Opinion ID: 597410
Heading Depth: 1
Heading Rank: 2

Heading: the lanham trade-mark act claims

Text: 7 We first remark the policies that underlie the Lanham Trade-Mark Act and the implications of those policies for the parallel importation of trademarked goods. We then turn to the three specific statutory provisions which the plaintiffs invoke. 8
9 Two amaranthine principles fuel the Lanham Trade-Mark Act. One aims at protecting consumers. The other focuses on protecting registrants and their assignees. These interlocking principles, in turn, are linked to a concept of territorial exclusivity. 10 1. Animating Principles. Every product is composed of a bundle of special characteristics. The consumer who purchases what he believes is the same product expects to receive those special characteristics on every occasion. Congress enacted the Lanham Trade-Mark Act to realize this expectation with regard to goods bearing a particular trademark. See S.Rep. No. 1333, 19th Cong., 2d Sess., reprinted in 1946 U.S.Code Cong.Serv. 1274. The Act's prophylaxis operates not only in the more obvious cases, involving the sale of inferior goods in derogation of the registrant's mark, but also in the less obvious cases, involving the sale of goods different from, although not necessarily inferior to, the goods that the customer expected to receive. See Truck Equip. Serv. Co. v. Fruehauf Corp., 536 F.2d 1210, 1216 (8th Cir.) (finding a Lanham Act violation even though plaintiff's and defendant's goods were of equal quality), cert. denied, 429 U.S. 861, 97 S.Ct. 164, 50 L.Ed.2d 139 (1976); see also 1 J. Thomas McCarthy, Trademarks and Unfair Competition § 3:4, at 113 (2d ed. 1984) (explaining that trademark law embodies consumers' expectations of consistent quality whether that quality is high, low or mediocre). By guaranteeing consistency, a trademark wards off both consumer confusion and possible deceit. 11 The system also serves another, equally important, purpose by protecting the trademark owner's goodwill. See Keds Corp. v. Renee Int'l Trading Corp., 888 F.2d 215, 218 (1st Cir.1989); see also S.Rep. No. 1333, supra, 1946 U.S.Code Cong.Serv. at 1274 (where the owner of a trade-mark has spent energy, time, and money in presenting to the public the product, he is protected in his investment from its misappropriation by pirates and cheats). Once again, this protection comprises more than merely stopping the sale of inferior goods. Even if an infringer creates a product that rivals or exceeds the quality of the registrant's product, the wrongful sale of the unauthorized product may still deprive the registrant of his ability to shape the contours of his reputation. See Jordan K. Rand, Ltd. v. Lazoff Bros., 537 F.Supp. 587, 597 (D.P.R.1982). 12 2. Territoriality. In general, trademark rights are congruent with the boundaries of the sovereign that registers (or recognizes) the mark. Such territoriality reinforces the basic goals of trademark law. Because products are often tailored to specific national conditions, see Lever Bros. Co. v. United States, 877 F.2d 101, 108 (D.C.Cir.1989), a trademark's reputation (and, hence, its goodwill) often differs from nation to nation. See Osawa & Co. v. B & H Photo, 589 F.Supp. 1163, 1173 (S.D.N.Y.1984) (a mark may have not only a separate legal basis but also a different factual significance in each separate country where the local mark owner has developed an independent goodwill). Because that is so, the importation of goods properly trademarked abroad but not intended for sale locally may confuse consumers and may well threaten the local mark owner's goodwill. It is not surprising, then, that the United States Supreme Court long ago recognized the territoriality of trademark rights. See, e.g., A. Bourjois & Co. v. Aldridge, 263 U.S. 675, 44 S.Ct. 4, 68 L.Ed. 501 (1923) (per curiam); A. Bourjois & Co. v. Katzel, 260 U.S. 689, 43 S.Ct. 244, 67 L.Ed. 464 (1923). These cases bear scrutiny. 13 In Katzel, the plaintiff, a United States corporation, purchased the American trademarks and goodwill of a French face powder manufacturer. Thereafter, it continued to sell the imported French powder in the United States, taking pains to conduct its sales efforts in a fashion suitable for the American market. Katzel, 260 U.S. at 691, 43 S.Ct. at 245. The Court held that the defendant's sale of the same French powder, similarly packaged, within the United States infringed plaintiff's trademark rights, notwithstanding that defendant's merchandise, purchased in France, was the genuine product of the French concern. Id. The Court explained that defendant's use of the trademark misrepresented the goods' origin because, in the United States, the label indicates in law ... that the goods come from the plaintiff although not made by it, and the name stakes the reputation of the plaintiff upon the character of the goods. Id. at 692, 43 S.Ct. at 245. In Aldridge, a case involving similar circumstances, the Supreme Court reaffirmed the protection due domestic trademark holders against imported merchandise that is genuine abroad. See Aldridge, 263 U.S. at 676, 44 S.Ct. at 4. 14 Of course, territoriality only goes so far. By and large, courts do not read Katzel and Aldridge to disallow the lawful importation of identical foreign goods carrying a valid foreign trademark. See, e.g., NEC Elecs., Inc. v. Cal Circuit Abco, 810 F.2d 1506 (9th Cir.), cert. denied, 484 U.S. 851, 108 S.Ct. 152, 98 L.Ed.2d 108 (1987). Be that as it may, territorial protection kicks in under the Lanham Act where two merchants sell physically different products in the same market and under the same name, see, e.g., Lever Bros., 877 F.2d at 107, for it is this prototype that impinges on a trademark holder's goodwill and threatens to deceive consumers. Indeed, without such territorial trademark protection, competitors purveying country-specific products could exploit consumer confusion and free ride on the goodwill of domestic trademarks with impunity. Such a scenario would frustrate the underlying goals of the Lanham Trade-Mark Act, the plain language and general sweep of which undeniably bespeak an intention to protect domestic trademark holders. Lever Bros., 877 F.2d at 105. Thus, where material differences exist between similarly marked goods, the Lanham Trade-Mark Act honors the important linkage between trademark law and geography. 15
16 In this court, as below, the plaintiffs ground their trademark infringement and unfair competition claims in Lanham Trade-Mark Act sections 32(1)(a), 42, and 43(a)(1), 15 U.S.C. §§ 1114(1)(a), 1124, 1125(a)(1) (1988). The district court considered and rejected each provision as a basis for relief. In so doing, the court misinterpreted the proper scope of the protection these three sections confer. 17 1. Section 32(1)(a). The court below found no violation of Lanham Trade-Mark Act section 32(1)(a). 5 It reasoned that Alimentos used the PERUGINA trademark with Nestle's consent and that merely exporting [the chocolates] outside the area defined in a restrictive territorial clause ... [would] not turn an otherwise genuine PERUGINA product into a counterfeit one or a colorable imitation. Societe Des Produits Nestle, 777 F.Supp. at 165. 18 On this point, the district court's analysis is doubly flawed. First, if consent is at all germane in determining whether a defendant's sale violates section 32(1)(a), the relevant consent is not the registrant's consent to a third party's use of the mark abroad but the registrant's consent (or lack thereof) to the defendant's sale of the gray good in the domestic market. See Original Appalachian Artworks, Inc. v. Granada Elecs., Inc., 816 F.2d 68, 73 (2d Cir.), cert. denied, 484 U.S. 847, 108 S.Ct. 143, 98 L.Ed.2d 99 (1987). 19 Second, although it has been said that [t]rademark law generally does not reach the sale of genuine goods bearing a true mark even though such sale is without the mark owner's consent, NEC Elecs., 810 F.2d at 1509; see also Shell Oil Co. v. Commercial Petroleum, Inc., 928 F.2d 104, 107 (4th Cir.1991), the maxim does not apply when genuine, but unauthorized, imports differ materially from authentic goods authorized for sale in the domestic market. Thus, contrary to the district court's thinking, an unauthorized importation may well turn an otherwise genuine product into a counterfeit one. In other words, the unauthorized importation and sale of materially different merchandise violates Lanham Trade-Mark Act section 32 because a difference in products bearing the same name confuses consumers and impinges on the local trademark holder's goodwill. See Original Appalachian, 816 F.2d at 73; El Greco Leather Prods. Co. v. Shoe World, Inc., 806 F.2d 392, 395-96 (2d Cir.1986), cert. denied, 484 U.S. 817, 108 S.Ct. 71, 98 L.Ed.2d 34 (1987); PepsiCo Inc. v. Giraud, 7 U.S.P.Q.2d 1371, 1373 (D.P.R.1988); Dial Corp. v. Encina Corp., 643 F.Supp. 951, 955 (S.D.Fla.1986). 20 It follows that the Venezuelan chocolates purveyed by Casa Helvetia were not genuine within the meaning of section 32 if they (a) were not authorized for sale in the United States and (b) differed materially from the authorized (Italian-made) version. Cf. Monte Carlo Shirt, Inc. v. Daewoo Int'l (Am.) Corp., 707 F.2d 1054, 1057 (9th Cir.1983) (finding no section 32 violation where imported goods were identical to domestic goods and were intended for sale in the United States); Sasson Jeans, Inc. v. Sasson Jeans, L.A., Inc., 632 F.Supp. 1525, 1528 (S.D.N.Y.1986) (similar). 21 The first prong of this two-part test is easily resolved. The mere licensing of production abroad does not support an inference of consent to import the licensed products into the United States. See Lever Bros., 877 F.2d at 109-10; see also Osawa, 589 F.Supp. at 1171 (rejecting the proposition that merchandise with a lawful trademark in one country carr[ies] that mark lawfully wherever it [goes]). Here, the record is pellucid that Nestle never authorized the sale of Venezuelan-made chocolates in Puerto Rico. The question of whether Casa Helvetia infringed the PERUGINA mark under section 32, therefore, boils down to whether material differences exist between the Italian-made product and the Venezuelan-made product sufficient to create a likelihood of consumer confusion, mistake, or deception. 22 2. Section 42. The district court held that plaintiffs' claims under Lanham Trade-Mark Act section 42 lacked merit because the plain language of the statute does not bar importation if the goods are genuine, only if they 'copy or simulate' a trademark. Societe Des Produits Nestle, 777 F.Supp. at 165. 6 We think this view is overly simplistic. 23 Section 42 draws no indelible line between genuine goods and goods that copy or simulate a trademark. See Lever Bros., 877 F.2d at 105. However, the statute aims to eradicate deceit and minimize consumer confusion. See id. at 111. As underscored by Katzel's recognition of territorial values in trademark law, the potential for consumer confusion is extremely high when a product catering to the indigenous conditions of a foreign country competes domestically against a physically different product that bears the same name. In such a case, the foreign product can legitimately be said to copy or simulate the domestic mark because use of the identical nomenclature is simply not truthful. Id. at 108. 24 Accordingly, the importation of a gray good identical to a good authorized for sale in the domestic market does not violate section 42. See Weil Ceramics & Glass, Inc. v. Dash, 878 F.2d 659, 668 (3d Cir.), cert. denied, 493 U.S. 853, 110 S.Ct. 156, 107 L.Ed.2d 114 (1989); Olympus Corp. v. United States, 792 F.2d 315, 321 (2d Cir.1986), cert. denied, 486 U.S. 1042, 108 S.Ct. 2033, 100 L.Ed.2d 618 (1988). But, the existence of physical differences changes the result. See Lever Bros., 877 F.2d at 111 (the natural, virtually inevitable reading of § 42 is that it bars foreign goods [that] bear[ ] a trademark identical to a valid U.S. trademark but [that] physically differ[ ], regardless of the trademarks' [sic ] genuine character abroad). Therefore, under section 42, as under section 32, the question of whether Casa Helvetia infringed the PERUGINA mark hinges on whether physical or like material differences exist between the Italian-made and Venezuelan-made products. 7 25 3. Section 43(a)(1). In respect to Lanham Trade-Mark Act section 43(a)(1), 8 the district court rejected Nestle's claim because the parties' boxes clearly specified the respective countries of origin, i.e., Casa Helvetia's chocolates were labelled made in Venezuela and Nestle's chocolates were labelled made in Italy. See Societe Des Produits Nestle, 777 F.Supp. at 164. Section 43's proscriptions, however, are not so narrow in scope. The statutory prohibition against false designation of origin encompasses more than deceptions as to geographic origin; it extends, as well, to origin of source, sponsorship or affiliation. 2 McCarthy, supra, § 27:3, at 345. In short, the use of a mark may be deceptive and, thus, violative of section 43(a), in light of the overall appearance of the package, despite the existence of fine print identifying the true origin; that is, such a package may falsely convey the impression that the domestic mark holder intended the importation of the good into the local market. 26 The case of Ferrero U.S.A., Inc. v. Ozak Trading, Inc., 753 F.Supp. 1240 (D.N.J.), aff'd, 935 F.2d 1281 (3d Cir.1991), aptly illustrates the point. There, the district court invoked section 43(a) and enjoined the parallel importation of TIC TAC mints despite the fact that the infringing product was identified as originating with the sole importer for the U.K. Id. at 1243. The court emphasized that material differences in caloric content and size, in conjunction with a virtually identical outward appearance, created the distinct potential for consumer confusion. See id. at 1247. 27 We conclude, therefore, that the key question in determining Casa Helvetia's liability under section 43(a) is whether material differences likely to confuse consumers exist between Venezuelan-made and Italian-made chocolates bearing the same mark. Accord New West Corp. v. NYM Co. of Cal., Inc., 595 F.2d 1194, 1201 (9th Cir.1979) (under section 43(a), the ultimate test is whether the public is likely to be deceived or confused); Quabaug Rubber Co. v. Fabiano Shoe Co., 567 F.2d 154, 160 (1st Cir.1977) (The basis for an action under [section 43(a) ] is use of a mark ... which is likely to cause confusion or to deceive purchasers concerning the source of the goods.); see also 2 McCarthy, supra, § 27:3, at 345-48 (explaining that section 43 covers traditional trademark claims for which the test of liability is likelihood of confusion). 28
29 In this case, all roads lead to Rome. Whether the fulcrum of plaintiffs' complaint is perceived as section 32(1)(a), section 42, or section 43(a), liability necessarily turns on the existence vel non of material differences between the products of a sort likely to create consumer confusion. Accord Ferrero, 753 F.Supp. at 1246 n. 10 (observing that the same reasoning applies under all three provisions). Because the presence or absence of a material difference--a difference likely to cause consumer confusion--is the pivotal determinant of Lanham Trade-Mark Act infringement in a gray goods case, the lower court's insistence on several other evidentiary showings was inappropriate. 30 In the first place, the district court erred in envisioning a need to prove actual product confusion. In suing under any of the three Lanham Trade-Mark Act provisions, a plaintiff need only show that a likelihood of confusion is in prospect; a showing of actual confusion is not required. See, e.g., Coach Leatherware Co. v. AnnTaylor, Inc., 933 F.2d 162, 171 (2d Cir.1991) (construing Lanham Act § 32); Keds Corp., 888 F.2d at 218 (same); International Armament Corp. v. Matra Manurhin Int'l, Inc., 630 F.Supp. 741, 747 (E.D.Va.1986) (construing Lanham Trade-Mark Act § 42); Quabaug, 567 F.2d at 160 (construing Lanham Trade-Mark Act § 43). Indeed, federal courts have routinely granted injunctions in gray goods cases notwithstanding an absence of evidence of actual consumer confusion. See, e.g., Ferrero, 753 F.Supp. at 1247; PepsiCo v. Giraud, 7 U.S.P.Q.2d at 1371. In such cases, a material difference between goods simultaneously sold in the same market under the same name creates a presumption of consumer confusion as a matter of law. See Ferrero, 753 F.Supp. at 1247; PepsiCo Inc. v. Nostalgia Products Corp., 18 U.S.P.Q.2d 1404, 1407, 1991 WL 113161 (N.D.Ill.1990); PepsiCo v. Giraud, 7 U.S.P.Q.2d at 1373. 31 In the second place, the district court erred in suggesting that proof of actual harm to Nestle's goodwill was a prerequisite to finding a Lanham Trade-Mark Act violation. The Lanham Act contains no such proof-of-injury requirement. By its very nature, trademark infringement results in irreparable harm because the attendant loss of profits, goodwill, and reputation cannot be satisfactorily quantified and, thus, the trademark owner cannot adequately be compensated. Hence, irreparable harm flows from an unlawful trademark infringement as a matter of law. See Keds Corp., 888 F.2d at 220; Geoffrey, Inc. v. Toys 'R Us, 756 F.Supp. 661, 668 (D.P.R.1991); Jordan K. Rand, 537 F.Supp. at 597. 32 In the third place, the district court seemingly considered it essential for Nestle to prove that the Venezuelan-made chocolates were inferior in quality to the Italian-made chocolates. See Societe Des Produits Nestle, 777 F.Supp. at 167. This, too, was error. A showing that the alleged infringing product suffers in quality is not necessary to prove a Lanham Trade-Mark Act violation. See Truck Equip., 536 F.2d at 1216.