Opinion ID: 147203
Heading Depth: 1
Heading Rank: 4

Heading: The Commission Misapplied the All or Substantially All Test

Text: Deere argues that, irrespective of the Commission's finding that Deere authorized certain European-version harvester sales in the United States, the Commission erred in its application of the all or substantially all test. According to Deere, the Commission failed to follow our remand instructions in Bourdeau, which required a comparison of authorized sales of European-version harvesters in the United States (which the Commission found to be 141) with total authorized harvester sales in the United States (the sum of the authorized North American-version harvesters, which the Commission found to be 4400, and authorized European-version harvesters, which the Commission found to be 141, or a total of 4541). Thus, according to Deere, even using the Commission's findings of authorized sales, only 3.1% (141/4541) of the authorized harvesters sold in the United States were of the European version. Deere further argues that 3.1% is an insignificant number under the all or substantially all test. Deere illustrates that argument by pointing to Warner-Lambert Co. v. Northside Dev. Corp., 86 F.3d 3 (2d Cir.1996), in which the Second Circuit found that authorization of 4.4% of sales was a small enough number to allow a trademark owner relief. Thus, according to Deere, if 4.4% is small enough to be considered insignificant, 3.1% is even more insignificant, such that all or substantially all (96.9%) of Deere's authorized harvesters were of the North American version. Deere finally asserts that the Commission erred by comparing the number of authorized European-version harvesters (which the Commission found to be 141) with total European-version harvesters in the United States regardless of source (which the Commission found to be between 247 and 347), to arrive at 40 to 57% (141/347 = 40% and 141/247 = 57%). According to Deere, the Commission's denominator of 247 to 347 instead of 4541 violates the reasoning behind the all or substantially all test. Deere argues that the test is intended to avoid consumer confusion based on the differences between gray market goods and authorized goods. The Commission did not state that it was precluded from applying the correct test due to insufficient evidence, and Deere asserts that the government cannot now argue that there was insufficient evidence. Bourdeau and the government respond that Deere failed to submit comprehensive proof of its official European dealers' sales to the United States or the total number of used harvesters sold. Bourdeau and the government assert that, because Deere had the burden of proof, the Commission permissibly inferred a large ratio. The government further argues that, even using the Commission's number of authorized European-version harvesters, which was 141, the Commission properly found it to be substantial given the total number of European-version harvesters sold in the United States (between 247 and 347). In other words, the government asserts that Deere does not deserve to prevail when it caused a substantial portion of the consumer confusion that it now complains of. The government also argues that the Commission reasonably concluded that the introduction of even a small number of European-version harvesters would cause consumer confusion. According to the government, there is no benchmark ratio of 4.4%, as Deere argues; instead, the government argues that under SKF, substantially all depends on the facts of the case, and that this court entrusted such fact-finding to the Commission. Finally, Bourdeau asserts that the percentage of nonconforming sales is only one factor that Deere must establish to meet the all or substantially all test. According to Bourdeau, under SKF, Deere also must show that the infringing sales measurably diminish the final value of an already partially devalued mark. Bourdeau asserts that Deere failed to establish any diminishment in the value of its trademark as a result of Bourdeau's sales. We agree with Deere that the Commission misapplied the all or substantially all test. In SKF, we reasoned that the consuming public, associating a trademark with goods having certain characteristics, would be likely to be confused or deceived by goods bearing the same mark but having materially different characteristics. Conversely, then, a trademark owner's argument that consumers would be confused by gray goods lacking an asserted material difference from the authorized goods is inconsistent with the owner's own sale of marked goods also lacking that material difference from its own authorized goods. To permit recovery by a trademark owner when less than substantially all of its goods bear the material difference from the gray goods thus would allow the owner itself to contribute to the confusion by consumers that it accuses gray market importers of creating. 423 F.3d at 1315 (quotation marks and citation omitted). Thus, applying that reasoning to this case (in Bourdeau ), our remand instructions stated that Deere would prevail if it could establish by a preponderance of the evidence that the number of sales of European forage harvesters was so small that substantially all of Deere's sales in the United States were of North American forage harvesters, such that substantially all of the authorized sales were of goods bearing the asserted material differences. 444 F.3d at 1327. Our remand thus set out a test for the Commission to follow. The question was whether substantially all of the authorized sales, i.e., the sum of authorized North American-version and authorized European-version harvester sales, were of North American-version harvesters. The denominator therefore should have been total authorized sales, not total European-version harvester sales, in the United States. Deere also points out that the Commission actually found both the number of authorized North American-version and the number of authorized European-version harvester sales, and it did not assert that either number was based on insufficient evidence. Contrary to Bourdeau and the government's arguments, the Commission was therefore not entitled to infer, based on its findings, that the ratio was large. Indeed, the Commission added up all of the authorized European-version harvesters sold in the United States, compiling numbers from different sources, and found that the record indicates that at least 141 were authorized. Commission Remand Opinion, slip op. at 27-28; see id. at 49-51. The Commission indicated that the record showed a possible 14 more authorized European-version harvesters sold in the United States. Id. at 27. Thus, the Commission found the number of authorized European-version harvester sales in the United States to be between 141 and 155. The Commission credited the ALJ's estimate of approximately 4400 as the number of Deere's authorized sales of North American-version harvesters in the United States. Id. at 49 n. 9; see ALJ Remand Opinion, 2006 ITC Lexis 862 at -60. Thus, the Commission found the total number of authorized harvester sales in the United States to be between 4541 (141 + 4400) and 4555 (155 + 4400). Using the ratio that was dictated by our remand instructions and using the Commission's findings, we conclude that a total of 3.1 to 3.4% of the authorized harvesters sold in the United States were European-version harvesters, or that 96.6 to 96.9% of the authorized harvesters sold in the United States were of the North American version. In other words, if one takes the Commission's lower-end finding, 141/ (4400 + 141) = 3.1% of the authorized harvesters sold in the United States were European-version harvesters, and if one accepts the Commission's highest numbers, 155/(4400 + 155) = 3.4% of the authorized harvesters sold in the United States were European-version harvesters. Those figures may be insubstantial. However, that is for the Commission, not this court, to determine on the basis of all of the relevant facts. We therefore remand for the Commission to determine whether 3.1 to 3.4% is an insubstantial percentage, such that substantially all of the authorized harvesters sold in the United States were of the North American version. The cutoff as to what is to be considered substantially all is a question of fact. See SKF, 423 F.3d at 1317 (The determination[] by the Commission that... all or substantially all of the goods were not [the materially different foreign version is a] finding[ ] of fact, subject to substantial evidence deference by this court.). On the one hand, we note the Commission's indication that the relatively high prices and low sales volumes of Deere's harvesters might lead to the conclusion that the introduction of even a small number of [European-version] harvesters into the U.S. market could cause substantial confusion by consumers and have a significant impact on the marketplace. Commission Remand Opinion, slip op. at 49-50. On the other hand, only 3.1 to 3.4% of the authorized harvesters sold in the United States being nonconforming might not cause confusion. We also note that the ALJ considered the all or substantially all test and found, using a reasonable numerator and denominator, that the percentage of authorized sales in the United States that were of North American-version harvesters was large enough to meet the all or substantially all test. See ALJ Remand Opinion, 2006 ITC Lexis 862 at -65. Furthermore, in SKF, we discussed what percentage might be considered substantially all. We disagreed with Martin's Herend Imports, Inc. v. Diamond & Gem Trading USA Co., 112 F.3d 1296 (5th Cir.1997), which held that the sale of even one authorized item lacking a material difference defeats infringement. SKF, 423 F.3d at 1316. We determined that [i]nstead, the `all or substantially all' benchmark recognizes that something less than 100% compliance will suffice and certainly permits a small amount of nonconforming goods. A single sale of a nonconforming item typically should not defeat a trademark owner's protection. Id. We also cited Warner-Lambert, 86 F.3d 3. SKF, 423 F.3d at 1311, 1316. In Warner-Lambert, the court indicated that, if only 4.4% of the plaintiff's cough drops were found to be nonconforming goods, that would favor a finding of infringement. 86 F.3d at 8 n. 1. Thus, as a general matter, 95.6% might well be considered to be substantially all. Furthermore, because of our reversal of the Commission's decision, the Commission is not entitled to rely, as it did in the previous remand proceeding, on the ratio of authorized European-version harvesters to the total number of European-version harvesters sold in the United States. Although one could conceive of a test that determines whether the trademark owner contributed less than, as much as, or more than the accused infringer to consumer confusion, the contribution cannot be relevant unless enough authorized products are sold to likely cause consumer confusion. Thus, the benchmark is instead whether consumers would likely have been confused by the trademark owner's actions. As the Commission itself noted in the authorization context, the focus of trademark infringement law is on the potential for third party confusion in the marketplace. Commission Remand Opinion, slip op. at 13. Our remand instructions focused on the potential for consumer confusion, and therefore the Commission should determine in this remand whether 96.6 to 96.9% is substantially all.