Court Opinion

ID: 9476017
Source: CourtListenerOpinion
Date Created: 2023-08-05 05:46:12.689868+00
Date Added: 2024-06-11T17:45:05.093914
License: Public Domain

CARDAMONE, Circuit Judge,
concurring:
The majority states that the imported dolls were not intended to be sold in the United States and were “different” from those of the mark’s owner because the adoption papers and birth certificates were in Spanish. It is this difference, the majority continues, that creates confusion over the source of the product and constitutes the Lanham Act violation. I also believe that the importation of the Spanish produced Cabbage Patch dolls infringes the owner’s trademark and should be permanently enjoined. While I agree with the majority that there is “confusion over the source of the product,” I respectfully reach this conclusion for somewhat different reasons.
I
The essential element of an action under § 32 of the Lanham Act, 15 U.S.C. § 1114 (1982), is a showing of the likelihood of consumer confusion as to source of origin. See, e.g., Church of Scientology Int’l v. The Elmira Mission of the Church of Scientology, 794 F.2d 38, 43 (2d Cir.1986); Miss Universe, Inc. v. Patricelli, 753 F.2d 235, 237 (2d Cir.1985); Berlitz Schools of Languages, Inc. v. Everest House, 619 F.2d 211, 215 (2d Cir.1980); McGregor-Doniger Inc. v. Drizzle Inc., 599 F.2d 1126, 1130 (2d Cir.1979); Mushroom Makers, Inc. v. R.G. Barry Corp., 580 F.2d 44, 47 (2d Cir.1978), cert. denied, 439 U.S. 1116, 99 S.Ct. 1022, 59 L.Ed.2d 75 (1979) (per curiam). Because parallel goods are generally considered to be the “genuine” product of the foreign trademark owner, see, e.g., A. Bourjois & Co. v. Katzel, 260 U.S. 689, 691-92, 43 S.Ct. 244, 245, 67 L.Ed. 464 (1923); 3A R. Callmann Unfair Competition, Trademarks and Monopolies § 21.-17, at 74 (L. Altman 4th ed. 1983), the traditional Lanham Act consumer confusion test becomes difficult to apply. Lipner, The Legality of Parallel Imports: Trademark, Antitrust, or Equity?, 19 Tex.IntT L.J. 553, 568 (1984). Hence, to determine whether the importation of “genuine” Cabbage Patch dolls creates a likelihood of confusion as to their “source”, it is necessary to examine the functions and principles of trademark law.
A. Trade Identity Theory
Under the trade identity theory of trademark law, the only function of this body of law is to identify the ultimate source of the goods, i,e., the owner of the mark, 3A R. Callmann, supra, at 76; 2 S. Ladas, Pat*75ents, Trademarks and Related Rights § 732, at 1341 (1975); Takamatsu, Parallel Importation of Trademarked Goods: A Comparative Analysis, 57 Wash.L.Rev. 433, 453 (1982). Where, as here, the domestic owner of the mark has licensed the use of its mark by a foreign manufacturer, this theory logically leads to the conclusion that there can be no confusion as to source. 3A R. Callmann, supra; 2 S. Ladas, supra; Takamatsu, supra, at 457. Hence, it cannot serve as the rationale for granting a Lanham Act injunction.
B. The Guarantee Function
Many commentators however recognize that trademark law also serves to guarantee the quality of the trademarked product. 3A R. Callmann, supra, at 75; 2 S. Ladas, supra; 1 J. McCarthy, Trademarks and Unfair Competition, § 18.13, at 827 (2d ed. 1984). This is particularly apparent in the licensing context where the mark’s owner licenses another to manufacture the product while retaining only the right to control quality. See 1 J. McCarthy, supra, at 826-28. We have labelled that control which the licensor retains “sponsorship,” Societe Comptoir De L'Industrie Cotonniere v. Alexander’s Dep’t Stores, 299 F.2d 33, 35 (2d Cir.1962), and have deemed confusion as to “sponsorship” to he confusion as to “source of origin,” Id.
Recognizing that sponsorship includes quality control — and viewing the territorial sales restrictions imposed by OAA as a means of quality control — it follows that Granada’s importation of dolls with Spanish birth certificates, adoption papers and instructions into the United States may confuse the public as to whether OAA “sponsored” the importation of what the public perceives to be inferior dolls. This confusion is sufficient to constitute a violation of the Lanham Act. See Takamatsu, supra, 457-58 (acceptance of the guarantee function leads to the conclusion that the importation of goods of different quality is trademark infringement, even where domestic and foreign marks are owned by the same person); 2 S. Ladas, supra (same). See also 4A Callmann, supra, § 26.27, at 63-64 (“Here ... we may have some other form of confusion, involving for example the guarantee function of trademarks rather than the souree-identification function.”) (footnotes omitted).
The necessity of providing a remedy against quality infringement by third-parties is particularly essential in a licensing arrangement because the Lanham Act imposes an affirmative duty upon the licensor to maintain quality control. See Church of Scientology, 794 F.2d at 43; Franchised Stores of New York, Inc. v. Winter, 394 F.2d 664, 669 (2d Cir.1968). As we noted in Franchised Stores, “[i]t would be anomalous ... to burden the trademark owner with this ‘affirmative’ duty and then ... deny him a federal forum in which to control his licensees.” 394 F.2d at 669.
Even the guarantee function, in my view, is not entirely free from doubt as a basis for issuing an injunction. It has been argued that the importation of genuine but inferior goods of a foreign licensee is the fault of the trademark owner “in not exercising adequate supervision of the mark,” and that its failure “should not be a justification for protecting it under the trademark laws for the situation it has created.” See Vandenburgh, The Problem of Importation of Genuinely Marked Goods is Not a Trademark Problem, 49 Trade Mark Rptr. 707, 716 (1959) (emphasis in original). See also Parfums Stern, Inc. v. United States Customs Service, 575 F.Supp. 416, 419 (S.D.Fla.1983) (Criticizing mark owner for seeking federal trademark protection “to insulate itself from what it placed in motion itself through its own foreign manufacturing and distribution sources.”).
This argument is not persuasive when, as in this case, it is not clear that OAA could not have prevented by contract the importation of these Cabbage Patch dolls by third-party distributors, such as Granada. As a practical matter OAA appears to have tried. Under its license Jesmar agreed not to sell outside its Spanish-licensed territory, and further agreed to sell only to purchasers who also agreed not to sell outside that territory. Without any effective means of further controlling the distribution of its product, for example, by means of an eq*76uitable servitude on the dolls, OAA should not be held responsible for the dolls’ importation. See, e.g., 2 R. Callmann, supra, § 16.16 at 83 (“[Equitable] servitudes have not been the basis of any holding barring parallel imports of genuine trademarked goods”); Z. Chafee, The Music Goes Round and Round: Equitable Servitudes and Chattels, 69 Harv.L.Rev. 1250, 1255-56 (1956) (only scarce authority on the validity of equitable servitudes on chattels). Significantly, the only other situation in which trademark laws have been used against admittedly “genuine” goods arose when the U.S. owner of the mark did not have a contract remedy available to prevent the importation of the foreign product. See A. Bourjois & Co. v. Katzel, 260 U.S. 689, 43 S.Ct. 244, 67 L.Ed. 464 (1923).
C. The Exhaustion Doctrine
Several commentators have suggested that the trademark doctrine of “exhaustion” also cuts against a finding of infringement in the importation of parallel goods. See, e.g., 3A R. Callmann, supra, § 21.17, at 75. Simply put, this doctrine provides that a distributor, like Granada, has the “right to resell a branded item in an unchanged state.” 2 J. McCarthy, supra, § 25.11, at 261. See also Takamatsu, supra, at 456. The rationale underlying this doctrine is that trademark rights are exhausted once the trademarked goods have been duly placed into the market. Takamatsu, supra. But it is well-recognized that the exhaustion doctrine does not apply to genuine goods which have been altered. See 2 J. McCarthy, supra, § 25.10 at 259.
Here, because the dolls were manufactured and sold by Jesmar as authorized and licensed by OAA and not physically altered thereafter, it might be argued that Granada should be able to resell them in this unaltered state. The more persuasive view, I believe, is that the “exhaustion” doctrine does not apply with equal force in the international context. See 2 S. Ladas, supra, § 732, at 1341, Takamatsu, supra, at 457. Here the same mark has been attached to essentially two different products in the two countries, and each product has developed its own goodwill in its country. Although the Spanish dolls have not been physically altered during their importation, the sale of these dolls in the U.S. upsets the settled expectations of U.S. consumers about what they will receive when they purchase a Cabbage Patch doll. Because an American consumer would be disappointed by the same doll that would satisfy a Spanish consumer, the very act of importing different goods may be viewed, in an abstract sense, as an alteration of the doll.
II
In sum, the district court properly granted OAA the injunctive relief it requested. Once one adopts the guarantee function of trademark law, it becomes clear that OAA has a right to relief from potential consumer confusion as to whether it sponsored the importation of these genuine but “inferior” dolls. It is this violation of the mark owner’s right to control the quality of its product, that is to say its sponsorship, that is deemed confusion as to source.
For these reasons, I conclude that Granada’s importation of the Jesmar dolls creates the likelihood of consumer confusion as to source of origin and thus constitutes a violation of the Lanham Act. Consequently, I join the majority in voting to affirm the district court’s issuance of an injunction to prevent further importation.