Trader Joe's Company v. Hallatt, No. 13-cv-00768, (W.D. Wash. Oct. 2, 2013) [click for opinion]
Michael Hallatt, a/k/a "Pirate Joe," owns and operates a grocery store in Vancouver, British Columbia. He and his employees buy products at Trader Joe's stores in the United States, paying full retail price, transports the goods to Canada, duly declaring the merchandise at the border, and then resells the products at above-retail prices, but without modifying the products or their labels. Trader Joe's sued Hallatt for violating the Lanham Act. Hallatt moved to dismiss the complaint for lack of subject matter jurisdiction, arguing that the facts of the case did not support extraterritorial application of the Lanham Act.
Supreme Court precedent permits extraterritorial application of the Lanham Act in appropriate cases. In the Ninth Circuit, courts apply the "Timberlane test" to determine the propriety of extraterritorial application, pursuant to which a court must weighs the following factors: whether (1) the defendant’s action creates some effect on American foreign commerce, (2) the effect is sufficiently great to present a cognizable injury to plaintiff under the Lanham Act, and (3) the interests of and links to American foreign commerce are sufficiently strong in relation to those of other nations to justify an assertion of extraterritorial authority.
The court considered the first two factors together and found that Pirate Joe's business, conducted solely in Vancouver, had an insufficient effect on U.S. foreign commerce. In other cases in which the Lanham Act has been applied extraterritorially, the extraterritorial commercial activity occurred "partly within the United States, or the plaintiff conducted business internationally." The court further found that Trader Joe's suffered no economic harm because the products were purchased at its stores at retail price; and even if it could establish customer confusion, such confusion did not cause any monetary injury to Trader Joe's.
The court likewise found the third Timberlane militated against extraterritorial application of the Lanham Act. The wholly foreign nature of Defendant's conduct risked conflict with Canadian law, particularly because Trader Joe's has two trademark applications pending in Canada. And although Hallatt has Permanent Resident Alien status and frequently travels to the United States, he has no commercial presence in the United States. Moreover, his allegedly infringing activities all occurred in Canada, and so harm to Trader Joe's was not foreseeable—assuming any harm did befall Trader Joe's. Plus Defendant's U.S. conduct—purchasing Trader Joe's products—was lawful.
Because the court found the balance of the Timberlane factors weighed overwhelmingly against extraterritorial application of the Lanham Act, it dismissed the lawsuit.