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. e du/thir dc ir c uit_1998/178Filed July 30, 1998

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 97-5424

IBERIA FOODS CORP.

v.

ROLANDO ROMEO, JR. d/b/a ROL-ROM FOODS

Rolando Romeo, Jr., t/a
Rol-Rom Foods,

Appellant

On Appeal from the United States District Court for the District of New Jersey (D.C. No. 93-cv-01690)

Argued Monday, April 27, 1998

BEFORE: ALITO, RENDELL and GARTH, Circuit Judges

(Opinion filed July 30, 1998)

Stephen L. Baker (Argued) Stephen L. Baker, P.A.
359 East Main Street Somerville, New Jersey 08876

Attorney for AppellantJohn G. Gilfillan, III (Argued)

Kenneth L. Winters Carella, Byrne, Bain, Gilfillan, Cecchi, Stewart & Olstein

6 Becker Farm Road Roseland, New Jersey 07068

Attorneys for Appellee

OPINION OF THE COURT

GARTH, Circuit Judge:

This is a trademark action brought by Iberia Foods against Rolando Romeo, Jr. and his company, Rol-Rom Foods (collectively, "Rol-Rom"), to enjoin Rol-Rom' s sale of household cleaning products under the Mistolin trad emark owned by Iberia. The district court granted summary judgment in favor of Iberia, and Rol-Rom has appeal ed. Because the Mistolin products sold by Rol-Rom are "genuine" under Section 32 of the Lanham Act, 15 U. S.C. S 1114, we will reverse.

I.

Iberia Foods is a Brooklyn-based wholesale distribu tor of grocery store products that owns the United States
trademark to Mistolin household cleaners. The line of Mistolin products includes soaps, tile cleaners, an d laundry detergents, and is offered for sale at grocery stor es and supermarkets both in Puerto Rico and in certain metropolitan areas in the United States for a few d ollars a

bottle.

Mistolin products are manufactured exclusively in P uerto Rico by Mistolin Caribe, Inc. ("Caribe"). In additi on to selling Mistolin to Iberia for resale in the United States, Caribe markets Mistolin directly to distributors in Puerto Rico for resale in the Puerto Rican market. Althoug h both Iberia and Caribe sell Mistolin products, the two c ompanies service entirely separate markets: Caribe sells Mis tolin only in Puerto Rico to Puerto Rican distributors, and Ib eria sells Mistolin only in the continental United States.

2The business arrangement between Iberia and Caribe

dates back to 1988, when Iberia acquired the United States trademark to Mistolin from Caribe's parent company, Mistolin Dominicana, C.A. ("Dominicana").1 Although the legal effect of the 1988 agreement is disputed, its terms granted Iberia "all the rights, title and interest in and to [the Mistolin] trademark insofar as they relate to the United States." In exchange for ownership of the Mistolin trademark, Iberia agreed to purchase Mistolin exclu sively
from Caribe.

The defendant in this case, Rol-Rom Foods, is a New Jersey-based distributor of household cleaning prod ucts that purchases Mistolin products on the open market in
Puerto Rico and sells them in New York and New Jers ey. Although Rol-Rom has never purchased Mistolin produ cts directly from Caribe, it is undisputed that the Mis tolin sold by Rol-Rom was originally sold by Caribe for resale in the Puerto Rico market. By obtaining Mistolin in Puerto Rico and selling it in New York without Iberia's involve ment, RolRom has been able to offer Mistolin for sale in dir ect competition with Iberia at a substantial discount f rom Iberia's price.

II.

In April 1993, Iberia filed a four count complaint against Rol-Rom seeking injunctive relief and damages. The principal count in the complaint alleged that Rol-R om's sale of Mistolin products constituted infringement of Ib eria's trademark in violation of S 32 of the Lanham Act, c odified
at 15 U.S.C. S 1114.2 Rol-Rom's answer denied that it had infringed Iberia's mark, alleged several affirmativ e defenses, and added a number of counterclaims. Following disc overy,

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1. Although Caribe is technically a subsidiary of D ominicana, for the sake of simplicity we will refer to Caribe rather t han Dominicana when discussing the 1988 agreement. This substitution ha s no effect on our resolution of this appeal.

2. The remaining counts against Rol-Rom alleged vio lations of common law trademark and service mark infringement, common law unfair competition, and New Jersey statutory unfair compet ition under N.J.S.A.

56:4-1.

3both parties moved for summary judgment on the fede ral

trademark infringement count.

Before the district court on summary judgment, Iber ia argued that Rol-Rom had clearly infringed Iberia's trademark. According to Iberia, the 1988 agreement between Iberia and Caribe had transferred the right s to the
Mistolin trademark in the continental United States to Iberia, but had allowed Caribe to retain the tradem ark rights to Mistolin in Puerto Rico. By buying Mistol in in Puerto Rico and selling it in the continental Unite d States, Iberia contended, Rol-Rom had circumvented the qual ity control measures enforced by Iberia on all the Mist olin products it sold. Accordingly, Iberia claimed, Rol- Rom's Mistolin was not "genuine," and Rol-Rom's sales con stituted infringement of Iberia's trademark because it injur ed the goodwill Iberia had invested in the mark.

Rol-Rom's view of the case contrasted sharply with Iberia's. According to Rol-Rom, the 1988 agreement had
transferred all of Caribe's United States trademark rights to Iberia. Because Puerto Rico is considered part of t he "United States" for the purpose of federal trademar k law, see 15 U.S.C. S 1127, Rol-Rom claimed that the 1988 agreement had granted Iberia the Mistolin trademark rights
in Puerto Rico as well as in the continental United States. According to Rol-Rom, Iberia's longstanding failure to challenge Caribe's sales of Mistolin to Puerto Rica n distributors provided Rol-Rom with two affirmative defenses to Iberia's action. First, Rol-Rom argued that Iber ia's failure
to exercise control over its mark constituted a"nak ed
license" that had led to de facto abandonment of th e Mistolin trademark.3 Second, Rol-Rom claimed that I beria had impliedly consented to Caribe's sales of Mistol in in Puerto Rico, such that Iberia had relinquished its

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3. Rol-Rom's pleadings describe its abandonment arg ument as a counterclaim, rather than as an affirmative defense . Abandonment, however, is generally considered an affirmative def ense to infringement, rather than the type of actionable wrong that would sustain an independent claim or counterclaim. See, e.g., Exxon Corp. v. Oxxford Clothes, Inc., 109 F.3d 1070, 1075-76 (5th Cir.), c ert. denied, 118 S. Ct. 299 (1997). For the sake of simplicity, we will ref er to Rol-Rom's abandonment argument as an affirmative defense.

4trademark rights to the Mistolin sold by Rol-Rom pu rsuant

to the "first sale" or "exhaustion" doctrine.4

On March 26, 1996, the district court entered an or der denying Rol-Rom's motion for summary judgment and granting Iberia's summary judgment motion. Addressi ng Rol-Rom's defenses first, the district court held t hat RolRom's first sale and abandonment defenses were meri tless
because the uncontroverted evidence in the record m ade
clear that neither Caribe nor Iberia had intended t hat Iberia would possess the right to prevent Caribe from mark eting
Mistolin in Puerto Rico. When Caribe and Iberia had agreed to transfer the Mistolin trademark rights to Iberia "insofar as they relate to the United States," the district court held, they had intended to transfer only the rights cover ing the continental United States, where Iberia was already distributing Mistolin products. Because Iberia had no right
to control Caribe's sales of Mistolin in Puerto Ric o, it had no ability either to authorize Caribe's "first sale" o f Mistolin or to grant Caribe a "naked license" to sell it in Pue rto Rico. Accordingly, the district court held that the first sale (exhaustion) and abandonment doctrines were inappli cable. In any event, the district court noted, the Mistoli n trademark had clearly not been abandoned because th e mark continued to have significance among purchaser s in
the continental United States.

Having dispensed with Rol-Rom's affirmative defense s, the district court turned to Iberia's motion for su mmary judgment. Here, the district court referenced its p rior
discussion of Iberia's view that the Mistolin sold by Rol-Rom was not "genuine" because it never passed through I beria's post-manufacture quality controls. In that discussi on, the district court had also noted the presence of "reco rd evidence showing that [Iberia] has in fact institut ed some quality control procedures over products it receive d from

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4. According to the "first sale" or "exhaustion" do ctrine, a trademark owner's authorized initial sale of its product into the stream of commerce extinguishes the trademark owner's rights to mainta in control over who buys, sells, and uses the product in its authorized form. See, e.g., Sebastian Int'l, Inc. v. Longs Drug Stores Corp., 5 3 F.3d 1073, 1076 (9th Cir. 1995).

5Caribe." In its motion for summary judgment, Iberia argued

that this evidence entitled Iberia to summary judgm ent on its federal trademark infringement count. The distr ict court agreed, although it did not specify the basis for i ts implicit conclusion that Rol-Rom's Mistolin was not "genuine ."

The litigation regarding Iberia's remaining claims and Rol-Rom's counterclaims continued until June 4, 199 7, when the district court acceded to the parties' req uest to enter a final order and injunction that would allow Rol-Rom to pursue an appeal without further delay. The fina l order enjoined Rol-Rom from selling Mistolin products tha t had not first been distributed by Iberia, and ordered t hat if RolRom violated the injunction it would be held in con tempt, fined, and forced to pay Iberia's attorney's fees. Further, the
final order stated that Rol-Rom's counterclaims and Iberia's claim for damages were withdrawn with prejudice, su bject to the right of the parties to reinstate their clai ms if the district court's March 26, 1996 were to be reversed on appeal.5

Rol-Rom filed a timely appeal. We will reverse.

III.

On summary judgment, we exercise plenary review, construing all evidence and resolving all doubts ra ised by affidavits, depositions, answers to interrogatories , and admissions on file in favor of the non-moving party . See SEC v. Hughes Capital Corp., 124 F.3d 449, 452 (3d Cir. 1997). Our task is to identify and explain the subs tantive law governing the action, and then in light of that law determine whether there is a genuine dispute over dispositive facts. See Ciarlante v. Brown & William son

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5. Although we need not reach such issues to resolv e Iberia's S 32 claim, we think it is proper in light of the district cour t's arrangement and our remand to note that we agree with the district cour t's conclusion that the 1988 agreement transferred to Iberia only those trademark rights relating to the continental United States. Thus, we agree with the
district court that Iberia owns the trademark rights to Mist olin in the continental United States; that Caribe retains the rights to Mi stolin in Puerto Rico; and that Rol-Rom's abandonment and "first sale" arg uments are
meritless.

6Tobacco Corp., 143 F.3d 139, 145 (3rd Cir. 1998) (c iting

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed.2d 202 (1986)). If upon re view of cross motions for summary judgment we find no genui ne dispute over material facts, then we will order jud gment to be entered in favor of the party deserving judgment in light of the law and undisputed facts. See Ciarlante, 143 F.3d at

145-46.

IV.

Although the parties have devoted their attention t o the merits of Rol-Rom's affirmative defenses, we consid er the primary question raised by this appeal to be one ad dressed only in passing by the parties. The question is: ha s Iberia established that the Mistolin sold by Rol-Rom is no t "genuine" according S 32 of the Lanham Act? Because we conclude that Iberia has failed to establish that t he Mistolin sold by Rol-Rom is not "genuine," we hold that Rol- Rom is entitled to summary judgment, and that the order of the
district court must be reversed.

A.

Iberia's federal trademark claim proceeds under S 3 2 of the Lanham Act, 15 U.S.C. S 1114.6 Under the sway of Justice Holmes's landmark opinion in A. Bourjois & Co. v. Katzel, 260 U.S. 689, 43 S. Ct. 244 (1923), courts have construed this statute to grant trademark owners th e right to enjoin the sale of products containing the owner 's

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6. This statute states in relevant part that:

(1) Any person who shall, without the consen t of the registrant--

(a) use in commerce any reproduction, counte rfeit, copy, or

colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of an y goods or services on

or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive . . .

. . . shall be liable in a civil action by the registrant for the remedies hereinafter provided.

15 U.S.C. S 1114 (1997).

7authentic mark when the products offered for sale a re

similar but not identical to those offered by the t rademark owner. The need for such protection has arisen most often in the context of so-called "gray goods" cases. In such cases, holders of United States trademarks affixed to products manufactured abroad have used S 32 of the Lanham Act as a means of preventing the sales of in ferior parallel imports. See, e.g., Original Appalachian A rtworks, Inc. v. Granada Elecs., Inc., 816 F.2d 68 (2d Cir. 1987) (owner of Cabbage Patch Kids trademark entitled to injunctive relief from sales in United States of Sp anish version of dolls without "adoption" feature). The s cope of the action is not limited to gray goods cases, howe ver. The same theory has been used to enjoin the sale of dom estic products in conditions materially different from th ose offered by the trademark owner. See, e.g., Warner-L ambert Co. v. Northside Dev. Co., 86 F.3d 3 (2d Cir. 1996) (owner of Halls cough drops trademark entitled to injuncti on against sale of Halls cough drops past their expira tion
date).

As a matter of doctrine, a trademark owner attempti ng to use S 32 to prevent an infringement must establish that the products sold by the alleged infringer are not "gen uine." See, e.g., Weil Ceramics and Glass, Inc. v. Dash, 8 78 F.2d 659, 671-73 (3d Cir. 1989); El Greco Leather Prod. Co. v. Shoe World, Inc., 806 F.2d 392, 395-99 (2d Cir. 198 6); Shell Oil Co. v. Commercial Petroleum, Inc., 928 F.2d 104 , 107-08 (4th Cir. 1991). The test for whether an alleged in fringer's products are genuine asks whether there are "materi al differences" between the products sold by the trade mark owner and those sold by the alleged infringer. See Societe Des Produits Nestle, S.A. v. Casa Helvetia, Inc., 9 82 F.2d 633, 638 (1st Cir. 1992); Martin's Herend Imports, Inc. v. Diamond & Gem Trading USA, 112 F.3d 1296, 1302 (5th Cir. 1997). If there are no material differences be tween the products sold, then the products offered by the all eged infringer are "genuine" and an infringement action under
S 32 of the Lanham Act must fail. Whether differenc es are material so that an alleged infringer's products ar e nongenuine is a matter of law that we review de novo. See El Greco, 806 F.2d at 395; Casa Helvetia, 982 F.2d at 642,

642 n.9.

8The purpose of the material differences test is to

determine whether the allegedly infringing products are likely to injure the goodwill developed by the trad emark owner in the trademarked goods. See Weil Ceramics, 878 F.2d at 671. When the products sold by the alleged infringer and the trademark owner contain identical marks but are materially different, consumers are likely to be confused about the quality and nature of the tradem arked goods. See Casa Helvetia, 982 F.2d at 641. Characte ristics of the alleged infringer's goods that are not share d by the trademark owner's goods are likely to affect consum ers' perceptions of the desirability of the owner's good s. See Weil Ceramics, 878 F.2d at 671; Martin's Herend, 11 2 F.3d at 1302. Sales of the alleged infringer's goods wil l tarnish the "commercial magnetism" of the trademark, injuri ng the trademark owner. Mishawaka Rubber & Woolen Mfg. Co. v. S.S. Kresge Co., 316 U.S. 203, 205, 62 S. Ct. 1022, 1024 (1942) (Frankfurter, J.).7 In such circumstances, t he alleged

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7. A few examples may prove helpful here. In Origin al Appalachian Artworks, Inc. v. Granada Elecs., Inc., 816 F.2d 68 (2d Cir. 1987), the Second Circuit granted an injunction to the owner o f the United States trademark for Cabbage Patch Kids dolls against the importation of Cabbage Patch Kids dolls manufactured in Spain for the Spanish market. Although the Spanish dolls looked very simi lar to the domestic ones, the Spanish dolls lacked certain features (in particular, the ability to be "adopted" by the owner) that had sparked cons umer interest and
sales in the United States. The court held that the domestic trademark owner was entitled to an injunction because the dom estic trademark owner's goodwill was injured by consumer associatio n of its mark with the less desirable Spanish dolls. See 816 F.2d at 7 3.

In Societe Des Produits Nestle, S.A. v. Casa Helvet ia, Inc., 982 F.2d 633, 638 (1st Cir. 1992), the First Circuit granted an injunction to the
owner of the United States trademark for Italian-ma de Perugina chocolates against the parallel importation of Vene zuelan-made Perugina chocolates. The court catalogued a series of differ ences between the Venezuelan imports and the products sold by the tra demark owner, including differences in the composition of the cho colate, the packaging, the price, and the conditions under which the choco lates were transported and stored. The court held that the dif ferences were likely to
result in consumer confusion and that the trademark owner was entitled to injunctive relief. See 982 F.2d at 644.

9infringer's goods are considered "non-genuine" and the sale

of the goods constitutes infringement.

In contrast, when the differences between the produ cts prove so minimal that consumers who purchase the al leged infringer's goods "get precisely what they believed that they were purchasing," Weil Ceramics, 878 F.2d. at 672, consumers' perceptions of the trademarked goods are not likely to be affected by the alleged infringer's sa les. See Casa Helvetia, 982 F.2d at 641. Although consumers may be unaware of the precise avenues that a given prod uct has traveled on its way to the supermarket shelf, the a uthentic trademark on the alleged infringer's goods is an ac curate indicator of their nature and quality. Cf. Prestone ttes, Inc. v. Coty, 264 U.S. 359, 368, 44 S. Ct. 350, 351 (192 4). Thus, the goods may be considered "genuine." This d oes not mean that the trademark owner suffers no econom ic harm from the alleged infringers' sales, but it doe s mean that S 32 of the Lanham Act does not offer a remedy to the trademark owner. See Weil Ceramics, 878 F.2d. at 67 2.

Because consumer preferences are as fickle and dive rse as the human imagination, it is impossible to devis e an exhaustive list of the types of differences between products that can be considered material for the purposes of the genuineness test. Compare Granada Elecs., 816 F.2d at 73 (holding that imported Cabbage Patch Kids dolls are materially different from domestic dolls because im ported dolls cannot be "adopted" by domestic owners) with Shell Oil, 928 F.2d at 107-08 (holding that bulk oil purc hased

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Finally, in Martin's Herend Imports, Inc. v. Diamon d & Gem Trading USA, 112 F.3d 1296, 1302 (5th Cir. 1997), the Fifth Circuit enjoined the parallel importation of Hungarian Herend porcelains brought to the United States over the objections of the United Sta tes trademark owner.
The court held that there were material differences between the porcelains sold by the trademark owner and the alle ged infringer because the trademark owner had chosen to sell only select items in the United States. The alleged infringer, in contrast, sold many items that were not offered by the trademark owner. In light o f the delicate task of maintaining goodwill in high-end artistic products, the court held, this difference was enough to entitle the United States trademark owner to an injunction against the parallel importation. See 112 F.3d at 1302.

10from Shell and resold by oil wholesaler was not gen uine

because it was not stored according to Shell's specifications). Any differences that are likely to damage the goodwill developed by the trademark owner can be de emed
material.

B.

Iberia argues that material differences exist betwe en the Mistolin sold by Rol-Rom and that sold by Iberia be cause Iberia conducts a "quality control" inspection of e very shipment of Mistolin on receipt from Caribe. 8 Acco rding to the record, Iberia inspects every box of Mistolin i t receives, and rejects products that do not meet its specifica tions. Iberia contends that its rejection of substandard g oods has raised the quality of the Mistolin sold by Iberia s o that it is materially different from the uninspected Mistolin sold by

Rol-Rom.

When a trademark owner arranges to have its mark placed on a product manufactured by another company
, the owner's rigorous quality control and inspection procedure on receipt from the manufacturer has ofte n been recognized as the basis of a material difference be tween products sold by the trademark owner and those offe red by another company without the trademark owner's stamp of approval. See, e.g., El Greco, 806 F.2d at 395 (sho es); Casa Helvetia, 982 F.2d at 642 (chocolates). The reason for this is evident. Because the quality of a manufacturer's output can be uneven, and consumers can be expected over t ime

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8. In the "Statement of the Case" portion of its br ief, Iberia remarks in passing that Rol-Rom has sold Mistolin products, an d in particular, Mistolin All Purpose Cleaner, "which Iberia has dis continued and/or has determined not to sell under the Mistolin mark." Ap pellee's Br. at 8. Were this statement supported in the record, it might ha ve provided the basis for a material difference between the Mistolin prod ucts sold by Iberia and Rol-Rom. See, e.g., Martin's Herend, 112 F.3d at 13 02 (holding that parallel importer's porcelain figurines were materi ally different from trademark owner's figurines because "at least 50 pe rcent" of the figurines sold by the parallel importer were not so ld by trademark owner). Here, however, the record fails to support Iberia's statement: the
record indicates that both Iberia and Rol-Rom disco ntinued selling Mistolin All Purpose Cleaner. See App. 167 (Iberia) ; App. 281 (Rol-Rom).

11to notice the quality of the products they purchase , a

trademark owner's inspection on receipt from the manufacturer may be a necessary part of maintaining consumer goodwill associated with its mark. Cf . Ca sa Helvetia, 982 F.2d at 643.

Because quality control measures may create subtle differences in quality that are difficult to measur e but important to consumers, courts do not require trade mark owners to show that the actual quality of the inspe cted goods is measurably higher than that of the uninspe cted goods. See, e.g., El Greco, 806 F.2d at 395; Shell Oil, 928 F.2d at 107. At the same time, "quality control" is not a
talisman the mere utterance of which entitles the trademark owner to judgment. See, e.g., Polymer Tec h. Corp. v. Mimran, 37 F.3d 74, 78-80 (2d Cir. 1994) ( rejecting trademark owner's claim of infringement based on circumvention of owner's quality control efforts). Rather, the test is whether the quality control procedures established by the trademark owner are likely to re sult in differences between the products such that consumer confusion regarding the sponsorship of the products could injure the trademark owner's goodwill. See Warner-L ambert Co. v. Northside Dev. Co., 86 F.3d 3, 6 (2d Cir. 19 96) (trademark holder must show that it uses substantia l and nonpretextual quality control procedures such that nonconforming sales will diminish the value of the mar k).

According to Jesus Garcia, the chairman of the boar d of Iberia, Iberia's inspection of Mistolin upon receip t from Caribe consists of looking for "external self-evide nt problems." App. 139. First, the exterior packaging of the deliveries is inspected to make sure that the boxes are not damaged. Second, an Iberia employee takes a "random sample" of Mistolin and looks at it. If the packagi ng is damaged or there is "something wrong" with the samp le, Iberia destroys the goods and receives credit from Caribe. Iberia has no standard explaining when there is"som ething wrong" with a sample, however: the employee simply looks
at the Mistolin and smells it to determine whether or not it seems "off." Although Garcia stated in his depositi on that Iberia sends products to a laboratory for inspectio n if something seems "wrong" with a shipment of Mistolin
,

12Garcia could not recall any time within the previou s ten

years when this was actually done. App. 136-40.

The reason that Iberia's inspection is limited to l ooking for obvious defects is that since acquiring the tra demark in 1988, Iberia has never made any efforts to learn ho w Caribe manufactures Mistolin products or what ingredients they contain. App. 92 ("Iberia Foods Corp. has no knowle dge as to what are the contents or ingredients used in the products manufactured by Mistolin Caribe Inc.") (st atement of Jesus Garcia). Iberia simply orders Mistolin pro ducts from Caribe, and assumes that the bottles it receiv es contain "Mistolin" cleaner. In fact, Iberia's sole participation in the design or manufacture of any Mistolin produc t entailed helping Caribe design new U.S. labels when federal law began mandating that labels contain new product warnings. App. 147-48. Otherwise, everything about Mistolin, from its ingredients to the U.P.C. symbol s placed on its bottles, has been determined by Caribe. The result of Iberia's "hands off " approach is that its quality control process is limited to determining whether the Misto lin products it receives from Caribe have been damaged during shipment, and whether random samples look and smell "right."9

We conclude that Iberia's quality inspections are
insufficient to create a material difference betwee n the inspected Mistolin sold by Iberia and the uninspect ed Mistolin sold by Rol-Rom. By limiting its inspectio n to "selfevident" defects, Iberia does no more than weed out those bottles of Mistolin that are entirely unsaleable on the open market. This "weeding out" is insufficient because bottles so obviously defective as to be unmarketable are no t likely to reach consumers in any event. First, distributor s will generally try to catch such blatant defects to keep their

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9. In the one instance in which Iberia rejected Mis tolin sent by Caribe

for a defect that was not obvious, Garcia conceded that the defect had not been discovered during Iberia's inspection. This oc curred in 1993, when Caribe sent Iberia a shipment of Mistolin that look ed normal when it first arrived, but later deteriorated in the bottle. Alth ough Garcia did not explain how this defect was eventually discovered, he did state that it was not detected when the shipment underwent Iberia 's quality control procedures. App. 136.

13retailers happy: this is as true when the distribut or

happens to be the trademark owner as when the distr ibutor is another company such as Rol-Rom. See App. 285 (" [W]e don't sell anything that's damaged or broken . . . because our clients wouldn't stand for it.") (statement of Rolando Romeo, Jr.). Those defects that do pass by the dist ributors will be caught by retailers, who are unlikely to pl ace broken bottles of Mistolin on their shelves if they expect to stay in business for long. Because unmarketable Mistolin pr oducts will not generally reach consumers regardless of wh ether Iberia catches the defects first, Iberia's limited inspection is
insufficient to create a material difference betwee n the Mistolin offered to consumers through Iberia and th at offered to consumers through Rol-Rom.

The limited scope of the inspection performed by Ib eria distinguishes this case from other cases in which a trademark owner's quality control mechanism created a material difference between the products offered by the trademark owner and the alleged infringer. In those cases, the trademark owner's inspection reflected a delibe rate effort to ensure that the quality of the product ma tched the high standards set by the trademark owner. For exam ple, in El Greco, the trademark owner's agent would insp ect the manufacturer's product before shipment. Unless the agent issued an inspection certificate stating that the manufacturer's goods fully complied with the tradem ark owner's standards and specifications, the goods wer e never shipped to the trademark owner for sale. See 806 F. 2d at 395. In Casa Helvetia, the trademark owner conducte d laboratory tests on the chocolates it received from the Italian manufacturer, destroyed those chocolates th at were beyond a fixed expiration date, and transported its products in special refrigerated containers. Even t he alleged infringer conceded that its quality control procedu res differed "radically" from the strict regimen follow ed by the trademark owner to maintain the quality of the prod ucts
sold. See 982 F.2d at 642-43.

In both El Greco and Casa Helvetia, the trademark owner's inspection was an integral part of a carefu l effort to ensure that the quality of the product matched the high standards set by the trademark owner. Circumventing that

14inspection threatened the trademark owner's efforts to

maintain the goodwill that consumers associated wit h the mark. In this case, however, Iberia has hardly set any standard at all: rather, it has deferred almost ent irely to Caribe's judgment of what Mistolin products are and how they are to be manufactured. Iberia's "hands off " approach has reduced its quality control inspection to a de minimis check designed to make sure that the products it re ceives from Caribe are not obviously unmarketable. We are satisfied that such an inspection is insufficient t o create a material difference between the products sold by Ib eria and those sold by Rol-Rom.

V.

Because there is no material difference between the Mistolin sold by Iberia and that sold by Rol-Rom, w e hold that the Mistolin sold by Rol-Rom is "genuine" and that Iberia's attempt to use S 32 of Lanham Act to block RolRom's sales must fail. Because buyers of Rol-Rom's Mistolin get precisely what they believe that they are purch asing, see Weil Ceramics, 878 F.2d at 672, the goodwill as sociated with Mistolin products is not harmed by Rol-Rom's s ales.

We therefore reverse so much of the district court' s June 4, 1997 order as entered judgment for Iberia on the federal trademark infringement count, and direct the distri ct court to enter judgment for Rol-Rom on this count. Pursua nt to the terms of the June 4, 1997 order, which directed the reinstatement of remaining claims if the district c ourt's order were reversed, we will remand to the district court for further appropriate proceedings.

A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

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