PHILLIPS, Circuit Judge.
Hetronic International, Inc., a U.S. company, manufactures radio remote controls —the kind used to remotely operate heavy-duty construction equipment (think cranes). Defendants, none of whom are U.S. citizens, distributed Hetronic's products, mostly in Europe. That relationship worked well for nearly a decade. But then one of Defendants' employees stumbled across an old research-and-development agreement between the parties. Embracing a creative legal interpretation of the agreement endorsed by Defendants' lawyers, Defendants concluded that they—not Hetronic—owned the rights to Hetronic's trademarks and other intellectual property.
That caused some tension in the relationship. Defendants began manufacturing their own products—identical to Hetronic's—and selling them under the Hetronic brand, mostly in Europe. They even kept the same product names. Hetronic terminated the parties' distribution agreements,
Hetronic asserted numerous claims against Defendants, but we're here concerned almost exclusively with its trademark claims under the Lanham Act. A jury sitting in the Western District of Oklahoma awarded Hetronic over $100 million in damages, most of which related to Defendants' trademark infringement. Then on Hetronic's motion, the district court entered a worldwide injunction barring Defendants from selling their infringing products. Defendants have ignored the injunction.
In the district court and now on appeal, Defendants have focused on one defense in particular: Though they accept that the Lanham Act can sometimes apply extraterritorially, they insist that the Act's reach doesn't extend to their conduct, which generally involved foreign defendants making sales to foreign consumers. Our circuit has yet to grapple with that question. After considering the Supreme Court's lone decision on the issue and persuasive authority from our sibling circuits, we conclude that the district court properly applied the Lanham Act to Defendants' conduct. But we narrow the district court's expansive injunction. And so, exercising jurisdiction under 28 U.S.C. § 1291, we affirm in part, reverse in part, and remand for further consideration consistent with this opinion.
BACKGROUND
I. Factual Background
Hetronic sells and services its radio remote controls in over forty-five countries around the world. Though Hetronic offers a wide range of radio remote controls, the parties' dispute centers on ten of those products: ERGO, EURO, GL, GR, HH, MINI, NOVA, Pocket, TG, and RX. Hetronic's products feature a distinctive black-and-yellow color scheme to distinguish them from those of its competitors:
Appellants' App. vol. 7 at 1615-16, 1644.
Hetronic markets and distributes its radio remote controls through a worldwide network of wholly-owned subsidiaries and distributors. In 2006, Hetronic entered distribution and licensing agreements with Hydronic Steuersysteme GmbH, an Austrian corporation managed by Albert Fuchs. In time, Hydronic came to distribute Hetronic's products in over twenty European countries. In 2007, Hetronic entered similar distribution and licensing agreements with a company that would eventually be purchased by Hetronic Germany
The distribution and licensing agreements authorized Hydronic and Hetronic Germany to assemble and sell Hetronic's remote controls under Hetronic's brand, but they were required to purchase parts from Hetronic unless otherwise authorized in writing. Further, the two distributors agreed to act in Hetronic's best interest and to protect Hetronic's confidential information. They also agreed not to compete with Hetronic. They abided by those conditions without issue through much of 2011.
September 2011 marked the beginning of the end of Hetronic's business relationship with Hetronic Germany and Hydronic. That month, a Hetronic Germany employee happened upon an old research-and-development agreement entered between Hetronic and Hetronic Germany's predecessor. After consulting with legal counsel, Hetronic Germany took the position that it owned all the technology developed under that agreement (more on that later).
Based on that understanding, Hetronic Germany and Hydronic began reverse-engineering Hetronic's products. One of Hetronic Germany's former employees testified by deposition that he used Hetronic-manufactured parts to try to "recreate the model ... so that no difference could be seen." Id. at 1631. Once they developed these new, copycat parts (what they referred to as "KH" parts, id.), Hetronic Germany and Hydronic sought out new suppliers to source them. Eventually, both Hetronic Germany and Hydronic began selling Hetronic-branded products that incorporated KH parts sourced from unauthorized third-parties.
In 2014, a whistleblower who had worked for Hetronic Germany told Hetronic what had been going on the past few years. That June, once Hetronic understood the scope of Hetronic Germany and Hydronic's activities, it terminated their licensing and distribution agreements. But both distributors continued to sell Hetronic-branded products for several months.
Around the same time, Fuchs used an Austrian company he owned, ABI Holding GmbH, to incorporate two new companies, Abitron Germany GmbH and Abitron Austria GmbH. Abitron Austria purchased Hydronic in August 2014; Abitron Germany purchased Hetronic Germany the following month. They soon began competing directly with Hetronic, selling the same NOVA and ERGO products with the exact same trade dress (compared below).
Id. at 1644. Before this litigation ensued, they sold several hundred thousand dollars' worth of products in the United States.
II. Procedural Background
In June 2014, Hetronic sued Hetronic Germany and Hydronic in the Western District of Oklahoma, alleging breach of contract. In 2015, Hetronic filed an amended complaint that added as defendants Fuchs, ABI, Abitron Austria, and Abitron Germany. The amended complaint also added new claims under the Lanham Act and state tort law.
Two motions to dismiss soon followed, one filed by the Abitron companies and the other by ABI and Fuchs. Each motion argued that the district court lacked personal jurisdiction over the relevant Defendants. The district court denied both motions. First, the district court concluded that the forum-selection clause in Hetronic's agreements with Hetronic Germany and Hydronic extended to both Abitron Germany and Abitron Austria as Hetronic Germany's and Hydronic's successors-in-interest. Second, the district court denied ABI and Fuchs's motion because it concluded that they had purposefully availed themselves of a U.S. forum under Federal Rule of Civil Procedure 4(k)(2).
Hetronic then filed a Second Amended Complaint, and both sides moved for summary judgment. Though the district court granted Hetronic's motion on Defendants' counterclaims, it otherwise denied the motion.
Defendants' motion argued that the court lacked subject-matter jurisdiction to resolve Hetronic's Lanham Act claims because the conduct at issue occurred overseas. Specifically, Defendants asserted that the Lanham Act applies extraterritorially only if a defendant's conduct has a substantial effect on U.S. commerce; because that was allegedly lacking here, Defendants maintained that Hetronic's claims had to be dismissed. The district court rejected that argument and denied Defendants summary judgment based on their extraterritoriality defense.
While Defendants played defense in federal district court, they sought to go on offense in the European Union. In July 2015, Abitron Germany sought a "declaration of invalidity" from the European Union Intellectual Property Office (EUIPO) that would nullify Hetronic's "NOVA"
Based on that ruling, Hetronic moved for summary judgment on Defendants' defense that they owned the disputed intellectual property, arguing that the doctrine of issue preclusion barred Defendants from relitigating that question. After briefing and two hearings, the district court granted Hetronic's motion, concluding that the EUIPO proceeding afforded Defendants a full and fair opportunity to adjudicate the merits of the ownership dispute.
About a week later, the eleven-day jury trial began. The jury returned a verdict for Hetronic on all counts, finding that Defendants had willfully infringed Hetronic's trademarks. The jury awarded Hetronic over $115 million in damages, $96 million of which related to Defendants' Lanham Act violations.
After the trial, Hetronic moved for a permanent injunction to prohibit Defendants from further infringing its trademarks. In opposing the injunction, Defendants reasserted their contention that the court lacked jurisdiction under the Lanham Act to enjoin Defendants' foreign activities. Applying the facts established at trial, the district court concluded that the Lanham Act reached Defendants' foreign conduct. The court granted Hetronic's motion and entered a permanent injunction order, enjoining Defendants' infringing activities worldwide.
This appeal followed.
DISCUSSION
Defendants raise numerous issues on appeal. First, Defendants argue that the district court erroneously exercised personal jurisdiction over four of the six defendants. Second, Defendants argue that the district court erred in concluding that the Lanham Act applied extraterritorially to reach their foreign activities. Third, Defendants argue that the district court erred when it ruled that issue preclusion barred them from asserting at trial that they owned the disputed intellectual property. Fourth, Defendants argue that the district court made several erroneous evidentiary rulings at trial. We address each argument in turn.
I. Personal Jurisdiction
Defendants have never disputed the district court's exercise of personal jurisdiction over Hetronic Germany and Hydronic, which derived from a forum-selection clause in the parties' distribution and licensing agreements. That clause designates Oklahoma as the forum for all disputes. But Defendants challenge the district court's exercise of personal jurisdiction over the Abitron entities, ABI, and Fuchs. Following the parties' lead, we first address the court's personal jurisdiction over Abitron Germany and Abitron Austria and then consider its jurisdiction over Fuchs and ABI.
We review de novo a district court's exercise of personal jurisdiction, ClearOne Commc'ns, Inc. v. Bowers, 651 F.3d 1200, 1214 (10th Cir. 2011) (footnote and citation omitted), and we consider each defendant separately, Newsome v. Gallacher, 722 F.3d 1257, 1265-66 (10th Cir. 2013) (citation omitted). "The plaintiff has the burden of proving that the court has jurisdiction." Compañía de Inversiones Mercantiles, S.A. v. Grupo Cementos de Chihuahua S.A.B. de C.V., 970 F.3d 1269, 1281 (10th Cir. 2020) (citation omitted), cert. denied, No. 20-1033, ___ U.S. ___, ___ S.Ct. ___, ___ L.Ed.2d ___, 2021 WL 2519105 (2021).
When the district court evaluates personal jurisdiction "based only on the
A. Abitron Companies
Though Abitron Germany and Abitron Austria weren't parties to Hetronic's distribution and licensing agreements with Hetronic Germany and Hydronic, the district court nevertheless concluded that the forum-selection clauses in those agreements bound both Abitron entities. According to the district court, Abitron Austria and Abitron Germany were Hydronic's and Hetronic Germany's successors-in-interest. We agree.
In assessing personal jurisdiction, we have acknowledged that "[a] corporation's contacts with a forum may be imputed to its successor...." Williams v. Bowman Livestock Equip. Co., 927 F.2d 1128, 1132 (10th Cir. 1991) (citation omitted). But our Circuit has yet to address the specific issue here: whether a successor corporation is bound by its predecessor's contractual waiver of personal jurisdiction through a forum-selection clause.
Courts that have considered this question "have uniformly found that it is consistent with due process to impute a corporation's waiver of personal jurisdiction to its successor ... for the same reasons that imputation of jurisdictional contacts is appropriate." Patin v. Thoroughbred Power Boats Inc., 294 F.3d 640, 654 & n.19 (5th Cir. 2002) (collecting cases); cf. Purdue Rsch. Found. v. Sanofi-Synthelabo, S.A., 338 F.3d 773, 783-84 (7th Cir. 2003) (distinguishing between "a corporate successor," whose contacts may be attributed to a predecessor, and "an assignee of a contract," whose contacts generally shouldn't be attributed to the assignor). Under this theory of personal jurisdiction, we ask whether the successor is a "mere continuation" of the predecessor. Patin, 294 F.3d at 654 ("The premise underlying the `mere continuation' exception to the rule against successor liability is that the successor corporation is, in fact, the same corporate entity as the predecessor corporation, simply wearing a `new hat.'" (citations omitted)).
To start, we must first answer the threshold question whether Abitron Austria and Abitron Germany are in fact successors-in-interest of Hydronic and Hetronic Germany, respectively. To decide that question, we look to the law of the forum state—here, Oklahoma. See Williams, 927 F.2d at 1132. Under Oklahoma law, "[t]he general rule ... is that where one company sells or otherwise transfers all its assets to another company, the latter is not liable for the debts and liabilities of the transferor." Pulis v. U.S. Elec. Tool Co., 561 P.2d 68, 69 (Okla. 1977); see also Flores v. U.S. Repeating Arms Co., 19 F. App'x 795, 797 (10th Cir. 2001) (unpublished) (applying Oklahoma law). But Oklahoma's courts have recognized four exceptions to that general rule:
Under the "mere continuation" exception, "the test is not whether there is a continuation of business operations, but whether there is a continuation of the corporate entity." Crutchfield v. Marine Power Engine Co., 209 P.3d 295, 301 (Okla. 2009) (footnote omitted). To assess whether the corporate entity has been continued, Oklahoma courts consider (1) "whether there is a common identity of directors, officers, and stockholders before and after the sale," (2) "whether there was good consideration for the sale," and (3) "whether the seller corporation continues to exist in fact." Id. (footnote omitted). Concerning the third factor, "[t]he bare de jure existence of the seller corporation after the sale is insufficient alone to establish that the successor corporation is not a mere continuation of the seller company." Id. at 301-02 (footnote omitted).
These factors weigh heavily in favor of concluding that the Abitron entities are Hydronic's and Hetronic Germany's successors-in-interest. The analysis is the same for both companies under the first and third factors. Starting with the first factor, Defendants don't contest that Fuchs owns all four companies. Nor do they contest the district court's finding that "the Abitron entities are using the same facilities, management, employees, customer lists, and product mark and dress as H[etronic] Germany and Hydronic." Appellants' App. vol. 1 at 122-23. Further, Hetronic Germany's former CEO became the CEO of both Abitron companies.
On the third factor, though the seller corporations continue to exist in fact, their "bare de jure existence" carries little weight. Crutchfield, 209 P.3d at 301-02. Almost all of Hydronic's and Hetronic Germany's assets were transferred to the Abitron entities, with only "a small amount being left for the purposes of satisfying debt with Hetronic International." Appellants' App. vol. 1 at 122.
The analysis on the second prong— whether there was good consideration for the sale—is less straightforward. Abitron Germany purportedly paid €3 million
But even if we concluded that the second factor cuts against finding that the Abitron companies are successors-in-interest (and it isn't clear that it does), Oklahoma courts weigh all three factors in deciding this issue. See Pulis, 561 P.2d at 71-72. At least two of those three factors weigh against Defendants. Considering the three factors collectively, particularly the common identity of directors, officers, and stockholders before and after the sale, we hold that the Abitron companies constitute a "mere continuation" of Hydronic and Hetronic Germany and are therefore successors-in-interest under Oklahoma law. See Crutchfield, 209 P.3d at 301. And because the Abitron entities are mere continuations of Hetronic Germany and Hydronic, the district court rightly concluded that the forum-selection clause in the parties' licensing agreements bound both Abitron Germany and Abitron Austria.
B. Fuchs and ABI
The district court ruled that it could exercise personal jurisdiction over Fuchs and ABI under Federal Rule of Civil Procedure 4(k)(2). Rule 4(k)(2) states that
Fed. R. Civ. P. 4(k)(2). Under this rule, which has been described as a kind of federal long-arm statute, a court may exercise personal jurisdiction over a foreign defendant if (1) the "plaintiff's claims arise under federal law"; (2) "the defendant is not subject to the jurisdiction of any state court of general jurisdiction"; and (3) "the plaintiff can show that the exercise of jurisdiction comports with due process." CGC Holding Co. v. Hutchens, 974 F.3d 1201, 1208 (10th Cir. 2020) (citing Grupo Cementos, 970 F.3d at 1281 n.1).
Defendants don't dispute that Hetronic's claims arise under federal law; their arguments focus on the second and third elements. On the second element, Defendants indirectly argue that the district court failed to properly consider whether they were subject to the jurisdiction of other states' courts besides Oklahoma. See Appellants' Opening Br. at 53 (faulting the district court because it "actually considered contacts with other forums (Nevada, Massachusetts) that might have been proper forums, but made no determination as to same" (citation omitted)). Defendants imply that the district court was required to conduct a sua sponte analysis of all fifty states—or at least Nevada and Massachusetts—to assess whether Rule 4(k)(2)'s requirements had been satisfied.
It's true that subsection A of Rule 4(k)(2) could be read to require a plaintiff to conduct a state-by-state assessment showing that the defendant isn't subject to any state's courts of general jurisdiction. But we recently joined the majority of circuits that have rejected that reading of the rule: "Every other circuit court [besides the First and Fourth Circuits] to consider the issue has placed the initial burden on the defendant to identify a state in which the lawsuit could proceed." Grupo Cementos, 970 F.3d at 1283 (citations omitted). We adopted the Seventh Circuit's reasoning on this point:
Id. at 1283-84 (quoting ISI Int'l, Inc. v. Borden Ladner Gervais LLP, 256 F.3d 548, 552 (7th Cir. 2001)).
Defendants never argued in the district court that some other state's courts could exercise personal jurisdiction over them. So they have forfeited any challenge along those lines. Grupo Cementos, 970 F.3d at 1282. Even on appeal, they never argue that Nevada or Massachusetts could exercise personal jurisdiction over them. Rather, they merely allege that the district court erred by not considering those states in assessing Rule 4(k)(2)'s applicability. But as our caselaw makes clear, the district court wasn't required to consider all 50 states (or even two states that a defendant merely alludes to). By failing to point to some other state that could exercise personal jurisdiction over them, Defendants conceded that Hetronic satisfied the second element to establish personal jurisdiction under Rule 4(k)(2).
Finally, Hetronic has satisfied the third element by demonstrating that the exercise of jurisdiction comports with due process. "To determine whether the exercise of federal jurisdiction over [Defendants] satisfies due process, we must determine whether [Defendants] had minimum contacts with the United States." CGC Holding Co., 974 F.3d at 1209. Under that standard, a federal court can exercise specific personal jurisdiction over a foreign defendant "only if the defendant purposely directed [its] activities at the forum and the plaintiff's injuries arose from the defendant's forum-related activities." Id. (citing Dudnikov, 514 F.3d at 1071). The relevant forum here is not an individual state, but the United States as a whole.
Both Fuchs and ABI have sufficient minimum contacts that demonstrate they purposefully directed their activities at the forum (the United States), and Hetronic's injuries arose in part from those forum-related activities. As for Fuchs, Hetronic alleged the following:
These contacts suffice to show Fuchs directed his activities at the United States and directly relate to the injuries Hetronic complained of (i.e., trademark violations). See CGC Holding Co., 974 F.3d at 1209 (holding that a Canadian defendant had sufficient minimum contacts with the United States even though she operated her RICO conspiracy mostly from Toronto because she worked extensively with a U.S. partner and "prepar[ed] loan commitment letters directed at U.S. borrowers").
The same goes for ABI. The district court detailed the following contacts ABI had with the United States:
Based on these findings, ABI can't seriously contest that it purposefully directed its activities at the United States. Nor can it dispute that Hetronic's injuries arose in part from these activities. On these facts, ABI should have expected that it could be haled into court in the United States. See id.
In sum, we conclude that the district court properly exercised personal jurisdiction over all Defendants. The forum-selection clauses in Hydronic's and Hetronic Germany's licensing agreements bound both Abitron companies as successors in interest. And Hetronic has shown that the court rightly exercised personal jurisdiction over both Fuchs and ABI under Rule 4(k)(2). We thus consider the merits of the parties' dispute.
II. Permanent Injunction
Defendants attack the permanent injunction prohibiting their worldwide sales of lookalike remote controls on primarily three grounds. They argue (1) that the district court erroneously concluded that the Lanham Act applied extraterritorially here; (2) that the injunction lacks the specificity required by Rule 65 of the Federal Rules of Civil Procedure; (3) and that the injunction sweeps too broad. Though we agree that the district court's worldwide injunction reaches too far, we otherwise reject Defendants' challenges and uphold the injunction.
We review for abuse of discretion the district court's grant of a permanent injunction. Husky Ventures, Inc. v. B55 Invs., Ltd., 911 F.3d 1000, 1011 (10th Cir. 2018) (citation omitted). "A district court `necessarily abuses its discretion if it bases its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence.'" Id. (brackets omitted) (quoting Zurich N. Am. v. Matrix Serv., Inc., 426 F.3d 1281, 1289 (10th Cir. 2005)). A district court's factual findings are clearly erroneous if they lack "factual
We begin by considering whether the district court correctly concluded that the Lanham Act reaches all of Defendants' allegedly infringing conduct here, after which we assess the injunction's specificity and scope.
A. Extraterritorial Reach of the Lanham Act
The Lanham Act governs federal trademark and unfair competition disputes. It subjects to liability "[a]ny person who shall ... use in commerce any ... colorable imitation of a registered mark," 15 U.S.C. § 1114(1) (Section 32), or "[a]ny person who ... uses in commerce any" word, false description, or false designation of origin that "is likely to cause confusion... or to deceive as to the affiliation," origin, or sponsorship of any goods, id. § 1125(a)(1) (Section 43). Notably, the Act defines commerce broadly as "all commerce which may lawfully be regulated by Congress," id. § 1127, and affords federal courts jurisdiction over all claims arising under it, id. § 1121(a). Though most of the damages the jury awarded to Hetronic flowed from Defendants' Lanham Act violations, Defendants argue as a threshold matter that the Act doesn't apply extraterritorially to their foreign conduct. We disagree.
The Supreme Court has in recent years considered (or reconsidered) the extraterritoriality of several federal statutes, some of them multiple times: the Alien Tort Statute, Nestlè USA, Inc. v. Doe, ___ U.S. ___, 141 S.Ct. 1931, 1936-37, 210 L.Ed.2d 207 (2021), and Kiobel v. Royal Dutch Petrol. Co., 569 U.S. 108, 115-17, 133 S.Ct. 1659, 185 L.Ed.2d 671 (2013); the Patent Act, WesternGeco LLC v. ION Geophysical Corp., ___ U.S. ___, 138 S.Ct. 2129, 2136-38, 201 L.Ed.2d 584 (2018); the Racketeer Influenced and Corrupt Organizations Act, RJR Nabisco, Inc. v. Eur. Cmty., 579 U.S. 325, 136 S.Ct. 2090, 2099-2103, 195 L.Ed.2d 476 (2016); section 10(b) of the Securities Exchange Act of 1934, Morrison v. Nat'l Austl. Bank Ltd., 561 U.S. 247, 255-65, 130 S.Ct. 2869, 177 L.Ed.2d 535 (2010); and both the Foreign Trade Antitrust Improvements Act of 1982, F. Hoffmann-La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 163-73, 124 S.Ct. 2359, 159 L.Ed.2d 226 (2004), and its predecessor, the Sherman Act, Hartford Fire Ins. Co. v. California, 509 U.S. 764, 794-99, 113 S.Ct. 2891, 125 L.Ed.2d 612 (1993). But you have to go back almost three-quarters of a century since the Court last substantively considered the extraterritoriality of the Lanham Act. Steele v. Bulova Watch Co., 344 U.S. 280, 282-85, 73 S.Ct. 252, 97 L.Ed. 319 (1952). Though the Steele Court acknowledged the general presumption against extraterritoriality, see id. at 285, 73 S.Ct. 252, it held that the Lanham Act could apply abroad at least in some circumstances, see id. at 286, 73 S.Ct. 252 ("In the light of the broad jurisdictional grant in the Lanham Act, we deem its scope to encompass petitioner's [foreign] activities here.").
Though none of the Supreme Court's recent decisions concerning extraterritoriality resolve the issues we face here related to the Lanham Act, they offer some useful guidance. In RJR, the Court established "a two-step framework for analyzing extraterritoriality issues." 136 S. Ct. at 2101. At step one, "we ask whether the presumption against extraterritoriality has been rebutted—that is, whether the statute gives a clear, affirmative indication that it applies extraterritorially." Id. Steele already answered that question in the affirmative. See 344 U.S. at 285-88, 73 S.Ct. 252; see also Trader Joe's Co. v. Hallatt, 835 F.3d 960, 966 (9th Cir. 2016) ("The Supreme Court settled this question with regard to the Lanham Act when it held [in Steele] that the Act's `use in commerce' element and broad definition of `commerce' clearly indicate Congress's intent that the Act should apply extraterritorially." (citing Steele, 344 U.S. at 286, 73 S.Ct. 252)). When a court concludes at step one that the statute in question applies extraterritorially, it needn't reach step two (which asks "whether the case involves a domestic application of the statute"). RJR, 136 S. Ct. at 2101. Instead, when the presumption against extraterritoriality has been rebutted, RJR tells us that "[t]he scope of an extraterritorial statute ... turns on the limits Congress has (or has not) imposed on the statute's foreign application." Id. (footnote omitted). In other words, just because a statute can apply extraterritorially doesn't mean that it always will.
Since Steele, the courts of appeals have devised various tests to answer that question—namely, what are the limits of the Lanham Act's extraterritorial reach? Because our circuit has never confronted this issue, we have yet to speak on the matter. So we begin by adopting a framework for resolving this question. After that, we address the procedural objections Defendants raised regarding how the district court went about addressing this issue. Last, we apply our newly adopted framework to the dispute before us.
1. Framework for Assessing the Scope of the Lanham Act's Extraterritoriality
Each of the tests developed by the courts of appeals to explore the Lanham Act's extraterritorial reach stems from the Supreme Court's Steele decision. There, the defendant, an American citizen operating a watch business in Texas decided to move his business to Mexico City. 344 U.S. at 284-85, 73 S.Ct. 252. He discovered that "Bulova" had not been registered in Mexico, so he secured the rights to the name. Id. Importing watch parts from Switzerland and the United States, he sold the watches in Mexico under the "Bulova" name. Id. at 285, 73 S.Ct. 252. Bulova Watch Co., one of the largest watch manufacturers in the world, soon began receiving complaints from customers who needed repairs of defective "Bulova" watches that often turned out to be the defendant's product. Id. Bulova challenged in Mexico's courts the defendant's right to use the
The Court concluded that the Lanham Act encompassed the defendant's conduct, reasoning that "the United States is not debarred ... from governing the conduct of i[t]s own citizens upon the high seas or even in foreign countries when the rights of other nations or their nationals are not infringed." Id. at 285-86, 73 S.Ct. 252 (citation omitted). The Court explained that "Congress has the power to prevent unfair trade practices in foreign commerce by citizens of the United States, although some of the acts are done outside the territorial limits of the United States." Id. at 286, 73 S.Ct. 252 (citation omitted). Key to the Court's decision was that the defendant's "operations and their effects were not confined within the territorial limits of a foreign nation"; the "spurious `Bulovas' filtered through the Mexican border into" the United States. Id. (emphasis added). And the Court noted that the inferior watches could damage Bulova's reputation in both the United States and foreign markets. Id.
Since Steele, the courts of appeals that have confronted this issue have adopted one of three tests for deciding whether the Lanham Act governs a defendant's foreign conduct. The first, devised by the Second Circuit and known as the Vanity Fair test, considers three factors: (1) whether the defendant's conduct had a substantial effect on U.S. commerce; (2) whether the defendant was a United States citizen; and (3) whether there was a conflict with trademark rights established under the relevant foreign law. Vanity Fair Mills, Inc. v. T. Eaton Co., 234 F.2d 633, 642 (2d Cir. 1956). Though no factor is dispositive, the absence of one of the factors "might well be determinative and ... the absence of both is certainly fatal." Id. at 643 (footnote omitted).
Of our sibling circuits that have considered this issue, most have adopted some version of the Vanity Fair test. The Eleventh and Federal Circuits have adopted it wholesale. See Int'l Cafe, S.A.L. v. Hard Rock Cafe Int'l, (U.S.A.), Inc., 252 F.3d 1274, 1278 (11th Cir. 2001) (describing the three-factor analysis as the "Bulova test" but citing Vanity Fair); Aerogroup Int'l, Inc. v. Marlboro Footworks, Ltd., 152 F.3d 948, 1998 WL 169251, *2 (Fed. Cir. 1998) (per curiam) (unpublished). The Fourth and Fifth Circuits have also adopted the Vanity Fair test, but each has tweaked the first prong. Rather than asking whether the defendant's conduct had a "substantial effect" on U.S. commerce, the Fourth Circuit asks whether the conduct had a "significant effect." Nintendo of Am., Inc. v. Aeropower Co., 34 F.3d 246, 250 (4th Cir. 1994). The Fifth Circuit, following the Ninth Circuit's lead (discussed below), lowered the bar further, requiring only "some effect" on U.S. commerce. Am. Rice, Inc. v. Ark. Rice Growers Coop. Ass'n, 701 F.2d 408, 414 n.8 (5th Cir. 1983).
The Ninth Circuit has adopted a similar but distinct tripartite test, based on its decisions governing the extraterritorial application of antitrust law under the Sherman Act. See Wells Fargo & Co. v. Wells Fargo Express Co., 556 F.2d 406, 427-28 (9th Cir. 1977); Star-Kist Foods, Inc. v. P.J. Rhodes & Co., 769 F.2d 1393, 1395 (9th Cir. 1985) ("In Wells Fargo we concluded that the Lanham Act's coverage of foreign activities may be analyzed under the test for extraterritorial application of the federal antitrust laws set forth in Timberlane Lumber Co. v. Bank of America National Trust & Savings Ass'n, 549 F.2d 597 (9th Cir. 1976)...."). Under what's
Trader Joe's Co., 835 F.3d at 969 (alterations in original) (citation and footnote omitted). Notably, the Ninth Circuit rejected other circuits' conclusions that the effect on U.S. commerce must be "substantial," reasoning that Steele "contains no such requirement." Wells Fargo, 556 F.2d at 428.
Finally, the First Circuit has rejected both the Timberlane and Vanity Fair tests. See McBee, 417 F.3d at 110 ("[W]e choose not to adopt the formulations used by various other circuits." (citations omitted)). Relying heavily on the Supreme Court's caselaw governing the extraterritoriality of U.S. antitrust laws (wisely, in our view),
The court adopted a "separate test" to assess the Lanham Act's extraterritorial reach when a plaintiff seeks damages based on "foreign activities of foreign defendants." Id. at 111. In that situation, the court held that the Lanham Act applies "only if the complained-of activities have a substantial effect on [U.S.] commerce, viewed in light of the purposes of the Lanham Act." Id. The court noted that its substantial-effect requirement aligned with the framework the Supreme Court has established for assessing the extraterritorial scope of Sherman Act (antitrust) claims. See id. at 119-20 (analogizing to Hartford Fire Ins. Co., 509 U.S. at 796, 113 S.Ct. 2891).
Besides one caveat we explain below, we adopt the McBee framework for several reasons. First, we agree with McBee that the Lanham Act will usually extend extraterritorially when the defendant is an American citizen. Id. at 118. No one questions Congress's ability "to regulate the conduct of its own citizens, even extraterritorial conduct." Id. (quoting
Second, when a plaintiff seeks to recover under the Lanham Act against a foreign national, we also agree with McBee that the plaintiff must show that the defendant's conduct has a substantial effect on U.S. commerce. True, the Steele Court never required that the effects on U.S. commerce must be substantial to trigger extraterritorial application of the Lanham Act (as the Fifth and Ninth Circuits have pointed out in adopting their less-stringent "some effect" test). See 344 U.S. at 286, 73 S.Ct. 252 (noting that the defendant's conduct "and their effects were not confined within the territorial limits of a foreign nation"); Am. Rice, 701 F.2d at 414 n.8; Wells Fargo, 556 F.2d at 428. But we nonetheless adopt the substantial-effects requirement for two reasons. First, the defendant in Steele was an American citizen —for the reasons just explained, it's no surprise that the Steele Court was unconcerned about the relatively modest effect of the defendant's conduct on U.S. commerce given Congress's uncontroversial and extensive powers to regulate the conduct of its own citizens. Second, requiring that the defendant's conduct has a substantial effect on U.S. commerce aligns the test for Lanham Act extraterritoriality with both the Supreme Court's antitrust jurisprudence and general principles of foreign relations law. See Hartford Fire Ins., 509 U.S. at 796, 113 S.Ct. 2891 ("[I]t is well established by now that the Sherman Act applies to foreign conduct that was meant to produce and did in fact produce some substantial effect in the United States." (collecting cases)); Restatement (Third) of Foreign Rels. Law of the United States § 402(1)(c) (1987) ("[A] state has jurisdiction to prescribe law with respect to ... conduct outside its territory that has or is intended to have substantial effect within its territory....").
Finally, if a plaintiff successfully shows that a foreign defendant's conduct has had a substantial effect on U.S. commerce, courts should also consider whether extraterritorial application of the Lanham Act would create a conflict with trademark rights established under the relevant foreign law. See Steele, 344 U.S. at 289, 73 S.Ct. 252 ("Mexico's courts have nullified the Mexican registration of `Bulova'; there is thus no conflict which might afford petitioner a pretext that such relief would impugn foreign law."). Though the McBee court eschewed such an analysis, 417 F.3d at 111, every other circuit court considers
Hetronic urges us to adopt the Ninth Circuit's Timberlane test, noting that our Circuit has looked to that test in assessing extraterritoriality in the antitrust context. See Montreal Trading Ltd. v. Amax Inc., 661 F.2d 864, 869 (10th Cir. 1981). But we remain persuaded that McBee provides the better framework for assessing Lanham Act claims for several reasons. As an initial matter, Hetronic doesn't argue that we're bound by Montreal Trading—nor could it. Unlike our focus here on the Lanham Act, that case considered the extraterritorial reach of the Sherman Act. Id. Further, that case involved U.S. defendants; the defendants here are all foreign. Id. at 865-66. As we have explained, unlike the Timberlane test adopted in Montreal Trading, the McBee framework accounts for the differences in a defendant's citizenship. Indeed, the Montreal Trading court didn't have the benefit of McBee or the Supreme Court's more recent decisions concerning how courts should approach extraterritoriality questions. Considering those developments, we conclude that McBee establishes the best test for assessing extraterritoriality under the Lanham Act.
To recap, in deciding whether the Lanham Act applies extraterritorially, courts should consider three factors. First, courts should determine whether the defendant is a U.S. citizen. Second, when the defendant is not a U.S. citizen, courts should assess whether the defendant's conduct had a substantial effect on U.S. commerce. Third, only if the plaintiff has satisfied the substantial-effects test, courts should consider whether extraterritorial application of the Lanham Act would create a conflict with trademark rights established under foreign law.
Having adopted a framework for assessing the scope of the Lanham Act's extraterritorial reach, we next consider Defendants' arguments that the district court erred procedurally in resolving this issue.
2. The District Court Should Have Decided As a Matter of Law Whether the Lanham Act Reached Defendants' Foreign Conduct
a. Background
The district court considered the Lanham Act's extraterritoriality three times: once before trial at summary judgment, once during trial on Hetronic's relevance objection, and once after trial in considering Hetronic's preliminary-injunction motion. Most of Defendants' procedural objections flow from uncertainties about the district court's summary-judgment ruling.
In moving for partial summary judgment, Defendants argued that Hetronic's Lanham Act claims failed because the Act didn't reach Defendants' foreign sales (which made up nearly 97% of their total sales). It's clear that the district court rejected that argument and denied Defendants summary judgment on their extraterritoriality defense: "Viewed in a light favorable to plaintiff, the record evidence raises genuine issues of material fact as to customer confusion and harm to reputation to plaintiff in the United States due to [D]efendants' alleged infringing conduct." Appellants' App. vol. 7 at 1712. What's less clear is whether the district court granted Hetronic summary judgment on the extraterritoriality issue. At times, the district court's order suggests that it did: "[T]he court concludes that extraterritorial application of the Lanham Act to defendants' foreign sales ... is appropriate." Id. at 1716.
But on appeal, both sides agree that the court merely denied Defendants summary
Based on the district court's order, Defendants understandably believed that they could argue the issue to the jury. So they "prepared to present at trial their evidence that there was no `effect' on U.S. commerce, and that there was no confusion among U.S. citizens, caused by the[ir] purely foreign sales." Reply Br. at 4. But the district court precluded them from doing so. At trial, Hetronic called Josef Scheuerer, one of Hetronic's sales representatives, to testify about the confusion Defendants' alleged trademark infringement created among Hetronic's customers. On cross-examination, Defendants sought to establish that only non-U.S. customers were confused and that, as a result, any infringement couldn't have substantially affected U.S. commerce. Defendants' line of questioning went to "whether or not there [was] a Lanham Act claim at all." Appellants' App. vol. 13 at 3273. That is, as Defendants argued on summary judgment, if their foreign sales didn't substantially affect U.S. commerce, the Lanham Act wouldn't apply.
Hetronic objected to the questioning, asserting that the subject matter was irrelevant and unfairly prejudicial. During a sidebar between the court and counsel, Hetronic's counsel misspoke, telling the court that it had already granted summary judgment in Hetronic's favor on the extraterritoriality issue. The court apparently assumed this was so and sustained the objection:
Id. at 3272-73 (emphasis added).
As noted, Hetronic now concedes that the district court never granted it summary judgment on the extraterritoriality issue. Yet Hetronic contends—without citing to the record—that "the trial court already had held (correctly) ... that the [Lanham] Act could apply extraterritorially." Appellee's Resp. Br. at 50.
Hetronic is mistaken. The only time the district court addressed the extraterritoriality issue before trial was in denying Defendants' motion for summary judgment. But as Hetronic acknowledges, the court's ruling concluded that there was a genuine dispute of material fact about whether Defendants' foreign activities had caused confusion among U.S. consumers.
After the jury rendered its verdict in Hetronic's favor, Hetronic moved for a worldwide injunction barring Defendants from selling their infringing products. In granting that injunction, the district court considered the Lanham Act's extraterritoriality for the third time. This time, relying on the evidence established at trial, the district court undeniably concluded that the Lanham Act reached Defendants' foreign conduct.
b. Determining the Scope of the Lanham Act's Extraterritoriality Presents a Question of Law
With that background in mind, Defendants argue that the district court erred in two ways. First, Defendants insist that the district court should have resolved the extraterritoriality issue as a matter of subject-matter jurisdiction before trial. Second, because the district court didn't do so, Defendants maintain that the court erred by precluding them from arguing the issue at trial.
We agree with Defendants that the district court should have resolved the extraterritoriality issue as a matter of law before trial, but we disagree that this issue presents a question of subject-matter jurisdiction. Defendants' confusion on this point is understandable. Before 2010, every court—including the U.S. Supreme Court—considered the Lanham Act's extraterritoriality as a matter of subject-matter jurisdiction. See, e.g., Steele, 344 U.S. at 281, 73 S.Ct. 252; McBee, 417 F.3d at 117 (collecting cases). But in 2010, the Supreme Court clarified in Morrison that questions about the extraterritorial reach of a federal statute go to the merits, not jurisdiction. 561 U.S. at 254, 130 S.Ct. 2869. In assessing the extraterritoriality of the Securities Exchange Act, the Court explained that "to ask what conduct § 10(b) reaches is to ask what conduct § 10(b) prohibits, which is a merits question." Id. That same rationale holds true for the Lanham Act. Derma Pen, LLC v. 4EverYoung Ltd., 736 F. App'x 741, 748 n.4 (10th Cir. 2018) (unpublished) (citing Morrison and rejecting appellant's suggestion that the Lanham Act's extraterritoriality was a question of subject-matter jurisdiction); Trader Joe's Co., 835 F.3d at 968 ("We hold that the extraterritorial reach of the Lanham Act is a merits question that does not implicate federal courts' subject-matter jurisdiction....").
But to hold that the extraterritorial reach of the Lanham Act presents a merits question isn't to say that the question can't be decided as a matter of law. To the
Consistent with how courts have previously handled this issue, we hold that district courts should ordinarily decide questions about the scope of the Lanham Act's extraterritorial reach as a matter of law, preferably in the litigation's early stages. We think this the best course for several reasons. First, as just discussed, courts have always decided this issue as a matter of law since the Supreme Court decided Steele and have continued to do so even after Morrison cleared up that it's not a question of subject-matter jurisdiction. See id.
Second, "the proper extraterritorial reach of a Lanham Act injunction is a matter of statutory interpretation." Derma Pen, 736 F. App'x at 748 n.4; see also RJR, 136 S. Ct. at 2101 ("The scope of an extraterritorial statute ... turns on the limits Congress has (or has not) imposed on the statute's foreign application." (footnote omitted)). We have "always considered" questions of statutory interpretation as "quintessentially legal in nature." United States v. McLinn, 896 F.3d 1152, 1156 (10th Cir. 2018) (citation omitted); see also Proctor & Gamble Co. v. Haugen, 222 F.3d 1262, 1271 (10th Cir. 2000) ("The question here is one of statutory interpretation and thus a pure matter of law...." (emphasis added)). Judges, not juries, decide purely legal questions. See McLinn, 896 F.3d at 1156. The extraterritoriality of the Lanham Act usually presents just such a question.
Even so, Defendants at times appear to frame the issue of whether their conduct created a substantial effect on U.S. commerce as a factual dispute. But on closer examination, we see only a legal dispute. For instance, Defendants insist that they should have been able to cross-examine Joseph Scheuerer to show that his testimony related primarily to foreign customers. From that testimony, Defendants sought to establish that no U.S. consumers were confused, so there couldn't have been a substantial effect on U.S. commerce. The problem for Defendants is that this cross-examination testimony of Scheuerer wouldn't have created a factual dispute. Hetronic presented other evidence, discussed below, detailing instances of confusion among U.S. consumers. Defendants never tried to argue that those examples never happened or otherwise refute that portion of Hetronic's evidence. Instead, Defendants sought to show that most of the confusion occurred among foreign customers, in effect arguing that even if there was some effect on U.S. commerce, it wasn't substantial. But weighing that argument—whether a defendant's conduct created a substantial effect on U.S. commerce—requires a legal determination that's left to the courts.
Actual factual disputes underlying the extraterritoriality question certainly can arise. For example, a defendant could dispute whether (or how much of) its allegedly
Having reaffirmed that the scope of the Lanham Act's extraterritorial reach generally presents a legal question of statutory interpretation, we now review the issue de novo. McLinn, 896 F.3d at 1156 (citation omitted).
3. Applying the Framework
Our analysis proceeds in three steps. We begin by assessing whether any of Defendants are American citizens. None are. Thus, to prevail, Hetronic must show that Defendants' foreign infringing conduct had a substantial effect on U.S. commerce. The extraterritoriality issue turns solely on this question because Defendants nowhere argue the third element—that applying the Lanham Act extraterritorially would conflict with trademark rights under another country's laws (an issue we would normally consider only if a plaintiff first satisfied the substantial-effect requirement). We conclude that Defendant's foreign conduct had a substantial effect on U.S. commerce.
"The substantial effects test requires that there be evidence of impacts within the United States, and these impacts must be of a sufficient character and magnitude to give the United States a reasonably strong interest in the litigation." McBee, 417 F.3d at 120 (citations omitted). In applying this test, courts should keep in mind the Lanham Act's "core purposes"—protecting U.S. consumers from confusion and "assur[ing] a trademark's owner that it will reap the financial and reputational rewards associated with having a desirable name or product." Id. at 121 (citing Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 33-34, 123 S.Ct. 2041, 156 L.Ed.2d 18 (2003) (second citation omitted)).
To meet its burden, Hetronic points to three "great wells of effects on U.S. commerce": (1) Defendants' direct sales into the United States; (2) Defendants' sales of products abroad that ended up in the United States; and (3) diverted foreign sales that Hetronic would have made but for Defendants' infringing conduct. See Appellee's Resp. Br. at 18-19, 23-28. We address each theory in turn and conclude that Hetronic has sufficiently shown that Defendants' conduct had a substantial effect on U.S. commerce.
On appeal, the parties dispute the amount of Defendants' direct sales into the United States.
First, Hetronic argues that many of Defendants' foreign sales have ended up in the United States. Numerous courts have recognized that a foreign defendant can be liable for Lanham Act violations when its products find their way into the United States, even if initially sold abroad: "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 quantities." McBee, 417 F.3d at 125 (collecting cases). Defendants acknowledge that over €1.7 million of their foreign sales ended up in the United States (Abitron Germany: €1,026,482; Hetronic Germany: €592,591; Hydronic: €120,344; Abitron Austria: €10,792). And when a plaintiff presents evidence that "American consumers have been exposed to the infringing mark"—here, in the form of over €1.7 million worth of products that ended up in the hands of American consumers—"confusion and reputational harm ... can often ... be inferred." Id.
But we don't need to rest on an inference of confusion. Hetronic submitted evidence that U.S. consumers were confused about Hetronic's products relationship to the Abitron companies. See Supp. App. vol. 2 at 529-33 (former Abitron Germany employee agreeing that "there were instances where [U.S.] customers were confused about the relationship between Abitron and Hetronic"). For instance, U.S. consumers would sometimes reach out to Abitron Germany to obtain Hetronic products under the mistaken belief that Abitron manufactured and sold Hetronic products. See id. at 528-29. One U.S. customer emailed Abitron Germany about buying a "Nova-XL Hetronic." Id. at 530. An Abitron Germany employee instructed its U.S. sales representative to "inform the customer that it can obtain an Abitron part from us, not Hetronic." Id. at 531. And one of Hetronic's sales representatives testified that "[a]lmost every week," customers sent Abitron products to Hetronic USA for repair. Id. vol. 3 at 651. Even Abitron Germany's own U.S. distributor was uncertain about the relationship between the Abitron companies and Hetronic.
Appellants' App. vol. 13 at 3289. Hetronic's counsel also showed Abitron Germany's U.S. distributor a photograph of an Abitron NOVA and a Hetronic NOVA side by side. When asked if he could "tell which one was Hetronic and which one was Abitron" if they hadn't been labelled, the distributor responded, "I would have no idea, no." Id. at 3294.
On this evidence alone—that millions of euros worth of infringing products found their way into the United States and that Defendants' efforts to sell those products caused confusion among U.S. consumers— we could conclude that the effects of Defendants' foreign conduct are sufficiently substantial to give the United States a reasonably strong interest in the litigation.
Defendants offer two rebuttals. First, Defendants argue that the €1.7 million worth of products represented only 3% of Defendants' total sales and that such a small fraction can't serve as a "springboard to call the rest of the $90 million of purely foreign sales damages under the Lanham Act." Reply Br. at 7 (internal quotation marks omitted). But Defendants misunderstand the nature of our inquiry here. We ask only whether the effects of Defendants' foreign conduct produce substantial impacts on U.S. commerce; it's irrelevant what proportion of Defendants' global sales entered the United States. Otherwise, billion-dollar-revenue companies could escape Lanham Act liability by claiming that millions of dollars of their infringing products entering the United States represented only a fraction of their sales. But the United States would certainly have a strong interest in litigation brought by an American company seeking to stem the flow of such substantial amounts of infringing products. Besides, the Supreme Court has made clear that once a court determines that a statute applies extraterritorially to a defendant's conduct, as we do here, that statute captures all the defendant's illicit conduct: "If § 10(b) did apply abroad, we would not need to determine which transnational frauds it applied to; it would apply to all of them (barring some other limitation)." RJR, 136 S. Ct. at 2101 (quoting Morrison, 561 U.S. at 267 n.9, 130 S.Ct. 2869).
Second, Defendants argue that Hetronic failed to present evidence at trial of Defendants' infringing foreign sales that eventually entered the United States. But as we explained above, this was an issue that the district court should have resolved as a matter of law; it should have never reached a jury. And Defendants admitted long before trial that about €1.7 million worth of their products reached the United States. Considering that admission, we reject Defendants' contention that Hetronic needed to provide additional evidence on this point.
Next, Hetronic relies on a diversion-of-sales theory—the idea that Defendants stole sales from Hetronic abroad, which in turn affected Hetronic's cash flows in the United States. Several courts have recognized that evidence of diverted sales evinces a substantial effect on U.S. commerce: "The [effect-on-U.S.-commerce] criteria may be met even where all of the challenged transactions occurred abroad, and where `injury would seem to be limited to the deception of consumers' abroad, as long as `there is monetary injury in the United States' to an American plaintiff." Love v. Associated Newspapers, Ltd., 611 F.3d 601, 613 (9th Cir. 2010) (first quoting Ocean Garden, Inc. v. Marktrade Co., 953 F.2d 500, 503 (9th Cir. 1991); and then citing Reebok Int'l, Ltd. v. Marnatech Enters.,
In McBee, the court explained that "[e]vidence of economic harm to McBee in Japan due to confusion of Japanese consumers is less tightly tied to the interests that the Lanham Act intends to protect, since there is no United States interest in protecting Japanese consumers." 417 F.3d at 126. But the court still approved of the diversion-of-sales theory because "American courts do ... have an interest in protecting American commerce by protecting McBee from lost income" due to a foreign defendant's infringing conduct. Id. Under that rationale, U.S. courts have an interest in protecting Hetronic from the economic harm it suffered in the form of lost sales that it would have made if it weren't for Defendants' trademark infringement. Here, Hetronic presented evidence that Defendants' conduct cost it tens of millions of dollars in lost sales. Those lost revenues would have flowed into the U.S. economy but for Defendants' conduct infringing a U.S. trademark. Thus, this monetary injury to Hetronic also caused substantial effects on U.S. commerce. See Love, 611 F.3d at 613 (citations omitted).
In response, Defendants contend that the diversion-of-sales theory applies only when the defendant is a U.S. citizen.
First, though both of the cases Tire Engineering cites involved U.S.-citizen defendants, neither court suggested—let alone held—that the diversion-of-sales theory is inapplicable to foreign defendants. See Ocean Garden, 953 F.2d at 504; Am. Rice, 701 F.2d at 414-15. Second, the Tire Engineering court ignored courts that have conducted a diversion-of-sales analysis involving foreign defendants. E.g., McBee, 417 F.3d at 126. Third, restricting the diversion-of-sales theory to U.S.-citizen defendants makes little sense; if anything, it applies with greater force to a foreign defendant. When diverted sales that would have otherwise flowed to a U.S. company instead inure to a foreign defendant, the loss to U.S. commerce is clear. By contrast, when the defendant is a U.S. citizen with a U.S. presence, the sales divert from one U.S. company to another—either way, U.S. commerce benefits from the sales revenue flowing into the U.S. economy. We thus reject Defendants' argument that plaintiffs may argue a diversion-of-sales theory only against U.S.-citizen defendants.
Viewing the evidence as a whole, Hetronic has presented more than enough
B. Injunction's Specificity
Defendants next argue that the injunction "lacks the specificity required by [Federal Rules of Civil Procedure] 65." Appellants' Opening Br. at 32. We disagree.
Rule 65 of the Federal Rules of Civil Procedure requires that injunctions contain "reasonable detail." Fed. R. Civ. P. 65(d)(1)(C) (emphasis added). Injunctions violate Rule 65 "when the delineation of the proscribed activity lacks particularity, or when containing only an abstract conclusion of law, not an operative command capable of enforcement." CF & I Steel Corp. v. United Mine Workers of Am., 507 F.2d 170, 173 (10th Cir. 1974) (internal quotation marks and footnotes omitted).
The district court's injunction goes far beyond an abstract conclusion of law and easily satisfies Rule 65. The trial court enjoined Defendants from "[d]irectly or indirectly using ... Hetronic's ... Trade Dress, or any reproduction, counterfeit, copy or colorable imitation thereof on or in connection with any products or services." Appellants' App. vol. 10 at 2518. The injunction specifically defines trade dress: "`trade dress' refers to the total image of a product, product packaging, product label, product design, or a combination of these things," including "features such as size, shape, color or color combinations, texture, graphics, or particular sales techniques." Id. at 2515 n.1. Crucially, the court further states that the trade dress is "the black and yellow color scheme and the design of the housings" of Hetronic's products. Id. at 2515. This provides ample detail to meet Rule 65's requirements.
C. Injunction's Scope
Despite the above, we conclude that the district court's injunction is improperly broad. Recall that the court's injunction extends not only to countries in which Hetronic currently sells its products, but to every country in the world. The Lanham Act—the statute on which the district court relied—cannot support such a broad injunction here.
Hetronic dismisses Defendants' "lengthy disquisition on trademark history and geography" as "irrelevant to this case." Appellee's Resp. Br. at 30. But Defendants' argument that trademark rights "are fundamentally geographical" is sound. Appellants' Opening Br. at 27. "[E]ven the owner of a federally registered mark— who enjoys the presumption of nationwide priority—is not entitled to injunctive relief except in the area actually penetrated through use of the mark." Emergency One, Inc. v. Am. Fire Eagle Engine Co., 332 F.3d 264, 269 (4th Cir. 2003) (emphasis added) (internal quotation marks, citation, and footnote omitted); see also Hanover Star Milling Co. v. Metcalf, 240 U.S. 403, 416, 36 S.Ct. 357, 60 L.Ed. 713 (1916) ("[A] trademark ... extends to every market
In a footnote, Hetronic argues that "Defendants' geographic argument is doubly irrelevant because Hetronic obtained the marks in question by sale, not by first use; rights thus flowed via contract rather than particular jurisdictions' first-use laws." Appellee's Resp. Br. at 31 n.7 (emphasis altered). If anything, Hetronic's argument on this point undermines the district court's injunction. As Hetronic acknowledges, its rights against Defendants flow from contract—not necessarily from trademark violations under the Lanham Act.
Consider an example. If Defendants begin tomorrow selling their remote controls in a country in which Hetronic has no presence, Hetronic could hardly assert a trademark claim against Defendants. How could there be market confusion, the hallmark of a trademark claim, when there were no confusingly similar products being marketed? Hetronic seems to argue that it could assert a contract claim against Defendants because the parties' agreements limited Defendants' rights to use Hetronic's product marks (NOVA, ERGO, etc.). And Hetronic would probably be right. But that contract claim wouldn't necessarily support a trademark claim, much less injunctive relief under the Lanham Act.
Accordingly, we narrow the injunction to the countries in which Hetronic currently markets or sells its products. To the extent those countries have changed since the district court entered the injunction, we remand for the court to modify the injunction in accordance with this opinion.
III. Defendants' Ownership Defense
A. Background
Leading up to trial, Defendants repeatedly argued that Hetronic's claims failed because Defendants owned all the disputed intellectual property, including the products' trademarks and trade dress. To explain Defendants' rationale, we first provide additional background about the products' origins and Hetronic's formation.
Hetronic was initially founded in Germany in the early 1980s as Hetronic Steuersysteme GmbH. In 2000, Hetronic Steuersysteme's founder, Max Heckl, moved to the United States and formed Hetronic International, Inc. (the company we have called "Hetronic"), which became the headquarters for Hetronic-related companies. By this time, there were several Hetronic-related subsidiary companies, including Hetronic Malta Limited and Hetronic USA.
In July 2000, Hetronic entered a research-and-development agreement with Hetronic Steuersysteme, Hetronic Malta, and Hetronic USA to "pool their resources" and to "share the costs equally between them" as they worked to further develop, market, and sell radio remote controls. Appellants' App. vol. 7 at 1617. The R&D Agreement refers to Hetronic as the "Contractor" and refers to the other three Hetronic companies collectively as "Developer." Id. The R&D Agreement contains this later-disputed provision:
Id. at 1617-18 (emphasis altered).
By 2006, Hetronic Steuersysteme— Heckl's original company—had a minor role in the company's wider operations. It sold to Hetronic its "Hetronic" trademarks registered in Germany, the United States, South Korea, Japan, China, Taiwan, and the European Union. And because Hetronic Steuersysteme's business "was focused on the marketing, sales and assembly of [radio remote controls] in Germany," it changed its name to Hetronic Deutschland (which would later be purchased by Fuchs's company, Hetronic Germany). Id. at 1618.
In January 2008, years after the R&D Agreement was signed, Methode Electronics, Inc., a Delaware corporation, sought to acquire all the Hetronic-related companies. But during negotiations, Methode learned that Hetronic's distributor in Germany, Hetronic Deutschland, was embroiled in a tax dispute with the German government, so Methode declined to purchase that company.
Before completing the sale to Methode, Heckl sought to consolidate all of his companies' intellectual property in Hetronic. So Hetronic Deutschland sold to Hetronic the trademarks for the "Hetronic" name that it had registered in South America and Malta. Heckl believed that when the sale to Methode was completed, Hetronic had owned the rights to all the intellectual property held by the Hetronic-related companies, including the NOVA and ERGO trademarks and their trade dress.
In September 2008, Methode completed its purchase of the Hetronic companies. The purchase agreement included "All Intellectual Property owned by, licensed by or used by any [Hetronic-related company not including Hetronic Deutschland]." Id. at 1620. The agreement defined "Intellectual Property" as "[a]ll trademarks, service marks, certification marks, trade dress, logos, trade names, Internet domain names, and corporate names, ... including all goodwill associated therewith." Id. at 1621.
After the sale, Heckl continued to own and manage Hetronic Deutschland. But in 2009, he considered selling the company. In response to a due-diligence inquiry from Fuchs, Hetronic Deutschland represented that it had no "patents, utility models or design rights ... copyrights, trademarks, and/or respective applications." Id. at 1623. Yet when Hetronic Germany bought Hetronic Deutschland in 2010, the purchase agreement provided that "Seller sells and hands over to the Buyer ... any and all intangible assets ... including, in particular, patents, trademarks, rights relating to designs and utility models ... that the Seller holds and can dispose of...." Id. at 1624.
Based on that series of transactions, Hetronic Germany alleges it believed that it owned all the technology developed under the 2000 R&D Agreement as well as "legacy" technology developed before the Agreement was executed. Id. at 1629. Its rationale was as follows. Hetronic Germany is the successor of Hetronic Deutschland, which, when it was known as Hetronic Steuersysteme, became a party to the R&D Agreement. Under that agreement, Hetronic Steuersysteme—along with Hetronic Malta and Hetronic USA—retained ownership over "the know-how, technical information, designs, product descriptions, trade marks, [and] trade names." Id. at
B. The District Court Correctly Barred Defendants from Raising Their Ownership Defense
Based on their reading of the R&D Agreement, Defendants planned to assert their ownership defense at trial. But just two months before trial, the EUIPO Board of Appeal issued its decision in Hetronic's favor, and Hetronic moved for summary judgment on Defendants' ownership defense.
Because the district court construed Hetronic's motion as one for summary judgment, we review the district court's ruling de novo. Savant Homes, Inc. v. Collins, 809 F.3d 1133, 1137 (10th Cir. 2016) (citation omitted).
The issue-prelusion dispute before us is atypical in that we're considering the preclusive effect of a foreign judgment. Federal courts recognize and enforce foreign judgments if they meet due-process standards. See Phillips USA, Inc. v. Allflex USA, Inc., 77 F.3d 354, 359 (10th Cir. 1996) (quoting Hilton v. Guyot, 159 U.S. 113, 202, 16 S.Ct. 139, 40 L.Ed. 95 (1895));
But although we consider the preclusive effect of a foreign judgment, as a federal court examining a federal-law question, we rely on the federal law of issue preclusion. See Murdock v. Ute Indian Tribe of Uintah and Ouray Reservation, 975 F.2d 683, 687 (10th Cir. 1992) (footnote and citations omitted); cf. Blonder-Tongue Lab'ys, Inc. v. Univ. of Ill. Found., 402 U.S. 313, 324 n.12, 91 S.Ct. 1434,
Id. (citation omitted). Though Hetronic argues why it has met each element, Defendants seriously contest only the first two elements. Focusing our discussion on those elements, we conclude that the district court rightly precluded Defendants from presenting their ownership defense to the jury.
Under the first element, we assess whether the issue Defendants seek to litigate "is the same as the one addressed previously by" EUIPO. Murdock, 975 F.2d at 687. That is, we aim "to prevent repetitious litigation of what is essentially the same dispute." Restatement (Second) of Judgments § 27 cmt. c (1982). Here, the issue—whether Defendants own the disputed intellectual property—is essentially the same one decided in the EUIPO proceedings. That becomes clear, though, only after reading both the Cancellation Division's decision and the Board of Appeal's decision.
Defendants are correct that the Cancellation Division didn't decide the ownership issue. Recall that Abitron Germany initiated the EUIPO proceedings, arguing that the EU should nullify Hetronic's "NOVA" trademark because Hetronic had filed for the mark in bad faith (i.e., Hetronic supposedly knew that Abitron Germany had a stronger claim to ownership of the mark). Both parties to that proceeding based much of their arguments on their respective claims to ownership of the intellectual property. But the Cancellation Division equivocated on the ownership issue: "The arguments ... give the impression that both [Defendants] and [Hetronic] were authorized to use" the NOVA trademark. Appellants' App. vol. 13 at 3180. So that initial tribunal decided the dispute on a narrow basis. It concluded only that Hetronic didn't act in bad faith when it filed for (and obtained) the NOVA trademark because Hetronic had a valid basis to believe that it owned the mark, regardless of whether it actually had the superior claim to ownership. If the EUIPO proceedings had ended with the Cancellation Division, issue preclusion would not apply.
But unlike the Cancellation Division, the Board of Appeal tackled the ownership issue head-on. It framed the dispute this way: When a company transfers all of its
In reaching its decision, the Board of Appeal reasoned that "[t]he decisive question is ... whether the Hetronic business operation remained with [Abitron Germany's] legal predecessors. That is not the case." Id. at 3112. Indeed, the Board of Appeal reached the opposite conclusion, holding that "[i]t is clear from all the[] agreements that Hetronic Deutschland, as one of the legal predecessors to [Abitron Germany], had no rights to the company name [or] the German `Hetronic' trademarks." Id. at 3113. It based its ruling on its conclusion that Methode's purchase of Hetronic International "comprise[d] all of the intellectual property." Id. at 3112 (emphasis added). In short, the Board of Appeal resolved the exact issue that Defendants sought to dispute at trial: that when Methode bought Hetronic International, it obtained ownership of all the Hetronic-related intellectual property.
Defendants' contrary arguments fail to persuade us. They argue that the Board of Appeal didn't decide the same issue because the parties' dispute before EUIPO was limited to the NOVA trademark and no others. According to Defendants, because the Board of Appeal's decision didn't mention EURO, GL, GR or any of the other product marks, its decision governs only ownership of the NOVA trademark.
But we read the Board of Appeal's decision the same way as the district court: "ownership of the intellectual property at issue was very much an either/or proposition. Either it all passed to [Hetronic] in 2008 or to [D]efendants in 2010." Supp. App. vol. 2 at 361. It's evident that the Board of Appeal concluded that all the intellectual property passed to Hetronic, not just the NOVA trademark. See Appellants' App. vol. 13 at 3112 (explaining that the relevant agreements "show that the assets transferred ... comprise all of the intellectual property, including all Intellectual Property incorporated into the radio remote control products developed, manufactured, marketed or sold by [Hetronic]." (emphasis added) (internal quotation marks omitted)). Moreover, Defendants fail to explain how the ownership dispute would differ as to the other trademarks. Indeed, Abitron Germany's claim to the other intellectual property would be based on the same theories, documents, and arguments it presented vis-à-vis the NOVA mark and that the Board of Appeal rejected. See Restatement (Second) of Judgments § 27 cmt. c (1982) (suggesting that in assessing whether the previous tribunal decided the same issue, courts should ask if "there [is] a substantial overlap between the evidence or argument to be advanced in the second proceeding and that advanced in the first").
Defendants nevertheless insist that the Board of Appeal's finding concerning ownership is mere dicta, and thus it didn't actually decide the issue. True, "[a]djudication on the merits requires that the adjudication be necessary to the judgment," so dicta wouldn't suffice. Murdock, 975 F.2d at 687 (citations omitted). But the Board of Appeal's ownership ruling wasn't dicta. Dictum refers to "[a] judicial comment made while delivering a judicial opinion, but one that is unnecessary to the decision in the case and therefore not precedential (although it may be considered persuasive)." Dictum, Black's Law Dictionary (11th ed. 2019). Here, the Board of Appeal's decision turned on its conclusions regarding who owned the intellectual property: "[Abitron Germany] bases its allegation of bad faith on supposedly earlier rights in the mark `NOVA'. As already pointed out ..., however, it has no rights to a `NOVA' trademark acquired by use." Appellants' App. vol. 13 at 3114. Stated differently, the Board of Appeal's ruling that Hetronic owned all the intellectual property was a necessary predicate to its conclusion that Defendants' bad-faith claim failed. So the ownership ruling wasn't dicta.
In brief, because Hetronic has met each of the required elements, we affirm the district court's summary-judgment ruling on Defendants' ownership defense.
IV. District Court's Evidentiary Rulings at Trial
Defendants challenge three of the district court's trial rulings. First, Defendants argue that the district court erroneously sustained Hetronic's relevance objection, precluding them from arguing that the Lanham Act didn't reach their foreign-sales activity. We already dealt with that issue above: Any error by the district court was harmless because we conclude as a matter of law that the Lanham Act reaches Defendants' conduct. See Bridges v. Wilson, 996 F.3d 1094, 1099 (10th Cir. 2021) ("[E]ven if the trial court is mistaken, it will not be reversed unless its ruling results in substantial prejudice, or had a substantial effect on the outcome of the case." (alteration in original) (quotation omitted)).
Second, Defendants argue that the district court wrongly precluded them from using their evidence that they owned the intellectual property for purposes unrelated to the court's issue-preclusion ruling.
"Evidentiary rulings generally are committed to the very broad discretion of the trial judge, and they may constitute an abuse of discretion only if based on an erroneous conclusion of law, a clearly erroneous finding of fact or a manifest error in judgment." Leprino Foods Co. v. Factory Mut. Ins. Co., 653 F.3d 1121, 1131 (10th Cir. 2011) (internal quotation marks and citation omitted). And "[e]ven if the court finds an erroneous evidentiary ruling, a new trial will be ordered only if the error `affected the substantial rights of the parties.'" Id. (quoting Webb v. ABF Freight Sys., Inc., 155 F.3d 1230, 1246 (10th Cir. 1998)).
A. Waiver-and-Acquiescence and Good-Faith-Belief-in-Ownership Defenses
Despite the district court's issue-preclusion ruling that Defendants couldn't assert at trial that they owned the intellectual property, Defendants argue that they should have been allowed to introduce ownership evidence for a different purpose. Specifically, Defendants sought to present a waiver-and-acquiescence defense to Hetronic's contract claims and a good-faith-belief-in-ownership defense to combat the willful-infringement element of the trademark claims. The district court didn't abuse its discretion in handling either of these issues.
First, the district court ruled—over Hetronic's objection—that Defendants could assert a waiver-and-acquiescence defense. But the district court clarified that that defense "raises no issue as to whether defendants believed they owned the trademarks or the technology"; "[t]he question is whether Hetronic had the factual knowledge and subjective intent necessary to establish the acquiescence defense." Supp. App. vol. 2 at 362 (emphasis added). In other words, to present this defense and show that Hetronic acquiesced to Defendants' contractual breaches, Defendants needed to prove that Hetronic believed that Defendants owned the intellectual property—it was irrelevant whether Defendants believed that they owned it. Based on that ruling, Defendants apparently chose not to pursue the defense. That was no fault of the district court's.
Second, Defendants challenge the district court's refusal to permit them to assert a good-faith-belief-in-ownership defense, but they ignore the district court's rationale. The district court prohibited Defendants from raising that defense, not because of its preclusion ruling, but because Defendants had forfeited it: They had failed to raise it in their answers, at summary judgment, or in their pretrial briefing. And Defendants don't challenge the district court's conclusion that allowing them to raise that defense on the eve of trial would have significantly prejudiced Hetronic. We thus conclude that the district court rightly prevented Defendants from raising this defense.
B. Exclusion of Defendants' Damages Expert
During the trial, Defendants sought to introduce testimony from their damages expert, Alexander Demuth, that any damages the jury awarded under the Lanham Act must be reduced by Defendants' costs of goods (i.e., their expenses in producing their remote controls). The district court permitted Demuth to testify but prohibited him from opining about the costs-of-goods issue. Defendants appeal that ruling.
During discovery, Defendants "consistently claimed ... that they could not determine their costs of goods sold because their accounting system of `total cost
At the Daubert hearing, the district court provisionally denied Hetronic's motion based on Defendants' representation that "[a]n independent person from the company will testify to the validity of the numbers." Id. vol. 2 at 288 ("He will not confirm these numbers are, in fact, accurate. That's up to the company to confirm, to support his expert opinion."). The district court conditioned its ruling on Defendants verifying the underlying numbers upon which Demuth would base his testimony: "I do conclude that ... if the defendants do carry their burden of presenting evidence to support ... the cost of goods sold, then Mr. Demuth will be permitted to testify that cost of goods sold should be deducted from any Lanham Act recovery of the defendants' profits." Id. at 291-92 (emphasis added).
But by the time of trial, Defendants had failed to introduce any testimony or evidence confirming the accuracy of the underlying numbers upon which Demuth based his expert report. So, in an oral ruling near the end of the trial, the district court prohibited Demuth from testifying about the costs-of-goods issue: "We don't have the witness that I was told [at the Daubert hearing] I would have ..., but more importantly, we don't have ... the independently admissible evidence that I was told that we would have, and which I conclude is required under Section 35 of the Lanham Act." Appellants' App. vol. 13 at 3334-35.
Complicating matters, the district court's brief oral ruling doesn't clearly establish the legal basis for its decision. The parties advance competing—and equally erroneous—theories. Defendants argue that the district court excluded Demuth's testimony under Rule 602 because he lacked "personal knowledge of the cost information about which he testified." Appellants' Opening Br. at 49. But Defendants misconstrue the court's point about Rule 602. The court merely pointed out that Demuth himself couldn't testify about the accuracy of the underlying numbers because he hadn't verified them. Appellants' App. vol. 13 at 3334 ("[Demuth] is not a Rule 602 percipient witness as to the reliability of the numbers supplied by [the Abitron entities' CEO]." (emphasis added)).
For its part, Hetronic contends that the district court excluded Demuth's testimony "under Daubert." Appellee's Resp. Br. at 54. But that's equally incorrect. The district court recognized that Demuth's testimony sufficed under Rules 702 and 703 but explained that more was required under the Lanham Act:
Though the district court's precise rationale is unclear, "we may affirm the district court for any reason supported by the record." Spring Creek Expl. & Prod. Co., LLC v. Hess Bakken Inv., II, LLC, 887 F.3d 1003, 1032-33 (10th Cir. 2018) (citation omitted). We have previously recognized that a district court may exclude an economic expert if the expert's "opinions lacked foundation because they were based on the self-serving statements of an interested party." Champagne Metals v. Ken-Mac Metals, Inc., 458 F.3d 1073, 1080 n.4 (10th Cir. 2006) (brackets and internal quotation marks omitted). That's what happened here. It was the underlying data supplied to Demuth—not Demuth's testimony itself—that was problematic. After consistently asserting that they kept no costs-of-goods records, Defendants suddenly produced just the financial records they needed to offset any potential damages award. The district court was rightly skeptical of those fortuitous documents. And even though the district court concluded that Demuth had used reliable methods to form his opinion, his testimony wouldn't be worth much if it was based on unreliable, manufactured numbers. Defendants had ample time and opportunity to authenticate the disputed numbers (as they promised they would), but they never did. On these facts, the district court didn't abuse its discretion in excluding Demuth's costs-of-goods testimony.
CONCLUSION
For the forgoing reasons, we affirm in part, reverse in part, and remand to the district court to modify its injunction in accordance with our opinion.
FootNotes
Id. at 972-73 (brackets in original) (quoting Star-Kist Foods, 769 F.2d at 1395).
Comment
User Comments