(CN) — The Ninth Circuit gave Trader Joe's the green light to pursue a federal trademark claim against the owner of accused Canadian knockoff Pirate Joe's.
The decision overturns a district court ruling dismissing the grocery chain's lawsuit for lack of jurisdiction.
Trader Joe's sued Michael Hallatt in 2013 under the Lanham Act and Washington state law.
Hallatt, a Canadian who has U.S. permanent-resident immigration status, spent more than $350,000 buying Trader Joe's branded products to resell in Canada, according to the grocer.
He allegedly visited a Trader Joe's just over the Canadian border in Washington several times a week, buying large quantities of goods. Trader Joe's learned Hallatt was buying the products to sell at his Canadian store Transilvania Trading, which he later renamed Pirate Joe's.
The company demanded Hallatt stop reselling Trader Joe's products from Pirate Joe's but he refused, court records show.
When Trader Joe's stopped selling to Hallatt, he started dressing in "disguises to shop at Trader Joe's without detection" and drove to Seattle, Portland and California to buy branded products, according to Trader Joe's complaint.
Trader Joe's claimed Hallatt used its trademarks and trade dress, operated a website accessible from the U.S. and designed his store to mimic a Trader Joe's.
The grocer's complaint says Hallatt violated the Lanham Act and Washington law and asks the district court to permanently enjoin Hallatt from reselling goods or using Trader Joe's trademarks in Canada.
U.S. District Judge Marsha Pechman dismissed the case for lack of jurisdiction.
On Friday, a three-judge panel of the Ninth Circuit revived the federal trademark claims but affirmed the dismissal of the state-law claims.
The panel found the extraterritorial reach of the Lanham Act raises a question relating to the merits of a trademark claim, not to federal courts' subject-matter jurisdiction. On the merits, Trader Joe's allegations were enough to warrant extraterritorial application of the Lanham Act, according to the ruling.
Judge Morgan Christen, writing the unanimous decision, said Trader Joe's claims established jurisdiction because they could affect U.S. commerce.
For example, Hallatt transports the goods without using proper quality-control measures, which could harm Trader Joe's "domestic reputation and diminish the value of its American-held marks," according to the ruling.
The panel upheld the dismissal of state trademark claims because Trader Joe's does not allege trademark violations occurred in Washington.
The Ninth Circuit also affirmed dismissal of state Consumer Protection Act violations because Hallatt is not a Washington resident, Trader Joe's is a California corporation, and the alleged conduct did not plausibly harm Washington residents.
The panel remanded the case back to district court on the federal trademark claims.
Hallatt's attorney, Nathan Alexander of Dorsey & Whitney in Seattle, told the Associated Press that he and Hallatt disagreed with the ruling and they are evaluating their options.
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