Atlantic Richfield Co. v. Arco Globus Intern. Co., Inc.

• Decision Date: 17 July 1998
• Docket Number: Docket No. 97-7829
• Citation: 150 F.3d 189
• Parties: ATLANTIC RICHFIELD COMPANY, Plaintiff-Counter-Defendant-Appellant, v. ARCO GLOBUS INTERNATIONAL COMPANY, INC., a New York Corporation, and ARCO Globus International Company, Inc., a New Jersey Corporation, Defendants-Counter-Claimants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

Page 189

150 F.3d 189

47 U.S.P.Q.2d 1529

ATLANTIC RICHFIELD COMPANY, Plaintiff-Counter-Defendant-Appellant, v. ARCO GLOBUS INTERNATIONAL COMPANY, INC., a New York Corporation, and ARCO Globus International Company, Inc., a New Jersey Corporation Defendants-Counter-Claimants-Appellees.

Docket No. 97-7829.

United States Court of Appeals Second Circuit.

Argued Feb. 27, 1998.

Decided July 17, 1998.

Lawrence E. Abelman, Abelman, Frayne & Schwab, New York City (Jeffrey A. Schwab, Michael Aschen, of counsel), for Plaintiff-Counter-Defendant-Appellant.

Oliver P. Howes, Jr., Nims, Howes, Collison, Hansen & Lackert, New York City (Paul W. Garrity, of counsel), for Defendants-Counter-Claimants-Appellees.

Before: WINTER, Chief Judge, PARKER, Circuit Judge, and SCHWARZER, District Judge. ^*

WINTER, Chief Judge:

This case concerns the extent to which the Lanham Act, 15 U.S.C. § 1051 et seq., applies to allegedly infringing conduct that occurs outside the United States. The Atlantic Richfield Company ("Arco") appeals from Judge Keenan's dismissal, after a three-day bench trial, of Arco's claims against two related companies using the name Arco Globus International Company (collectively "AGI"). Arco's claims concern AGI's use of "Arco Globus International" to identify AGI's oil and gas operations, particularly in the former

Soviet Union. Arco alleges that AGI's use of the word "Arco" infringes Arco's registered "ARCO" mark under 15 U.S.C. § 1114(1), violates the Lanham Act's prohibition against false designation of origin, 15 U.S.C. § 1125(a), and amounts to unfair competition and dilution. Judge Keenan held that the Lanham Act does not reach AGI's present use of the "ARCO" mark in the former Soviet Union. See Atlantic Richfield Co. v. Arco Globus Int'l Co., No. 95 Civ. 6361, 1997 WL 607488 (S.D.N.Y. May 29, 1997). We agree and affirm.

BACKGROUND

Arco is a well-known company in the domestic and foreign oil and gas industry. In the United States, Arco sells gasoline to retail customers in five western states, operates various oil refineries and two chemical companies, and distributes aviation and diesel fuels, petrochemicals, and plastics. In addition, Arco produces, markets, and trades bulk crude oil and is a member of the New York Mercantile Exchange where it trades oil futures. Arco, through a subsidiary, Arco International Oil and Gas Company, also has extensive operations throughout the world. ¹

The trademark "ARCO" was first used in 1909 by the Atlantic Refining Company in connection with the sale of lubricants. After Atlantic Refining merged with the Richfield Oil Company in 1966, the merged companies began operating extensively under the name "ARCO." Beginning in 1987, the "ARCO" mark was used in all its petroleum and petrochemical businesses. Currently, more than 50 of Arco's 250 United States registrations are for ARCO and ARCO-prefix trademarks, for use on products such as lubricating oils, diesel fuel, petroleum products, motor oils, and greases.

AGI is a "small beginning company," 1997 WL 607488, at * 6, that was formed in 1990. ² AGI's principal activity is identifying products to be traded by its de facto parent, Arco Globus Company Ltd., a Channel Islands corporation engaged in the financing, processing, and sale of crude oil, the trading of oil and gas derivatives, and the provision of refinery engineering services. AGI's involvement in the Soviet Union began in 1990 when it opened a Moscow office. It began trading oil in Russia in 1991.

AGI also engages in activity in the United States. It is a New York company with a New York office and has two American employees. However, Judge Keenan found that it has never offered products for sale in the United States. AGI has no plans to expand its petroleum operations here, but is looking into domestic timber processing. See id. at * 4. Arco does not dispute these findings, ³ but asserts that AGI's domestic business activities are much more extensive than that which is reflected in Judge Keenan's opinion. For example, according to Arco, AGI escorted the management of Soviet oil-refinery managers on tours of United States refineries, attempted unsuccessfully to establish a Texas-based petroleum joint venture, and deposited money from foreign sales in a New York bank.

After a three-day bench trial, Judge Keenan concluded that the Lanham Act did not reach AGI's allegedly infringing activities abroad because they did not have a substantial effect on United States commerce. Judge Keenan concluded further that, even if the Lanham Act were to apply, Arco did not prove a violation of it. Judge Keenan also

dismissed Arco's unfair competition and dilution claims. This appeal followed.

DISCUSSION

The Lanham Act may reach allegedly infringing conduct that occurs outside the United States when necessary to prevent harm to commerce in the United States. See, e.g., Fun-Damental Too, Ltd. v. Gemmy Indus. Corp., 111 F.3d 993, 1006 (2d Cir.1997). The Supreme Court first addressed the extraterritorial reach of the Lanham Act in Steele v. Bulova Watch Co., 344 U.S. 280, 73 S.Ct. 252, 97 L.Ed. 319 (1952). In Bulova, Steele, a United States citizen, manufactured and sold spurious Bulova watches in Mexico. The plaintiff, a large watch manufacturer that had registered the BULOVA mark in the United States but not in Mexico, sought to enjoin the defendant's activity in Mexico. In concluding that the defendant's extraterritorial activity came within the scope of the Lanham Act, the Court emphasized that the defendant's "operations and their effects were not confined within the territorial limits of a foreign nation." Id. at 286, 73 S.Ct. 252. For example, although the defendant manufactured the watches, affixed the BULOVA mark, and sold them only in Mexico, the defendant bought component parts of his watches in the United States. This activity, while legal when viewed in isolation, was deemed an "essential step[ ]" in the course of "an unlawful scheme." Id. at 287, 73 S.Ct. 252. Moreover, some spurious Bulova watches had filtered into the United States, and the plaintiff had received complaints from retail jewelers in Texas whose customers had brought in fake Bulovas for repair. See id. at 286, 73 S.Ct. 252. Because of the resultant confusion and harm to the plaintiff's goodwill in the United States, the Court concluded that the Lanham Act reached the defendant's Mexican activities. See id. at 286-87, 73 S.Ct. 252.

From Bulova, we have concluded that three factors--the so-called "Vanity Fair factors"--are relevant to whether the Lanham Act is to be applied extraterritorially: (i) whether the defendant is a United States citizen; (ii) whether there exists a conflict between the defendant's trademark rights under foreign law and the plaintiff's trademark rights under domestic law; and (iii) whether the defendant's conduct has a substantial effect on United States commerce. See Totalplan Corp. of Am. v. Colborne, 14 F.3d 824, 830 (2d Cir.1994) (citing Vanity Fair Mills v. T. Eaton Co., 234 F.2d 633, 642 (2d Cir.1956)). Judge Keenan found, and the parties agree, that two of these three factors are present here: AGI is a United States citizen and there exists no conflict with foreign law. The question on appeal, therefore, is whether AGI's activity has a substantial effect on United States commerce. ⁴

Significantly, Arco conceded in oral argument, as it had to, that AGI's allegedly infringing activities--all of which took place in foreign nations--do not themselves have a substantial effect on United States commerce. Certainly, there is no evidence that domestic consumers have been misled or have come to view the ARCO mark less favorably as a result of those foreign activities. Arco claims, rather, that AGI's activities in the United States bring AGI's foreign activities within the scope of the Lanham Act, at least insofar as those domestic activities "were designed to further and support [AGI's] foreign conduct." Appellant's Brief at 35. In support of this proposition, Arco relies primarily on language in Bulova in which the Court described the defendant's purchases of components in the United States as an "essential step[ ]" in the course of "an unlawful scheme." 344 U.S. at 287, 73 S.Ct. 252.

However, Bulova is distinguishable in two ways. First, Bulova does not hold that a defendant's domestic activity, even if "essential" to infringing activity abroad, is alone sufficient to cause a substantial effect on United States commerce. In Bulova, the infringing product, although manufactured and sold abroad, was coming into the United States for sale, resulting in consumer confusion and harm to the plaintiff's goodwill in the United States. See Totalplan, 14 F.3d at 830 (interpreting Bulova ); see also Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 990 n. 35 (2d Cir.1975) (dicta) (Lanham Act applicable in Bulova because of "effect on Bulova's business within the United States"). Here, AGI's allegedly infringing activities did not confuse Arco's customers in the United States or lessen the value of its mark in this country.

Second, even if Bulova is read to indicate that a defendant's infringing extraterritorial conduct has a substantial effect on United States commerce whenever some non-infringing domestic activity is "essential" to that...