Aerogroup International, Inc. v. Marlboro Footworks, Ltd.
955 F. Supp. 220, 1997 WL 45345, 1997 U.S. Dist. LEXIS 1124 (1997)
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Rule of Law:
The Lanham Act applies extraterritorially to the foreign activities of a U.S. citizen when those activities have a substantial effect on U.S. commerce and do not conflict with foreign law, but it generally does not apply to a foreign defendant's sales that occur entirely outside the U.S.
Facts:
- Aerogroup International, Inc. ('Aerogroup'), a U.S. company, designed and sold 'Aerosoles' shoes, for which it held U.S. trademarks and a patent for its signature 'waffle sole'.
- Marlboro Footworks Ltd. ('Marlboro'), a U.S.-based buying agent, created 'knock-off' versions of Aerosoles, including a confusingly similar 'Air Supply' trade dress.
- Marlboro displayed its knock-off shoes and the infringing trade dress at a shoe show in Las Vegas.
- Bata Industries Ltd. ('Bata'), a Canadian retail company and previously Aerogroup's largest Canadian customer, saw the knock-offs at the Las Vegas show.
- After seeing the knock-offs, Bata cancelled its existing orders with Aerogroup and began purchasing the 'Air Supply' shoes through Marlboro.
- Marlboro arranged for the infringing shoes to be manufactured in China and shipped directly to Canada.
- Bata sold the 'Air Supply' shoes exclusively in its retail stores located in Canada.
Procedural Posture:
- Aerogroup International, Inc. sued Marlboro Footworks Ltd., Bata Industries Ltd., and others in the U.S. District Court for the Southern District of New York.
- The complaint alleged violations of the Lanham Act, the Patent Act, and other federal and state laws.
- The court held a trial on the merits against Marlboro and granted a permanent injunction against it for its U.S. activities, but reserved judgment on the issue of Canadian sales.
- Two other Canadian defendants, Town Shoes and Gredico, were previously dismissed from the case for lack of personal jurisdiction.
- Marlboro and Bata then filed motions to dismiss the action as it pertained to Canadian sales for lack of subject matter jurisdiction, which the court is now deciding.
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Issue:
Does the Lanham Act apply extraterritorially to an American buying agent's conduct that facilitates infringing sales in Canada and to a Canadian retailer's subsequent sales of those infringing goods exclusively within Canada?
Opinions:
Majority - Cote, District Judge
Yes, as to the American buying agent; No, as to the Canadian retailer. The Lanham Act applies extraterritorially to Marlboro's sales in Canada but does not provide subject matter jurisdiction over Bata for its Canadian sales. The court applied the three-factor test from Vanity Fair Mills: (1) substantial effect on U.S. commerce, (2) the defendant's citizenship, and (3) potential conflict with foreign law. For Marlboro, a U.S. citizen, its citizenship was the 'most significant factor.' Marlboro conducted its infringing activities (soliciting customers, designing the knock-offs) almost exclusively in the U.S., which had a substantial effect on U.S. commerce by diverting sales from Aerogroup. Since Marlboro had no trademark rights in Canada, there was no conflict. For Bata, a foreign citizen, its contacts with the U.S. (attending a trade show, ordering through a U.S. agent) did not establish a sufficient nexus to justify extraterritorial application. The effect on U.S. commerce was deemed equivocal without the aggravating factors present for Marlboro, and potential conflicts with Canadian trademark law counseled judicial caution.
Analysis:
This decision reinforces the paramount importance of a defendant's citizenship in determining the extraterritorial reach of the Lanham Act. It clarifies that a U.S. entity cannot evade U.S. trademark law simply by arranging for the final sale to occur in a foreign country if the infringing scheme is orchestrated from within the United States. Conversely, the case establishes a high bar for applying the Lanham Act to a foreign defendant whose infringing conduct occurs entirely abroad, thereby respecting principles of international comity and the territorial nature of intellectual property rights. Future cases involving foreign infringement will likely distinguish between U.S. actors directing conduct from home and foreign actors operating in their own markets.
