Int’l Academy of Business & Financial Management v. Mentz (US District Court, D. Col., Jan. 18, 2013)

Under the Lanham Act, US Congress has the power to regulate foreign trade practices of US citizens, even when some of the acts occur outside the territorial boundaries of the US. In this case, a federal court in Colorado concludes that it cannot exercise jurisdiction where none of the plaintiffs is a US citizen and where the conduct at issue did not have any effect on US commerce, let alone the required “substantial” or “significant” one.

Facts

The dispute involves a US company doing business worldwide and its former officer and employees, who set up a competing venture based in Hong Kong that did not seek to do business in the US. The dispute involves various claims and cross-claims of defamation, tortious interference with business opportunities, and infringement of the company’s trademarks and copyrighted materials. As relevant here, the court considered claims that the competing venture was subject to jurisdiction under the Lanham Act even though it did no business in the US, in part because the competing venture’s website could be accessed from computers in the US.

Analysis

While it is settled that the Lanham Act has some extraterritorial application, the US Supreme Court has not laid down a precise test for when a district court may exercise extraterritorial jurisdiction over a foreign infringer. As a result, the courts of appeals have formulated a variety of tests, with the one most commonly used stressing three factors: (1) whether the defendant’s conduct has had a substantial effect on US commerce; (2) whether the defendant is a US citizen; and (3) whether there is conflict with trademark rights established under foreign law. Although other courts have applied slightly different tests, all share the commonality that extraterritorial application of the Lanham Act is only proper when a party shows that the infringing activity has a “substantial” or “significant” effect on US commerce. In this case, the court found that defendants had not alleged that plaintiffs’ infringing activities had any effect on US commerce, let alone a substantial or significant one. The parties that founded the competing organization are not US citizens, nor were they alleged to have used defendants’ marks in connection with any US commerce. The competing organization’s website could be accessed from US computers, but that organization did not offer services or membership in the US, nor did it have any impact on US commerce. Given the absence of allegations showing that plaintiffs’ conduct had a substantial or significant effect on US commerce, the court concluded that it lacked jurisdiction over defendants’ counterclaim.