Academic journal article Harvard Law Review

Foreign Relations Law - Lanham Act Extraterritoriality - Ninth Circuit Applies Lanham Act to Wholly Foreign Sales - Trader Joe's Co. V. Hallatt

Academic journal article Harvard Law Review

Foreign Relations Law - Lanham Act Extraterritoriality - Ninth Circuit Applies Lanham Act to Wholly Foreign Sales - Trader Joe's Co. V. Hallatt

Article excerpt

Foreign Relations Law--Lanham Act Extraterritoriality--Ninth Circuit Applies Lanham Act to Wholly Foreign Sales.--Trader Joe's Co. v. Hallatt, 835 F.3d 960 (9th Cir. 2016).

American courts interpret statutes with a strong presumption that they do not apply extraterritorially, (1) based on the belief "that Congress ordinarily legislates with respect to domestic, not foreign, matters." (2) Extraterritoriality arises, then, only when "the affirmative intention of the Congress" to reach beyond U.S. borders is "clearly expressed." (3) The federal trademark statute, the Lanham Act, (4) carries a broad jurisdictional grant: the Act is intended "to regulate commerce within the control of Congress." (5) The Supreme Court concluded six decades ago in Steele v. Bulova Watch Co. (6) that this grant included a limited extraterritorial application. (7) Yet the Court has not addressed the issue since, leaving the exact contours of the Act's reach to the determination of lower courts. (8) Recently, in Trader Joe S Co. v. Hallatt, (9) the Ninth Circuit extended the Act's reach to wholly foreign sales for the first time. At first glance, the decision breaks with recent Supreme Court extraterritoriality jurisprudence, which has tended toward restricting the reach of U.S. law. (10) However, this apparent divergence in fact reflects extraterritoriality doctrine's central trade-off between allowing judicial flexibility in the face of new factual scenarios and precluding judicial resolution of questions better left to Congress. Trader Joe's highlights the challenges of basing a doctrine on such a compromise.

Michael Norman Hallatt began drawing the attention of Trader Joe's employees in October 2011. (11) Hallatt, a Canadian national with U.S. lawful permanent resident status, visited the Bellingham, Washington, Trader Joe's store "several times per week," (12) buying unusually large amounts of goods each visit. (13) Hallatt was distributing these goods in Canada, operating a store named "Pirate Joe's" where he resold the Trader Joe's items at "substantially inflated prices." (14) Hallatt allegedly advertised his goods using Trader Joe's intellectual property, including a store marquee that mimicked the company's font and an interior design similar to the company's distinctive trade dress. (15) Hallatt also operated a U.S.-accessible website and transported perishable goods in a manner that did not meet Trader Joe's quality control standards, leading to "at least one complaint from a consumer who became sick after eating" goods purchased at Hallatt's store. (16) After Hallatt refused to stop reselling the goods, Trader Joe's banned him from its stores. (17) However, Hallatt was "undeterred," attempting to evade detection first by disguising himself and traveling to stores all over the West Coast, and later by paying third parties to buy goods and deliver them to his store. (18) Trader Joe's claimed that in total, Hallatt "spent more than $350,000" to stock his store. (19)

Trader Joe's filed suit against Hallatt in the Western District of Washington, alleging violations of both federal and state trademark and unfair competition law. (20) Specifically, the complaint alleged four federal claims under the Lanham Act: (1) trademark infringement; (2) unfair competition, false endorsement, and false designation of origin; (3) false advertising; and (4) trademark dilution. (21) Judge Pechman, however, granted Hallatt's motion to dismiss for lack of subject matter jurisdiction, holding that the Lanham Act did not apply to Hallatt's conduct in Canada. (22)

In dismissing the federal claims, Judge Pechman relied on an extraterritoriality analysis first set out by the Ninth Circuit in the antitrust context in Timberlane Lumber Co. v. Bank of America, N.T. & S.A. (23) Under the Timberlane test, jurisdiction is properly exercised if three factors are demonstrated: the alleged conduct has "some effect on American foreign commerce"; that effect is sufficient to cause a cognizable injury under the Lanham Act; and the American commercial interests and links are "sufficiently strong in relation to those of other nations. …

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