Trader Joe's Co. v. Michael Hallatt

                 FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT


TRADER JOE’S COMPANY, a                      No. 14-35035
California Corporation,
              Plaintiff-Appellant,          D.C. No.
                                       2:13-cv-00768-MJP
                v.

MICHAEL NORMAN HALLATT, an                    OPINION
individual, DBA Pirate Joe’s,
AKA Transilvania Trading,
             Defendant-Appellee.


     Appeal from the United States District Court
       for the Western District of Washington
  Marsha J. Pechman, Senior District Judge, Presiding

         Argued and Submitted on June 7, 2016
                 Seattle, Washington

                     Filed August 26, 2016

         Before: Richard A. Paez. Jay S. Bybee,
         and Morgan Christen, Circuit Judges.

               Opinion by Judge Christen
2                  TRADER JOE’S V. HALLATT

                           SUMMARY*


        Lanham Act / Extraterritorial Application

   The panel affirmed in part and reversed in part the district
court’s dismissal of trademark infringement and unfair
competition claims for lack of subject-matter jurisdiction.

    Defendant Michael Norman Hallatt purchased Trader
Joe’s-branded goods in Washington State, transported them
to Canada, and resold them there in a store he designed to
mimic a Trader Joe’s store. Trader Joe’s sued under the
Lanham Act and Washington law.

    Reversing the dismissal of the Lanham Act claims, the
panel held that 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, the panel concluded that Trader Joe’s alleged a nexus
between Hallett’s conduct and American commerce sufficient
to warrant extraterritorial application of the Lanham Act.

   The panel affirmed the dismissal of the state law claims
because Trader Joe’s did not allege trademark dilution in
Washington or harm to a Washington resident or business.

    The panel remanded the case to the district court for
further proceedings.




  *
    This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
                TRADER JOE’S V. HALLATT                    3

                        COUNSEL

Anna-Rose Mathieson (argued), California Appellate Law
Group, San Francisco, California; Tim Byron, O’Melveny &
Myers LLP, San Francisco, California; Brian M. Berliner and
Jordan Raphael, O’Melveny & Myers, LLP, Los Angeles,
California; for Plaintiff-Appellant.

Nathan Alexander (argued), Dorsey & Whitney LLP, Seattle,
Washington, for Defendant-Appellee.


                        OPINION

CHRISTEN, Circuit Judge:

     This trademark infringement case turns on the
extraterritorial reach of the Lanham Act. It is uncontested
that Defendant Michael Norman Hallatt purchases Trader
Joe’s-branded goods in Washington state, transports them to
Canada, and resells them there in a store he designed to
mimic a Trader Joe’s store. Trader Joe’s sued for trademark
infringement and unfair competition under the Lanham Act
and Washington state law. The district court recognized that
the Lanham Act can apply to conduct that occurs abroad, but
it dismissed the Lanham Act claims for lack of subject-matter
jurisdiction after concluding that Hallatt’s allegedly
infringing activity takes place in Canada, and that Trader
Joe’s did not adequately explain how Hallatt’s activity
impacts American commerce. The district court dismissed
Trader Joe’s’ state law claims for similar reasons.

    We affirm in part and reverse in part. Consistent with
recent case law from the Supreme Court and our court, we
4                   TRADER JOE’S V. HALLATT

hold that 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, we
conclude that Trader Joe’s alleges a nexus between Hallatt’s
conduct and American commerce sufficient to warrant
extraterritorial application of the Lanham Act. We therefore
reverse in part. But because Trader Joe’s does not allege
trademark dilution in Washington or harm to a Washington
resident or business, we affirm the court’s dismissal of the
state law claims.

                          BACKGROUND

    The complaint alleges that Trader Joe’s is a well-known
American grocery store that sells specialty goods at
reasonable prices from its distinctive, South Pacific-themed
stores.1 It is headquartered in Monrovia, California, but it
operates hundreds of stores throughout the United States,
including more than a dozen stores in Washington. About
eighty percent of the goods Trader Joe’s sells in its stores are
Trader Joe’s-branded products that are available only at
Trader Joe’s. Trader Joe’s does not franchise its intellectual
property or license others to sell its products. Trader Joe’s
maintains strict quality control standards when transporting
and storing perishable goods to protect the safety of its
customers and to ensure that Trader Joe’s stores sell only
fresh, high-quality goods. Trader Joe’s has rejected offers


    1
   We take these facts from the complaint and its exhibits. See Akhtar v.
Mesa, 698 F.3d 1201, 1212 (9th Cir. 2012) (“When reviewing a motion
to dismiss we ‘consider only allegations contained in the pleadings,
exhibits attached to the complaint, and matters properly subject to judicial
notice.’” (quoting Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir.
2007) (per curiam))).
                 TRADER JOE’S V. HALLATT                      5

from third parties to enter into franchise agreements, in part
because of the difficulty of “ensuring that these third parties
will ship, handle, and store food products pursuant to Trader
Joe’s exacting standards.” Trader Joe’s does not operate
outside of the United States, but Canadian consumers
regularly travel across the border to shop at Trader Joe’s
stores located in northern Washington.

    Trader Joe’s owns several federally registered and
common-law trademarks associated with its stores and
products. Its family of marks includes a trademark for the
red, stylized “Trader Joe’s” text, see Fig. 1, and numerous
trademarks for Trader Joe’s-branded products. Trader Joe’s
also alleges that it has trade dress protection for its South
Pacific-themed store design. See Two Pesos, Inc. v. Taco
Cabana, Inc., 505 U.S. 763, 775–76 (1992) (recognizing that
distinctive store design is a form of trade dress). Trader Joe’s
carefully cultivates its brand through advertising, promotion,
and word-of-mouth referrals, and, according to the complaint,
its trademarks and trade dress “have come to symbolize
extraordinary goodwill and have achieved great fame both
within and outside the United States” due to these efforts.
This fame and popularity has generated substantial domestic
and international demand for Trader Joe’s products.

Fig. 1:
6                  TRADER JOE’S V. HALLATT

    In October 2011, staff members at the Bellingham Trader
Joe’s store noticed something odd about one of their
customers: Canadian resident Michael Norman Hallatt
visited the store several times per week to buy large
quantities of Trader Joe’s products.2 When questioned,
Hallatt admitted that he drives the goods he purchases across
the Canadian border where he distributes them to Canadian
customers. Trader Joe’s later learned from one of its
Canadian customers that Hallatt opened a store in Canada
named Transilvania Trading (which he later renamed “Pirate
Joe’s”) where he resells, at substantially inflated prices,
Trader Joe’s goods purchased in Washington. Trader Joe’s
alleges that Hallatt uses its intellectual property to solicit
business for Pirate Joe’s: He advertises his wares with Trader
Joe’s trademarks, operates a website accessible from the
United States, displays an exterior sign at Pirate Joe’s that
uses a font similar to the trademarked “Trader Joe’s” insignia,
Fig. 2, and designed the Pirate Joe’s store to mimic Trader
Joe’s trade dress. Hallatt sells perishable goods at Pirate
Joe’s that he does not transport or store in a manner
consistent with the strict quality control standards used by
Trader Joe’s. Trader Joe’s has received at least one
complaint from a consumer who became sick after eating a
Trader Joe’s-branded product she purchased from Pirate
Joe’s.




 2
   Bellingham, Washington is located about twenty-five miles from the
Canadian border and about sixty miles from Vancouver, British Columbia.
                 TRADER JOE’S V. HALLATT                    7

Fig. 2:




    Trader Joe’s told Hallatt that it does not sanction his
activity and demanded that he stop reselling Trader Joe’s
products from Pirate Joe’s. Hallatt refused. Trader Joe’s
declined to serve Hallatt as a customer, but Hallatt,
undeterred, began donning “disguises to shop at Trader Joe’s
without detection” and driving “to Seattle, Portland, and even
California to purchase TRADER JOE’S-branded products
and evade Trader Joe’s refusal to sell them.” The complaint
also alleges that Hallatt pays third parties in Washington to
buy Trader Joe’s goods on his behalf. On appeal, Trader
Joe’s contends that Hallatt accomplishes his scheme in part
because he is a United States Lawful Permanent Resident
(LPR), an immigration status that enables him to live and
work legally in the United States. All told, Hallatt has spent
more than $350,000 purchasing Trader Joe’s products to
resell in Canada.
8                TRADER JOE’S V. HALLATT

    Trader Joe’s sued Hallatt (doing business as Pirate Joe’s)
for trademark infringement in the Western District of
Washington, invoking that court’s federal question and
supplemental jurisdiction. 28 U.S.C. §§ 1331, 1367. Trader
Joe’s alleged that Hallatt violated federal and state trademark
and unfair competition laws by misleading consumers “into
falsely believing that Pirate Joe’s and/or Transilvania Trading
have been authorized or approved by Trader Joe’s,”
displaying Trader Joe’s trademarks and mimicking Trader
Joe’s trade dress, and reselling Trader Joe’s goods without
authorization and without adhering to Trader Joe’s’ strict
quality control practices. According to Trader Joe’s, this
conduct dilutes its trademarks, confuses consumers, and
damages Trader Joe’s’ reputation by associating it with high-
cost, reduced-quality goods. The complaint includes six
claims for relief, four of which arise under the Lanham Act
and two of which arise under Washington law: (1) federal
trademark infringement, 15 U.S.C. § 1114(1); (2) unfair
competition, false endorsement, and false designation of
origin, 15 U.S.C. § 1125(a)(1)(A); (3) false advertising,
15 U.S.C. § 1125(a)(1)(B); (4) federal trademark dilution,
15 U.S.C. § 1125(c); (5) state trademark dilution, Wash. Rev.
Code § 19.77.160; and (6) deceptive business practices in
violation of the Washington Consumer Protection Act, Wash.
Rev. Code § 19.86.020. Trader Joe’s asked the district court
to award it damages and permanently enjoin Hallatt from
reselling its goods or using its trademarks in Canada.

    The district court granted Hallatt’s motion to dismiss
Trader Joe’s’ federal claims for lack of subject-matter
jurisdiction, concluding that the Lanham Act did not apply to
Hallatt’s conduct in Canada. The court denied Trader Joe’s
leave to amend its federal claims, but granted Trader Joe’s the
opportunity to assert an independent jurisdictional basis for
                     TRADER JOE’S V. HALLATT                                9

its state law claims. Trader Joe’s filed a motion for
reconsideration in which it argued that the extraterritorial
scope of the Lanham Act is a merits question that does not
implicate the district court’s subject-matter jurisdiction. The
district court denied the motion. Trader Joe’s then filed an
amended complaint reasserting its state law claims and
invoking the district court’s diversity jurisdiction. Hallatt
filed a motion to dismiss for failure to state a claim, which the
district court granted.

   The district court entered final judgment on December 18,
2013, and Trader Joe’s timely appealed. We have jurisdiction
under 28 U.S.C. § 1291.3

                             DISCUSSION

A. Lanham Act claims

    The Lanham Act is the federal trademark and unfair
competition statute. It creates a civil cause of action against
“[a]ny person who shall . . . use in commerce any . . .
colorable imitation of a registered mark,” 15 U.S.C.
§ 1114(1) (Lanham Act section 32), or “[a]ny person who . . .
uses in commerce any” word, false description, or false
designation of origin that “is likely to cause confusion . . . or


   3
     “We review de novo a district court’s dismissal for lack of subject
matter jurisdiction, Fed. R. Civ. P. 12(b)(1), and a district court’s
dismissal for failure to state a claim, Fed. R. Civ. P. 12(b)(6).” Naffe v.
Frey, 789 F.3d 1030, 1035 (9th Cir. 2015). We review for an abuse of
discretion a district court’s denial of a motion for reconsideration, see Sch.
Dist. No. 1J, Multnomah Cty. v. ACandS, Inc., 5 F.3d 1255, 1262 (9th Cir.
1993), but review de novo any legal conclusions on which the denial was
based, see United States v. Hinkson, 585 F.3d 1247, 1261–62 (9th Cir.
2009) (en banc).
10               TRADER JOE’S V. HALLATT

to deceive as to the affiliation,” origin, or sponsorship of any
goods, id. § 1125(a)(1) (Lanham Act section 43). The Act
broadly defines commerce as “all commerce which may
lawfully be regulated by Congress,” id. § 1127, and gives
federal courts jurisdiction over all claims arising under it, id.
§ 1121(a).

    We determine whether any statute, including the Lanham
Act, reaches foreign conduct by applying a two-step
framework. See RJR Nabisco, Inc. v. European Cmty., 136 S.
Ct. 2090, 2101 (2016). At step one we ask “whether the
statute gives a clear, affirmative indication that it applies
extraterritorially.” Id. The Supreme Court settled this
question with regard to the Lanham Act when it held that the
Act’s “use in commerce” element and broad definition of
“commerce” clearly indicate Congress’s intent that the Act
should apply extraterritorially. See Steele v. Bulova Watch
Co., 344 U.S. 280, 286 (1952). Where, as here, Congress
intended a statute to apply extraterritorially, we proceed to
step two and consider “the limits Congress has (or has not)
imposed on the statute’s foreign application.” RJR Nabisco,
136 S. Ct. at 2101.

    We resolve two questions to decide whether the Lanham
Act reaches Hallatt’s allegedly infringing conduct, much of
which occurred in Canada: First, is the extraterritorial
application of the Lanham Act an issue that implicates federal
courts’ subject-matter jurisdiction? Second, did Trader Joe’s
allege that Hallatt’s conduct impacted American commerce
in a manner sufficient to invoke the Lanham Act’s
protections? Because we answer “no” to the first question but
“yes” to the second, we reverse the district court’s dismissal
of the federal claims and remand for further proceedings.
                 TRADER JOE’S V. HALLATT                      11

    1. Subject-matter jurisdiction

    Trader Joe’s argues on appeal that the extraterritorial
reach of the Lanham Act is a non-jurisdictional merits
question, and that the Supreme Court’s decision in Arbaugh
v. Y & H Corp., 546 U.S. 500 (2006), abrogated circuit case
law suggesting otherwise. Hallatt counters that this court has
long treated the extraterritorial application of the Lanham Act
as an issue of subject-matter jurisdiction, and that the panel
may not deviate from this precedent. We agree with Trader
Joe’s.

     When the district court dismissed the federal claims for
lack of subject-matter jurisdiction, it did not have the benefit
of our recent decision in La Quinta Worldwide LLC v.
Q.R.T.M., S.A. de C.V., 762 F.3d 867 (9th Cir. 2014). There,
we held that the Lanham Act’s “use in commerce” element
(the element that gives the Act extraterritorial reach) is not
jurisdictional. Id. at 873–74. In La Quinta, an American
hotel chain, La Quinta Worldwide, sued a Mexican
competitor, Quinta Real, for trademark infringement after
Quinta Real expressed an intent to expand its business into
the United States. Id. at 872. The district court held a bench
trial and found in La Quinta’s favor. Id. On appeal, Quinta
Real asserted for the first time “that there is no federal
subject-matter jurisdiction over this case.” Id. Quinta Real
argued that the Lanham Act’s “use in commerce” requirement
is jurisdictional; its expressions of intent to open a hotel were
not sufficient to show a “use in commerce” under the Lanham
Act; and that the Ninth Circuit was required to dismiss the
appeal for lack of subject-matter jurisdiction. Id.

   Our court rejected those arguments. Citing Arbaugh,
546 U.S. at 513–14, we reasoned that “federal courts have
12               TRADER JOE’S V. HALLATT

subject-matter jurisdiction over all suits pleading ‘a colorable
claim “arising under” the Constitution or laws of the United
States,’ so long as Congress does not clearly indicate
otherwise.” La Quinta, 762 F.3d at 873. Because “the ‘use
in commerce’ element of Lanham Act claims under sections
32 and 43(a) is not connected to the Lanham Act’s
jurisdictional grant in 15 U.S.C. § 1121(a),” the element “is
not a jurisdictional requirement, and we have subject-matter
jurisdiction under 15 U.S.C. § 1121(a).” Id. at 872–73; see
also Arbaugh, 546 U.S. at 516 (“[W]hen Congress does not
rank a statutory limitation on coverage as jurisdictional,
courts should treat the restriction as nonjurisdictional in
character.”).

    Hallatt correctly argues that La Quinta is not on all fours
with this case because La Quinta did not consider the Lanham
Act’s extraterritorial reach. The parties in La Quinta disputed
whether Quinta Real’s intent to expand its business to the
United States constituted “use” within the meaning of the
Lanham Act. See 762 F.3d at 872; see also Sensient Techs.
Corp. v. SensoryEffects Flavor Co., 613 F.3d 754, 762–63
(8th Cir. 2010) (explaining that the Lanham Act imposes
liability for trademark infringement only if there is use of
another’s mark in commerce). La Quinta did not need to
address the Lanham Act’s extraterritorial scope because
Quinta Real’s contemplated infringing activity was to occur
in the United States. 762 F.3d at 872.

    Nevertheless, La Quinta’s jurisdictional analysis still
dictates the outcome here. As noted, it is the Lanham Act’s
“use in commerce” element and its broad definition of
“commerce” that give the statute extraterritorial reach. See
Steele, 344 U.S. at 283–84. These are the same elements that
the panel considered in La Quinta, see 762 F.3d at 872–73;
                     TRADER JOE’S V. HALLATT                             13

they derive from Congress’s power to regulate interstate and
foreign commerce under the Commerce Clause, U.S. Const.
art. I, § 8, cl. 3. See 15 U.S.C. § 1114 (applying to marks
“use[d] in commerce”); id. § 1125 (same); id. § 1127 (“The
word ‘commerce’ means all commerce which may lawfully
be regulated by Congress.”). The constitutional source of this
authority is the same whether or not the alleged infringement
implicates the extraterritorial scope of the Lanham Act:
Congress can no more regulate intra-state, non-commercial
possession of another’s mark (the issue raised in La Quinta)
than trademark infringement that occurs entirely outside of
the country’s borders. See Wells Fargo & Co. v. Wells Fargo
Express Co., 556 F.2d 406, 427–28 (9th Cir. 1977)
(analogizing the Lanham Act’s application to purely intrastate
activities to the Act’s application to purely foreign activities).
Thus, La Quinta’s conclusion that the Lanham Act’s “use in
commerce” element is not jurisdictional applies here even
though La Quinta considered the scope of the word “use,”
rather than the Act’s extraterritorial reach.4


  4
    La Quinta did not discuss several Ninth Circuit cases that treated the
Lanham Act’s “use in commerce” requirement as “jurisdictional,” but that
does not lessen its thrust. See, e.g., Reebok Int’l, Ltd. v. Marnatech
Enters., Inc., 970 F.2d 552, 554 (9th Cir. 1992); but see Love v. Associated
Newspapers, Ltd., 611 F.3d 601, 612 (9th Cir. 2010) (post-Arbaugh case
treating extraterritorial question as a merits question). As explained infra,
the Supreme Court plainly stated in Morrison and Arbaugh (which post-
date Reebok) that whether a statute reaches foreign conduct is a merits
question, not a question of jurisdiction. See Morrison v. Nat’l Aust. Bank,
Ltd., 561 U.S. 247, 254 (2010) (statute’s extraterritorial reach is a merits
question); Arbaugh, 546 U.S. at 512–13 (criticizing EEOC v. Arabian Am.
Oil Co., 499 U.S. 244 (1991), in which the Court treated the
extraterritorial scope of Title VII as an issue of subject-matter
jurisdiction). These cases did not expressly consider the Lanham Act, but
we see no principled way to exclude the Lanham Act from their holdings,
particularly in light of La Quinta. Our prior characterization of the
14                   TRADER JOE’S V. HALLATT

      More importantly, La Quinta is consistent with recent
Supreme Court case law addressing federal courts’ subject-
matter jurisdiction. See Morrison v. Nat’l Aust. Bank, Ltd.,
561 U.S. 247, 253–54 (2010); Arbaugh, 546 U.S. at 516. In
Arbaugh, the Court clarified “the difference between
elements of a claim and jurisdictional requirements,” La
Quinta, 762 F.3d at 873, holding that “the numerical
qualification contained in Title VII’s definition of ‘employer’
. . . delineates a substantive ingredient of a Title VII claim for
relief” and does not “affect[] federal-court subject-matter
jurisdiction,” Arbaugh, 546 U.S. at 503. In Morrison, the
Court applied Arbaugh and held that the extraterritorial reach
of the Securities and Exchange Act § 10(b) is a merits
question, not a question of federal courts’ subject-matter
jurisdiction. See 561 U.S. at 253–54. Its discussion of the
issue is particularly relevant:

              Before addressing the question presented,
          we must correct a threshold error in the
          Second Circuit’s analysis. It considered the
          extraterritorial reach of § 10(b) to raise a
          question of subject-matter jurisdiction,
          wherefore it affirmed the District Court’s
          dismissal under Rule 12(b)(1). . . .



Lanham Act’s reach as “jurisdictional” is therefore “irreconcilable with
the reasoning or theory” of this higher and more recent authority. Miller
v. Gammie, 335 F.3d 889, 893 (9th Cir. 2003) (en banc); see also United
States v. Lindsey, 634 F.3d 541, 548 (9th Cir. 2011) (“In order to be
controlling on the panel, a higher court’s decision ‘need not be identical’
to our precedent, but must instead ‘undercut the theory or reasoning
underlying the prior circuit precedent . . . .’” (citation omitted)); id. at 550
(Miller “instructs us to focus on the reasoning and analysis in support of
a holding, rather than the holding alone.”).
                 TRADER JOE’S V. HALLATT                      15

            But to ask what conduct § 10(b) reaches is
        to ask what conduct § 10(b) prohibits, which
        is a merits question.            Subject-matter
        jurisdiction, by contrast, “refers to a tribunal’s
        ‘power to hear a case.’” It presents an issue
        quite separate from the question whether the
        allegations the plaintiff makes entitle him to
        relief.    The District Court here had
        jurisdiction under 15 U.S.C. § 78aa to
        adjudicate the question whether § 10(b)
        applies to National’s conduct.

Id. (citations and footnote omitted). This analysis is equally
applicable to the Lanham Act. See Love v. Associated
Newspapers, Ltd., 611 F.3d 601, 613 (9th Cir. 2010)
(explaining the Lanham Act applies to defendants’ foreign
conduct when that conduct impacts American commerce).
We hold that the extraterritorial reach of the Lanham Act is
a merits question that does not implicate federal courts’
subject-matter jurisdiction, and that the district court erred as
a matter of law when it decided otherwise.

    But this conclusion does not end our work. The district
court dismissed Trader Joe’s case at the pleadings stage, but
as in Morrison, “nothing in [its analysis] turned on” the fact
that it dismissed the case under Rule 12(b)(1), rather than
under Rule 12(b)(6). Morrison, 561 U.S. at 254; see also
Arbaugh, 546 U.S. at 507 (explaining that a merits argument
“endures up to . . . trial on the merits”). As explained infra,
our longstanding Timberlane test for the Lanham Act’s
extraterritorial application applies whether the extraterritorial
scope of the statute is a jurisdictional or merits question, so
remand to the district court would only “require [it to put] a
new Rule 12(b)(6) label [on] the same Rule 12(b)(1)
16               TRADER JOE’S V. HALLATT

conclusion.” Morrison, 561 U.S. at 254. Rather than asking
the district court to engage in this exercise, we consider
whether the Lanham Act reaches Hallatt’s allegedly
infringing conduct under the standards set by Rule 12(b)(6).

     2. The merits of the Lanham Act

    We next consider the limits, if any, Congress imposed on
the Act’s extraterritorial application. See RJR Nabisco,
136 S. Ct. at 2101 (discussing “step two”). In 15 U.S.C.
§ 1127, Congress directed that the Lanham Act applies to “all
commerce which may lawfully be regulated by Congress.”
Whether this provision sweeps foreign activities into the
Act’s proscriptive reach depends on a three-part test we
originally applied to the Sherman Act in Timberlane Lumber
Co. v. Bank of America National Trust & Savings Ass’n,
549 F.2d 597 (9th Cir. 1976). See Wells Fargo, 556 F.2d at
427 (extending Timberlane test to the Lanham Act). Under
Timberlane, the Lanham Act applies extraterritorially if:

        (1) the alleged violations . . . create some
        effect on American foreign commerce; (2) the
        effect [is] sufficiently great to present a
        cognizable injury to the plaintiffs 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.
                    TRADER JOE’S V. HALLATT                           17

Love, 611 F.3d at 613.5

         a. Timberlane prongs one and two

    Timberlane’s first two prongs require Trader Joe’s to
allege that Hallatt infringes its trademarks (1) in a way that
affects American foreign commerce, and (2) causes Trader
Joe’s a cognizable injury under the Lanham Act. Id. A
defendant’s foreign activities need not have a substantial or
even significant effect on American commerce, rather, “some
effect” may be sufficient. Compare Am. Rice, Inc. v. Ark.
Rice Growers Coop. Ass’n, 701 F.2d 408, 414 n.8 (5th Cir.
1983) (joining the Ninth Circuit in requiring “some effect”),
with Vanity Fair Mills v. T. Eaton Co., 234 F.2d 633, 642 (2d
Cir. 1956) (requiring effect to be substantial); see also J.
Thomas McCarthy, 5 McCarthy on Trademarks & Unfair
Competition § 29:58 (4th ed. 2016) (discussing different
tests).

     Plaintiffs usually satisfy Timberlane’s first and second
prongs by alleging that infringing goods, though sold initially
in a foreign country, flowed into American domestic markets.


  5
     Trader Joe’s argues that Timberlane does not apply here because
Hallatt executed part of his infringing scheme in the United States. We
have applied Timberlane in cases where some of the defendant’s conduct
was domestic, so long as the entire scheme culminated in infringing
activity abroad. See, e.g., Reebok, 970 F.2d at 557 (applying Timberlane
where “Reebok’s trademark infringement claim [was] based both on
actions that occurred in the United States as well as in Mexico”); Wells
Fargo, 556 F.2d at 429 (“We note, however, that, when faced with both
Mexican and United States activities of an American citizen that were part
of one infringing scheme, this court adopted an analysis which at least in
part was premised on the need to deal with the extraterritorial nature of
defendant’s activities.”). We follow that same tack here.
18                 TRADER JOE’S V. HALLATT

See Reebok Int’l, Ltd. v. Marnatech Enters., Inc., 970 F.2d
552, 556 (9th Cir. 1992) (prongs one and two met when
defendants “knew that their counterfeit shoes went back into
the United States with regular frequency”); McBee v. Delica
Co., Ltd., 417 F.3d 107, 125 (1st Cir. 2005) (“Quite
commonly, plaintiffs . . . meet their burden by presenting
evidence that while the initial sales of infringing goods may
occur in foreign countries, the goods subsequently tend to
enter the United States in some way and in substantial
quantities.”).6 Trader Joe’s does not allege that the Trader
Joe’s-brand products Hallatt resells from his Canadian store
trickle back into American commerce in a manner likely to
confuse American consumers. This fact distinguishes Steele,
where the Court applied the Lanham Act to a defendant’s
foreign conduct (his sale of counterfeit watches in Mexico)
largely because “spurious ‘Bulovas’ filtered through the
Mexican border into this country.” 344 U.S. at 286. It also
undermines Trader Joe’s’ argument that Steele controls the
outcome here. But, as Trader Joe’s alternatively argues,
whether infringing goods flow into the United States is not
dispositive; plaintiffs may show “some effect” on American
commerce in myriad ways. See, e.g., Am. Rice, 701 F.2d at
414–15 (applying the Lanham Act to defendant’s sale of rice
in Saudi Arabia, though the goods did not flow back into
United States markets, because defendant’s business was
located in the United States).




     6
     Timberlane refers to defendant’s impact on “American foreign”
commerce, Love, 611 F.3d at 613, but, as these cases show, we regularly
apply the Lanham Act to foreign conduct that impacts domestic commerce
because infringing goods flow into American domestic commerce streams.
See, e.g., Steele, 344 U.S. at 286.
                     TRADER JOE’S V. HALLATT                             19

    Trader Joe’s alleges that Hallat’s foreign conduct has
“some effect” on American commerce because his activities
harm its reputation and decrease the value of its American-
held trademarks. It argues that Hallatt violates 15 U.S.C.
§ 1114(a), the Lanham Act’s general prohibition on
trademark infringement, by transporting and selling Trader
Joe’s goods without using proper quality control measures or
established product recall practices.7 By framing its
allegation this way, Trader Joe’s seeks to circumvent the first
sale doctrine, which establishes that “resale by the first
purchaser of the original article under the producer’s
trademark is generally neither trademark infringement nor
unfair competition.” See Enesco Corp. v. Price/Costco Inc.,
146 F.3d 1083, 1085 (9th Cir. 1998). The quality control
theory of infringement is cognizable under the Lanham Act
notwithstanding the first sale doctrine: “[d]istribution of a
product that does not meet the trademark holder’s quality
control standards may result in the devaluation of the mark by
tarnishing its image.” Id. at 1087 (alteration in original)
(internal quotation marks omitted) (recognizing viable claim
for Costco’s repackaging of plaintiff’s figurines, which
caused chips and other damage); see also Adolph Coors Co.
v. A. Genderson & Sons, Inc., 486 F. Supp. 131, 132–33 (D.
Colo. 1980) (enjoining defendant from purchasing Coors beer
in Colorado and reselling it in Maryland because defendant
did not refrigerate beer during transport and the sale of
skunked beer, an inferior product, harmed Coors’s


 7
   The amended complaint alleges that Hallatt stopped selling perishable
food pending resolution of this case, but neither party argues that this case
is moot, and voluntary cessation of allegedly infringing activities does not
moot an appeal. See Already, LLC v. Nike, Inc., 133 S. Ct. 721, 727
(2013) (describing mootness doctrine); Gator.com Corp. v. L.L. Bean,
Inc., 398 F.3d 1125, 1130 n.3 (9th Cir. 2005) (same).
20                  TRADER JOE’S V. HALLATT

reputation), cited favorably in Enesco Corp., 146 F.3d at
1085 n.2, 1087.

     According to Trader Joe’s, Hallatt’s poor quality control
practices could impact American commerce if consumers
who purchase Trader Joe’s-brand products that have been
transported to Canada become ill, and news of such illness
travels across the border. Trader Joe’s alleges this may harm
its reputation, reduce the value of its trademarks, and cause
lost sales. Trader Joe’s argues its risk of harm is particularly
high because Pirate Joe’s displays Trader Joe’s trademarks,
which leads consumers to believe that it is an authorized
Trader Joe’s retailer. There is nothing implausible about the
concern that Trader Joe’s will suffer a tarnished reputation
and resultant monetary harm in the United States from
contaminated goods sold in Canada. Incidents of food-born
illness regularly make international news,8 and Trader Joe’s
alleges that it is aware of at least one customer who became
sick after consuming food sold by Pirate Joe’s. Courts have
held that reputational harm to an American plaintiff may
constitute “some effect” on American commerce. Steele,
344 U.S. at 286 (applying Lanham Act extraterritorially
where “competing goods could well reflect adversely on
Bulova Watch Company’s trade reputation in markets
cultivated by advertising here as well as abroad”); Gucci Am.,
Inc. v. Guess?, Inc., 790 F. Supp. 2d 136, 143 (S.D.N.Y.
2011) (“It is well-settled that a showing of . . . harm to
plaintiff’s goodwill in the United States is sufficient to


 8
   See, e.g., Anita Balakrishnan, Analysts negative on Chipotle after CDC
launches new E.coli investigation, CNBC (Dec. 22, 2015, 10:28 a.m.),
http://www.cnbc.com/2015/12/21/cdc-investigating-another-outbreak-of-
different-e-coli-strain-at-chipotle.html (“Shares of Chipotle Mexican Grill
dropped more than 4 percent” after news of CDC investigation).
                 TRADER JOE’S V. HALLATT                    21

demonstrate a ‘substantial effect on United States
commerce.’” (quoting Steele, 344 U.S. at 286)); see also
15 U.S.C. §§ 1114, 1125 (making actionable conduct that is
likely to cause future harm).

    Hallatt’s alleged attempt to pass as an authorized Trader
Joe’s retailer could similarly harm Trader Joe’s’ domestic
reputation and diminish the value of its American-held marks.
The complaint alleges that Hallatt sells Trader Joe’s goods at
inflated prices, so customers who shop at Pirate Joe’s may
come to mistakenly associate Trader Joe’s with overpriced
goods. Trader Joe’s also alleges that Pirate Joe’s has inferior
customer service, something Trader Joe’s believes reflects
poorly on its brand. False endorsement gives rise to an
actionable harm under the Lanham Act, see 15 U.S.C.
§ 1125(a)(1)(A), and Trader Joe’s contends it will suffer this
harm in the United States because it draws international
shoppers to its northern-Washington stores, and its
trademarks stand to lose value in the United States. See
McBee, 417 F.3d at 119 (“One can easily imagine a variety of
harms to American commerce arising from wholly foreign
activities by foreign defendants. There could be harm caused
by false endorsements, passing off, or product disparagement,
or confusion over sponsorship affecting American commerce
and causing loss of American sales.”).

    Finally, Trader Joe’s alleges that Hallatt engages in
commercial activity in the United States as part of his
infringing scheme. See Reebok, 970 F.2d at 554–55 (first two
Timberlane factors satisfied in part because defendant
“organized and directed the manufacture of counterfeit
REEBOK shoes from the United States”). According to
Trader Joe’s, Hallatt sources his inventory entirely from the
United States: he purchases thousands of dollars of Trader
22               TRADER JOE’S V. HALLATT

Joe’s goods in the United States and re-sells them in his
Canadian store. Hallatt’s operation may be assisted in part by
his U.S. LPR status, 8 U.S.C. § 1101(a)(27)(A). See A.V. by
Versace, Inc. v. Gianni Versace, S.p.A., 126 F. Supp. 2d 328,
337 (S.D.N.Y. 2001) (applying Lanham Act to foreign
conduct of permanent resident alien who “has resided in and
done business in the United States”); cf. Steele, 344 U.S. at
285 (explaining that the United States government may
regulate American citizens’ foreign conduct). The complaint
also alleged that Hallatt began hiring third parties in
Washington, presumably United States citizens, to purchase
Trader Joe’s goods on his behalf when Trader Joe’s refused
to serve him as a customer. This domestic economic activity
weighs in favor of applying the Lanham Act to Hallatt’s
conduct. See Ocean Garden, Inc. v. Marktrade Co., 953 F.2d
500, 503–04 (9th Cir. 1991) (applying Lanham Act to foreign
conduct of California-based corporate defendant).

     Hallatt’s domestic activity also distinguishes this case
from Love, the case the district court found dispositive.
611 F.3d at 613. The plaintiff in Love (Mike Love, a former
member of the Beach Boys) sued several British defendants
after they distributed compact discs featuring Love’s
trademark as cover art. Id. at 607. In Love, it was undisputed
“that all relevant acts occurred abroad” (defendants designed,
manufactured, and disseminated the infringing CDs entirely
in Europe). Id. at 613. Love failed to show that the
defendants’ conduct directly caused Love “monetary injury
in the United States,” id., and we affirmed summary judgment
in favor of defendants. Id. at 613–14. Here, unlike in Love,
Hallatt executes a key part of his allegedly infringing scheme
in the United States, so the causal showing found lacking in
                    TRADER JOE’S V. HALLATT                           23

Love is satisfied.9 See McBee, 417 F.3d at 118 (“the domestic
effect of the international activities may be of lesser
importance and a lesser showing of domestic effects may be
all that is needed” when defendant engages a scheme
involving domestic and foreign conduct (discussing Steele)).

    For these reasons, Trader Joe’s satisfied its burden under
Timberlane prongs one and two, at least at this early stage of
the proceeding.

         b. Timberlane prong three

    The third Timberlane prong considers international
comity, see Hartford Fire Ins. Co. v. California, 509 U.S.
764, 797–98 & n.24 (1993), and gives effect to the “rule that
we construe statutes to avoid unreasonable interference with
other nations’ sovereign authority where possible,” RJR
Nabisco, 136 S. Ct. at 2106–07 & n.9. This prong involves
weighing seven factors:

         [1] the degree of conflict with foreign law or
         policy, [2] the nationality or allegiance of the
         parties and the locations or principal places of
         business of corporations, [3] the extent to
         which enforcement by either state can be


    9
      Love also involved a summary judgment motion; we dismissed
plaintiff’s Lanham Act claim because Love’s evidence did not raise a
triable issue of fact about whether CD sales in England impacted
attendance at Love’s concerts in the United States. 611 F.3d at 613. Here,
we consider an appeal following a motion to dismiss, and so we
accept—without requiring Trader Joe’s to prove—that the domestic
components of Hallatt’s operation impact American commerce. See Lee
v. City of Los Angeles, 250 F.3d 668, 679 (9th Cir. 2001) (on a Rule
12(b)(6) motion, we accept as true the facts alleged in the complaint).
24               TRADER JOE’S V. HALLATT

       expected to achieve compliance, [4] the
       relative significance of effects on the United
       States as compared with those elsewhere,
       [5] the extent to which there is explicit
       purpose to harm or affect American
       commerce, [6] the foreseeability of such
       effect, and [7] the relative importance to the
       violations charged of conduct within the
       United States as compared with conduct
       abroad.

Star-Kist Foods, Inc. v. P.J. Rhodes & Co., 769 F.2d 1393,
1395 (9th Cir. 1985) (citing Timberlane). No one factor is
dispositive; each factor “is just one consideration to be
balanced.” Wells Fargo, 556 F.2d at 428. Having considered
these factors, we conclude that it is appropriate to apply the
Lanham Act to Hallatt and Pirate Joe’s.

    Degree of conflict with foreign laws. Courts typically
find a conflict with foreign law or policy when there is an
ongoing trademark dispute or other proceeding abroad.
Compare Star-Kist, 769 F.2d at 1396 (finding conflict when
defendant’s petition to cancel plaintiffs’ Philippine trademark
registration was pending in the Philippine Patent Office), with
Am. Rice, 701 F.2d at 415–16 (finding no conflict when
defendant’s conduct was lawful under Saudi Arabian
trademark law). In 2012, Trader Joe’s applied for, and was
granted, Canadian recognition for its Trader Joe’s trademarks,
but there is no pending or ongoing adversarial proceeding
between Trader Joe’s and Hallatt in Canada. Nor is Trader
Joe’s engaged in any proceeding (so far as we are aware)
relating to its Canadian trademarks. This factor therefore
weighs in favor of extraterritorial application.
                     TRADER JOE’S V. HALLATT                              25

    Nationality of parties & location of businesses. This
factor typically weighs in favor of extraterritoriality when
both parties are United States citizens, or the parties are
foreign citizens who operate domestic businesses. See
Reebok, 970 F.2d at 556 (defendant operated his business
from the United States); Ocean Garden, 953 F.2d at 504
(both parties were Californian corporations). Trader Joe’s is
an American corporation with its principal place of business
in Monrovia, California. Although Trader Joe’s operates no
stores in Canada, its trademarks are well-known there. The
complaint alleges that Transilvania Trading and Pirate Joe’s
are (or were) Canadian entities, and that both have (or had)
their principal places of business in Vancouver, Canada. As
far as we can tell, Hallatt is a Canadian citizen, but because
he maintains LPR status in the United States, he subjects
himself to the laws of this country. Hallat is also the driving
force behind Pirate Joe’s. This is not, as Trader Joe’s argues,
simply a dispute between an American plaintiff and an
American defendant, because the complaint alleges that
Hallatt is a Canadian citizen who domiciles in Vancouver.10
But Hallatt’s admission that he holds LPR status edges this
factor into Trader Joe’s’ column. See A.V. by Versace, 126 F.
Supp. 2d at 337 (applying Lanham Act to foreign conduct


  10
      The complaint’s allegation that Hallatt domiciles in Vancouver is
inconsistent with Hallatt’s claim to LPR status. Compare U.S. Citizenship
& Immigration Servs., Maintaining Permanent Residence,
https://www.uscis.gov/green-card/after-green-card-granted/maintaining-
permanent-residence (an LPR intentionally abandons his or her status by
moving “to another country, intending to live there permanently”) (last
visited Aug. 19, 2016), with Mas v. Perry, 489 F.2d 1396, 1399 (5th Cir.
1974) (“A change of domicile may be effected only by a combination of
two elements: (a) taking up residence in a different domicile with (b) the
intention to remain there.”). Neither party reconciled this disparity in their
briefing or at oral argument.
26               TRADER JOE’S V. HALLATT

when defendant was permanent resident alien, had “resided
in and done business in the United States for over forty
years,” and was the driving force behind the corporate
defendant), at least at this stage in the proceedings.

    Remedy & enforcement. The third factor requires us to
consider the remedy sought and the extent to which the trial
court will be able to enforce its order. See Ocean Garden,
953 F.2d at 504. Trader Joe’s seeks damages, including
disgorgement to compensate for losses incurred as a result of
the infringement, and a permanent injunction to prevent
Hallatt from using Trader Joe’s trademarks, offering Trader
Joe’s goods for resale, or mimicking Trader Joe’s trade dress.
There is nothing to suggest that the district court would have
difficulty enforcing a damages award against Hallatt: Hallatt
is an LPR and Trader Joe’s argues he holds assets here. See
Reebok, 970 F.2d at 557 (finding American court to be in a
superior enforcement position vis-à-vis its Mexican
counterparts because “[e]ach of the defendants, their principle
places of business, and the vast majority of their assets are
located in the United States”). And there is no doubt that the
district court could stop Hallatt’s operation with a domestic
injunction because Hallatt sources his goods entirely from the
United States. See Ocean Garden, 953 F.2d at 504 (“The
injunction would be effective against Marktrade because it is
a U.S. corporation which ‘orchestrated [its] infringing
activities’” here (alteration in original) (citation omitted)).
The district court could likewise enforce an injunction against
Hallatt’s foreign conduct if that conduct is found to violate
the Lanham Act. See Steele, 344 U.S. at 289 (“[T]he District
Court in exercising its equity powers may command persons
properly before it to cease or perform acts outside its
territorial jurisdiciton.”); Ramirez & Feraud Chili Co. v. Las
Palmas Food Co., 146 F. Supp. 594 (S.D. Cal. 1956) (same),
                 TRADER JOE’S V. HALLATT                    27

aff’d, 245 F.2d 874 (9th Cir. 1957) (per curiam). Neither the
remedies sought nor the district court’s ability to enforce its
orders weigh against applying the Lanham Act here.

    Relative significance of effects. Trademark law has two
goals: “[p]rotect property in the trademark and protect
consumers from confusion.”           J. Thomas McCarthy,
1 McCarthy on Trademarks & Unfair Competition § 2:1 (4th
ed. 2013). Hallatt’s conduct primarily affects the value of
Trader Joe’s’ trademarks in the United States because Trader
Joe’s holds most of its intellectual property here. On the
other hand, Canadian consumers are the most likely to be
deceived by Hallatt’s conduct because he displays Trader
Joe’s marks and sells Trader Joe’s goods only in Canada.
Federal courts ordinarily do not have an interest in protecting
foreign consumers from confusion. See McBee, 417 F.3d at
126. But Trader Joe’s also alleges that its trademarks are
well-known in Canada, and that more than forty percent of
the credit card transactions at its Bellingham, Washington
store are with non-United States residents. Hallatt’s sale of
Trader Joe’s goods in Canada has the potential to mislead
these consumers, so this factor weighs in favor of
extraterritorial application.

    Purpose to harm American commerce & foreseeability.
The pleadings, taken in the light most favorable to Trader
Joe’s, tend to support the conclusion that Hallatt intended to
harm Trader Joe’s, or, at a minimum, that such harm was
foreseeable. Hallatt chose to name his store “Pirate Joe’s,”
suggesting that he knowingly treads on Trader Joe’s’
goodwill and pirates Trader Joe’s’ intellectual property.
Indeed, one of Hallatt’s employees allegedly admitted that
“we’re pirating Trader Joe’s, sort of.” The complaint further
alleges that Trader Joe’s disapproved of Hallatt’s conduct,
28               TRADER JOE’S V. HALLATT

and Hallatt began engaging in subterfuge (such as donning
costumes) to purchase goods at Trader Joe’s stores without
being identified. These factors therefore weigh in favor of
extraterritorial application.

    Relative importance of conduct within the United States
as compared to conduct abroad. Trader Joe’s alleges, and
Hallatt admits, that an essential part of his commercial
venture takes place in the United States: Hallatt purchases
Trader Joe’s products in Washington with the purpose of
reselling them in Canada. That Hallatt uses American
commerce streams to accomplish his allegedly infringing
scheme weighs in favor of applying the Lanham Act to his
conduct. But arguably the conduct most important to
Hallatt’s operation happens in Canada: According to Trader
Joe’s, Hallatt displays Trader Joe’s trademarks on his
Canadian store in a way that confuses Canadian consumers,
and Hallatt resells Trader Joe’s goods—including perishable
goods not transported according to Trader Joe’s quality
control standards—in Canada. Because most of Hallatt’s
infringing activity occurs abroad, this factor weighs against
extraterritorial application to some extent. See Reebok,
970 F.2d at 557 (reasoning that the factor would weigh
against extraterritorial application when “actual consumer
sales of [the infringing] products may have occurred only”
abroad); Star-Kist, 769 F.2d at 1396 (“The effect on United
States commerce from the alleged illegal use of the
trademarks in trade between the Philippines and other foreign
countries is relatively insignificant compared to the effect on
Philippine commerce.”).

                            ***
                 TRADER JOE’S V. HALLATT                    29

    In sum, Timberlane’s three prongs favor extraterritorial
application of the Lanham Act here. On prongs one and two,
Trader Joe’s alleges a nexus between Hallatt’s foreign
conduct and American commerce sufficient to state a Lanham
Act claim: Hallatt’s conduct may cause Trader Joe’s
reputational harm that could decrease the value of its
American-held trademarks, and Hallatt operates in American
commerce streams when he buys Trader Joe’s goods in
Washington and hires locals to assist him. On prong three,
the seven subfactors we use to evaluate potential
“interference with other nations’ sovereign authority,” RJR
Nabisco, 136 S. Ct. at 2107 n.9, taken together, do not
counsel against applying the Lanham Act here. We therefore
conclude that the Lanham Act reaches Hallatt’s allegedly
infringing activity, and we reverse the district court’s
dismissal of Trader Joe’s’ four Lanham Act claims.

B. State Law Claims

    Trader Joe’s next contends the district court erred when
it granted Hallatt’s motion to dismiss its state trademark
dilution and Washington Consumer Protection Act (CPA)
claims. We agree with the district court that Trader Joe’s
failed to state a claim under either statute, and we affirm its
order dismissing those claims.

   1. Trademark dilution

    Washington’s trademark dilution statute largely mirrors
the federal trademark dilution statute. It says:

       The owner of a mark that is famous in this
       state shall be entitled, subject to the principles
       of equity and upon such terms as the court
30               TRADER JOE’S V. HALLATT

        deems reasonable, to an injunction against
        another person’s commercial use in this state
        of a mark, commencing after the mark
        becomes famous, which causes dilution of the
        distinctive quality of the mark, and to obtain
        such other relief as is provided in this section.

Wash. Rev. Code § 19.77.160(1). The district court
concluded, and Hallatt maintains on appeal, that Trader Joe’s
failed to state a claim for relief under this statute because
Trader Joe’s did not allege that Hallatt used Trader Joe’s
trademarks in Washington. Trader Joe’s counters that
“Washington’s Antidilution Act requires dilution in
Washington, not ‘diluting activity’ in Washington,” and
“nothing in the statute suggests this protection is limited to
only dilution caused by a defendant’s use of a mark within
the state.” Hallatt has the better argument.

    Washington’s dilution statute entitles courts to enjoin
“commercial use in this state of a [famous] mark.” Wash.
Rev. Code § 19.77.160(1) (emphasis added).                  The
legislature’s choice to limit the Antidilution Act’s primary
remedy to a defendant’s use of a famous mark in Washington
reflects its intent that the law reach only infringing activities
that occur in Washington. Wash. Dep’t of Ecology v.
Campbell & Gwinn, LLC, 43 P.3d 4, 9 (Wash. 2002) (“[I]f
the statute’s meaning is plain on its face, then the court must
give effect to that plain meaning as an expression of
legislative intent.”). We find no support for Trader Joe’s’
contrary contention that the Antidilution Act proscribes
dilution that occurs abroad and creates a ripple effect in
Washington, so we opt for a simpler, more textual reading of
the statute: to state a claim for relief under Washington’s
trademark dilution statute, a plaintiff must allege, inter alia,
                    TRADER JOE’S V. HALLATT                            31

that the defendant used its mark in Washington. See Wash.
Rev. Code § 19.77.160(1).11

    Trader Joe’s does not allege that Hallatt uses Trader Joe’s
trademarks in Washington. To the contrary, Trader Joe’s
alleges that Hallatt’s diluting activity—selling Trader Joe’s-
branded goods, using Trader Joe’s trade dress to decorate his
store, displaying the confusingly similar “Pirate Joe’s” mark
on his storefront—takes place in Vancouver, British
Columbia. The complaint does allege that Hallatt purchases
Trader Joe’s goods in Washington to resell in his store, but
this action (while possibly deceptive) is not “commercial use
in this state of a mark . . . which causes dilution.” Wash.
Rev. Code § 19.77.160(1) (emphasis added); see also id.
§ 19.77.010(6) (defining dilution); cf. Sensient Techs.,
613 F.3d at 762–63 (explaining the concept of “use” in
federal trademark law). We agree with the district court that
Trader Joe’s failed to state a plausible claim for relief under
Washington’s trademark dilution statute.

    2. Consumer Protection Act

   The CPA declares unlawful “[u]nfair methods of
competition and unfair or deceptive acts or practices in the
conduct of any trade or commerce.” Wash. Rev. Code.


  11
     Trader Joe’s urges us to analyze whether Washington’s dilution statute
applies to Hallatt’s conduct as a choice-of-law issue. But this case is not
about whether the district court could have applied Canadian law to
Hallatt’s infringing conduct; it is about whether Trader Joe’s stated a
claim for violation of a Washington law. See Haberman v. Wash. Pub.
Power Supply Sys., 744 P.2d 1032, 1053 (Wash. 1987) (distinguishing
“the choice of law to be applied in this case” from “whether [a
Washington statute] can be applied extraterritorially to regulate out-of-
state transactions”).
32               TRADER JOE’S V. HALLATT

§ 19.86.020. The CPA’s purpose is “to protect the public and
foster fair and honest competition.” Id. To state a claim
under the CPA, a plaintiff must allege: “(1) [an] unfair or
deceptive act or practice; (2) occurring in trade or commerce;
(3) public interest impact; (4) injury to plaintiff in his or her
business or property; [and] (5) causation.” Hangman Ridge
Training Stables, Inc. v. Safeco Title Ins. Co., 719 P.2d 531,
533 (Wash. 1986); Brummett v. Wash. Lottery, 288 P.3d 48,
54 (Wash. Ct. App. 2012). The parties contest only the
second element.

    The Washington legislature broadly defines the terms
“trade” and “commerce” to include “the sale of assets or
services, and any commerce directly or indirectly affecting
the people of the state of Washington.” Hangman Ridge,
719 P.2d at 535; Wash. Rev. Code § 19.86.010(2). The
Washington State Supreme Court recently considered the
scope of this statute. See Thornell v. Seattle Servs. Bureau,
363 P.3d 587, 589 (Wash. 2015). Thornell held that the CPA
creates “a cause of action for a plaintiff residing outside of
Washington to sue a Washington corporate defendant for
allegedly deceptive acts.” Id. at 589, 592. The CPA likewise
creates a cause of action for an out-of-state plaintiff against
an out-of-state defendant for the allegedly deceptive acts of
the defendant’s in-state agent. Id. at 592; see also Red Lion
Hotels Franchising, Inc. v. MAK, LLC, 663 F.3d 1080, 1091
(9th Cir. 2011) (Washington’s Franchise Investment
Protection Act creates cause of action for out-of-state plaintiff
to sue Washington company). Thornell reasoned that a
contrary holding would permit Washington companies to
subvert CPA liability by targeting out-of-state consumers, and
that such a result would thwart a primary purpose of the Act:
                   TRADER JOE’S V. HALLATT                           33

         Washington businesses engaging in unfair and
         deceptive practices that indirectly affect
         others do not advance the purpose of fair and
         honest competition. Honest businesses could
         be placed at a competitive disadvantage
         competing against a business that generates
         revenue from unlawful acts that violate the
         statute.

363 P.3d at 591.

    Thornell holds that the CPA applies broadly, but its
holding does not encompass Hallatt’s conduct. Here, unlike
in Thornell, none of the defendants are Washington residents:
the complaint alleges that Hallatt is a Canadian citizen
domiciled in Vancouver, Canada,12 and Pirate Joe’s has its
principal place of business in Canada. Cf. Thornell, 363 P.3d
at 589. Trader Joe’s is a California corporation, so to the
extent Hallatt’s conduct diminishes the value of its
trademarks, that harm is not a Washington-based harm.
Given the status of the parties in this case, Thornell’s
justification for applying the CPA extraterritorially—that it
may be applied to combat deceptive practices of Washington
businesses—would not be served by applying it here. See
Red Lion, 663 F.3d at 1090 (noting that a Washington law
would not apply extraterritorially when neither party is a
Washington resident and the acts giving rise to the claim
occurred outside of Washington). Nor did Trader Joe’s
plausibly allege that Hallatt’s activity harms “the people of
the state of Washington.” Cf. Hangman Ridge, 719 P.2d at
535. The primary theory of Lanham Act infringement in this

  12
     Although Hallatt admitted he is an LPR, Trader Joe’s did not allege
that he lives in Washington State.
34               TRADER JOE’S V. HALLATT

case, the quality control theory, is based on harm to Trader
Joe’s reputation, not consumer confusion. The deceptive
practices claim centers on Hallatt’s attempt to pass-off his
store as a Trader Joe’s store, but this deception allegedly
occurs only in Canada and therefore harms only Canadian
consumers. Finally, unlike in Thornell—where defendant’s
competitive practices gave it a competitive advantage over
honest Washington businesses—Trader Joe’s’ complaint did
not allege that the existence of a low-quality, high-cost Trader
Joe’s knock-off store in Vancouver puts honest Washington
grocery stores at a competitive disadvantage. Cf. Thornell,
363 P.3d at 591. The district court properly dismissed this
claim.

                      CONCLUSION

    We conclude that the Lanham Act applies to Hallatt’s
allegedly infringing conduct, but that the district court
properly dismissed Trader Joe’s’ state law claims. We
therefore REVERSE dismissal of the federal claims,
AFFIRM dismissal of the state claims, and REMAND for
further proceedings. The district court’s judgment is
REVERSED in part, AFFIRMED in part, and
REMANDED. Each party shall bear its own costs.