Takeaway
- Even if your company isn’t located in the U.S. and you sell or distribute U.S. trademarked products which are unlicensed only outside the U.S…
- You may still be subject to infringement claims if your activities impact the U.S. business of trademark holders.
Brand Buccaneer or Robin Hood?
Back in 2011, Vancouver, B.C.- based Pirate Joe’s set sail and started buying large amounts of U.S. grocer Trader Joe’s branded products at retail prices, first openly at Trader Joe’s Bellingham, Washington store 22 miles south of the border, and then, after being shut off, incognito in Seattle, Portland and California. Pirate Joe’s resells the goods from a Trader Joe- styled store façade in Vancouver, and online via a website which is accessible in the U.S.
According to Mike Hallatt, Pirate Joe’s captain, (and dual U.S.-Canadian citizen), he launched his knock-off business so he could offer the popular Trader Joe’s merchandise to his “…friends” and other Canadians (which he does at 30-40% mark-ups) to save them the bother of driving down to Seattle for Trader Joe’s groceries. And, despite all the legal maneuvering, to hear Hallatt tell it, he’d like nothing better than for “…Trader Joe’s… just [to] open a store in Canada and put me out of my misery…. People in Canada just want their stuff.” [1]
Court Battle
- Opening Salvo
In 2013, the U.S. district court in Washington state, [2] threw out Trader Joe’s lawsuit against Pirate Joe’s for federal trademark infringement and deceptive business practices under state law, observing that Trader Joe’s had no stores Canada, and also that Pirate Joe’s didn’t sell any trademarked goods in the U.S.
The district judge thought there was not enough potential financial harm to Trader Joe’s to warrant extending the enforcement of U.S. trademark law into Canada. The court ruled that under the federal trademark law, the Lanham Act [3], U.S. courts don’t have power (“subject matter jurisdiction”) to hear and decide disputes over trademark infringement activity if it occurs solely in Canada.
If Pirate Joe’s were doing business in the U.S. Trader Joe’s legal recourse would have been straightforward. However, infringement cases which require federal trademark law to be enforced outside the U.S. are harder to pursue. In addition to showing infringement, the trademark holder must show that it’s U.S. business has been hurt, and that it’s feasible to enforce a judgment against the foreign infringer.
- Return Fire
Trader Joe’s appealed the district court’s decision and on August 26, 2016, the U.S. Court of Appeals for the Ninth Circuit reversed the lower court and revived Trader Joe’s lawsuit, in a decision [4] making new law on the extraterritorial application of federal trademark law.
The Ninth Circuit held for the first time that the extraterritorial application of the Lanham Act is not an issue of federal courts’ subject matter jurisdiction (authority to hear and decide a dispute), but, rather, is a merits-based question (what harm did the defendant allegedly cause to the trademark holder’s U.S. Business ?) [5].
With regard to the facts at hand, the Court ruled that Hallatt’s practice of buying groceries at Washington state Trader Joe’s stores and selling them for inflated prices in Vancouver was enough to state a claim for trademark infringement under the Lanham Act.
In reviewing Hallatt’s business practices – bad quality control (e.g., in transporting perishables), excessive price markups, and poor customer service in offering Trader Joe’s branded goods in Canada – the Ninth Circuit found that such conduct could affect U.S. commerce by damaging Trader Joe’s reputation in the U.S., and decreasing the value of its U.S. trademarks. The court of appeals also observed that Hallatt operates in American commerce streams when he buys Trader Joe’s goods in Washington and hires locals to assist him, and that the sale of Trader Joe’s goods in Canada has the potential to mislead consumers, all of which weighed in favor of applying the Lanham Act to Hallatt’s conduct.
The Ninth Circuit upheld the district court’s dismissal of Trader Joe’s Washington state law claims for trademark dilution and deceptive business practices, including unfair competition, false designation of origin and false advertising.
Dead in the Water?
As a result of the Ninth Circuits ruling on the extraterritorial reach of the Lanham Act, Trader Joe’s federal trademark claims were revived, and the case was sent back to the district court for reconsideration, and possible trial.
Hallatt is by no means ready to give up the ship. As he says, he’s fighting the battle not just to set a legal precedent (be careful what you ask for), but for little resellers everywhere and Pirate Joe’s fans. [6]
As he told the Guardian after losing in the Ninth Circuit: “We’ll sit around waiting for a decision, years, and then there will be a decision, and then someone is going to appeal it, and we’re going to bounce this thing all the way to the supreme court…. That’s insane.” [7]
Asked how it will end… “We win…. Trader Joe’s has to open in Canada or get over it. And so we’re going to remain this little outpost of reason and practicality in Vancouver” until Trader Joe’s does open in Canada. [8]
- “Arrgh: Pirate Joe’s And Trader Joe’s Are Once Again Locked In Legal Battle”, C. Domonoske, NPR.org, Aug. 29, 2016, http://www.npr.org/sections/thetwo-way/2016/08/29/491824957/arrgh-pirate-joes-and-trader-joes-are-once-again-locked-in-legal-battle
- Trader Joe’s Company vs. Michael Norman Hallatt, b/a Pirate Joe’s, a/k/a Transylvania Trading Company, 981 F. Supp. 2d. 972 (2013), U.S. Dist. Ct. (W.D., WA)
http://www.leagle.com/decision/In%20FDCO%2020131210734/TRADER%20JOE’S%20CO.%20v.%20HALLATT - 15 U.S.C. §1051 et seq. Also known as the Trademark Act of 1946.
- Trader Joe’s Company vs. Michael Norman Hallatt, b/a Pirate Joe’s, a/k/a Transylvania Trading Company, U.S.C.A. No. 14-35035
https://cdn.ca9.uscourts.gov/datastore/opinions/2016/08/26/14-35035.pdf - The Court noted that at the time the district court dismissed Trader’s Joe suit in 2013, it didn’t have the benefit of the Ninth Circuit’s 2014 decision in La Quinta Worldwide LLC v. Q.R.T.M., S.A. de C.V., 762 F.3d 867 (9th Cir. 2014), which held that the Lanham Act’s “use in commerce” element (the element that gives the Act extraterritorial reach) is a non-jurisdictional merits question. While La Quinta, did not address the extraterritorial scope of the Act, the Ninth Circuit reasoned that La Quinta’sconclusion – that the Lanham Act’s “use in commerce” element is not jurisdictional – also applied to the extraterritorial reach of the Act. See I. Sacks and P. Carlson, “Ninth Circuit Revives Trader Joe’s Federal Trademark Claims Brought In Washington Against “Pirate Joe’s” Operating In Canada”, Marks, Works & Secrets, Sept. 7, 2016
http://www.marksworksandsecrets.com/2016/09/ninth - M. Pomrantz, “Owner of pirate Joe’s says he’s ready to take trader Joe’s on in court”, Aug. 30, 2016, foodwine.com
http://www.foodandwine.com/fwx/food/pirate-joes-trader-joes-lawsuit - A. Holpuch, “Trader Joe’s v Pirate Joe’s, again: case against knockoff will return to court”, Aug. 29, 2016, theguardian.com
https://www.theguardian.com/world/2016/aug/29/trader-joes-pirate-joes-canada-court - FN 6, supra, Pomeranz