it to gasoline or carolinas law conflicts with federal law in three ways first it conflicts with the lanham act which gives trademark owners the right to control the quality of their trademark products and to per bid the sale of commingle trademark products second it conflicts with the petroleum marketing practices act which allows franchisees to be terminated for trademark violations and expressly preempts state laws that narrowed the grounds for terminations and third it conflicts with the federal renewal fuel program which establishes a flexible framework for meeting federal renewal bill fuel obligations now as to the lanham act and trademark law trademark owners have both a right and a duty under federal law to control the quality of the products the district court acknowledged that important principle and it held that the north carolina law can be interpreted to allow testing of splash blended fuel and perhaps other measures but then the district court stopped short of taking what we think is the next necessary step of saying that refiners may require in line blending of of out as a quality control measure of the parties agree that in line blending is a form of quality control that's in the state's brief and page twenty three the refiners believe in there's abundant evidence in the record to show that in line blending leads to fewer errors in record is that within line blending the amount of ethanol is measured by computer operated the truck driver it's mixed in a controlled way by the computer as you go and if the this trademark says that if you have standing to do that well we were the association my clients are the associations for the industry so we have association all standing are the members would have standing to bring this case and that's that's that's that's what your record shows it like bush they were the that's exactly right and it's one of the most important aspects of trademark law is control of the quality of the product so being told that you that's most of the fuel sold today is ten percent it is legal to sell the new all of its berries up to fifty percent that make the car run rougher and that well there's a lot of dispute about that it think the e p a s position is it could make older cars run rougher and the car manufacturers and the american automobile association think there could be a problem with newer cars as well but so the so that's one of the big problems here this is to marketers in line lending well marketers could if they wanted to install it now one of the advantages of inline blending is that you blend the gasoline and the ethanol as you put it into the tanker truck behind it and that's an advantage because if you do it one after the other then you only reach the right mixture at one point at the very end and if something goes wrong at the equipment breaks down the truck driver is not watching at the correct moment you're off so for distributors to do it they would have to first buy the on line blending equipment and then you'd actually have to you know pump the gasoline back out of the thing i think they knew that well it could be done it could be done and frankly that would be a huge improvement i mean then there would be this lanham act is your argument about preemption right well i think it comes up in two ways and i can simplify it a bit there is an argument about we make an argument about preemption under the lanham act we also make some arguments under the petroleum marketing revision which this court has interpreted in mobile oil very broadly so one way to simplify the case on the on the branded products the product that has an exxon or a shell and so so that i don't know if that simplifies it a bit there's one other key point that i think might also simplify and frankly this helped me as i was getting ready for this argument on both if a distributor were to without permission from the refinery add unbranded gasoline another brand of gasoline ethanol anything any substance to a trademark product that would be a clear trademark violation it's called different names we cite about five cases i have them right here we could say required under federal law to a absolutely right and this d c enterprises thing i can understand you know i know you're more expert in this than i am is what is the market take care of that ok then charge more for the ninety percent i mean it just seems to me it's entirely with your hand mean one thing is it's already legal to sell what's called the eighty five that's eighty five percent ethanol not much of that is sold yet outside the midwest but if this if the court approves what north carolina is doing here it be not just ten percent it could be eighty five percent or even more and then in these cases like the d z enterprise case the court said you know it really doesn't matter if the product is chemically and tentacle it really doesn't matter about anything except that the trademark owner gets to designate what is the genuine product and it is largely for the reason you say that that the way they get compensated for all their investment in the trademark the advertising of keeping up a good reputation of the market is selling the trademark product so if a distributor can add in ten percent or eighty five percent of something else and not  longer one hundred percent ghastly welfare nat's if you read what is genuine exxon gasoline is what exxon says is genuine gasoline these cases d z enterprises shell against ray thomas petroleum shell against of our a unit against mobil some of these cases it was the same stuff it came from the same tank and that was the distributors defense and the courts said it's only genuine pre mark exxon gasoline take exxon for example if the trademark owner says so and that's big it's because of both the control of quality which is so important that's really what trademark is all about and it's for the ability to get compensated using sort of a code for at the initials well at in this court after that we decided the mobile case yes under mobile as i understand it the test was whether there's a significant negative impact on the trademark owners station or it's going to be prompt and if it's not properly one that ethanol well then they have contractual remedies that they can pursue agus of the strippers and that's that sufficient to maintain quality control but why is that wrong well because once you have to sue somebody for trademark violations then you have suffered harm to the mark the whole idea of quality control is to avoid mistakes and to provide a good quality product all the time or as much of the time as you can so saying well wait till the problems happen wait till the consumers are upset and then you can sue your distributor is really an trademark law is trying to accomplish and even saying well you can do some testing you know after the splash blending happens it's because we were discussing it's just inherently a lesser quality control standard because what's what's the main fact you want to trial on your well not to be honest we don't think necessarily we have to go back for a trial i mean if you agree with us that would you send the family with what if ok absolutely we would win that issue at trial hands down and so we would we would certainly need to go back for a trial on that before a court could say oh no it's it's no better it's just the same a splash one thing so that i think would be the the key issue for for trial if we sent it back for trial what did the customer if the customer know there's been in line blending or don't absolutely not and that's that's another way to look at this case the customer because of the trademark assumes that when they buy again we're just using exxon as an example when they buy exxon gas they're assuming that either exxon made it and in fact was the original meaning of a trademark that exxon actually made it or that exxon controls and agrees with every step of how it was produced and so when under this state law exxon doesn't agree they don't agree with the splash clothing but nevertheless they when put that label on the gas that thing the pump that if the next on product approved blah blah but on the product that when they fell and landed product and it blended in that they then they won't be there that that time won't be on it so there won't be of the mark will still be retained right well no i mean the point is if it's a product that's got the exxon trademark on it but under the state law the distributor has added in ethanol using the splash blending against facts on swill then the customer thinks oh exxon either made this or approves of how it was made but that's not true that's actually deceptive exxon does alternative is not accurate did it in a way that exxon doesn't approve of and is that such a product being sold in north carolina i'm not sure of the answer to that question there is there is a point in the record that not a lot of the distributors are actually demanding to have unblended gasoline under this new statute that was another problem that i had to i wasn't sure you were quite to litigation here seem to be pretty preliminary with and they were well this was i mean we brought this  decide actual cases and controversy well of course but i think we have an actual case in controversy because there's a pressing need for the refiners in north not wanting to have my very first answer deferred but it was my intention i won't be before you this morning for seven minutes to talk to you about some of the general preemption issues specifically as they apply to the federal renewal  representing the attorney general it seemed that the most logical division of the issues if you will are to give the state of north carolina the renewable fuels because many of the facts and things that you're very interested in hearing about today deal with  the relationship really between the marketers and the suppliers but i did want to talk to you today briefly about the the federal ethanol whether or not that's is preempted by the renewal federal program because of course as you all know there's a strong presumption against a federal preemption of state laws and only purpose of the state law the purpose of this state law also to help with this increase in the annual use of renewable fuels and also i think to help with the relationship with the suppliers in the market or specifically i think so that the marketers  excuse me the suppliers don't end up with a monopoly in this area because of course one of the the arguments that you hear today from the pella in this case is that there's a conflict between the federal law and the state law and it's impossible for them to comply because there are these things that they want to be able to do that they can under the statute they need this guidance but if you look at the things they want to do they have already stipulated that those things are possible for  example the ethanol blending statute only requires that they offer these fuels in north carolina there is no restriction on how what kind of quantity they offer how many terminals that they  provide with regard to where this is done they say that they prefer to import this what they call the c bob and i apologize there are a lot of acronyms in this particular case but they want to import c bob products but they can do that by blending premium and regular c bob products to get this eighty seven octane conventional gas which of course we see at the pumps and third they say that c bob is not within the definition of gas under the ethanol blending statute but if that's true and you accept that then the suppliers that the logical process on that is that the suppliers don't have ethanol lending statute which defeats the whole purpose that they say there is a conflict so that is no conflict here is more a the suppliers wanting to use this to enhance their their business interests and of course if in for present preemption cases you look at the underlying federal reg or federal statute to see what the purpose is and the purpose is to increas well and i am just here to talk to you about these renewal fuels issue because i think that it is worth addressing and i think that because the preemption principles apply across the board to their arguments and i do think it's interesting in this case that there were two summary judgment orders entered one was entered as to a facial challenge in which we prevailed and the second was entered as to and as applied challenge which we prevailed but if you look at the basis for the orders and the arguments surrounding both orders they sickly the second one was amazing mainly a repackaging of the first so that i'm like why is that it is i think it assists because it just shows that they don't have anything new to support their claim or it shares a district court and think that that is true judgment and that is possible but i think that our position of course would be the judge when it comes order was very thoroughly thought out and  was it did properly address those issues and with that i am going to turn it over to mr marshall because i know you want to hear from him about the remaining two issues north carolina judge a g you have to want to do the splice blending with the talking about exactly right your honor judge a g you asked why not a trial on the quality control issue and the answer is simple and that is there is no conflict between the purposes of the lanham act which are to prevent consumer confusion and the ethanol blending statute itself the question is can you read these statutes in harmony the state ethanol blending statute in the lanham act and you can just as the district court did and here's why statute does is preserve the retailers in the distributors right to actually blend the gasoline with ethanol themselves which judge much mentioned is exactly what federal policy but requires and encourage is the and i want to talk well then why shouldn't they have a chance to develop that record because we've we have stipulated facts that the parties agreed to it took to the district court on this issue and here is some of that excuse me on what does that get you laid back well one of the stipulated facts is that that's exactly right there's right evidence in the next say in line lending is better than supply spending right and if you accept their proposition for purposes of summary judgment then you gotta have trout of you don't your hon in this case i'll tell you why in this case you have to accept your version of the facts it seems to me we don't even need to get into what it sounds like to be you'd have to accept your version of the facts to uphold a summary judgment judge king in this case we don't even need to get to the question of which is better and i'll tell you why well if if if if there's a difference than that gasoline if i want to buy b p gasoline in in north carolina there's a chance it's go answer's yes in the record makes that clear not only has it happened for thirty years but on this record there's no evidence of consumer harm from splash funding there's no evidence of a regulatory violation from splash one doing there's no evidence that the suppliers have not been using quality control measures for splash one to go have told us cover here we did including testing and we some of the questions are what kind of quality control can we have the answer is almost anything you can have technical specification i thought director with pretty clear that you can have the way that they do it better than the last but that's not clear in this record in this case no i think the record is clear the the non splash blending was could be tested more easily and more accurately then the splash of it that is their position and there's test there's some we have to take that for purposes the summary judgment is accurate but there's but there's also there's record evidence that testing is done and has been done at the retail level as well but it's not as accurate in their opinion it's not as accurate result that matters for lanham act purposes it's the meth it's the ability to impose quality control standards that's what makes the product genuine and you can play say they want to be in control of it and they need to be in control of because it's their trademark that's rights as is their trademark and so everybody assumes it's one hundred percent b p whether it's petroleum gasoline or whether it's corn and it all or whatever percentage and they don't do the last ten percent or product really then it's really not be enforced by b p and for the last thirty years if there's quality control standards and the record does there are stipulations that these standards have been in place by some suppliers as to splash wondering prior to the advent  if these quality controls are in place and they're followed then it is a genuine product because the right and what the cases say and the shell case that a p i has cited says it's the right to control the quality of the ability to control s conflict preemption the question is do we preserve that right under the north carolina law and the answer is yes because we are not infringing upon their right to impose quality control processes whether it's testing your honor as one process whether it's technical specifications at the at the at the ethanol blending site whether it's contractual provisions for terminations or lanham act in foresman so there front in there is a front inability to regulate splash funding and there's about me i read their in this record that it was more accurate in line blending was more accurate than slash spending they would be entitled to a trial and i would say no for this reason because you said more accurate to me the question is well that all we're in a world of comparison both sides have testimony then but that deadline blending is superior process no but that doesn't mean but the question is for conflict preemption analysis the question is did is there an ability to control the blending plastic process through splash when it is their inability to control the splash landing process that they were saying that part of the problem that is that if they do it in line then they have control the whole process before it goes into the right pump that the consumer is going to get otherwise it's splash blending in there they're limited to kind of remedies after the fact once it starts to come out of the pump but not if you impose the quality specifications for how the ethanol is going to be blended in again because this is a process this is then going on the suppliers have been able to impose and i'm sure for the last thirty years we don't have evidence that a contracts been terminated for splash landing errors and certainly i would think that would be in the record here if it was such a problem and i want to be really careful because i don't want to concede the fact just because an expert may have testified somewhere that this was that in line blending and their opinion was superior technologically that's not the question the question is is there evidence that you can't that you don't have the ability to control blending through the splash blending process through quality control procedures and the evidence of the stipulated record doesn't show any evidence that  blended gasoline and that the quality control processes are insufficient to protect consumers from deception under the lanham act and we can't forget that the federal ject is here whether there's consumer confusion under the lan that's being infringed the question is not whether a p has quest for a single form of quality control where others exist historically well and are good interest in b p and exxon and yes all of them being able to control  have quality control over the product that they sell at their service station as are signed for right and you can do that through imposing quality controls and servers as a corollary right i know if i am filling up with it that that's what i'm getting it out  get the same thing in north carolina that i get in washington d c or for ten years after the record shows your honor signs up there that's right and there's no evidence of any consumer harm from splash running in this record at all that's a stipulated  violation lanham act you don't have to show that there has been damage right but you have to have some evidence of consumer confusion well and there's no evidence that any consumers he didn't know whether he did it as gas and virginia or north carolina or start yet if it's if the gasoline a splash blended according to the suppliers quality control processes that this law allows them to impose and enforce if it splashed blended according to those procedures established by the suppliers th our position is that is a genuine product the fact that that marketers are blending gasoline which are you should do in a not and not do it under the supervision of the supplier but there is no case your honor that's been cited anywhere in this in in this entire litigation that says that a trademark holder has an unfettered right to have blanket immunity from any state law that may impact some element in their mind of quality control when others are available and have been working and there's not evidence that that that automobiles cars cosmetics or medicine where the manufacturer has very strict rules trolls over any type of sub contract to manufacture their product and if you violate that then you're you're out that's it and that's a contractual provision for a four to enforce a quality control standard that's absolutely preserved here is there they're saying in north carolina  the supplier from being able to singularly choose any quality control measure they want when others are available an adequate haven't been proved to be insufficient and otherwise violate state law i think that that there haven't been cases all the cases say are the lanham act allows you to establish and enforce quality control standards we don't dispute that we think the ethanol blending statute allows suppliers to do that today and there hasn't and i want to close on one big point because i don't want to get off the record here there was expert testimony and certainly a p s position is that in line blending is superior just possibly with that that's been their position all along we don't agree with that at all their hand we don't believe there's any there's any record of evidence that shows that it is in fact sapir year to splash blending based on the quality control proceedings over splash landing as long as it does that this statute can be read in harmony there's no conflict with the lanham act and suppliers will have the decision if they want to continue a franchise relationship or if they want to sell the gasoline themselves that doesn't prevent any law blending at all it just prevent it just make sure that the marketers have the ability to blend themselves under the standards imposed by the suppliers thank you for the extra time expert mr o'brien and it includes testimony from virtually all of our fact witnesses but there are also stipulations in the record this is joining pendants one eighteen to one twenty three that we found seventeen errors in the entire united states over a three year period from inline blending and we found eighteen errors in two weeks from means and you can see it in the joint appendix at one eight hundred to one twenty three that when tested the ethanol level was either above or below ten percent some of the differences were relatively small but some were large some were fifteen twenty twenty five percent and part again this is all there is are a range that is considered to be accurate when you say didn't per say it is a lag now i'm five to ten five or didn't have a be very close and i think it does have to be made even be tighter than that  honor because again apologize for the for the complexity if it's a little bit too low you get out of compliance with something called the r v p rule and you have a regulatory violation now it may not be caught many times but if it's too high as we were talking that's when you can really cause problems for consumers and there's there's a lot of debate about if you get up even to fifteen percent and some of these file ations in two weeks by one distributor were above fifteen percent well above so yes that so i'm really not sure what the argument is that there's not evidence in this record that it's blending lesser of those the entirety of your position on the about what would count as adulteration misbranding other forms of trademark violation under the agreements that the individual refiners have that's an issue you'd only get to i mean we were discussing earlier we think an overarching issue that would simplify a lot of the issues is if you would read those half dozen cases that i was trying to cite and say you know look as we were discussing if the trademark owner puts that trademark on that product it has to be the quality control standards that the trademark owner says are the right ones and it has to be the product that the trademark owner certifies is genuine and that can mean you buy a  addition to it if everybody agrees about that so that it strikes me if it's not out there and the question boils down to do you have to adulterate it the way you want to or are they free dozen earlier both of those deal with pure adulteration cases it's not like you have exxon gas coming right out and you want to sell exxon gas and they're going to and the ethanol you're somebody is adding ten percent etha ol no matter what well these cases deal with the heading unbranded gasoline to get there another degree not that but it's really not the same because you're required under federal law as i read it to add the ten percent everybody required at ten percent even if it's chemically identical even if it's what you're required to sell even if it comes from the same time none of that is a defense to a trademark violation and so dan of the street all you have to do it yourself well  the simplest way i can say is if the state law didn't exist and if you had a dealer out there someplace that was dumping ethanol into exxon gas without permission and their defense was just what you're suggesting they said well this has to be done  under federal law so i can do it that that would still be a trademark violation because exxon could say well yes but we want to do it ourselves or we want you to do it within line blending or you know it's it's what the trademark owner says is the best quality control and it's what they are willing to put their trademark on that cou