interpretation of extraterritoriality, they were vacated; and while the majority did not definitively describe when an infringing use in commerce of a trademark occurs in a U.S. territory, it remanded the case for the lower courts to figure it out.

While in agreement with the result, Justice Sotomayor’s concurrence argued that step two actually requires more than an analysis of mere conduct in the United States, which she believed too narrow a divining rod. Rather, it was the concurrence’s impression that step two should be based on a contextual likelihood of confusion test to determine whether activities, either at home or abroad, could induce consumer confusion in the United States.

In contrast to the majority’s conduct-based approach, Justice Sotomayor provided a focus-based approach: which interests were Congress’s focus when it enacted a statute, which parties did it intend to protect, and where were those parties and interests located? Instead of focusing on just the relevant conduct, the minority concurrence would have a court consider whether, under the Lanham Act, the alleged infringement created a likelihood of consumer confusion in the United States, regardless of where that alleged infringement occurred.

Justice Sotomayor’s minority accused Justice Alito’s conduct-based approach of adding a third step to the two-step framework which “frustrates” Congress’s goal to legislate with predictability, especially in the case of protecting U.S. trademark owners and consumers. Justice Sotomayor believed Justice Alito completely ignored the accepted second step—looking to the statute’s focus, regardless of whether its focus goes to or beyond conduct—and conjured up an unprecedented assessment of whether conduct, and solely conduct, relevant to the statute’s focus, occurred domestically. To Justice Sotomayor, this “novel approach” contradicted years of Supreme Court jurisprudence because the Court “has expressly recognized that a statute’s ‘focus’ can be ‘conduct,’ ‘parties,’ or ‘interests’ that Congress sought to protect and regulate.”

To majority’s main gripe with Justice Sotomayor’s concurrence was how broadly she would interpret the second step of the extraterritoriality framework. “Use in commerce,” Justice Alito wrote, “provides the dividing line between foreign and domestic applications of [the Lanham Act],” and shifting the relevant inquiry, as Justice Sotomayor would, to a “focus-only standard . . . that any claim involving a likelihood of consumer confusion in the United States would be a ‘domestic’ application of the Act . . . . is wrong.” The majority felt that the minority’s approach resisted a straightforward application of precedential extraterritoriality framework and would “create headaches for lower courts.”

Interestingly, although part of the majority, Justice Jackson wrote her own concurring opinion that spun “conduct” and “use in commerce” in a more expansive way than perhaps either Justices Alito or Sotomayor considered. To Justice Jackson, even though she ascribed to the majority’s conduct-focused approach, “a ‘use in commerce’,” read “conduct,” “does not cease at the place the mark is first affixed, or where the item to which it is affixed is first sold. Rather, it can occur wherever the mark serves its source-identifying function.” Citing Jack Daniel’s Properties, Inc. v. VIP Products LLC, another trademark case, Justice Jackson explained that a trademark is a trademark under the Lanham Act when it serves as a source identifier, distinguishing goods from those manufactured and sold by competitors. She emphasized that the Lanham Act defines commerce as “the bona fide use,” again, “conduct,” “of a mark in the ordinary course of trade,” which, to her, could occur “wherever the mark serves its source-identifying function”—whether that is in its country of origin, or elsewhere, even many times removed from the first sale. “If a marked good is in domestic commerce, and the mark is serving a source-identifying function in the way Congress described,” the trademark receives protection under the Lanham Act. Conversely, “if the mark is not serving that function in domestic commerce, then the conduct Congress cared about is not occurring domestically.” This understanding of conduct, particularly related to trademarks, appears to combine the Justice Alito approach (domestic conduct only) and the Justice Sotomayor approach (infringing conduct, activity, focus, or interests originating outside the United States can still have domestic implications).

Enter: The Metaverse

In a world where reality transcends tangible commerce that moves from point A to B on boats, trains, and airplanes, the question presented in future extraterritoriality cases, trademark-related or not, is going to be forced to consider where conduct takes place—both in- and outside of tangible reality.

This burgeoning understanding of extraterritoriality received hints in Abitron: both Justices Sotomayor and Jackson exhibited concern about how Abitron might affect internet commerce, and each dedicated a footnote to thinking about the online use of trademarks. Justice Jackson suggested that use “in commerce,” “in the internet age,” may very well include “a mark serving its critical source-identifying function in domestic commerce even absent the domestic physical presence of the items whose source it identifies.” Justice Sotomayor referenced “today’s increasingly global marketplace, where goods travel through different countries, [and] multinational brands have an online presence,” to argue that the majority’s conduct-only approach limits the Lanham Act to “purely domestic activities,” which results in “trademarks [that] are not protected uniformly around the world, . . . leav[ing] U. S. trademark owners without adequate protection.”

While the casual observer would do well to appreciate gestures toward the internet in any Supreme Court decision, technology has already leapt far beyond online storefronts. In a world of ChatGPT and MetaBirkins, the general “internet” is only the beginning. Source-identifying trademarks may appear far deeper in the wrinkles of cyberspace. 

The metaverse, being neither foreign nor domestic, provides unique problems for a piece of legislation, like the Lanham Act, originally written generations before the concept of dial-up. Yes, a user might access the internet from the United States, but once that user hops into the metaverse, there are not necessarily any helpful geographical moorings that a court can easily define as foreign or domestic because there is no real “conduct” occurring—in the metaverse, avatars run by algorithms and code do the interacting, and while they are doing, does a statute yet exist that covers virtual doings in a virtual world? Should a statute cover such dealings? Should an extraterritoriality statute do the heavy lifting here? If one applies the majority approach, where does conduct occur in a metaverse scenario? Maybe only virtual reality users accessing virtual reality in a United States territory will be on the hook. In the minority application, maybe those outside U.S. territories can still be prosecuted if their actions affect virtual reality users accessing virtual reality inside a U.S. territory.

Location, however, provides only the starting point for a metaverse inquiry. As mentioned above, what exactly constitutes “conduct” when one takes part in business as a virtual avatar? Is intangible activity also “conduct” as recognized by the Lanham Act or other statutes? Furthermore, the fact that Abitron included three different interpretations of what could constitute foreign trademark use adds another wrinkle to the metaverse inquiry because the Court has yet to nail down a meaning in the real world. Which interpretation would be most useful going forward? Does Justice Jackson’s incredibly broad definition of “use in commerce” scratch the metaverse itch that commerce within virtual reality presents? Does Justice Alito’s conduct-focused approach transcend the tangible world—and how would/should he, and we, define extraterritoriality in a place that operates on servers where the physical location isn’t germane to anything? Would Justice Sotomayor’s consumer confusion test be the most workable solution for a world where reality can be more virtual than ever before, linking a visitor in the metaverse to a geographical location?

Abitron, albeit based on tangible goods traded across real borders, shines an uncomfortably glaring light on how slowly American jurisprudence plods along in relation to lightning-quick tech updates. The questions above are what make Abitron so intriguing, however, and will have to remain unanswered for a little while longer.