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Oct. 4 --A federal district court could not exercise subject matter jurisdiction in a trademark case between Trader Joe's and a Canadian grocery that was buying and reselling Trader Joe's products, which are otherwise not available in Canada, the U.S. District Court for the Western District of Washington ruled Oct. 2 (Trader Joe's Co. v. Hallatt, W.D. Wash., No. 2:13-cv-00768-MJP, 10/2/13).
Granting a motion to dismiss for lack of subject matter jurisdiction, the court said that there was no basis for extraterritorial application of the Lanham Act in this case.
Trader Joe's Co. of Monrovia, Calif., founded in 1967, operates a national chain of grocery stores. The company has no locations outside the United States, but credit card transactions show that the Bellingham, Wash., location gets 40 percent of its business from Canadian shoppers. Trader Joe's holds several U.S. trademark registrations on the term “Trader Joe's.” It has applied to register two trademarks in Canada.
Michael Norman Hallatt is a citizen of Canada and he also holds legal permanent resident status in the United States. He is the principal of Pirate Joe's a/k/a Transilvania Trading Co. of Vancouver, which operates a grocery originally called “Transilvania Trading.” At some point he began to take requests from his customers for Trader Joe's products and changed his name to Pirate Joe's, crossing the border to purchase Trader Joe's goods at retail prices and resell them in Canada.
Trader Joe's sued, alleging trademark infringement, unfair competition, false endorsement, false designation of origin, false advertising and trademark dilution under federal law. Hallatt moved for dismissal pursuant to Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction.
Judge Marsha J. Pechman first cited Timberlane Lumber Co. v. Bank of America, N.T. & S.A., 549 F.2d 597 (9th Cir. 1976), which set forth a test for whether the Trademark Act can be applied extraterritorially. The court summarized the Timberlane factors to be considered:
(1) the defendant's action creates some effect on American foreign commerce, (2) the effect is sufficiently great to present a cognizable injury to plaintiff under the Lanham Act, and (3) “the interests of and links to American foreign commerce [are] sufficiently strong in relation to those of other nations to justify an assertion of extraterritorial authority.”
First, the court determined that Trader Joe's had failed to establish any cognizable injury under the Lanham Act. In prior cases, such injury was found in circumstances when a plaintiff itself engaged in international commerce or when the allegedly infringing activity had taken place partly within the United States.
The court in Love v. Associated Newspapers, Ltd., 611 F.3d 601, 95 U.S.P.Q. 2d 1855 (9th Cir. 2010), rejected extraterritorial application to allegedly infringing compact discs made in Germany. The argument that the existence of infringing CDs abroad was harming sales of live concert tickets in the United States was found to be too attenuated.
“Here, all alleged infringement takes place in Canada and Trader Joe's cannot show economic harm. Even if Canadian consumers are confused and believe they are shopping at Trader Joe's or an approved affiliate when shopping at Pirate Joe's, there is no economic harm to Trader Joe's because the products were purchased at Trader Joe's at retail price,” the court said. “Like in Love, any 'goodwill' related harm is too tenuous to support a cognizable Lanham Act claim when all infringing conduct is abroad.”
The court rejected an exercise of jurisdiction based on the argument that Pirate Joe's operations would interfere with Canadians crossing the border into the United States to shop at Trader Joe's themselves.
“Trader Joe's has not cited, and this Court has not found, circumstances where the Lanham Act was applied to alleged infringement happening entirely abroad on the grounds foreign customers will buy the infringing product in their home country and not cross into the United States to purchase the legitimate product here,” the court said.
The court concluded that there was no showing that Pirate Joe's actions affected American commerce or created any cognizable injury for which Trader Joe's could seek remedies under American trademark law.
Under the third Timberlane factor, a seven-part test applies. Quoting from Reebok Int'l, Ltd. v. Marnatech Enters., Inc., 970 F.2d 552, 23 U.S.P.Q.2d 1377 (9th Cir. 1992), the court set forth these factors:
Analyzing the third factor of the Timberlane test “involves the balancing of seven relevant factors: The degree of conflict with foreign law or policy, the nationality or allegiance of the parties and the locations or principal places of business of corporations, the extent to which enforcement by either state can be expected to achieve compliance, the relative significance of effects on the United States as compared with those elsewhere, the extent to which there is explicit purpose to harm or affect American commerce, the foreseeability of such effect, and the relative importance to the violations charged of conduct within the United States as compared with conduct abroad.”
The sole factor that the court found weighing in favor of extraterritorial jurisdiction was the one related to Hallatt's status as a legal permanent resident of the United States and his frequent trips to the United States to engage in commercial activity.
The factor addressing whether there was any explicit purpose to harm or affect American commerce was found to be neutral by the court. On the one hand, it was clear that Pirate Joe's was intentionally buying goods in the United States and selling them in Canada. However, the court said, it was not clear that there was any intent to harm, particularly because Hallett paid retail price.
The remaining factors all weighed against extraterritorial jurisdiction, according to the court. Thus, the court concluded that it did not have subject matter jurisdiction in this matter. However, the court gave Trader Joe's leave to amend its complaint with additional facts that might be relevant to the question of diversity jurisdiction with respect to claims under Washington state law.
Trader Joe's was represented by Brian M. Berliner and Jordan Raphael of O'Melveny & Myers, Los Angeles; and Scott T. Wilsdon of Yarmuth Wilsdon PLLC, Seattle. Hallatt was represented by Nathan Thomas Alexander of Dorsey & Whitney, Seattle.
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