Opinion ID: 3031461
Heading Depth: 3
Heading Rank: 2

Heading: K Mart AND GRAY MARKET GOODS

Text: In 1988, the Supreme Court in K Mart provided a useful tutorial on gray market goods. K Mart involved a challenge to Customs Service regulations implementing § 526 of the Tariff Act.3 The Court began its opinion by explaining that “A gray-market good is a foreign-manufactured good, bearing a valid United States trademark, that is imported without the consent of the United States trademark holder.” K Mart, 486 U.S. at 285 (emphasis added). The Court then went on to describe the three general gray market scenarios. The “prototypical” context, based on Katzel, see id. at 287, arises where “a domestic firm . . . purchases from an independent foreign firm the rights to register and use the latter’s trademark as a United States trademark and to sell its foreignmanufactured products here.” Id. at 286. If the foreign manufacturer or a third party imports the products into the United States, they would be gray market goods competing with the trademark holder’s goods. Id. The second gray market scenario is where a domestic firm registers the U.S. trademark “for goods that are manufactured abroad by an affiliated manufacturer.” Id. The Court detailed three variations that fit under this example: a) a foreign firm incorporates a subsidiary in the United States which then registers the U.S. trademark (which is identical to the foreign parent firm’s trademark) in its own name; b) “an Americanbased firm establishes abroad a manufacturing subsidiary corporation”; or c) an American-based firm establishes abroad “its own unincorporated manufacturing division . . . to pro- 3 Although K Mart involved § 526 of the Tariff Act, it serves as guidance for our analysis of §§ 32 and 43 of the Lanham Act. See Weil Ceramics & Glass, Inc., 878 F.2d at 661 (“K Mart is also instructive to the disposition of the Appellee/Cross-Appellant’s contentions regarding §§ 42 and 32.”); see also Gilson, supra, § 4.05[4] (noting that the customs service has adopted the likelihood of confusion test of § 32 of the Lanham Act in determining whether a violation of § 526 exists). 4640 AMERICAN CIRCUIT BREAKER v. OREGON BREAKERS duce its United States trademarked goods, and then imports them for domestic distribution.” Id. at 286-87. All of these variations involve “common control” of the United States and foreign trademark holders. See Gilson, supra, § 4.05[6]. The third gray market scenario is where the “domestic holder of a United States trademark authorizes an independent foreign manufacturer to use it.” K Mart, 486 U.S. at 287 (emphasis in original). “Usually the holder sells to the foreign manufacturer an exclusive right to use the trademark in a particular foreign location, but conditions the right on the foreign manufacturer’s promise not to import its trademarked goods into the United States.” Id. This situation usually arises when the U.S. firm owns both the domestic and foreign trademarks and licenses its use to a foreign manufacturer in a foreign country. See Gilson, supra, § 4.05[6]. The circumstances here most closely approximate Katzel, which is also K Mart’s case 1. There are both similarities and differences between Katzel and the present case. In each case, separate companies owned the trademark in the United States and the trademark in the foreign jurisdiction. In both cases the plaintiff and the third party defendant acquired the product from the foreign manufacturer. And, in both cases the plaintiff’s product has a valid U.S. trademark and the defendant’s product has a valid trademark from the foreign trademark owner. Although ACBC did not purchase the U.S. trademark from a foreign company, its predecessor purchased those rights from a U.S. company that was a common predecessor to ACBC and Pioneer. And, unlike the labels in Katzel, the record here does not indicate that the black circuit breaker casing “ha[s] come to be understood by the public here as meaning goods coming from the plaintiff.” Katzel, 260 U.S. at 691. At least one prominent commentator has argued that the first K Mart context did not fit the definition of gray market at all because “the U.S. trademark owner did not own the AMERICAN CIRCUIT BREAKER v. OREGON BREAKERS 4641 mark abroad.” Gilson, supra, § 4.05[6]. Indeed, determining whether such goods should be labeled as gray market is a bit tricky given the fact that the Supreme Court explained that gray market goods must have “a valid United States trademark,” but also described the first K Mart context as the prototypical gray market situation. Caught up in the confusion, the parties spend a great deal of energy wrangling over whether this is a gray market case. ACBC claims it is not bringing a gray market claim because the marks are owned by independent corporations. Oregon Breakers argues that, as a result of the 1993 agreement, the companies are not truly unrelated and that the relationship fits within several of the K Mart criteria. [2] In the end, whether this is technically classified as a gray market case or not does not drive the solution. Ultimately, what is at issue is whether there is a likelihood of confusion as to source under the well established precedent of §§ 32 and 4B(a) of the Lanham Act.4 Neither Katzel nor K Mart preclude a finding of trademark infringement as a matter of law in this context. As McCarthy notes, “the ultimate issue in a trademark infringement suit against the importer of gray market imports is the factual question of likelihood of confusion of U.S. customers.” McCarthy, supra, § 29.46; see Brookfield Communications, Inc. v. West Coast Entm’t Corp., 174 F.3d 1036, 1053 (9th Cir. 1999) (“The core element of trademark infringement is the likelihood of confusion, i.e., whether the similarity of the marks is likely to confuse customers about the source of the products.”) (citations omitted); New West Corp. v. NYM Co., 595 F.2d 1194, 1201 (9th Cir. 4 It bears noting that the circumstances of this case suggest that ACBC would have had a remedy under the Tariff Act. See K Mart, 486 U.S. at 288 (explaining that, subject to certain exceptions, § 526 of the Tariff Act prohibits the importation of “[f]oreign-made articles bearing a trademark identical with one owned and recorded by a citizen [or corporation] of the United States”); Parfums Givenchy v. Drug Emporium, Inc., 38 F.3d 477, 484 (9th Cir. 1994) (explaining same, and noting that the purpose of § 526 “is to protect domestic companies against foreign competition”). 4642 AMERICAN CIRCUIT BREAKER v. OREGON BREAKERS 1979) (“Whether we call the violation infringement, unfair competition or false designation of origin, the test is identical is there a ‘likelihood of confusion?’ ”); see also Societe Des Produits Nestle v. Casa Helvetia, Inc., 982 F.2d 633, 640 (1st Cir. 1992) (“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.”).