Opinion ID: 581353
Heading Depth: 2
Heading Rank: 1

Heading: The ABC Litigation

Text: 5 In December 1986, Yamaha-America filed an action in the Central District of California seeking damages and injunctive relief against ABC International Traders Corporation (ABC), for trademark infringement and unfair competition under the Lanham Act and the laws of California. ABC is a corporation engaged in the importation, distribution, sale, and warranty of various goods including genuine Yamaha brand electronic sound equipment. 2 In November 1987, Yamaha amended its complaint to include claims under section 526 of the Tariff Act, 19 U.S.C. § 1526 (1988) (section 526), and section 42 of the Lanham Act, 15 U.S.C. § 1124 (1988) (section 42). In its five-count amended complaint, Yamaha-America alleged the following: 6 Count I--ABC has violated section 32(a) of the Lanham Act, 15 U.S.C. § 1114(a) (1988), by advertising and selling products made by Yamaha-Japan and bearing marks identical to marks owned by Yamaha-America in such a way that their use is likely to cause customer confusion or mistake and to deceive the public. 7 Count II--ABC has violated section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a) (1988), by falsely representing or creating the impression that Yamaha-America is associated or affiliated with ABC and that it warrants the quality or guarantees repair of such products. 8 Count III--ABC has violated California law by intentionally promoting its products so as to confuse and deceive and unlawfully to exploit and appropriate the valuable property rights and good will of Yamaha-America. 9 Count IV--ABC has violated California law by using Yamaha-America's marks without authorization in such a way that it is likely to injure Yamaha-America's reputation and to dilute the distinctiveness of Yamaha-America's trademarks. 10 Count V--ABC has violated section 526 of the Tariff Act and section 42 of the Lanham Act by unlawfully importing and dealing in goods bearing the trademarks owned by Yamaha-America without its consent. 11 ABC counterclaimed against both Yamaha-America and Yamaha-Japan, alleging violations of the Clayton Act, 15 U.S.C. § 13 (1988), the Wilson Tariff Act, 15 U.S.C. § 8 (1988), and the Sherman Act, 15 U.S.C. §§ 1-2 (1988). ABC also alleged violations of California law, including interference with business relations, defamation, and unfair competition.
12 On November 9, 1987, Judge Lew of the Central District of California granted ABC's motion for partial summary judgment as to Counts I and II. He made the following conclusions of law: 13 4. There is and can be no likelihood of confusion, or confusion as to source, origin or sponsorship, between [Yamaha-Japan]-manufactured goods sold by [Yamaha-America] and [Yamaha-Japan]-manufactured goods sold by ABC, which bear trademarks identical to the assigned trademarks. 14 5. As a matter of law there is and can be no violation of Lanham Act Sections 32 or 43(a) by ABC ... by virtue of the acts of ABC in importing and selling YAMAHA brand goods manufactured by [Yamaha-Japan]. 15 Statement of Uncontroverted Facts and Conclusions of Law (dated Oct. 19, 1987) (citations omitted) (incorporated by reference in Judge Lew's oral ruling granting summary judgment as to Counts I and II (Nov. 9, 1987). 16 On December 23, 1988, Judge Lew granted ABC's motion for summary judgment as to the remaining counts of Yamaha-America's Amended Complaint. See Yamaha Corp. of Am. v. ABC Int'l Traders Corp., 703 F.Supp. 1398 (C.D.Cal.1988), aff'd in part, rev'd in part on other grounds, 1991 WL 144474, 1991 U.S.App. LEXIS 17882 (9th Cir. July 30, 1991) [940 F.2d 1537 (table) ], cert. denied, --- U.S. ----, 112 S.Ct. 1177, 117 L.Ed.2d 422 (1992). As to Count III, Judge Lew concluded that Yamaha-America failed to sustain its burden of documenting a genuine issue of fact concerning customer confusion under California's unfair competition law. Id. at 1402. As to Count IV, Judge Lew concluded that no legally recognizable injury to reputation or dilution of the trademark can possibly come to Yamaha-America if ABC limits its activities to the sale of genuine Yamaha products. Id. 3 17
18 It is Judge Lew's treatment of Count V that is most relevant to the question of issue preclusion in this case. Yamaha-America alleged in Count V that ABC's importation of genuine Yamaha products violated its rights under the Tariff Act and the Lanham Act. The relevant portion of section 526 of the Tariff Act provides that 19 it shall be unlawful to import in the United States any merchandise of foreign manufacture if such merchandise ... bears a trademark owned by a citizen of, or by a corporation or association created or organized within, the United States ... unless written consent of the owner of such trademark is produced at the time of making entry. 20 19 U.S.C. § 1526(a) (1988). Judge Lew recognized that the protection provided by section 526 has been consistently interpreted by U.S. Customs for more than fifty years not to be available to American subsidiaries of foreign corporations. ABC, 703 F.Supp. at 1403. 4 After quoting directly from 19 C.F.R. § 133.21(c)(2) (the Regulation), Judge Lew added that the Supreme Court had recently upheld the Regulation in K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 108 S.Ct. 1811, 100 L.Ed.2d 313 (1988), as a permissible interpretation of section 526. ABC, 703 F.Supp. at 1403. 21 Yamaha-America had argued to the ABC court that it had rights under section 526 to seek damages and an injunction against a private gray-market importer even if Customs would not have issued a genuine-goods exclusion order under the Regulation. In other words, Yamaha-America had argued that the Regulation does not define the full scope of the protection provided by section 526; even if the Regulation is valid, ABC's actions violated Yamaha-America's rights under section 526. See Transcript of Oral Argument (D.C.Cir. filed Mar. 11, 1992) (Transcript) at 31 (discussing argument made to ABC court and on appeal to Ninth Circuit). Judge Lew rejected Yamaha-America's argument, however, declining to interpret § 526 any differently than does the Customs Service. ABC, 703 F.Supp. at 1403. He added that 22 even if this Court were to review the statute de novo, it would conclude that Yamaha is not entitled to relief under § 526. To allow Yamaha-America and firms like it such protection would allow any foreign manufacturer to use a wholly owned American subsidiary as a means to secure the help of American tariff law in enforcing worldwide price discrimination. This can not be seen to have been the intent of Congress in passing § 526. 23 Id. Judge Lew's grant of summary judgment to ABC on Yamaha-America's Tariff Act claim was clearly based on two reasons: First, the Regulation--which the Supreme Court recognized to be a reasonable interpretation of section 526--withholds the protections of section 526 from a U.S. trademark holder that is a subsidiary of the foreign trademark holder; and second, section 526 itself excludes from its general protected class those U.S. trademark holders that are wholly owned American subsidiaries of the foreign trademark holders. 24
25 Yamaha-America also claimed in Count V that its rights under section 42 of the Lanham Act were being violated by ABC's gray-market importation. The relevant portion of section 42 provides that 26 no article of imported merchandise ... which shall copy or simulate a trademark registered in accordance with the provisions of this chapter or shall bear a name or mark calculated to induce the public to believe that the article is manufactured in the United States ... shall be admitted to entry at any customhouse of the United States.... 27 15 U.S.C. § 1124 (1988). According to Judge Lew, however, Yamaha-America had already admitted that the goods imported by ABC were genuine Yamaha items. Relying on NEC Electronics 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), and Olympus Corp. v. United States, 792 F.2d 315 (2d Cir.1986), cert. denied, 486 U.S. 1042, 108 S.Ct. 2033, 100 L.Ed.2d 618 (1988), Judge Lew concluded that the importation of genuine goods is not actionable under the Lanham Act. ABC, 703 F.Supp. at 1404. Judge Lew interpreted NEC Electronics as holding that no cause of action arose under the Lanham Act when an American importer imported genuine trademarked items that had been sold overseas by the parent of the American trademark holder. Id. (emphasis in original). Judge Lew found this interpretation of the Lanham Act to be a reasonable one because the decision to sell goods at a lower price abroad (thereby creating conditions for a gray market) is made by the same people who control the American subsidiary; allowing that subsidiary to claim a trademark violation would effectively provide the foreign company with a means of insulating the American economy from the effects of international competition. Accordingly, he granted summary judgment against Yamaha-America on its Lanham-Act claim. 28 Yamaha-America moved under Rule 54(b) of the Federal Rules of Civil Procedure for the entry of final judgment as to all claims for the purposes of expediting appeal. Judge Lew denied the motion, and Yamaha-America moved for reconsideration. In its memorandum in support of its motion for reconsideration, Yamaha-America argued that the goods imported by ABC were physically different from those imported by Yamaha-America and therefore did not legitimately fall under the genuine-goods exception to Lanham Act protection. In a one-page order, Judge Lew wrote: 29 [H]aving read and considered the papers filed in support of and in opposition to the motion, the Court hereby removes the motion from the Court's law and motion calendar ... and issues the following order: 30 Plaintiffs' motion for reconsideration is DENIED. IT IS SO ORDERED. 31 Order (filed Mar. 29, 1989).
32 After ABC's counterclaims were later dismissed, both Yamaha-America and ABC appealed to the Ninth Circuit. In July 1991, the Court of Appeals affirmed the granting of summary judgment against Yamaha-America. See Yamaha Corp. of Am. v. ABC Int'l Traders, Inc., Nos. 90-55036, -55120, 1991 WL 144474, 1991 U.S.App. LEXIS 17882 (9th Cir. July 30, 1991) [940 F.2d 1537 (table) ] (9th Cir.1991) (Ninth Circuit Opinion ). In an unpublished opinion, the court determined that, with respect to its Lanham Act claims, although Yamaha-America had belatedly attempted to distinguish NEC Electronics by suggesting that the products imported by ABC were physically different in material ways from those imported by Yamaha-America, this argument was untimely raised in the motion for reconsideration and proffered only in the form of a lawyer's affidavit. Judge Lew did not err in granting summary judgment against Yamaha on the trademark claims. Id. 1991 WL 144474 at  1, 1991 U.S.App. LEXIS 17882 at  4. 33 With respect to Yamaha-America's Tariff Act claims, the Court of Appeals concluded that 34 [t]he district court also correctly granted summary judgment in favor of ABC on Yamaha's claims under the Tariff Act, 19 U.S.C. § 526, which prohibits the importation of foreign made goods bearing a trademark owned by a United States corporation.... We affirm the district court's determination that the regulation leaves no room for Yamaha's Tariff Act claim. Id. 5