Opinion ID: 597410
Heading Depth: 1
Heading Rank: 3

Heading: the materiality threshold

Text: 33 When a trial court misperceives and misapplies the law, remand may or may not be essential. Here, a final judgment under the correct rule of law requires only the determination of whether reported differences between the Venezuelan and Italian products are material. It follows, then, that we must examine the legal standard for materiality before deciding whether to remand. 34 Under the Lanham Trade-Mark Act, only those appropriations of a mark that are likely to cause confusion are prohibited. Ergo, when a product identical to a domestic product is imported into the United States under the same mark, no violation of the Lanham Trade-Mark Act occurs. See, e.g., Weil, 878 F.2d at 668. In such a situation, consumers get exactly the bundle of characteristics that they associate with the mark and the domestic distributor can be said to enjoy in large measure his investment in goodwill. By the same token, using the same mark on two blatantly different products normally does not offend the Lanham Trade-Mark Act, for such use is unlikely to cause confusion and is, therefore, unlikely to imperil the goodwill of either product. See, e.g., Blazon, Inc. v. Blazon Mobile Homes Corp., 416 F.2d 598, 600 (7th Cir.1969) (holding that defendant's use of a trade name for trailers and campers did not infringe plaintiff's use of the same mark on children's toys, sporting goods, and lawn furniture). 35 The probability of confusion is great, however, when the same mark is displayed on goods that are not identical but that nonetheless bear strong similarities in appearance or function. Gray goods often fall within this category. Thus, when dealing with the importation of gray goods, a reviewing court must necessarily be concerned with subtle differences, for it is by subtle differences that consumers are most easily confused. For that reason, the threshold of materiality must be kept low enough to take account of potentially confusing differences--differences that are not blatant enough to make it obvious to the average consumer that the origin of the product differs from his or her expectations. 36 There is no mechanical way to determine the point at which a difference becomes material. Separating wheat from chaff must be done on a case-by-case basis. Bearing in mind the policies and provisions of the Lanham Trade-Mark Act as they apply to gray goods, we can confidently say that the threshold of materiality is always quite low in such cases. See Lever Bros., 877 F.2d at 103, 108 (finding minor differences in ingredients and packaging between versions of deodorant soap to be material); Ferrero, 753 F.Supp. at 1241-49, 1247 (finding a one-half calorie difference in chemical composition of breath mints, coupled with slight differences in packaging and labeling, to be material); PepsiCo Inc. v. Nostalgia, 18 U.S.P.Q.2d at 1405 (finding differences in labeling, packaging and marketing methods to be material); PepsiCo v. Giraud, 7 U.S.P.Q.2d at 1373 (finding differences not readily apparent to the consumer--container volume, packaging, quality control, and advertising participation--to be material); Dial Corp., 643 F.Supp. at 952 (finding differences in formulation and packaging of soap products to be material). 37 We conclude that the existence of any difference between the registrant's product and the allegedly infringing gray good that consumers would likely consider to be relevant when purchasing a product creates a presumption of consumer confusion sufficient to support a Lanham Trade-Mark Act claim. Any higher threshold would endanger a manufacturer's investment in product goodwill and unduly subject consumers to potential confusion by severing the tie between a manufacturers's protected mark and its associated bundle of traits. 38 The alleged infringer, of course, may attempt to rebut this presumption, see Coach Leatherware, 933 F.2d at 170; cf. Resource Developers, Inc. v. Statue of Liberty-Ellis Island Found., 926 F.2d 134, 140 (2d Cir.1991) (shifting the burden to the defendant to demonstrate the absence of consumer confusion in an action for damages), but in order to do so he must be able to prove by preponderant evidence that the differences are not of the kind that consumers, on average, would likely consider in purchasing the product.IV. MATERIALITY IN THIS CASE 39 Having fashioned the standard of materiality 9 and examined the record in light of that standard, we are drawn to the conclusion that remand is not required. The district court determined that the products are different but that the differences are not material. See Societe des Produits Nestle, 777 F.Supp. at 166. Although this determination is tainted by a misunderstanding of the applicable legal principles, the court's subsidiary findings are, nonetheless, reasonably explicit and subject to reuse. Hence, we proceed to take the lower court's supportable findings of fact, couple them with other, uncontradicted facts, and, using the rule of law articulated above, determine for ourselves whether the admitted differences between the Venezuelan-made chocolates and the Italian-made chocolates are sufficiently material to warrant injunctive relief. See, e.g., United States v. Mora, 821 F.2d 860, 869 (1st Cir.1987) (concluding that, in a case in which the trial court supportably made the key findings of fact but applied the wrong rule of law, the court of appeals had the power, in lieu of remanding, simply to regroup the findings along the [proper] matrix). 40
41 The district court identified numerous differences between the competing products. Because the record supports these findings and the parties do not contest their validity, we accept them. We add, however, other potentially significant distinctions made manifest by the record. See Dedham Water Co. v. Cumberland Farms Dairy, Inc., 972 F.2d 453, 463 (1st Cir.1992) (stating that appellate factfinding is permissible ... when no other resolution of a factbound question would, on the compiled record, be sustainable) (collecting cases). 42 1. Quality Control. Although Nestle and Casa Helvetia each oversees the quality of the product it sells, the record reflects, and Casa Helvetia concedes, that their procedures differ radically. The Italian PERUGINA leaves Italy in refrigerated containers which arrive at Nestle's facility in Puerto Rico. Nestle verifies the temperature of the coolers, opens them, and immediately transports the chocolates to refrigerated rooms. The company records the product's date of manufacture, conducts laboratory tests, and destroys those candies that have expired. It then transports the salable chocolates to retailers in refrigerated trucks. Loading and unloading is performed only in the cool morning hours. 43 On the other hand, the Venezuelan product arrives in Puerto Rico via commercial air freight. During the afternoon hours, airline personnel remove the chocolates from the containers in which they were imported and place them in a central air cargo cooler. The next morning, employees of Casa Helvetia open random boxes at the airport to see if the chocolates have melted. The company then transports the candy in a refrigerated van to a warehouse. Casa Helvetia performs periodic inspections before delivering the goods to its customers in a refrigerated van. The record contains no evidence that Casa Helvetia knows or records the date the chocolates were manufactured. 44 2. Composition. The district court enumerated a number of differences in ingredients. The Italian BACI candies have five percent more milk fat than their Venezuelan counterparts, thus prolonging shelf life. Furthermore, the Italian BACI chocolates contain Ecuadorian and African cocoa beans, fresh hazelnuts, and cooked sugar syrup, whereas the corresponding Venezuelan candies are made with domestic beans, imported hazelnuts, and ordinary crystal sugar. See Societe Des Produits Nestle, 777 F.Supp. at 163-64. 45 3. Configuration. The district court specifically noted that the Italian chocolates in the Maitre Confiseur and Assortment collections come in a greater variety of shapes than the Venezuelan pieces. See id. at 164. 46 4. Packaging. The district court observed differences in the boxes, wrappers and trays between the Italian and Venezuelan versions of the various chocolate assortments. Id. For example, the packages from Italy possess a glossy finish and are either silver, brown, or gold in color. The Venezuelan boxes lack the shiny finish. They are either blue, red, or yellow in color. While the Italian sweets sit in gold or silver trays, their Venezuelan counterparts rest on white or transparent trays. The Italian boxes depict the chocolates inside and describe the product in English, French, and Italian. The Venezuelan packages describe the contents only in Spanish and English. Moreover, only the BACI box illustrates what is inside. 47 5. Price. The district court pointed out that while the Venezuelan and Italian BACI collections contain the same quantity of chocolate (8 oz.), the Italian BACI sells for $12.99 and the Venezuelan BACI costs $7.50. See id. at 163. The record also reflects that the Italian version of the Assortment collection (14.25 oz. for $26.99) weighs less and is more expensive than the Venezuelan version (15.6 oz. for $22.99). 48
49 Applying the legal standard discussed in Part III, supra, to the record at bar, it is readily apparent that material differences exist between the Italian and Venezuelan PERUGINA. These differences--which implicate quality, composition, packaging, and price--if not overwhelming, are certainly relevant. We run the gamut. 50 Differences in quality control methods, although not always obvious to the naked eye, are nonetheless important to the consumer. The precautions a company takes to preserve a food product's freshness are a prime example. Here, the parties' quality control procedures differ significantly. Even if Casa Helvetia's quality control measures are as effective as Nestle's--a dubious proposition on this record--the fact that Nestle is unable to oversee the quality of the goods for the entire period until they reach the consumer is significant in ascertaining whether a Lanham Act violation exists. See El Greco, 806 F.2d at 395 (stating that actual quality of the goods is irrelevant; it is the control of quality that a trademark holder is entitled to maintain). Regardless of the offending goods' actual quality, courts have issued Lanham Trade-Mark Act injunctions solely because of the trademark owner's inability to control the quality of the goods bearing its name. See id. at 396 (barring sale in the United States of trademarked shoes under Lanham Trade-Mark Act § 32 because the registrant had no opportunity to inspect the shoes' quality); see also Shell Oil, 928 F.2d at 107 (affirming that oil marketed according to defendant's quality control procedures, rather than the plaintiff's, was not truly 'genuine,'  and its sale violated the plaintiff's Lanham Trade-Mark Act right to retain control of the use of its trademark in the sale of the product to the end user). Thus, the substantial variance in quality control here creates a presumption of customer confusion as a matter of law. See id. at 108. 51 The differences in presentation of the candies are also material. Although the district court dismissed the differences in packaging as subtle, Societe Des Produits Nestle, 777 F.Supp. at 166, subtle differences are, as we have said, precisely the type that heighten the presumption of customer confusion. Consumers are more likely to be confused as to the origin of different goods bearing the same name when both goods are substantially identical in appearance. Furthermore, the differences in presentation and chocolate shape strike us as more than subtle. Glossy veneers, gold and silver wraps, and delicate sculpting add to the consumer's perception of quality. In the market for premium chocolates, often purchased as gifts, an elegant-looking package is an important consideration. The cosmetic differences between the Italian-made and the Venezuelan-made PERUGINA, therefore, might well perplex consumers and harm Nestle's goodwill. 52 We are also hesitant to dismiss as trivial the differences in ingredients. While the district court may be correct in suggesting that the ultimate consumer is [not] concerned about the country of origin of cocoa beans and hazelnuts, id. at 166-67, the measure of milk fat in the chocolates is potentially significant. Certainly, consumers care about the expected shelf life of food products. 53 Price, without doubt, is also a variable with which purchasers are concerned. To the consumer (perhaps a gift buyer) who relishes a higher price for its connotation of quality and status, as well as to the chocolate aficionado who values his wallet more than his image, a difference of nearly five and a half dollars (or, put another way, 73 percent) on a half-pound box of chocolate is a relevant datum. Furthermore, the fact that consumers are willing to pay over five dollars more for the Italian-made chocolate than for its Venezuelan counterpart may suggest that consumers do care about the other differences between the two products. Afforded perfect information, consumers indifferent between the two would presumably not be willing to pay more for one than for the other. 54 We need go no further. Given the low threshold of materiality that applies in gray goods cases, we find the above dissimilarities material in the aggregate. The use of the same PERUGINA label on chocolates manifesting such differences is presumptively likely to cause confusion. Casa Helvetia could, of course, have offered evidence to rebut this presumption--but it has not done so. There is no proof that retailers explain to consumers the differences between the Italian and Venezuelan products. The record is likewise devoid of any evidence that consumers are indifferent about quality control procedures, packaging, ingredients, or price. 10 Because the differences between the Italian and Venezuelan PERUGINA chocolates are material, the district court erred in denying plaintiffs' trademark infringement and unfair competition claims under Lanham Trade-Mark Act sections 32(1)(a), 42, and 43(a)(1). 55 Reversed and remanded for the entry of appropriate injunctive relief and for further proceedings not inconsistent herewith. Costs to appellants.