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Trademark law - extraterritorial application of the Lanham Act saves an American brand from a Canadian retail pirate.

TRADEMARK LAW--EXTRATERRITORIAL APPLICATION OF THE LANHAM ACT SAVES AN AMERICAN BRAND FROM A CANADIAN RETAIL PIRATE--Trader Joe's Co. v. Hallatt, 835 F.3d 960 (9th Cir. 2016).

The Lanham Act sets out the fundamental requirements that must be met by an individual or business to determine whether a trademark is infringed. (1) A foreign business that infringes on an American company's trademarks raises the question of international trademark protection. (2) In Trader Joe's Co. v. Hallatt, (3) the United States Court of Appeals for the Ninth Circuit was confronted with whether a competitor, selling Trader Joe's products in Canada under the name Pirate Joe's, generated a connection to American commerce strong enough to warrant extraterritorial application of the Lanham Act. (4) The Court held that Pirate Joe's economic activity does create a necessary connection to American commerce sufficient to permit extraterritorial application of the Lanham Act. (5)

In October 2011, employees at the Bellingham, Washington, Trader Joe's store noticed Canadian resident, Michael Norman Hallatt, visiting the store three to five times per week to buy large amounts of Trader Joe's products. (6) When questioned by Trader Joe's employees, Hallatt admitted that he drove the goods he purchased across the Canadian border where he sold them to Canadian customers at Pirate Joe's. (7) Hallatt owns and operates Pirate Joe's, a Trader Joe's themed store in Canada, where he resells Trader Joe's goods purchased in Washington State at substantially inflated prices. (8) Hallatt displays an exterior sign at Pirate Joe's that uses a font similar to the trademarked "Trader Joe's" sign. (9) Trader Joe's informed Hallatt that it does not tolerate his activity and demanded that he stop reselling Trader Joe's products at Pirate Joe's, nonetheless, Hallatt refused. (10) "Trader Joe's declined to serve Hallatt as a customer," however, he "began donning disguises to shop at Trader Joe's without detection and driving to Seattle, Portland, and even California to purchase Trader Joe's branded products." (11)

Trader Joe's sued Hallatt, the owner of Pirate Joe's, for trademark infringement in the Western District of Washington State. (12) Trader Joe's alleged that Hallatt violated the Lanham Act by misleading consumers into believing Pirate Joe's is authorized to sell Trader Joe's-branded products. (13) Trader Joe's asked the court to award it damages and permanently enjoin Hallatt from reselling its goods using its trademarks in Canada based "on (1) federal trademark infringement, (2) unfair competition, false endorsement, and false designation of origin, (3) false advertising, and (4) federal trademark dilution." (14) The district court granted Hallatt's motion to dismiss for lack of subject-matter jurisdiction, holding that the Lanham Act did not apply to Hallatt's reselling of Trader Joe's products in Canada, consequently, Trader Joe's appealed. (15) On appeal, the Ninth Circuit reversed, concluding that Hallatt's conduct does create a connection to American commerce sufficient to warrant extraterritorial application of the Lanham Act. (16)

The Lanham Act is the primary federal trademark act in the United States which prohibits a number of activities, including trademark infringement, trademark dilution, and false advertising. (17) To determine whether the Lanham Act reaches foreign conduct, a two part test must be applied. (18) Step one considers whether the statute applies extraterritorially on its face, and step two considers the limits Congress has imposed on the statute's foreign application. (19) With regard to the first step, the Supreme Court of the United States held that the Act's broad language with respect to commerce clearly indicates Congress' intent that it apply extraterritorially. (20) Furthermore, the Lanham Act only applies to foreign conduct that impacts American commerce. (21) In considering the second step, note that Congress has not imposed many limits on the Lanham Act's extraterritorial application and therefore the limits of the Act must be analyzed through precedent that has previously been applied to the Sherman Antitrust Act. (22)

The Sherman Antitrust Act prohibits certain business activities that restrict fair competition. (23) It specifically targets businesses who combine as a trust or cartel to gain a monopoly on a market. (24) It also prevents corporations from raising prices by restricting trade or supply. (25) Expanding on the Sherman Act, in 1914 Congress enacted the Clayton Antitrust Act, which regulates anti-competitive activities including price discrimination, exclusive dealings, and mergers and acquisitions which significantly decrease competition. (26) The Sherman Antitrust Act has been widely interpreted by U.S. courts, including its extraterritorial application. (27) The three part test originally applied to the Sherman Act in Timberlane Lumber Co. v. Bank of America National Trust & Savings Association determines which foreign activities are within reach of a statute. (28)

In Timberlane, the court established that a statute applies extraterritorially when the violations (1) create some effect on American commerce; (2) the effect presents an injury specific only to the plaintiffs; and (3) enforcing the statute does not interfere with other nations' sovereign rights. (29) Timberlane's first and second prongs are generally satisfied by proving that the infringing goods flowed into American markets and that the defendant's foreign activities have had "some effect" on American commerce. (30) Courts have held that "some effect" on American commerce may be satisfied by "reputational harm to an American plaintiff." (31) Timberlane's third prong, considering international comity, involves weighing six factors: the degree of conflict with foreign laws, nationality of parties and location of businesses, remedy and enforcement, relative significance of effects, purpose to harm American commerce, and importance of domestic conduct compared to foreign conduct. (32) This prong illustrates the rule that statutes are interpreted so they do not interfere with other nations' sovereign rights to enforce their own laws. (33) The Ninth Circuit extended Timberlane to the Lanham Act in Wells Fargo & Co. v. Wells Fargo Express Co., which brings our analysis back to the extraterritoriality of the Lanham Act. (34)

In Trader Joe's, the Court followed the framework set forth in Timberlane to conclude that the Lanham Act applies in Canada. (35) In its discussion of prong one, the Court reasoned that Hallatt's attempt to pass as an authorized Trader Joe's retailer harms its reputation and diminishes the value of its trademarks. (36) Trader Joe's reputation is harmed because Hallatt sells Trader Joe's goods at inflated prices with inferior customer service, having a negative effect on Trader Joe's trademarks because of the close association to Trader Joe's Hallatt has created. (37) In its discussion of prong two, the Court reasoned that Hallatt's activity presents a cognizable injury to Trader Joe's because he sources his inventory entirely from the United States. (38) By way of his Lawful Permanent Resident (LPR) status, Hallatt, along with hired third parties, purchases thousands of dollars' worth of Trader Joe's goods to be resold by Pirate Joe's in Canada. (39)

Moreover, in its discussion of prong three, the Court reasoned that the factors used to evaluate interference with other nations' sovereign authority, as a whole, weigh in favor of application of the Lanham Act extraterritorially. (40) Trader Joe's trademarks are recognized by the Canadian government and no current litigation exists in Canada between the two parties. (41) Although Trader Joe's is an American corporation with its principal place of business in California and Hallatt is a Canadian citizen, his LPR status subjects himself to the laws of the United States. (42) While federal courts ordinarily do not have an interest in protecting foreign consumers from confusion, almost half of the credit card transactions at Trader Joe's Bellingham, WA store are with non-U.S. residents. (43) Though the actual selling of Trader Joe's products occurred in Canada, Hallatt intended to harm Trader Joe's by naming his store Pirate Joe's. (44) As a result, the Court held that all three prongs of Timberlane were satisfied; therefore, the Lanham Act was applied extraterritorially. (45)

The Court's decision in Trader Joe's correctly applies Timberlane to reach the most logical outcome. (46) Prong one was properly satisfied because Hallatt's U.S. sourced activities create a negative effect on American commerce. (47) A foreign business who sells another's products using inferior business practices under a similar trade name creates a negative effect on that business' reputation. (48) The harm imposed on Trader Joe's as a result of Hallatt's activity diminishes the value of its trademarks and its reputation because of Hallatt's substandard business practices. (49) Prong two was accurately met because Hallatt's purchases of thousands of dollars' worth of Trader Joe's goods in the United States specifically injures Trader Joe's. (50) The selling of Trader Joe's products by Hallatt under the name Pirate Joe's using mediocre business practices harms no other business but Trader Joe's. (51)

Prong three was appropriately weighed because the application of the Lanham Act in Canada does not interfere with Canada's sovereign authority. (52) Application of the Lanham Act in Canada does not conflict with Canadian law because Trader Joe's trademarks are recognized by the Canadian government. (53) Even though Hallatt is a Canadian citizen, he must be subject to American law because of his LPR status. (54) A federal court must protect foreign consumers from confusion where almost half of the credit-card transactions at Trader Joe's Bellingham, WA store are with foreign customers. (55) The Court could have expanded on its discussion of likelihood of confusion analysis because such a substantial amount of foreign consumers shop at Trader Joe's Washington State stores. (56) Furthermore, the Court deems the conduct most important to consider is the selling of Trader Joe's products by Pirate Joe's in Canada, however, such conduct is only equally as important as the purchasing of Trader Joe's products in the United States. (57)

The extraterritorial application of the Lanham Act has both positive and negative implications on future trademark disputes. (58) While Trader Joe's was correctly protected from Hallatt's infringing activity, this holding could give corporations more power to enforce their trademarks in foreign countries. (59) As a result, an increase in litigation over trademark disputes is more likely, for better or worse. (60) Also more probable is the application of other U.S. statutes in foreign countries. (61) Federal courts must be cautious not to apply extraterritorially other American statutes too broadly such that interference with other nations' sovereign authority is created. (62) Other federal circuits may choose to apply extraterritorially the Lanham Act to protect a business in a situation similar to that of Trader Joe's, nevertheless, they must be wary of the scope intended by the drafters of the Lanham Act itself. (63)

In Trader Joe's, the Ninth Circuit was faced with deciding whether a competitor's purchase in the United States and reselling in Canada of Trader Joe's products permits a connection convincing enough to American commerce to warrant extraterritorial application of the Lanham Act. The Court correctly followed the Timberlane framework for analyzing whether an American statute should be applied outside of a U.S. federal court's jurisdiction. The Court properly reasoned that Hallatt's activity creates a negative effect on American commerce. Moreover, the Court accurately analyzed that Hallatt's sourcing of inventory entirely from the United States creates an injury specific only to Trader Joe's. Furthermore, the Court appropriately reasoned that extraterritorial application of the Lanham Act in this case does not interfere with Canada's sovereign authority as a nation. Therefore, the Court correctly held that Pirate Joe's economic activity does warrant a connection essential to American commerce to justify application of the Lanham Act in Canada.

Moreover, in its discussion of prong three, the Court reasoned that the factors used to evaluate interference with other nations' sovereign authority, as a whole, weigh in favor of application of the Lanham Act extraterritorially. (40) Trader Joe's trademarks are recognized by the Canadian government and no current litigation exists in Canada between the two parties. (41) Although Trader Joe's is an American corporation with its principal place of business in California and Hallatt is a Canadian citizen, his LPR status subjects himself to the laws of the United States. (42) While federal courts ordinarily do not have an interest in protecting foreign consumers from confusion, almost half of the credit card transactions at Trader Joe's Bellingham, WA store are with non-U.S. residents. (43) Though the actual selling of Trader Joe's products occurred in Canada, Hallatt intended to harm Trader Joe's by naming his store Pirate Joe's. (44) As a result, the Court held that all three prongs of Timberlane were satisfied; therefore, the Lanham Act was applied extraterritorially. (45)

The Court's decision in Trader Joe's correctly applies Timberlane to reach the most logical outcome. (46) Prong one was properly satisfied because Hallatt's U.S. sourced activities create a negative effect on American commerce. (47) A foreign business who sells another's products using inferior business practices under a similar trade name creates a negative effect on that business' reputation. (48) The harm imposed on Trader Joe's as a result of Hallatt's activity diminishes the value of its trademarks and its reputation because of Hallatt's substandard business practices. (49) Prong two was accurately met because Hallatt's purchases of thousands of dollars' worth of Trader Joe's goods in the United States specifically injures Trader Joe's. (50) The selling of Trader Joe's products by Hallatt under the name Pirate Joe's using mediocre business practices harms no other business but Trader Joe's. (51)

Prong three was appropriately weighed because the application of the Lanham Act in Canada does not interfere with Canada's sovereign authority. (52) Application of the Lanham Act in Canada does not conflict with Canadian law because Trader Joe's trademarks are recognized by the Canadian government. (53) Even though Hallatt is a Canadian citizen, he must be subject to American law because of his LPR status. (54) A federal court must protect foreign consumers from confusion where almost half of the credit-card transactions at Trader Joe's Bellingham, WA store are with foreign customers. (55) The Court could have expanded on its discussion of likelihood of confusion analysis because such a substantial amount of foreign consumers shop at Trader Joe's Washington State stores. (56) Furthermore, the Court deems the conduct most important to consider is the selling of Trader Joe's products by Pirate Joe's in Canada, however, such conduct is only equally as important as the purchasing of Trader Joe's products in the United States. (57)

The extraterritorial application of the Lanham Act has both positive and negative implications on future trademark disputes. (58) While Trader Joe's was correctly protected from Hallatt's infringing activity, this holding could give corporations more power to enforce their trademarks in foreign countries. (59) As a result, an increase in litigation over trademark disputes is more likely, for better or worse. (60) Also more probable is the application of other U.S. statutes in foreign countries. (61) Federal courts must be cautious not to apply extraterritorially other American statutes too broadly such that interference with other nations' sovereign authority is created. (62) Other federal circuits may choose to apply extraterritorially the Lanham Act to protect a business in a situation similar to that of Trader Joe's, nevertheless, they must be wary of the scope intended by the drafters of the Lanham Act itself. (63)

In Trader Joe's, the Ninth Circuit was faced with deciding whether a competitor's purchase in the United States and reselling in Canada of Trader Joe's products permits a connection convincing enough to American commerce to warrant extraterritorial application of the Lanham Act. The Court correctly followed the Timberlane framework for analyzing whether an American statute should be applied outside of a U.S. federal court's jurisdiction. The Court properly reasoned that Hallatt's activity creates a negative effect on American commerce. Moreover, the Court accurately analyzed that Hallatt's sourcing of inventory entirely from the United States creates an injury specific only to Trader Joe's. Furthermore, the Court appropriately reasoned that extraterritorial application of the Lanham Act in this case does not interfere with Canada's sovereign authority as a nation. Therefore, the Court correctly held that Pirate Joe's economic activity does warrant a connection essential to American commerce to justify application of the Lanham Act in Canada.

(1.) See Lanham Act, 15 U.S.C. [section] 1127 (1946) (establishing American trademark law). A trademark includes "any word, name, symbol, or device, or any combination thereof used by a person or which a person has a bona fide intention to use in commerce." Id. A mark is deemed to be used in commerce when "the services are rendered in this and a foreign country and the person rendering the services is engaged in commerce connection therewith." Id.

(2.) See Trader Joe's Co. v. Hallatt, 835 F.3d 960, 963 (9th Cir. 2016) (holding extraterritorial reach of Lanham Act raises question relating to merits of trademark claim); Timberlane Lumber Co. v. Bank of America National Trust & Savings Ass'n, 549 F.2d 597, 613 (9th Cir. 1976) (setting forth three prong test for statutory extraterritorial application). There must be (1) "some effect on American commerce"; (2) the effect must be "sufficiently large to present a cognizable injury to the plaintiffs;" and (3) "the interests of American commerce must be sufficiently strong to warrant application." Id. See also Wells Fargo & Co. v. Wells Fargo Express Co., 556 F.2d 406,427 (9th Cir. 1977) (expanding Timberlane to Lanham Act).

(3.) 835 F.3d 960, 960 (9th Cir. 2016).

(4.) Id. at 962-63 (questioning whether Pirate Joe's conduct constitutes trademark infringement under Lanham Act). See RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. 2090, 2101 (2016) (addressing two-part test to determine whether any statute reaches foreign conduct); Steele v. Bulova Watch Co., 344 U.S. 280, 286 (1952) (finding "broad definition of commerce" means Lanham Act should apply extraterritorially); La Quinta Worldwide LLC v. Q.R.T.M., S.A. de C.V., 762 F.3d 867, 872 (9th Cir. 2014) (concluding Lanham Act's "use in commerce" element not jurisdictional requirement). The court here had jurisdiction over foreign trademark infringement claims. Id. See also Sensient Techs. Corp. v. SensoryEffects Flavor Co., 613 F.3d 754, 762-63 (8th Cir. 2010) (explaining Lanham Act imposes liability for trademark infringement only if another's mark used in commerce).

(5.) See Trader Joe's Co., 835 F.3d at 963 (holding Hallatt's activity sufficiently connected to American commerce); Timberlane Lumber Co., 549 F.2d at 613 (introducing conduct must satisfy three-prong test for statute to apply extraterritorially); Wells Fargo & Co., 556 F.2d at 427 (declaring Timberlane test applies to Lanham Act); RJR Nabisco, Inc., 136 S. Ct. at 2101 (reaffirming jurisdictional and merits test to determine whether any statute applies extraterritorially); Hartford Fire Ins. Co. v. California, 509 U.S. 764, 797-98 (1993) (clarifying requirement of international comity). A statute must "avoid unreasonable interference with other nations' sovereign authority" wherever possible. Id.

(6.) See Trader Joe's Co., 835 F.3d at 963 (discussing business aspects of Trader Joe's). "Trader Joe's is a well-known American grocery store that sells specialty goods at reasonable prices from its distinctive South Pacific-themed stores." Id. "It is headquartered in Monrovia, California." Id. Trader Joe's "operates hundreds of stores throughout the United States, including more than a dozen stores in Washington." Id. "About eighty percent of the goods which Trader Joe's sells in its stores are Trader Joe's-branded products that are available only at Trader Joes." Id. See Trader Joe's Co. v. Hallatt, 981 F. Supp. 2d 972, 974 (W.D. Wash. 2013) (finding Pirate Joe's did not infringe on Trader Joe's trademarks). Defendant Michael Norman Hallatt owns and operates a grocery store in Vancouver, British Columbia under the name Pirate Joe's. Id. See also Appellant's Opening Brief at 12-13, Trader Joe's Co. v. Hallatt, 835 F.3d 960, 960 (9th Cir. 2016) (No. 14-35035) (stating detailed facts of case). Employees at Trader Joe's Bellingham, WA store learned that Hallatt was a Canadian resident because he informed them "that he was creating a delivery service for people in Canada." Id.

(7.) See Trader Joe's Co., 835 F.3d at 963 (summarizing Trader Joe's business practices). Trader Joe's is aware that "Canadian consumers regularly travel across the border to shop at" its stores in northern Washington. Id. Trader Joe's does not, however, authorize third parties to buy and resell its goods to other consumers. Id. It has declined "to enter into franchise agreements" with third parties because of Trader Joe's expectation that such parties will fail to "ship, handle, and store food products pursuant to Trader Joe's exacting standards." Id.

(8.) See Trader Joe's Co., 835 F.3d at 964 (reconsidering Trader Joe's discovery of Hallatt's activity). Trader Joe's learned of Hallatt's practice of buying its goods in Washington and transporting them to Canada to be resold from one of its Canadian customers. Id. See Trader Joe's Co., 981 F. Supp. 2d at 975 (exposing Trader Joe's discovery of Hallatt's activity in more detail). When questioned by border agents, Hallatt declared that the products he transports to Canada are merchandise. Id. "Hallatt denies that his activity is intended to deceive customers into believing Pirate Joe's is authorized by Trader Joe's to sell its products." Id.

(9.) See Trader Joe's Co., 981 F. Supp. 2d at 975 (analyzing facts of case). Trader Joe's contends that Pirate Joe's "prominently displays Trader Joe's trademarks and other intellectual property to pass as an approved Trader Joe's retailer." Id. at 975. See Trader Joe's Co., 835 F.3d at 963 (reviewing Trader Joe's trademarks). "Trader Joe's owns several federally registered and common law trademarks associated with its stores and products." Id. "Its family of marks includes a trademark for the red, stylized 'Trader Joe's' text." Id. It also includes many trademarks for its "Trader Joe's branded products." Id.

(10.) See Trader Joe's Co., 835 F.3d at 963-64 (summarizing way in which Trader Joe's markets its brand). "Trader Joe's carefully cultivates its brand through advertising, promotion, and word-of-mouth referrals." Id. Trader Joe's claims "its trademarks and trade dress have come to symbolize extraordinary goodwill and have achieved great fame both within and outside the United States due to these efforts." Id. Trader Joe's further claims that "this fame and popularity has generated substantial domestic and international demand for Trader Joe's products." Id. See also Kitsuron Sangsuvan, Article, Trademark Squatting, 31 WIS. INT'L L.J. 252, 252 (2013) (outlining trademark squatting). "Trademark squatting is an act of registering other people's marks as their own by squatters in other countries in order to gain benefits from original marks or real trademark owners." Id. See also Trader Joe's Co., 835 F.3d at 963-64 (recalling Trader Joe's trademarks). Although Hallatt has not registered Trader Joe's trademarks as his own, the trademarks he uses for Pirate Joe's are very similar such that his intent is likely to gain an economic benefit from Trader Joe's. Id.

(11.) See Trader Joe's Co., 835 F.3d at 964-65 (summarizing Hallatt's infringing activity). Furthermore, "Hallatt sells perishable goods at Pirate Joe's that he does not transport or store in a manner consistent with the strict quality control standards used by Trader Joe's." Id. "Trader Joe's received at least one complaint from a consumer who became sick after eating a Trader Joe's-branded product she purchased from Pirate Joe's." Id. Trader Joe's alleges that Hallatt also pays third parties to assist him with his scheme. Id. at 965. Trader Joe's further contends that Hallatt "accomplishes his scheme in part because he is a United States Lawful Permanent Resident 'LPR.'" Id. An LPR is "an immigration status that enables him to live and work legally in the United States." Id. In sum, Hallatt has spent over three hundred fifty thousand dollars on Trader Joe's-branded products to be resold by Pirate Joe's in Canada. Id.

(12.) See Trader Joe's Co., 981 F. Supp. 2d at 965 (explaining detailed procedural history of case). Trader Joe's filed its complaint in federal court alleging Pirate Joe's violated four provisions of the Lanham Act. Id. These four provisions include "(1) federal trademark infringement; (2) unfair competition, false endorsement, and false designation of origin; (3) false advertising; and (4) federal trademark dilution." Id. See Trader Joe's Co., 835 F.3d at 965 (analyzing effect of Trader Joe's filing strategy). By filing in federal court in the Western District of Washington, Trader Joe's invoked "that court's federal question and supplemental jurisdiction." Id.

(13.) See Trader Joe's Co. v. Hallatt, 835 F.3d 960, 965 (9th Cir. 2016) (characterizing allegations made by Trader Joe's regarding Hallatt's infringing activity). Trader Joe's alleges that Hallatt misleads consumers into "falsely believing that Pirate Joe's has been authorized or approved by Trader Joe's, to display Trader Joe's trademarks, mimic Trader Joe's trade dress, and to resell Trader Joe's goods without adhering to Trader Joe's strict quality control practices." Id. According to Trader Joe's, this conduct "dilutes its trademarks, confuses consumers, and damages Trader Joe's reputation by associating with it high-cost, reduced-quality goods." Id.

(14.) See id. (acknowledging Trader Joe's request to Washington district court); 15 U.S.C. [section] 1114(1)(a) (codifying liability for federal trademark infringement). Any person who uses "any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services" with the intent to cause confusion among or deceive consumers is liable for trademark infringement. Id. See 15 U.S.C. [section] 1125(a)(1)(a) (codifying unfair competition, false endorsement, false designation of origin).
   Any person who, in connection with any goods or services, uses in
   commerce any false designation of origin, false or misleading
   description of fact, or false or misleading representation of fact
   which is likely to cause confusion, mistake, or is intended to
   deceive as to the affiliation, connection, or association of such
   person with another person as to the origin or sponsorship of his
   or her goods, services, or commercial activities shall be liable in
   a civil action by any person who believes that he or she is or is
   likely to be damaged by such act.


Id. See 15 U.S.C. [section] 1125(a)(1)(b) (codifying false advertising).
   Any person who, in connection with any goods or services, uses in
   commerce any false designation of origin, false or misleading
   description of fact, or false or misleading representation of fact
   which in commercial advertising or promotion, misrepresents the
   nature, characteristics, qualities, or geographic origin of his or
   her or another person's goods, services, or commercial activities,
   shall be liable in a civil action by any person who believes that
   he or she is or is likely to be damaged by such act.


Id. See 15 U.S.C. [section] 1125(c)(1) (codifying federal trademark dilution).
   Subject to the principles of equity, the owner of a famous mark
   that is distinctive, inherently or through acquired
   distinctiveness, shall be entitled to an injunction against another
   person who, at any time after the owner's mark has become famous,
   commences use of a mark or trade name in commerce that is likely to
   cause dilution by blurring or dilution by tarnishment of the famous
   mark, regardless of the presence or absence of actual or likely
   confusion, of competition, or of actual economic injury.


Id. See also JAY DRATLER, JR. & STEPHEN M. MCJOHN, INTELLECTUAL. PROPERTY LAW: COMMERCIAL, CREATIVE, AND INDUSTRIAL PROPERTY [section] 11.03(3)(c)(ii), n.157.102 (Law Journal Press, 2016) (highlighting standard for trademark infringement). "Under black letter trademark law, a mere possibility of confusion is not enough to demonstrate trademark infringement; a likelihood of confusion is required." Id. A "likelihood of confusion" arises when similar trademarks of different companies confuse consumers into believing that the companies are associated with one another. Id.

(15.) See Trader Joe's Co., 835 F.3d at 965 (expanding on discussion of procedural history of case). The district court "denied Trader Joe's leave to amend its federal claims," however it did grant Trader Joe's an "opportunity to assert an independent jurisdictional basis for its state law claims." Id. In Trader Joe's motion for reconsideration, "it argued that the extraterritorial scope of the Lanham Act is a merits question that does not implicate the district court's subject-matter jurisdiction." Id. After this motion was denied by the district court, Trader Joe's "filed an amended complaint reasserting its state law claims" as well as "invoking the district court's diversity jurisdiction," which was also denied. Id. Lastly, "the district court granted" Hallatt's "motion to dismiss for failure to state a claim." Id. Final judgement against Trader Joe's was issued on December 18, 2013. Id. See generally 28 U.S.C. [section] 1291 (2015h) (granting courts of appeals authority to hear appeals from final decisions of U. S. District Courts).

(16.) See Trader Joe's Co., 835 F.3d at 963 (stating merits issue of case). The question of extraterritorial application of the Lanham Act does not raise a question relating to the Court's subject matter jurisdiction. Id. Because this is a merits question, the requirements for establishing a connection between foreign conduct and American commerce is the main issue of this case. Id.

(17.) See 15 U.S.C. [section] 1051 (setting forth American Trademark law). The Lanham Act was enacted in 1946 to protect businesses and individuals from harm that results when competitors imitate another's trademark to generate marketing exposure, sales, and revenue. Id. The Lanham Act is also the primary statute regulating fair competition. Id. See 15 U.S.C. [section] 1114(1)(a) (developing liability for federal trademark infringement). Any person who "uses another's mark in commerce" is liable for federal trademark infringement. Id. See 15 U.S.C. [section] 1125(c)(1) (explaining federal trademark dilution). Any person who "uses another's mark in such a way that diminishes the quality and value of that mark" is liable for federal trademark dilution. Id. See 15 U.S.C. [section] 1125(a)(1)(b) (defining false advertising). "Any person who misrepresents the origin of his or her or another person's goods" is liable for false advertising. Id.

(18.) See RJR Nabisco, Inc. v. European Community, 136 S. Ct. 2090, 2101 (2016) (reaffirming two-part test to determine extraterritorial applicability of any statute). In Nabisco, "the European Community and 26 of its member states" claimed that RJR Nabisco and many related companies "participated in a global money laundering scheme in association with various organized crime groups." Id. at 2098. Through many transactions, "drug traffickers smuggled narcotics into Europe" in exchange for Euros which "were used to pay for large shipments of RJR cigarettes into Europe." Id. The Supreme Court held that this activity is illegal under the Racketeer Influenced and Corrupt Organizations Act (RICO). Id. at 2103. The Supreme Court reasoned that RICO applies extraterritorially to foreign racketeering activity because the statute is extraterritorial on its face. Id. at 2110. See also 15 U.S.C. [section] 1127(2) (ascribing foreign conduct in relation to trademark use in American commerce). The term "use in commerce" means the "bona fide use of a mark in the ordinary course of trade." Id. A mark is deemed to be used in commerce on goods and services when it is "used or displayed in the sale or advertising of services and the services are rendered in commerce, or the services are rendered in more than one State or in the United States and a foreign country." Id. This means that an ordinary use of a trademark in American or foreign commerce is sufficient to satisfy the "use in commerce" element. Id.

(19.) See RJR Nabisco, Inc., 136 S. Ct. at 2101 (detailing framework to determine extraterritorial applicability of any statute). The first prong of the test, asking "whether the presumption against extraterritoriality has been rebutted" means whether the statute gives a "clear, affirmative indication that it applies extraterritorially." Id. In other words, this question asks whether the statute is extraterritorial on its face. Id. This question must be asked regardless of "whether the statute in question regulates conduct, affords relief, or merely confers jurisdiction." Id. If the statute is not on its face extraterritorial, then at the second prong "we determine whether the case involves a domestic application of the statute" by looking to the statute's "focus." Id. "If the conduct relevant to the statute's focus occurred in the United States, then the case involves a permissible domestic application of the statute." Id. But if the relevant conduct occurred in a foreign country, then "the case involves an impermissible extraterritorial application" of the statute. Id. But see Morrison v. Nat'l Austl. Bank Ltd., 561 U.S. 247, 266 (2010) (establishing two-part framework to determine whether any statute applies extraterritorially). In Morrison, National Australia bank purchased HomeSide Lending, a company in the business of servicing mortgages. Id. at 247. After purchasing HomeSide, National Australia had to writedown the value of HomeSide's assets which caused its valuation to drop. Id. National Australia sued HomeSide for violation of the Securities and Exchange Act of 1934 rule 10b-5, claiming that HomeSide manipulated financial models to make it seem that it was more valuable than it actually was. Id. The Supreme Court here held that the Securities and Exchange Act of 1934 did not apply extraterritorially on its face. Id. al 273. The Supreme Court reasoned that the Securities and Exchange Act applies only to securities listed on domestic exchanges and this case involved no securities listed on a domestic exchange. Id.

(20.) See Steele v. Bulova Watch Co., 344 U.S. 280, 286 (1952) (alluding Lanham Act's broad "use in commerce" definition means for it to apply extraterritorially). The Supreme Court held that a trademark infringement action was within reach of the Lanham Act where a U.S. citizen was manufacturing watches in a foreign country with Bulova's registered trademarks. Id. Since the Lanham Act "confers broad jurisdictional powers," the individual's "unfair trade practices were prohibited even though occurring in a foreign country." Id. at 280. See La Quinta Worldwide, LLC v. Q.R.T.M., 762 F.3d 867, 872 (2014) (asserting Lanham Act's "use in commerce" language is not jurisdictional). In La Quinta, the court reasoned that "... federal courts have subject-matter jurisdiction over all suits pleading 'a colorable claim "arising under" the Constitution or laws of the United States,' so long as Congress does not clearly indicate otherwise." Id. at 873. The "use in commerce" element of the Lanham Act is not connected to its jurisdictional requirement, thus this court had jurisdiction over this case. Id. See Sensient Technologies Corp. v. Sensory Effects Flavor Co., 613 F.3d 754, 762-63 (2010) (reviewing Lanham Act's liability for trademark infringement in connection with "use in commerce" element). "The Lanham Act requires that a trademark be used in commerce before a finding of infringement can be made." Id. This prohibits trademark infringement for cases in which a similar trademark is registered but not used in commerce. Id. See Wells Fargo & Co. v. Wells Fargo Exp. Co., 556 F.2d 406, 427 (concluding "use in commerce" may mean those infringing acts having "adverse effect" on commerce). Infringing acts may not occur in commerce "subject to congressional regulation" if they are to be regulated. Id. Those acts which have occurred in a place having an "adverse effect" on American commerce are sufficient to be regulated. Id. This means that for an act to fulfill the "use in commerce" requirement, it does not have to occur directly in American commerce. Id. The act can occur in foreign commerce that effects American commerce. Id.

(21.) See 2 Doing Business in Canada [section] 11.08(6)(f) (Matthew Bender, Rev. Ed.) (2015) (providing remedies for trademark infringement in Canada). "The Royal Canadian Mountain Police will record all complaints and allegations" of trademark infringement "and will criminally deal with each complaint or allegation on a case by case basis." Id. Border officials inspect goods before they cross into Canada to ascertain whether they bear any similarity to trademarked goods in the United States. Id. Other than this, Canada does not do much else to prevent counterfeited and/or pirated goods from crossing its borders. Id. But see Love v. Associate Newspapers, Ltd., 611 F.3d 601, 613 (9th Cir. 2010) (holding Lanham Act does not apply to foreign conduct when conduct fails to impact American commerce). In Love, a founding member of the Beach Boys, Mike Love, sued a British newspaper and website publisher for trademark infringement. Id. at 607. The publisher used the Beach Boys trademark on co-founding member Brian Wilson's solo CD, to be distributed in the United Kingdom. Id. Love argued that he had acquired use of the Beach Boys trade mark for use in his solo band, which was already distributing CDs in the United Kingdom. Id. The court reasoned that foreign conduct impacts American commerce where such conduct, although occurring abroad, monetarily injures an American plaintiff in the United States. Id. at 613. Although Wilson was unlawfully using the Beach Boys trademark, because he was selling CDs only in the United Kingdom, the court held that the Lanham Act did not apply extraterritorially. Id. at 616. For the Lanham Act to apply extraterritorially, the foreign conduct must impact American commerce. Id. at 613.

(22.) See Wells Fargo & Co., 556 F.2d at 427 (addressing jurisdictional broadness of Lanham Act). Due to the broad nature of the Lanham Act, it was intended by Congress to regulate domestic and international conduct. Id. Thus, extraterritorial application of the Lanham Act falls under "all commerce which may lawfully be regulated by congress." Id. See also Timberlane Lumber Co. v. Bank of America, 549 F.2d 597, 613 (1976) (creating three-part test to determine extraterritorial application of Sherman Antitrust Act). In Timberlane, the Ninth Circuit analyzed whether an American lumber company's claims that a California bank's attempt to control "the Honduran lumber export business" by financing a few select corporations was enforceable as anti-competitive business activity under the Sherman Antitrust Act. Id. at 601.

(23.) See 15 U.S.C. [section] 1 (introducing first category of anti-competitive business activity). "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared to be illegal." Id. In enacting this section of the Sherman Antitrust Act, Congress intended to prohibit business conduct that is "in restraint of trade." Id. When examining a particular case, a court likely looks to determine whether the conduct is "in restraint of trade." Id. Activity that is "in restraint of trade" can be with foreign countries because of the "foreign nations" language. Id. Therefore, foreign activity that is deemed to be anti-competitive in an economic sense is prohibited under the Sherman Antitrust Act. Id. See 15 U.S.C. [section] 2 (distinguishing second category of anti-competitive business activity). "Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony...." Id. In enacting this section of the Sherman Antitrust Act, Congress intended to focus on business' attempts to monopolize. Id. A court likely would look to the parties' intent to monopolize in order to be found liable under this section of the Sherman Antitrust Act. Id. Section two also applies to foreign conduct because of the "foreign nations" language. Id.

(24.) See Standard Oil Co. v. United States, 221 U.S. 1, 78 (1911) (introducing application of Sherman Antitrust Act to American corporations). In Standard Oil, the Supreme Court found Standard Oil guilty of creating a monopoly on the oil industry by forming a trust with other oil corporations. Id. at 78. The Supreme Court reasoned that Standard Oil intended to monopolize the oil industry by forming a trust with many other oil companies to gain control of oil supply. Id. at 76. "Standard Oil intended to restrain trade to dominate the oil industry, instead of using fair methods of competition to achieve the same goal." Id. at 77. The Supreme Court further found that Standard Oil intended to exclude competitors from the market for oil. Id. at 76. This reasoning points to the fact that the Sherman Antitrust Act is intended to be enforced upon corporations who form a trust or cartel to gain a monopoly on an economic market. Id.

(25.) See id. at 51 (examining "in restraint of trade" language). In England, "in restraint of trade" meant some type of voluntary restraint put into the language of a contract by an individual with regards to his or her own type of business. Id. These contracts were held to be illegal because they "were injurious to the public as well as to the individuals who made them." Id. However, if the restraint was only small and the contract was otherwise reasonable, then it was held to be an enforceable contract. Id. Restricting supply to raise prices and generate more profits for a corporation is a key element of intending to create a monopoly. Id. at 52.

(26.) See 15 U.S.C. [section] 13(a) (developing liability for price discrimination and exclusive dealings). Price discrimination occurs when any person engaged in commerce sells identical or very similar goods or services at different prices in different markets. Id. To be liable for price discrimination under the Clayton Antitrust Act, the intent of the party must be to "substantially lessen competition or tend to create a monopoly in any line of commerce ..." Id. An exclusive dealing occurs when a seller and buyer agree that the buyer will not buy goods or services from the seller's competitors. Id. See 15 U.S.C. [section] 18 (providing liability for mergers and acquisitions which substantially lessen competition). To be liable under this section of the Clayton Act, a corporation must acquire some or all of another corporation's stock with the intent that the effect of the acquisition is to substantially decrease competition or to create a monopoly. Id.

(27.) See United States v. Sisal Sales Corp., 274 U.S. 268, 275-276 (1927) (finding Sherman Antitrust Act applies to foreign conduct). In Sisal, the United States filed a suit against Sisal Sales Corp. and other corporations claiming that the corporations conspired together to monopolize the importation and sale of sisal, a plant found only in Mexico. Id. at 272-273. Sisal Sales and other corporations, mainly banks, secured a monopoly on the sale in the United States and importation from Mexico of sisal because supply greatly exceeded demand and the plant came only from Yucatan, Mexico. Id. The Supreme Court held that the parties entered into a "contract, combination and conspiracy." Id. at 276. Although sisal was originally imported from Mexico, Sisal Sales Corp. intended to monopolize the sisal market both within and outside the United States. Id. The Supreme Court further reasoned that this activity warranted a finding of liability under the Sherman Antitrust Act for creating a monopoly on sisal. Id. See generally Steele, 344 U.S. at 288 (affirming analysis in Sisal brings anti-competitive foreign activity within jurisdiction of U.S. unfair competition law).

(28.) See Timberlane Lumber Co. v. Bank of America, 549 F.2d 597, 613 (1976) (establishing three prong test for extraterritorial application of statute). In Timberlane, Timberlane Lumber Co., an Oregon lumber corporation, alleged that a California bank, Bank of America, intended to control "the Honduran lumber export business" by financing a few select corporations, all controlled by the bank. Id. at 601. The court analyzed whether this activity was enforceable as anti-competitive business activity under the Sherman Antitrust Act. Id. To accomplish this, the court created a three-prong test to determine whether the Sherman Antitrust Act applies extraterritorially. Id. at 613. The court did not decide whether the test was met, rather, it held that Timberlane Lumber Co. did state a claim sufficient to warrant discussion of the test. Id. at 615. Thus, the case was remanded for the merits question to be decided by the district court. Id. The Timberlane test may only be used after the test reaffirmed in Nabisco has been satisfied. Id. at 613. The Timberlane test focuses on the merits of a claim, whereas the Morrison test reaffirmed in Nabisco focuses purely on the statute itself. Id.

(29.) See Timberlane Lumber Co., 549 F.2d at 613 (examining first prong of extraterritorial application test). "The antitrust laws require that there be some effect actual or intended--on American foreign commerce." Id. This must be established before federal courts may legitimately exercise subject matter jurisdiction under such statutes. Id. This effect does not need to be substantial, nor does it need to be intended. Id. Some, unintentional effect is satisfactory under the first prong of the test. Id. "A greater showing of burden or restraint may be necessary to demonstrate that the effect is sufficiently large to present a cognizable injury to the plaintiffs." Id. This second prong requires that the burden or restraint imposed upon the party being infringed on is greater than the benefit to the infringer. Id. If the effect of the infringing activity is large enough to outweigh the benefit to the infringer, then a cognizable injury is presented to the plaintiffs. Id. A cognizable injury presented to the plaintiffs, therefore, satisfies the second prong of Timberlane. Id. The third prong is "unique to the international setting of whether the interests of, and links to, the United States" are sufficiently strong. Id. This includes the "magnitude of the effect on American commerce" as opposed to those of other nations "to justify an assertion of extraterritorial authority." Id. This third prong is the most complicated to resolve because "an effect on American commerce is alone not a sufficient basis on which to determine whether American authority should be asserted as a matter of international comity and fairness." Id. A court must weigh a variety of factors to decide whether enforcing the statute in a foreign country interferes with that nation's right to make and enforce its own laws. Id. at 614. A court should consider all of the following factors as a whole:
   The elements to be weighed include the degree of conflict with
   foreign law or policy, the nationality or allegiance of the parties
   and the locations or principal places of business of corporations,
   the extent to which enforcement by either state can be expected to
   achieve compliance, the relative significance of effects on the
   United States as compared with those elsewhere, the extent to which
   there is explicit purpose to harm or affect American commerce, the
   foreseeability of such effect, and the relative importance to the
   violations charged of conduct within the United States as compared
   with conduct abroad.


Id. The potential degree of conflict must also be identified by a court when weighing these factors. Id. After carefully considering these factors as well as the public policy interest, a determination as to whether the third prong of the test is satisfied may be made. Id. Where the three prongs of Timberlane are adequately met, the foreign conduct may be regulated by the statute. Id. at 613.

(30.) See Reebok lnt'1, Ltd. v. Marnatech Enters., Inc., 970 F.2d 552, 556 (9th Cir. 1992) (concluding prongs one and two met through defendant's knowledge of products flowing through America). "The sales of infringing goods in a foreign country may have a sufficient effect on commerce to invoke Lanham Act jurisdiction." Id. at 554. Here, the appellant Mexican shoemakers sold counterfeit Reebok shoes in Mexican towns bordering the United States. Id. On appeal, the court found that the appellants "knew their counterfeit shoes went back into the U.S. with regular frequency." Id. at 555. These sales detracted from the purchase of Reebok shoes in both Mexico and the United States, damaging the brand's profitability and reputation. Id. at 554. The court held that this activity properly warranted an injunction to stop appellants' activities as well as the freezing of their assets. Id. Thus, because the appellants were aware that the goods "flowed into American domestic markets" the first two prongs of the Timberlane test were satisfied. Id. at 555. See McBee v. Delica Co., Ltd., 417 F.3d 107,125 (1st Cir. 2005) (adopting way in which first two prongs of Timberlane test may be met). Cecil McBee, a well-known American Jazz musician, sued Delica Corp., a Japanese corporation, for false endorsement and dilution. Id. at 111. Delica Corp. adopted the name "Cecil McBee" for its adolescent female clothing line. Id. Here, the court was faced with whether the Lanham Act applied in Japan. Id. "Quite commonly, plaintiffs in these sorts of cases can meet their burden by presenting evidence that while the initial sales of infringing goods may occur in foreign countries, the goods subsequently tend to enter the United States in some way and in substantial qualities." Id. at 125. The court held that the Lanham Act did not apply in Japan because there was not enough of an effect on American commerce. Id. at 111. See Am. Rice, Inc. v. Ark. Rice Growers Coop. Ass'n, 701 F.2d 408, 414 (5th Cir. 1983) (requiring only "some effect" on American commerce). The court here agreed with the analysis in Steele that only "some effect" on American commerce from the foreign activity is sufficient. Id. See Wells Fargo & Co. v. Wells Fargo Exp. Co., 556 F.2d 406, 428 (1977) (expanding Timberlane to Lanham Act). The court here reasoned that the effect on American commerce does not need to be substantial:
   Since the origins of the 'substantiality' test apparently lie in
   the effort to distinguish between intrastate commerce, which
   Congress may not regulate as such, and interstate commerce, which
   it can control, it may be unwise blindly to apply the factor [to]
   foreign commerce over which Congress has exclusive authority.


Id. See A.V. by Versace, Inc. v. Gianni Versace, S.p.A., 126 F. Supp. 2d 328, 337 (S.D.N.Y. 2001) (declaring foreign citizenship alone not sufficient to defeat Lanham Act's extraterritorial application). Several courts have refused to allow a resident alien's citizenship status to override extraterritorial application of the Lanham Act. Id. Due to this, a person with foreign citizenship cannot use his or her foreign citizenship as a shield against liability from the Lanham Act. Id. See Ocean Garden, Inc. v. Marktrade Co., 953 F.2d 500, 503-04 (9th Cir. 1991) (applying Lanham Act to California defendant's foreign conduct). "The sales of infringing goods in a foreign country may have a sufficient effect on commerce to invoke Lanham Act jurisdiction." Id. Although the sales of products may occur entirely in a foreign country, those sales may still have "some effect" on American commerce sufficient to satisfy the first two prongs of Timberlane. Id. But see Vanity Fair Mills v. T. Eaton Co., 234 F.2d 633, 642 (2nd Cir. 1956) (stressing "substantial effect" of foreign activities on American commerce). "Congress could constitutionally provide infringement remedies so long as the use of the mark has a substantial effect on the foreign or interstate commerce of the United States." Id.

(31.) See Steele v. Bulova Watch Co., 344 U.S. 280, 286 (1952) (asserting reputational harm may constitute "some effect" on American commerce). In Steele, the court reasoned that the appellant's competing goods could reflect adversely on Bulova's reputation through advertising domestically as well as abroad. Id. In the eyes of the Supreme Court, this harm to Bulova's reputation is enough to constitute "some effect" on American commerce. Id. See Gucci Am., Inc. v. Guess? Inc., 790 F. Supp. 2d 136, 143 (S.D.N.Y. 2011) (justifying harm to American plaintiff's goodwill is sufficient to demonstrate "substantial effect on United States commerce"). The court here reasoned that "it is well settled that a showing of consumer confusion or harm to plaintiff's goodwill in the Unites States is sufficient to 'demonstrate a substantial effect on U. S. commerce.'" Id. Consumer confusion affects U.S. commerce because consumers are unaware as to where the goods they are buying come from or whom they are associated with. Id. This harms American commerce because consumers are less likely to buy goods when they are uncertain about their source or association. Id. Harm to a company's goodwill can occur when its brand or reputation is damaged by an infringing competitor who does not sell its goods with the same quality as the original company. Id.

(32.) See Hartford Fire Ins. Co. v. California, 509 U.S. 764, 797-98 (1993) (reconsidering factors to weigh effect of applying statute on foreign nations). The court here clarified that solving the third prong of Timberlane involves weighing six factors:

(1) the degree of conflict with foreign law or policy, (2) the nationality or allegiance of the parties and the locations or principal places of business of corporations, (3) the extent to which enforcement by either state can be expected to achieve compliance, (4) the relative significance of effects on the United States as compared with those elsewhere, (5) the extent to which there is explicit purpose to harm or affect American commerce and the foreseeability of such effect, and (6) the relative importance to the violations charged of conduct within the United States as compared with conduct abroad.

Id. These factors are essential in determining the effect of the application of a statute to a foreign nation. Id. See RJR Nabisco, Inc. v. European Community, 136 S. Ct. 2090, 2106-07 (2016) (reviewing international comity requirement). The rule of law is that we must "construe statutes to avoid unreasonable interference with other nations' sovereign authority where possible." Id. See also Star-Kist Foods, Inc. v. P.J. Rhodes & Co., 769 F.2d 1393, 1395 (9th Cir. 1985) (stating each factor of Timberlane must be considered). Each element of Timberlane must be considered carefully because one element alone is not determinative of the outcome of a particular case. Id. Each factor must be individually analyzed under the facts of each case. Id. One factor is not determinative of the outcome, all factors must be taken together to determine whether application of the statute infringes on another nation's right to make and enforce its own laws. Id.

(33.) See RJR Nabisco, Inc., 136 S. Ct. at 2106-08 (evaluating effect enforcing an American statute beyond its intended scope can have on another nation). A statute must not interfere with another nation's sovereign rights. Id. If a statute is extended beyond its intended jurisdiction, the United States is in effect putting another nation's sovereignty in question. Id. This gives rise to a potential conflict with that nation. Id. The intent of American law is not to infringe on other nation's laws. Id. This would be counter-intuitive to the idea that nations are sovereign entities, and can create and enforce their own laws. Id.

(34.) See Wells Fargo & Co., 556 F.2d at 427-28 (extending Timberlane to Lanham Act). Conduct may not necessarily occur domestically "in commerce" to be regulated. Id. at 427. Conduct may occur "in commerce" in a foreign country if that conduct has some "adverse impact" on American commerce. Id.

(35.) See Trader Joe's Co. v. Hallatt, 835 F.3d 960, 969 (2016) (analyzing limitations of Lanham Act). In considering the limits imposed on the Lanham Act's extraterritorial application, the Court turned to the framework set forth in Timberlane. Id. Although the Timberlane framework was originally applied to the Sherman Antitrust Act, the Court here deemed it applicable to the Lanham Act. Id. The Court followed the reasoning set forth in Wells Fargo to determine that Timberlane is applicable to the Lanham Act. Id. See also supra note 2 and accompanying text (discussing three-part framework to determine whether statute may be applied extraterritorially). This framework introduced in Timberlane is used by the Court in Trader Joe's. Id.

(36.) See Trader Joe's Co., 835 F.3d at 971 (detailing why Hallatt's activity harms Trader Joe's trademarks). Hallatt's activity harms Trader Joe's trademarks not only domestically but also internationally. Id. This effect occurs because Trader Joe's trademarks are well known internationally. See id. at 971, 973. Trader Joe's trademarks are diminished in value because Hallatt sells Trader Joe's products at inflated prices with mediocre customer service. Id. at 971. Hallatt's negative reputation influences domestic and international consumers to have a negative attitude towards Trader Joe's because of his false association with Trader Joe's. Id. See also supra note 29 and accompanying text (discussing requirements to meet first prong of Timberlane). The Court here deemed the requirements to meet Timberlane's first prong met. Id.

(37.) See Trader Joe's Co., 835 F.3d at 971 (elucidating effect of Hallatt's activity on Trader Joe's). Customers who shop at Pirate Joe's may mistakenly associate Trader Joe's with high-priced goods. Id. Trader Joe's draws many international shoppers to its Washington State stores. Id. Trader Joe's trademarks stand to lose value because of Hallatt's activity and the presence of many international shoppers in its Washington State stores. Id. Hallatt's bad business reputation reflects poorly on Trader Joe's because the similarity of Pirate Joe's logo, store design, and products to those of Trader Joe's create the illusion that it and Pirate Joe's are related business entities. Id. Hallatt has a bad reputation as a businessman because he does not transport the goods he buys to be resold with proper refrigeration, storage, and sanitation methods. Id. at 970-71. Furthermore, Hallatt resells goods at overinflated prices, which is unfair to the consumer. Id. All of this is done without the consent of Trader Joe's. Id. See also supra note 31 and accompanying text (justifying reputational harm to American plaintiff is sufficient to fulfill "some effect" on American commerce). The Court here reasoned that Hallatt's negative effect on Trader Joe's reputation satisfies "some effect" on American commerce. Id.

(38.) See Trader Joe's Co., 835 F.3d at 971-72 (summarizing injury Hallatt's actions inflict upon Trader Joe's). Hallatt purchases thousands of dollars' worth of Trader Joe's products and resells them in Canada. Id. In doing this, Hallatt inflicts an injury upon no one other than Trader Joe's. Id. This creates an action within the scope of the Lanham Act because the reputational harm is done only to Trader Joe's. Id. Furthermore, Hallatt's purchases of Trader Joe's products occurs only in America, which helps to bring the matter within the jurisdiction of the Court. Id. See also supra note 30 and accompanying text (addressing Timberlane's second prong). The Court here reasoned that Hallatt's activity presents a cognizable injury to Trader Joe's. Id.

(39.) See Trader Joe's Co., 835 F.3d at 972 (highlighting effect of Hallatt's ability to buy Trader Joe's products in the United States). Hallatt's United States Lawful Permanent Resident (LPR) status enables him to legally do business in the United States. Id. This assists in his operation because he is freely able to drive across the U.S.-Canadian border to purchase Trader Joe's products with little trouble, being that he is a foreign resident. See id. His hiring of third parties also assists in his operation, and brings the matter within the scope of the Lanham Act because the third parties are likely American citizens. Id. It only makes sense that Hallatt would hire U.S. citizens as third parties to buy Trader Joe's products on his behalf, not foreign residents, because of the ease American citizens have in buying Trader Joe's products in the United States, id. See also Love v. Associated Newspapers, Ltd., 611 F.3d 601, 613 (2010) (finding foreign conduct had no effect on American commerce). Trader Joe's can be distinguished from Love because Hallatt completes a key part of his infringing scheme in the United States, the buying of Trader Joe's products. Trader Joe's, 835 F.3d at 972. In Love, it was undisputed that "all relevant facts occurred abroad." Love, 611 F.3d at 613. The defendants designed, manufactured, and distributed the CD's entirely in Europe. Id. See also supra note 30 and accompanying text (discussing ways in which first two prongs of Timberlane may be met). Based on this analysis, the Court here held that the first two prongs of Timberlane were met. Id.

(40.) See Trader Joe's Co. v. Hallatt, 835 F.3d 960, 972-73 (2016) (considering third prong of Timberlane). For a statute to apply extraterritorially, the six factors to determine whether a statute infringes on a foreign nation's sovereign rights must, as a whole, weigh in favor of preserving that country's sovereignty. Id. One individual factor is not determinative of the outcome, instead, the factors taken together will determine the outcome of this prong. Id. See also supra note 32 and accompanying text (detailing factors determinative of whether Timberlane's third prong is met). After analyzing the factors for international comity clarified in Hartford Fire, the Court in Trader Joe's reasoned that applying the Lanham Act in Canada does not interfere with its sovereign rights as a nation. Id.

(41.) See Trader Joe's Co., 835 F.3d at 973 (asserting recognition of Trader Joe's trademarks in Canada). No other business in Canada should be allowed to operate with similar trademarks because Trader Joe's, although not a Canadian corporation, has its trademarks officially recognized by the Canadian government. Id. "In 2012, Trader Joe's applied for, and was granted, Canadian recognition for its Trader Joe's trademarks...." Id. As far as the Court is aware, there is no upcoming or current litigation "between Trader Joe's and Hallatt in Canada." Id. Therefore, the Court reasoned that there is no conflict with Canadian law. Id. See also supra note 33 (questioning degree of conflict with foreign laws). Based on this analysis, the Court ruled that applying the Lanham Act in Canada does not conflict with Canadian law. Id.

(42.) See Trader Joe's Co., 835 F.3d at 973 (describing importance of Hallatt's LPR status in completing his infringing scheme). Hallatt, who can legally do business in the U.S. because of his LPR status, is the "driving force behind Pirate Joe's." Id. His LPR status subjects himself to the laws of the U.S. because he does business in the U.S. Id. Although he may be a Canadian citizen, the Court reasoned that because of his LPR status, he is subject to the laws of the United States. Id. Therefore, his actions fall within the scope of the Lanham Act. Id. See also A.V. by Versace, Inc. v. Gianni Versace, S.p.A., 126 F. Supp. 2d 328, 337 (S.D.N.Y. 2001) (applying Lanham Act to foreign conduct when defendant was permanent resident alien and driving force).

(43.) See Trader Joe's Co., 835 F.3d at 974 (reviewing significance of effects and remedy and enforcement factors). Hallatt's conduct affects the value of Trader Joe's trademarks in the United States because Trader Joe's holds most of its intellectual property in America. Id. Hallatt's sale of Trader Joe's goods in Canada has the potential to mislead consumers because its trademarks are well-known in Canada. Id. Therefore, the Court reasoned that the relative significance of effects of Hallatt's activity in the United States is great enough to fall within the scope of the Lanham Act. Id. at 975. In terms of remedy and enforcement, the Court reasoned that a district court can stop Hallatt's activity through a domestic injunction both in the United States and in Canada because (1) "Hallatt is an LPR and holds assets in the United States;" (2) "Hallatt sources his goods entirely from the United States;" and (3) "Hallatt's activity violates the Lanham Act." Id. at 974.

(44.) See Trader Joe's Co., 835 F.3d at 974 (articulating Hallatt's intent to harm Trader Joe's). "Hallatt intended to harm, or such harm was foreseeable," to Trader Joe's. Id. The Court reasoned that this was because Hallatt chose to name his store Pirate Joe's. Id. One of Hallatt's employees is on record as saying "we're pirating Trader Joe's, sort of." Id. Therefore, the Court reasoned that Hallatt's purpose was to harm American commerce, and such harm to Trader Joe's was foreseeable. Id. The sixth factor, weighing the importance of domestic conduct as compared to foreign conduct, weighs against extraterritorial application of the Lanham Act. Id. at 975. The Court reasoned that the conduct most important to Hallatt's operation happens in Canada. Id. Hallatt resells Trader Joe's goods under trademarks that confuse consumers in Canada. Id.

(45.) See supra notes 29-33 and accompanying text (elucidating all three prongs of Timberlane). The Court reasoned that the Lanham Act must be applied extraterritorially in this case because Hallatt's activities had "some effect" on American commerce, and enforcing the Lanham Act in Canada does not interfere with Canada's sovereign rights as a nation. Id.

(46.) See supra notes 30-33 and accompanying text (indicating application of Timberlane is sound analysis). As discussed above, Timberlane has been relied on by many courts to analyze the extraterritorial application of American statutes. Id. Timberlane has been adapted and criticized, but its analysis has been followed by numerous courts in determining whether the Sherman Antitrust Act, Lanham Act, or another American statute should be applied outside of its originally intended jurisdiction. Id.

(47.) See supra note 29 and accompanying text (analyzing first prong of Timberlane). "Some effect" is sufficient to establish a connection between foreign conduct and American commerce to apply a statute extraterritorially. Id. The negative effect of Hallatt's activity, therefore, is enough to satisfy this prong. Id. As analyzed above and by the Court, Hallatt's activity had enough of an effect on Trader Joe's and American commerce to warrant application of the Lanham Act to stop his infringing activity. Id.

(48.) See supra note 31 (characterizing reputational harm constitutes "some effect" on American commerce). Hallatt's practice of not adhering to Trader Joe's quality control standards when transporting products diminishes the quality of the products he resells. Id. This harms Trader Joe's because consumers may think that Pirate Joe's is associated with Trader Joe's, then associate poor quality with Trader Joe's. Id. This harms Trader Joe's reputation, which has "some effect" on American commerce. Id.

(49.) See id. (expanding on discussion of reputational harm and effect on American commerce). Trader Joe's reputation is harmed when an infringing competitor uses inferior business practices to unlawfully sell its products. Id. Inferior business practices include poor quality control standards, inflated prices, and poor customer service. Id.

(50.) See supra note 38 and accompanying text (describing cognizable injury). A cognizable injury is one that harms only one person or entity. Id. Trader Joe's is the only entity harmed by Hallatt's activities. Id. Therefore, Hallatt's activities inflict a cognizable injury upon Trader Joe's. Id.

(51.) See id. (expanding on discussion of cognizable injury). Determining whether a cognizable injury is presented to a plaintiff also involves a balancing test. Id. The burden and restraint imposed on the party being infringed upon must be greater than the benefit to the infringer for a cognizable injury to be presented. Id. Here, the burden and restraint imposed upon Trader Joe's by Hallatt's activities is greater than the benefit to Hallatt. Id. Therefore, a cognizable injury is presented to Trader Joe's. Id.

(52.) See supra notes 32-33 and accompanying text (detailing third prong of Timberlane). For the third prong to be fulfilled, application of the statute must not interfere with a nation's sovereignty. Id. Application of the third prong of Timberlane in this case does not interfere with Canadian law because Trader Joe's trademarks are recognized by the Canadian government. Id. Furthermore, there is no current litigation between Trader Joe's and Hallatt in Canada. Id.

(53.) See supra note 41 and accompanying text (concluding application of Lanham Act does not conflict with Canadian law). Trader Joe's trademarks are properly recognized by the Canadian government because it lawfully applied for and was granted trademark recognition by the Canadian government. Id. Therefore, there is no conflict with Canadian law regarding the recognition of Trader Joe's trademarks. Id.

(54.) See supra note 42 and accompanying text (stating importance of Hallatt's LPR status). Hallatt's lawful permanent resident status subjects him to American law because he is legally authorized to do business in the United States. Id. A substantial amount of Hallatt's activity happens in the United States, thus emphasizing the importance of his LPR status to subject himself to the laws of the United States. Id.

(55.) See supra note 14 and accompanying text (introducing likelihood of confusion). Consumers in Washington State and British Columbia, Canada are likely to be confused by Hallatt's impersonation of Trader Joe's. Id. Hallatt sells Trader Joe's products and uses a font very similar to Trader Joe's trademarked designs. Id. Therefore, a reasonable consumer in Washington State or British Columbia, Canada is likely to be confused by Hallatt's presentation. Id.

(56.) See id. (expanding on likelihood of confusion analysis). Confusion of consumers is very likely because so many international consumers shop at Trader Joe's stores in Washington State. Id. Under the Lanham Act, a federal court is obligated to protect consumers from confusion. Id. This is essential to a free-market economy in addition to American commerce. Id. Consumers who shop in Canada are just as likely to be confused because they reasonably may believe that Pirate Joe's is affiliated with Trader Joe's. Id.

(57.) See Trader Joe's Co., 835 F.3d at 974 (outlining Court's reasoning of sixth factor). The selling of Trader Joe's products in Canada by Hallatt is only equally as important as the purchasing of Trader Joe's products in the United States because one cannot be completed without the other. Id. Hallatt could not sell Trader Joe's products in Canada if he did not purchase them in the United States. Id. Therefore, the sourcing of Hallatt's inventory in the United States is equally as important as the selling of Trader Joe's products in Canada. Id. Thus, the sixth factor should weigh in favor of extraterritorial application of the Lanham Act. Id.

(58.) See supra notes 31-33 and accompanying text (examining extraterritorial application of Lanham Act). Precedent has shown that enforcing an American statute beyond its intended jurisdiction has generally proven to be a difficult process. Id. For this reason, good and bad outcomes are expected to occur based on the facts of each individual case. Id. See also supra notes 20, 22 and accompanying text (considering broadness of Lanham Act). The broad, general language of the Lanham Act has the positive effect of creating the ability for courts to interpret its meaning. Id. However, this can also give more room for arguments to made that do not adequately interpret the Lanham Act's language the way in which the drafters intended. Id.

(59.) See supra notes 20, 22 and accompanying text (expanding on discussion of broadness of Lanham Act). The broadness of the Lanham Act is helpful to give courts leeway in interpretation. Id. However, the broadness of the Lanham Act can also give corporations more power to argue and prove that allegedly infringing activity falls within the scope of the Lanham Act. Id.

(60.) See id. (commenting on effects of Lanham Act's broad nature). A positive effect of increased litigation over trademark disputes is the prohibition of actions like Hallatt's. Id. This will decrease the likelihood of confusion among consumers, and increase fair competition in American commerce. Id. Negative effects of an increase in litigation over trademark disputes includes the potential for unnecessary lawsuits. Id. More lawsuits could arise which are not likely to succeed because of the strong precedent enforcing the Lanham Act extraterritorially sets. Id.

(61.) See supra note 19 and accompanying text (clarifying framework to determine extraterritorial application of any statute). The application of other U.S. statutes in foreign countries is more likely because of the door that has been opened by Trader Joe's, among many other previous cases. Id. The Lanham Act and the Sherman Antitrust Act are landmark areas of legislation. Id. Their application to foreign conduct by U.S. courts makes it only more likely that other areas of legislation may be applied outside of their intended original jurisdiction. Id.

(62.) See RJR Nabisco, Inc., 136 S. Ct. at 2106-08 (analyzing impact of extraterritorial statutory application on foreign nations' sovereignty). A U.S. statute that is applied extraterritorially where it should not be, based on Timberlane, interferes with the sovereignty of that nation. Id. The ability of any nation to create and enforce its own laws should be a fundamental right that must not be infringed upon. Id.

(63.) See supra note 1 and accompanying text (setting forth establishment of Lanham Act). The Lanham Act is the primary trademark and fair competition statute in American law. Id. Its application must not be taken lightly because of the substantial effect it has on many aspects of business both domestically and internationally. Id. See also supra note 14 and accompanying text (elucidating key provisions of Lanham Act). The Lanham Act's drafters arguably worded the Act broadly so that it could be applied to business conduct outside of the United States. Id. However, because this is not certain, courts must be very cautious when considering to apply the Lanham Act extraterritorially, as did the Court in Trader Joe's. Id.
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Author:Johnston, William C.
Publication:Suffolk Transnational Law Review
Date:Jan 1, 2017
Words:12167
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