Opinion ID: 3031461
Heading Depth: 3
Heading Rank: 1

Heading: Katzel AND THE EMERGENCE OF TERRITORIALITY

Text: It is now generally agreed and understood that trademark protection encompasses the notion of territoriality. The Supreme Court ushered in this concept more than eighty years ago in A. Bourjois & Co. v. Katzel, 260 U.S. 689 (1923). Understanding Katzel in the context of the transition from the notion of universality of trademarks to the emergence of territoriality sheds light on the dispute here. As McCarthy, one of the leading commentators in the trademark arena notes: “Early U.S. cases refused to protect U.S. trademark owners from parallel imports of genuine goods obtained from the foreign manufacturer.” J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition, § 29:51 (4th ed. West 2005) (citing Apollinaris Co. v. Scherer, 27 F. 18 (C.C.N.Y. 1886)); Fred Gretsch Mfg. Co. v. Schoening, 238 F. 780 (2d Cir. 1916)). These early cases were decided under the then-dominant principle of universality of trademarks. The universality principle 2 We closely scrutinized the stipulation to assure ourselves that there was a complete dismissal of all claims. We are satisfied that there was a final judgment and that the parties’ articulation of these two issues was meant to clarify that the dismissal was predicated on the stipulation and that, in the view of the parties, these two matters were not material issues of fact nor were they stipulated issues of fact. 4636 AMERICAN CIRCUIT BREAKER v. OREGON BREAKERS stands for the proposition that a trademark serves the sole purpose of identifying the source of a product. Under this principle, a trademark is valid if it correctly identifies the origin or source of the product, regardless of where the consumer purchases the product. A gray market product does not violate trademark rights under the universality principle as long as it bears a genuine trademark that identifies the source of the product. Jerome Gilson, 1 Trademark Protection and Practice, § 4.05[5] (2004). Katzel came to the Supreme Court on a writ of certiorari from the Second Circuit. The plaintiff in Katzel purchased a French cosmetic firm’s U.S. business, along with its goodwill and U.S. trademark “Java,” which was used on face powder. Katzel, 260 U.S. at 690. The plaintiff continued to purchase the face powder from the French firm and used “substantially the same form of box and label as its predecessors” but “uses care in selecting colors suitable for the American market . . . .” Id. at 691. The Court pointed out that “the labels have come to be understood by the public here as meaning goods coming from the plaintiff.” Id. The defendant was a third party who purchased the same face powder in France and resold it in the United States “in the French boxes which closely resemble those used by the plaintiff . . . .” Id. [1] Following precedent based on the principle of universality, the Second Circuit concluded that there was no trademark infringement. A. Bourjois & Co. v. Katzel, 275 F. 539, 540 (2d Cir. 1921) (“The question is whether the defendant has not the right to sell this article under the trade-marks which truly indicate its origin. We think she has.”). In quick response to the ruling and with the intent of overruling the decision, Congress enacted § 526 of the Tariff Act of 1922, while Katzel was on appeal. See K Mart, 486 U.S. at 287-88; see also McCarthy, supra, § 29:51. Section 526, which has since been reenacted as § 526 of the 1930 Tariff Act, 19 U.S.C. § 1526, prohibits importation of foreign-manufactured AMERICAN CIRCUIT BREAKER v. OREGON BREAKERS 4637 goods bearing a registered trademark owned by a U.S. citizen or corporation. Unlike a trademark infringement action under § 32 of the Lanham Act, the remedy under § 526 is prohibition of importation of the goods. The Supreme Court subsequently reversed the Second Circuit and held that the plaintiff’s trademark rights were infringed, though the Court did not reference the new legislation. Katzel, 260 U.S. at 691. The Court reasoned that the “monopoly of a trade-mark . . . deals with a delicate matter that may be of great value but that easily is destroyed, and therefore should be protected with corresponding care.” Id. at 692. The Court then explained: It is said that the trade-mark here is that of the French house and truly indicates the origin of the goods. But that is not accurate. It is the trade-mark of the plaintiff only in the United States and indicates in law, and, it is found, by public understanding, that the goods come from the plaintiff although not made by it. It was sold and could only be sold with the good will of the business that the plaintiff bought. It stakes the reputation of the plaintiff upon the character of the goods. Id. at 692 (internal citation omitted). The Katzel decision marked a dramatic change in trademark law by adopting the principle of “territoriality” of trademarks and moving away from the rule of “universality.” See McCarthy, supra, § 29:51; Gilson, supra, § 4.05[5]. Under the territoriality principle, a “trademark has a separate legal existence in each country and receives the protection afforded by the laws of that country.” Gilson, supra, § 405[5]. Between the Supreme Court’s decision in Katzel and the early 1980s “the legal journals [were] the main battleground” over the issue of whether a U.S. trademark holder could pre4638 AMERICAN CIRCUIT BREAKER v. OREGON BREAKERS vent the importation of “genuine” gray market goods. Bell & Howell: Mamiya Co. v. Masel Supply Co., 548 F. Supp. 1063, 1065 (E.D.N.Y. 1982). Changing world economic conditions during the 1980s ushered in a dramatic increase in the number of cases dealing with the issue. See McCarthy, supra, § 29:46. Some courts limited Katzel to its particular facts. See, e.g., Weil Ceramics and Glass, Inc. v. Jalyn Corp., 878 F.2d 659, 669 (3d Cir. 1989) (“We do not read Katzel to extend beyond [its] circumstance.”); Olympus Corp. v. United States, 792 F.2d 315, 321-22 (2d Cir. 1986) (holding that § 42 of the Lanham Act did not apply to genuine goods in cases that did not present the same equities as Katzel). In contrast, in Osawa v. B & H Photo, 589 F. Supp. 1163 (S.D.N.Y. 1984), the court thoroughly embraced the shift from universality to territoriality ushered in by Katzel, explaining that, under the territoriality principle: [a trademark’s] proper lawful function is not necessarily to specify the origin or manufacture of a good (although it may incidentally do that), but rather to symbolize the domestic goodwill of the domestic markholder so that the consuming public may rely with an expectation of consistency on the domestic reputation earned for the mark by its owner, and the owner of the mark may be confident that his good- will and reputation (the value of the mark) will not be injured through use of the mark by others in domestic commerce. Id. at 1172. More recently, the principle of territoriality “has been criticized as obsolete in a world market where information products like computer programs cannot be located at a particular spot on the globe.” McCarthy, supra, § 29:1. Nevertheless, Katzel remains good law and found expression in the more recent K Mart case. AMERICAN CIRCUIT BREAKER v. OREGON BREAKERS 4639