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When will the federal trademark law, the Lanham Act, extend to extraterritorial conduct by foreign defendants? That has long been an open question, even as the issue grows in importance. After a searching review of the case law, the 1st U.S. Circuit Court of Appeals in August announced a new test to decide the issue. McBee v. Delica Co. Ltd., 417 F.3d 107 (1st Cir. 2005). In determining the extraterritorial reach of the Lanham Act, federal courts have traditionally looked to a range of factors to establish whether jurisdiction should be exercised in a particular case. McBee rejected these other approaches, and instead focused solely on whether the extraterritorial conduct of foreign nationals would have a “substantial effect” on U.S. commerce. This new framework is an explicit effort to harmonize the extraterritorial reach of U.S. trademark law with modern antitrust jurisprudence. It represents a significant clarification of the law in this field, and may have important implications for holders of well-known U.S. trademarks that may be imitated abroad. PRE-’MCBEE’ APPROACHES TO EXTRATERRITORIAL APPLICATION Fifty years ago, Steele v. Bulova Watch Co., 344 U.S. 280 (1952), held that under appropriate circumstances, Lanham Act jurisdiction would extend to the foreign conduct of U.S. citizens. The Supreme Court did not consider whether jurisdiction also covered such conduct by foreign nationals. Shortly after Bulova Watch was decided, however, the 2nd Circuit issued an influential decision holding that the Lanham Act did not cover extraterritorial conduct by foreign nationals, at least when they act under presumably valid trademarks in foreign countries. Vanity Fair Mills v. T. Eaton Co., 234 F.2d 633, 643 (2d Cir. 1956). In reaching this conclusion, Vanity Fair derived a three-part framework, evaluating whether: “(1) the defendant’s conduct had a substantial effect on United States commerce; (2) the defendant was a United States citizen … ; and (3) there was no conflict with trade-mark rights established under the foreign law.” Id. at 642. While it did not provide detailed guidance on how these factors should be weighed, the court strongly implied that jurisdiction should be refused when the defendant is a foreign national. Id. at 643. The Vanity Fair test has become central to other circuits’ analyses of Lanham Act jurisdiction. See, e.g., International Cafe S.A.L. v. Hard Rock Cafe Intern. (U.S.A.) Inc., 252 F.3d 1274 (11th Cir. 2001); Nintendo of America Inc. v. Aeropower Co. Ltd., 34 F.3d 246 (4th Cir. 1994). Although later cases have cautioned against a mechanical application of the test, see Sterling Drug Inc. v. Bayer A.G., 14 F.3d 733, 746 (2d Cir. 1994), the Vanity Fair decision has left lingering doubt about the propriety of taking jurisdiction over the extraterritorial conduct of foreign nationals. See 4 J.T. McCarthy, McCarthy on Trademarks and Unfair Competition �29.58 (4th ed. 2005). The McBee case involved two unlikely adversaries. Cecil McBee is a veteran jazz bassist, boasting hundreds of albums and a Grammy Award. Delica Co. Ltd. is a Japanese clothing retailer whose primary market is teenage girls. In 1995, McBee learned that Delica was using his name in connection with a line of clothing marketed exclusively through a chain of “Cecil McBee” retail stores located in Japan. Delica held a valid Japanese trademark over “Cecil McBee,” but, in a tacit acknowledgement of McBee’s rights, had a general policy of declining orders from the United States. This policy was easy to enforce because Delica had no stores outside of Japan, it did not ship to the United States and its Web site did not allow for online purchases. The Web site did contain information about the “Cecil McBee” line, though this information was almost entirely in Japanese. McBee sued Delica in Japan, but, after several appeals, the Japanese courts affirmed Delica’s trademark. In 2002, McBee commenced an action in Maine federal court under the Lanham Act seeking, among other things, damages based on the Japanese sales of “Cecil McBee” products, and an injunction prohibiting Delica from making its Web site available in the United States. The district court found jurisdiction was lacking, and the 1st Circuit affirmed. 1ST CIRCUIT REDUCED THE ANALYSIS TO A SINGLE FACTOR In affirming dismissal, the 1st Circuit rejected Vanity Fair‘s three-part test, and instead reduced the analysis of jurisdiction over the extraterritorial conduct of foreign nationals to a single factor: whether that conduct “has a substantial effect on United States commerce.” 417 F.2d at 120. In formulating this test, McBee also rejected the less stringent “some effect” standard used by other circuits to establish jurisdiction. See, e.g., Am. Rice Inc. v. Arkansas Rice Growers Coop. Ass’n, 701 F.2d 408, 414 n.8 (5th Cir. 1983). Instead, noting that the Supreme Court utilizes the “substantial effects” test to determine the extraterritorial application of antitrust laws, the court found “no reason to treat the Lanham Act differently.” McBee, 417 F.2d at 121 n.10. What qualifies as a substantial effect in a trademark context must, however, be viewed in light of the two core purposes of the Lanham Act: to prevent confusion among U.S. consumers; and to protect a trademark owner’s financial and reputational rewards. The court stressed that, “absent a certain degree of extraterritorial enforcement, [trademark] violators will either take advantage of international coordination problems or hide in countries without efficacious antitrust or trademark laws.” Id. at 119. “One can easily imagine a variety of harms to American commerce arising from wholly foreign activities by foreign defendants … [including] false endorsements, passing off, or product disparagement, or confusion over sponsorship affecting American commerce and causing loss of American sales.” Id. In applying its test to McBee’s claims, the court considered two key extraterritorial activities: Delica’s Japanese sales and the operation of Delica’s Web site. The court pointed to two situations where such sales could have a substantial effect on U.S. commerce. First, the court entertained the possibility that third-party importation of goods that impair a U.S. holder’s mark — the resale into the United States of goods purchased abroad — could have a substantial domestic effect. Id. at 125. This reasoning is consistent with Bulova Watch, which found that third-party importation of watches manufactured by a U.S. citizen in Mexico impaired a U.S. trademark, supporting the exercise of jurisdiction. 344 U.S. at 286. Second, the court noted that American courts “arguably have an interest in protecting American commerce by protecting McBee from lost income due to the tarnishing of his trademark in Japan.” Id. at 126. Thus, under McBee‘s reasoning, lost sales in a foreign country may also qualify as a substantial effect. Unfortunately for McBee, the court found that he had failed to show evidence of resale into the United States, or harm to his career or lost revenue, either in the United States or in Japan. Another significant element of the McBee decision is its analysis of McBee’s request for an injunction against Delica’s Web site. Here the court grappled with the difficult question of whether U.S. courts should hear a trademark claim concerning a foreign Web site just because that Web site is available in the United States. Id. at 124. WEB SITE’S VISIBILITY WAS NOT SUFFICIENT DOMESTIC CONDUCT The court first ruled that, on its own, the visibility of the Web site within the United States does not constitute domestic conduct sufficient to ground subject-matter jurisdiction. Id. at 123. Absent evidence of sales of goods into the United States, or domestic operation of the Web site, Delica’s Web site was clearly extraterritorial conduct, failing to satisfy the substantial-effects analysis. The court next rejected McBee’s argument that the Web site had a substantial effect on U.S. commerce because it confused American consumers. McBee stressed that Google searches for “Cecil McBee” returned Delica’s site at the top of the search results. Id. at 124. The court, however, pointed to the fact that McBee presented no evidence of confusion between his and Delica’s products in the minds of American consumers. The court also emphasized that both the Web site and the Google results were written almost entirely in Japanese characters. This fact made the possibility of any real confusion in U.S. markets “very unlikely.” Id. at 124. This holding leaves open the question of the impact a foreign-language Web site may have on Americans who speak more than one language. The outcome might have been different for a Web site in a language, such as Spanish, spoken by a larger number of American consumers of the products in question, or for a foreign-based Web site that was published in English. While its facts are unusual, McBee represents a significant decision in international trademark law. It proposes a new and simplified test for determining when the jurisdictional reach of the Lanham Act extends to the extraterritorial conduct of foreign nationals. It also raises questions about how far American courts are prepared to go in asserting subject-matter jurisdiction on foreign sales of trademarked goods between foreign nationals. Finally, it arguably indicates that operators of foreign Web sites might be subject to liability under U.S. trademark law, even if their Web sites do not provide for online sales and are neither managed nor hosted in the United States. Lewis R. Clayton is a litigation partner in the New York office of Paul, Weiss, Rifkind, Wharton & Garrison, and co-chairman of the firm’s intellectual property litigation group. He can be reached at [email protected] Aaron Delaney, an associate with the firm, assisted in the preparation of this article.

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