Court of Appeals Applies Lanham Act to Canadian Operations of Canadian Company Where No Allegedly Infringing Products Entered the U.S.

The World in U.S. Courts: Summer and Fall 2016 - Intellectual Property – Trademark (Lanham Act)

Trader Joe's Company v. Hallatt, U.S. Court of Appeals for the Ninth Circuit, August 26, 2016

Trader Joe’s is a U.S. supermarket chain selling a range of distinctive and popular products.  Hallatt owns a company called “Pirate Joe’s” which is based in Canada, just across the border from Trader Joe’s stores in Washington State.  Pirate Joe’s buys Trader Joe’s products at retail in Washington and resells them in Canada, where Trader Joe’s has no stores.  Trader Joe’s sued Pirate Joe’s for trademark infringement and unfair competition under the Lanham Act, claiming as injury a dilution in the value of its U.S. trademarks, consumer confusion, and injuries to reputation. 

The Court of Appeals stated that the Lanham Act applied extraterritorially where the alleged violations (i) create “some effect” on U.S. foreign commerce, (ii) the effect is great enough to present a cognizable injury, and (iii) U.S. interests and links to U.S. foreign commerce outweigh competing interests that other countries may have in the dispute.  The Court observed that, unlike most plaintiffs, Trader Joe’s had not sought to satisfy the first two factors by alleging sales in the U.S. of goods tainted by a Lanham Act violation.  Rather, Trader Joe’s alleged that its reputation was at risk because Canadian purchasers of Trader Joe’s food products sold under Pirate Joe’s allegedly poor quality control standards might become ill, news of the illness might receive news coverage in the U.S., and U.S. consumers might blame Trader Joe’s for the problem.  Likewise, Trader Joe’s said that its reputation for selling reasonably-priced merchandise might be injured by the allegedly “inflated” prices at which Pirate Joe’s resold its products.  The Court found these allegations sufficient:  They were “plausible” and demonstrated “some effect” on U.S. commerce.  Notably, the Court said the same conclusion would have attached under the slightly different standard employed by other courts of appeals, requiring not merely “some” effect on U.S. commerce but a “substantial” effect.  The Court also noted that a less significant showing by a Lanham Act plaintiff is required where, as here, some part of the alleged scheme took place in the U.S.

The third factor for extraterritorial application of U.S. trademark law focuses on international comity, and the Court found no reason that a U.S. court should defer to potential Canadian jurisdiction.  Most significantly, the Court cited: Trader Joe’s ownership of Canadian trademarks and the absence of pending trademark disputes in Canada, Hallatt’s “Lawful Permanent Resident” U.S. immigration status, and the ability of a U.S. court to secure relief for a violation.  The Court noted that the relative importance of Hallatt’s conduct in Canada compared to the U.S. counseled against extraterritorial application of the Lanham Act, but concluded that this factor did not outweigh the others.

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