The courts have long applied a presumption against the extraterritorial reach of US law. While Congress can use domestic laws to regulate conduct outside of the United States, such regulation is not generally the norm. As such, absent clear guidance from Congress, courts presume Congress did not intend its laws to reach foreign activity. Even though this principle is long-standing, the presumption has been applied inconsistently and with little formal structure.

The Supreme Court in recent years sought to clarify and strengthen the presumption, starting with its decision in Morrison v. National Australia Bank LTD. Subsequently, in RJR Nabisco, Inc. v. European Community, the Supreme Court formalized a two-step process for determining whether a particular statutory provision has extraterritorial reach. At step one, courts are to determine whether the presumption has been rebutted by some clear indication of Congress. If the presumption has not been rebutted, the courts then move to step two. At step two, the courts assess what the focus is of the relevant statute. If the acts in the case regarding the focus of the statute take place within the United States, even if some conduct was outside, then the statute is permissibly regulating domestic activity notwithstanding some foreign conduct. Since RJR Nabisco, the court has revisited this two-step framework multiple additional times.

If the Supreme Court were truly writing on a clean slate, these efforts would not be problematic. But it wasn’t, at least in the field of intellectual property. Beyond a single footnote in Morrison, the court ignored its 1952 decision in Steele v. Bulova, which held that the Lanham Act, the United States’ trademark law, could apply extraterritorially.

In Steele, the accused infringer was a US citizen who affixed the BULOVA trademark on watches in Mexico and sold them there. The accused infringer initially registered the BULOVA mark in Mexico, but that registration was cancelled. The Supreme Court held that US trademark law, the Lanham Act, could apply extraterritorially to that conduct because the defendant was a US citizen, his activities in Mexico had an effect in the US market through cross-border movement of the watches, and there was no conflict with Mexican law given the cancellation of Steele’s Mexican registration.

Even before the Supreme Court’s recent engagement with the presumption, the courts of appeals had splintered on how to apply Steele. Some distilled Steele into three factors: the citizenship of the infringer, some effect on US commerce, and the potential for conflicts of law. The courts disagreed on these factors, however, such as whether the effect on US commerce was any effect or a substantial effect. RJR Nabisco’s two-step framework created even more confusion because it was not clear how to reconcile Steele with this new test. Most of the courts of appeal viewed Steele as holding that the presumption had been rebutted and then ignored RJR Nabisco altogether.

The Supreme Court finally stepped in to address this unsettled state of affairs in Abitron Austria GMBH v. Hetronic International, Inc.. The case presented all sorts of issues: was Steele still good law? If so, how should the court reconcile it with its new framework? Did citizenship matter, per Steele? How much of an effect on US commerce was sufficient? And what role does the potential conflict with foreign law play?

Anyone hoping to get explicit answers to these questions was sadly disappointed by the Supreme Court’s majority decision. Although the decision was technically 9-0, in reality the court was split 5-4 on how to address the extraterritorial reach of the Lanham Act. All of the justices agreed that, at step one, the Lanham Act did not rebut the presumption against extraterritoriality, rejecting the holdings the circuit courts. It was at step two that the majority, authored by Justice Alito, and the primary concurrence, written by Justice Sotomayor, parted ways.

The majority further developed step 2 of the RJR Nabisco framework by dividing it into two different considerations: identifying the focus of the state and identifying the location of the conduct relevant to the focus. The majority declined to identify the focus of the statutory provisions at issue, but it did identify the relevant conduct as “use in commerce,” which must be domestic. The Supreme Court sent the case back to the lower courts to sort that out with very little guidance.

In reaching this holding, the majority brazenly blew by Steele. The Court described Steele as “narrow and fact-bound,” involving “both domestic conduct and a likelihood of domestic confusion.” The majority moved on by simply saying, “[w]ith Steele put aside,” like a piece of unwanted luggage, without ever reconciling Steele with the current framework nor stating whether Steele is overruled.

In contrast, Justice Sotomayor’s concurrence engaged with Steele and reconciled it with the RJR Nabisco framework by noting Steele was concerned with the likelihood of consumer confusion within the United States. Her dispute with the majority was over step two because she felt the court needed to identify the focus of the relevant statutory provisions. There is no separate “conduct” analysis. Agreeing with the position of the United States, Justice Sotomayor viewed the focus as consumer confusion within the United States. If the accused infringer’s activity outside of the United States resulted in the likelihood of consumer confusion within the United States, then the accused infringer could be liable for trademark infringement. This approach would be consistent with Steele.

Justice Jackson, the seemingly crucial fifth vote for the majority, concurred to explain her views of the use in commerce requirement. Relying on the hypothetical she raised at oral argument, she noted that someone buying a COACH bag from a German producer could bring the bag back to the United States with exposing the German producer to liability for infringing the US owner of the COACH trademark. If that person sold the bag in the United States, however, then there would be a domestic use of the mark in commerce, and the German producer could be liable. To be clear, many, including myself, disagree with Justice Jackson that the mere sale of the COACH bag in the US would allow the German producer to be sued in the United States. Her hypothetical would create an odd form of viral liability where the German producer did not direct any activities towards the US market.

Interestingly, Justice Sotomayor’s concurrence reads much more like a majority opinion, with its rigorous engagement and reconciliation of Steele. It leaves many to wonder if she lost a crucial fifth vote, perhaps Justice Jackson’s.

What are the takeaways from this decision? Aside from the odd treatment of Steele and the refusal to expressly overrule it, the case is clearly no longer good precedent, relegated to the doctrinal dustbin. Indeed, the holding in Steele is completely inconsistent with the court’s reasoning in Abitron. The Supreme Court in Abitron made clear that the presumption against extraterritoriality was not rebutted. More importantly, the trademark in Steele was not used in commerce by the accused infringer in the United States, yet the Lanham Act did apply. The reasoning of the majority, requiring a domestic use in commerce of the mark, will curtail extraterritorial reach of the Lanham Act, if not completely eliminate it.

Implicit in the majority’s decision is that two key factors in Steele, the citizenship of the defendant and the need for some level of effect on US commerce, are both gone. Now the analysis will focus on whether the mark was used in commerce domestically. Additionally, the formal consideration of conflicts of law seems in doubt, although courts likely can rely on comity considerations as prudential limits on any, if any remaining extraterritorial application if the Lanham Act.

Thus, even if the majority’s treatment of Steele was disingenuous, it will have considerable consequences in the field of trademark law and likely beyond.

—Timothy R. Holbrook, Asa Griggs Candler Professor of Law