In world commerce, the U.S. is a dominant player — but do its laws apply to businesses in other countries? That is the issue the Supreme Court will consider in a hearing on Tuesday. In a second case, it will take its first look at the get-rich-quick scheme of investing in cryptocurrency, focusing on one legal remedy when a dispute arises.
The Court will broadcast “live” the audio (no video) of the hearings on its homepage, supremecourt.gov To listen, click on “Live Audio” and follow the prompt when the courtroom scene appears lower on the page. The audio also will be available, under the title of each case, on C-Span TV at this link: cspan.org/supremecourt
Tuesday’s first case: Abitron Austria GMBH v. Hetronic International, Inc. The hearing begins at 10 a.m. and is scheduled for 70 minutes.
Background: With the economies of major nations increasingly linked in global markets, there is a strong temptation for businesses in each country to project overseas their own nation’s legal protections. The Supreme Court has been skeptical about that, insisting that U.S. laws apply only at home unless Congress has clearly directed that they also apply abroad.
This case is a test of the overseas reach of the Lanham Act, a federal law first passed in 1946 that remains the main check on illegal copying of commercial trademarks – distinctive names, logos or symbols that become commercially valuable as consumers identify them with a specific product or service. A principal aim of the Act is to prevent confusion among U.S. consumers about the source of goods or services. To get that protection, a U.S. company’s trademark must be registered in this country.
In interpreting the scope of a federal law, courts generally start with the idea that Congress generally passes laws to apply only within the U.S. That is what lawyers call a “presumption,” which can be overcome only with clear proof that Congress explicitly intended that law to reach beyond U.S. borders.
This appeal grows out of a long-standing commercial relationship that went sour, between a U.S. company based in Oklahoma City and five of its former commercial partners in Europe – five German and Austrian companies.
The Oklahoma firm is Hetronic International, Inc., which makes a special kind of radio device that controls heavy construction equipment, like those huge cranes that tower over construction sites. The company has a trademark on the device, as well as on the device’s distinctive yellow-and-black color arrangement.
Hetronic sued the European firms, which previously made the device under trademark licenses, after they decided to reverse-engineer the device and sell it as their own. Hetronic won a jury verdict of more than $100 million for infringing on its rights.
The jury found that 97 percent of the former firms’ sales of its copied device occurred entirely outside the U.S.; the other sales occurred in the U.S., directly competing with Hetronic. A federal appeals court upheld that verdict, even as it covered the foreign transactions, on the theory that those foreign sales took away potential sales by Hetronic.
In their appeal to the Supreme Court, the European companies challenge only the verdict as it applies to the 97 percent – about $90 million of the total. The appeal contends that those “were sales in foreign countries, by foreign sellers, to foreign customers for use in foreign countries, that never reached the United States or confused U.S. customers.”
The Court asked the Justice Department for its views on the case, and the Department urged the Justices to grant review, noting that lower courts had adopted conflicting interpretations of whether the Lanham Act applies outside the U.S. On this particular dispute, the Department partly sides with the foreign companies, arguing that the appeals court went too far in extending U.S. law to all of their foreign sales without analyzing which, if any, had confused U.S. consumers. Its legal brief urged the Court to overturn the appeals court’s sweeping ruling and send the case back for further analysis of actual impact of foreign sales on U.S. consumers.
The question before the Court: Does the basic U.S. trademark law, the Lanham Act, apply to overseas commercial activity, even to transactions occurring entirely in another country?
Significance: More than 70 years ago, in a decision well known to business lawyers, the Court in Foley Brothers v. Filardo made a comment that has long guided its interpretation of the reach of federal laws beyond U.S. borders. It said that “Congress is primarily concerned with domestic conditions.”
If one puts emphasis on the word “primarily,” that is probably still true. But a broader reading of that comment seems a bit dated in an era of globalization of commerce, when it is common to find huge, multi-national corporations operating all around the globe. The fact that disputes like this one come up in the Court with some frequency suggests that economic times have certainly changed, so perhaps there is a need to change legal concepts, too.
The Oklahoma company that won this case in lower courts is globally ambitious, doing business in 45 countries. The facts of this case demonstrate that Hetronic is a dominant actor in a very specialized business, so much so that foreign companies were willing to risk heavy money penalties by copying Hetronic’s secret of success.
If the Court adopts the Justice Department’s suggestion on how to apply the Lanham Act to foreign commerce, the courts will have to do a deeper analysis of just when the overseas copying of a trademark will have an impact on the market among U.S. consumers. That won’t be an easy task in sorting out myriad business details.
It is obvious that, however the Court ultimately interprets the Act’s scope, that will have wide implications and not just in the construction business. Trademarks worth billions of dollars exist in many industries.
Tuesday’s second hearing: Coinbase v. Bielski The hearing, scheduled for one hour, will begin after the trademark case has ended.
Background: This case gives the Supreme Court its first look at the legal side of a new fad in “playing the markets” – speculating in cryptocurrency. That investment instrument has no physical being except as digitized entries on a computerized account in an online-only exchange, where it is bought and sold.
The case proves, again, that if one is clever enough to invent a new place for people to put their money, the people will come. The global value of cryptocurrency in U.S. dollars was almost $900 million in 2020 but is expected to rise by another $1 billion by 2028.
As with nearly all investments, speculation in cryptocurrency carries risks. One of the exchanges has collapsed entirely, and speculation in digital money is considered to have played some role in the recent collapse of two major banks, Silicon Valley Bank and Signature Bank.
The case before the Court on Tuesday is actually two cases, in which an exchange operator, Coinbase, Inc., has been sued by account holders. In one case, an investor’s account was hacked, and some $30,000 worth of digital money was stolen, and the investor sued Coinbase to try to recover it.
In the other case, five investors sued after claiming they were duped by a Coinbase sweepstakes contest in 2021, when they paid fees to take part before realizing that the scheme was an illegal lottery promoted by false advertising. Both this case and the Bielski case pursue remedies for a larger class of investors.
Coinbase operates ones of the largest crypto exchanges, with more than 100 million users around the globe. A thoroughly modern company, founded in 2012 in San Francisco, it has no headquarters, and all of its employees work remotely.
In granting review of the two combined appeals filed by Coinbase, the Court is not focusing on the specific legal claims against that company. Rather, it is examining a technical issue under the federal law governing arbitration of commercial disputes.
Arbitration is generally governed by a 1925 federal law. It supposedly provides a faster and less expensive way to resolve commercial feuds by sending them to a neutral arbitrator, leading to a decision that both sides had agreed to accept. It does not involve the sometimes-prolonged mechanisms of court review, with pre-trial maneuvering and then a trial and possible appeals, with legal bills piling up throughout the process.
But some consumers’ lawyers prefer the traditional court process, if they think arbitration is rigged in favor of the company involved – as when consumers must go to arbitration alone, without banding together with others sharing the grievance, and thus easing the imbalance with a big company on the other side. That individual-only process is the kind of arbitration that Coinbase is seeking.
In these appeals, Coinbase contends that every investor had agreed, on setting up accounts, to send any disputes that arose to arbitration. Lower federal courts ruled, in both cases, that the case should not go to arbitration because, they ruled, Coinbase phrased the arbitration clauses to give it a distinct advantage, and thus was unenforceable under California law designed to ensure that the process is fair to both sides.
While Coinbase appealed to a higher court in each case, after trial courts had refused to order arbitration, it asked that nothing further be allowed to happen on the core dispute until the issue of its claim to arbitration is decided. That request was denied and lower courts have continued to work on the investors’ lawsuits while the question of arbitration is pending.
The question before the Court: If a company fails to get a commercial dispute sent to arbitration, and it appeals that question, must court review of the underlying dispute stop until the issue of arbitration is decided?
Significance: The Supreme Court has stepped into these cases in order to settle a conflict among lower federal courts on the sequencing of commercial fights over arbitration. Because arbitration is considered a desirable alternative to costly lawsuits and appeals, if the process will work fairly for both sides, Congress has generally sought to foster that alternative for just about a century – since 1925.
After years of resisting that process, in order to protect the judicial process, the Supreme Court in more recent years has discovered its own enthusiasm for arbitration. As a result, the
Court’s docket often has an arbitration case on it, asking the Justices to clarify how it is to work in practice.
This dispute is a narrow one, focusing on the question of what happens when arbitration is refused by a federal court and that court goes ahead to decide the dispute while higher courts sort out whether it should, instead, have gone to arbitration.
If there is any larger significance, beyond arbitration, this case may be a test of how Congress must speak clearly when it is seeking to manage from the outside how the nation’s judicial system is to function.
On Wednesday, the Court will hold a single hearing. It is another case on protection of commercial trademarks under the Lanham Act. This time, the legal issue is whether there is a First Amendment right to sell a commercial product explicitly using a parody or a spoof of a business firm’s famous trademark.