146 F.3d 1083 (9th Cir. 1998), 96-56571, Enesco Corp. v. Price/Costco Inc.

Docket Nº:96-56571.
Citation:146 F.3d 1083
Party Name:98 Daily Journal D.A.R. 6765 ENESCO CORPORATION, an Ohio corporation; Precious Moments, Incorporated, an Illinois corporation, Plaintiffs-Appellants, v. PRICE/COSTCO INC., a Delaware corporation, Defendant-Appellee.
Case Date:June 22, 1998
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 1083

146 F.3d 1083 (9th Cir. 1998)

98 Daily Journal D.A.R. 6765

ENESCO CORPORATION, an Ohio corporation; Precious Moments,

Incorporated, an Illinois corporation, Plaintiffs-Appellants,

v.

PRICE/COSTCO INC., a Delaware corporation, Defendant-Appellee.

No. 96-56571.

United States Court of Appeals, Ninth Circuit

June 22, 1998

Argued and Submitted Dec. 2, 1997.

Page 1084

John J. Held, McAndrews, Held & Malloy, Ltd., James P. White, Welsh & Katz, Ltd., Chicago, Illinois, for plaintiffs-appellants.

Norman H. Levine, Greenberg Glusker Fields Claman & Machtinger, LLP, Los Angeles, California, Michael D. Sandler, Foster Pepper & Shefelman, Seattle, Washington, for defendant-appellee.

Appeal from the United States District Court for the Central District of California; Terry J. Hatter, Jr., District Judge, Presiding. D.C. No. CV-96-03769-TJH.

Before SCHROEDER and KOZINSKI, Circuit Judges, and WHYTE, [*] District Judge.

WHYTE, Judge.

Enesco Corporation ("Enesco") and Precious Moments, Incorporated ("PMI") brought suit against Price/Costco Inc. ("Price-Costco") for unfair competition under California Business and Professions Code sections 17200 et seq. and trademark infringement under sections 32 and 43(a) of the Lanham Act, 15 U.S.C. §§ 1114 and 1125(a). Enesco and PMI (collectively "Appellants") appeal the district court's judgment entered following its order granting Price/Costco's motion to dismiss the action with prejudice. For the reasons set forth below, we reverse the district court's decision and remand. 1

I. BACKGROUND

Enesco is in the business of creating and marketing giftware products that are sold to consumers worldwide. Under an exclusive copyright and trademark license with PMI, Enesco markets a line of porcelain bisque figurines under the PMI-owned "Precious Moments" registered trademark. Because the figurines are made of porcelain bisque and because of their design, Appellants claim that they are fragile and must be specially and carefully packaged so they will not be broken, chipped or otherwise marred.

Since its introduction in 1978, the Precious Moments line has been Enesco's largest licensed line of figurines and apparently one of the world's largest selling collectible lines of figurines. Appellants claim that one of the reasons for the success of the Precious Moments figurines is the quality of the figurines, which is maintained by Enesco's monitoring and keeping a consistent level of quality in the Precious Moments figurines and in the packaging used for the figurines. Enesco uses specially created cartons and interpacking which it claims protects the figurines during transportation and storage.

To enhance the collectibility and quality image of its Precious Moments figurines, Enesco adopted a policy in the early 1980s limiting the sale of figurines to retailers who agree to devote in-store space to the display of the figurines and provide personalized services to the consumer-collectors. Enesco has never sold Precious Moments figurines directly to Price/Costco. Through widespread and favorable public acceptance and recognition, the trademark "Precious Moments" has become of substantial value to Enesco and PMI and is a recognized symbol of quality.

Without Appellants' consent, Price/Costco recently began selling Precious Moments figurines to its customers. However, the figurines are sold in different packaging. After each figurine is removed from its original Enesco outer carton, the figurine along with

Page 1085

the carton is placed and sold in a clear, blister-pack type package that allegedly does not provide adequate protection from damage.

Appellants contend that they are unable to control the quality of the figurines as repackaged, displayed and sold by Price/Costco. As a result, they claim that the repackaged figurines sold by Price/Costco are no longer truly "genuine" Precious Moments figurines.

Price/Costco moved to dismiss Appellants' complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) on the grounds that the claims are barred by the "first sale" doctrine, that the necessary "use in commerce" element is missing and that likelihood of confusion cannot be established as a matter of law.

The district court, without opinion, granted Price/Costco's motion and dismissed the action with prejudice.

II. STANDARD OF REVIEW

A district court's order of dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6) is reviewed de novo. See Campanelli v. Bockrath, 100 F.3d 1476, 1479 (9th Cir.1996). Our review is limited to the contents of the complaint. Id. All allegations of material fact in the complaint are taken as true and construed in the light most favorable to plaintiff. Argabright v. U.S., 35 F.3d 472, 474 (9th Cir.1994). The district court's order of dismissal will be affirmed "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Cervantes v. City of San Diego, 5 F.3d 1273, 1274 (9th Cir.1993) (quoting Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984)).

III. DISCUSSION

Section 32 of the Lanham Act provides the registered owner of a trademark with an action against anyone who without consent uses a "reproduction, counterfeit, copy, or colorable imitation" of the mark in such a way that "is likely to cause confusion or to cause mistake, or to deceive." 2 See 15 U.S.C. § 1114(1). Similarly, section 43(a) provides for civil liability if goods are marketed bearing "a false designation of origin." See 15 U.S.C. § 1125(a)(1).

A trademark owner's right under the Lanham Act to control distribution of its own products is limited by the "first sale" doctrine. See Sebastian Int'l, Inc. v. Longs Drug Stores Corp., 53 F.3d 1073, 1074 (9th Cir.1995). Under the doctrine, resale by the first purchaser of the original article under the producer's trademark is generally neither trademark infringement nor unfair competition. See id. The reason behind the rule "is that trademark law is designed to prevent sellers from confusing or deceiving consumers about the origin or make of a product, which confusion ordinarily does not exist when a genuine article bearing a true mark is sold." NEC Elecs. v. CAL Circuit Abco, 810 F.2d 1506, 1509 (9th Cir.1987) (citing Prestonettes, Inc. v. Coty, 264 U.S. 359, 368-69, 44 S.Ct. 350, 351, 68 L.Ed. 731 (1924); Monte Carlo Shirt, Inc. v. Daewoo Int'l (Am.) Corp., 707 F.2d 1054, 1058 (9th Cir.1983)).

Appellants argue that the "first sale" doctrine does not bar their claim because Price/Costco's resale of the Precious Moments trademarked products falls under the "repackaging notice" exception created by the Supreme Court in Prestonettes, Inc. v. Coty and also under the "potential defect" or "quality control" exception.

  1. "Repackaging Notice" Exception

    Appellants contend that under Coty,...

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