This is the year for territoriality issues in trademark disputes. As we reported previously, Bayer and Belmora have locked horns over the question of whether someone who owns a trademark in Mexico (and does not use the mark in the U.S. or own a U.S. trademark registration) could bring an action for false advertising, false association, and trademark cancellation in the U.S. based on the defendant’s use of the mark in the U.S. The U.S. Court of Appeals for the Fourth Circuit held that such claims could be brought. (Belmora has sought an extension of time to petition the U.S. Supreme Court for certiorari).
Now another trademark dispute moves the geography focus north and inverts part of the scenario.
Last week, the U.S. Court of Appeals for the Ninth Circuit reversed a district court’s dismissal of Trader Joe’s Lanham Act claims against Michael Hallat, aka Pirate Joe’s (but affirmed the dismissal of the state law claims). Trader Joe’s Company v. Hallat, Case No. 2:13-cv-00768 (9th Cir. Aug. 26, 2016). The district court had dismissed Trader Joe’s claims because Mr. Hallat operated in Canada, where Trader Joe’s does not own a trademark registration, use its marks, or do business. The appellate court reversed, finding that the facts favored extraterritorial application of the Lanham Act (the federal trademark statute).
What does E.T. have to do with trademark law?
Not extraterrestrial, extraterritorial.
The defendant in this case is an “alien” (according to the USCIS), but not that kind of alien. In fact, he’s a lawful permanent resident of the United States, and that was one of the factors the court considered in concluding that Trader Joe’s could move forward with its case against him.
As you may know, Trader Joe’s is a grocery store that prides itself on stocking high quality, hard-to-find foods, branding them under the TRADER JOE’S mark, and selling them at appealing prices. Trader Joe’s operates over 400 stores throughout the United States. It does not have any franchisees or licensees. It is so popular that its reputation has reached Canada even though Trader Joe’s does not operate there. Canadians regularly drive down to Washington state to purchase groceries from Trader Joe’s.
One such Canadian, Mr. Hallatt, made a habit of driving down to a Washington state Trader Joe’s store to purchase sufficient quantities of goods for resale back in Canada. Moreover, he opened a retail outlet and ultimately called it “Pirate Joe’s.” There, he sold the Trader Joe’s-branded goods he had purchased in Washington and brought back to Canada at inflated prices.
Mr. Hallat’s establishment
Trader Joe’s did not take kindly to this pernicious form of flattery. It alleged that Pirate Joe’s had used Trader Joe’s marks to promote the goods and services, operated a website accessible from the U.S., displayed a sign reminiscent of the font in Trader Joe’s signs, decorated the location to mimic Trader Joe’s trade dress, and did not follow Trader Joe’s quality control standards when transporting the goods to Canada. Trader Joe’s cites to one customer who became sick after consuming a product sold by Pirate Joe’s. Trader Joe’s alleged multiple Lanham Act claims (including trademark infringement, unfair competition, false endorsement, false designation of origin, and dilution) and two state law claims (dilution and deceptive business practices) against Mr. Hallat.
In response to the lawsuit, Mr. Hallat changed the sign.
The district court dismissed Trader Joe’s claims for lack of subject matter jurisdiction saying the Lanham Act did not apply to Pirate Joe’s acts in Canada. Trader Joe’s appealed and the U.S. Court of Appeals for the Ninth Circuit reversed the district court’s decision with respect to the Lanham Act claims.
The Ninth Circuit ruled that whether the Lanham Act applies to acts outside the U.S. is about the merits of the case, not whether the court has authority to hear it. The Lanham Act would apply to acts outside the U.S. if (1) the alleged trademark violations have an effect on U.S. foreign commerce, (2) the effect is great enough to present an identifiable injury under the Lanham Act, and (3) the interests and connections to U.S. foreign commerce are sufficiently strong compared to the interests of other nations to justify the assertion of authority over the acts abroad.
Here, the court found that Mr. Hallat’s conduct (especially the failure to use quality control practices that comply with Trader Joe’s standards, the inflated prices, and poor customer service) harms Trader Joe’s reputation in the U.S. and thus decreases the value of its U.S. marks. This is an effect on U.S. commerce that causes an identifiable injury under the Lanham Act. The connections with U.S. foreign commerce were strong enough compared to those of Canada to warrant the court’s assertion of authority outside of the U.S. In fact, all the subfactors of this third factor except one weighed in favor of asserting such extraterritorial application of the Lanham Act (for example, there are no proceeding between the parties in Canada, Trader Joe’s is an American company and Mr. Hallat a lawful permanent resident, the court could enforce its order against Mr. Hallat, and Trader Joe’s reputation among Canadians was important to the business of the store in Washington state).
The number of cases involving trademark disputes that touch on practices or rights located outside the U.S. is likely to increase as the world gets smaller. It will be interesting to see how these cases develop.
For the moment, Trader Joe’s lives to fight another day. So Canadians can get their pirated, expensive, perishable foodstuffs of questionable condition while supplies last! Or they could just make a grocery run to the U.S. as an excuse to visit their friendly neighbors to the south!