Skf Usa Inc. v. International Trade Com'n

• Citation: 423 F.3d 1307
• Decision Date: 14 September 2005
• Docket Number: No. 04-1460.,04-1460.
• Parties: SKF USA INC., Appellant, v. INTERNATIONAL TRADE COMMISSION, Appellee, and Bearings Limited, Intervenor, and McGuire Bearing Company, Intervenor.
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

423 F.3d 1307

SKF USA INC., Appellant, v. INTERNATIONAL TRADE COMMISSION, Appellee, and Bearings Limited, Intervenor, and McGuire Bearing Company, Intervenor.

No. 04-1460.

United States Court of Appeals, Federal Circuit.

September 14, 2005.

Herbert C. Shelley, Steptoe & Johnson LLP, of Washington, DC, argued for appellant. With him on the brief was Alice A. Kipel. Of counsel was Jamie B. Beaber.

Wayne W. Herrington, Attorney, Office of the General Counsel, United States International Trade Commission, of Washington, DC, argued for appellee. With him on the brief was James M. Lyons, General Counsel.

Steuart H. Thomsen, Sutherland Asbill & Brennan LLP, of Washington, DC, argued for intervenors Bearings Limited and McGuire Bearing Company. Of counsel on the brief for Bearings Limited were Patricia B. Cunningham and Candice C. Decaire, of Atlanta, Georgia. Lyle B. Vander Schaaf, White & Case, LLP, of Washington, DC, for intervenor McGuire Bearing Company. Of counsel was Frank H. Morgan.

Before LOURIE, Circuit Judge, ARCHER, Senior Circuit Judge, and GAJARSA, Circuit Judge.

LOURIE, Circuit Judge.

SKF USA, Inc. appeals from the judgment of the United States International Trade Commission concluding that § 337 of the Tariff Act of 1930, 19 U.S.C. § 1337 (2000), had not been violated by the importation, sale for importation, and sale within the United States after importation of certain SKF-marked bearings. In re Certain Bearings & Packaging Thereof, Inv. No. 337-TA-469 (Dep't Commerce May 24, 2004) ("Final Determination"). Because substantial evidence supports the Commission's conclusion that all or substantially all of SKF USA's bearings are not predictably and consistently accompanied by post-sale services and its consequent conclusion that there was no likelihood of confusion between SKF USA's goods and the gray market goods, we affirm.

BACKGROUND

SKF USA, Inc. is a manufacturer of ball bearings located in the United States. It produces SKF-marked bearings in the United States and also imports SKF-marked bearings that are manufactured abroad by SKF Manufacturing Units. SKF USA and SKF Manufacturing Units are owned by the same parent company, AB SKF, a Swedish corporation.

SKF USA sells bearings at all levels of the market, both directly to large original equipment manufacturers and to end users. It sells its products through a network of authorized distributors, as well as to some "nonauthorized" distributors, i.e., distributors to which SKF USA sells but with whom SKF USA does not have an "Industrial Distributor Agreement." Such nonauthorized goods, made by an SKF entity, but not sold or authorized for sale in the United States, are often known as "gray market goods" or simply "gray goods." Additionally, SKF USA itself imports bearings distributed by its foreign manufacturing units, and SKF USA's authorized distributors have themselves purchased gray market bearings, including some from companies that were respondents in the Commission's § 337 investigation.

In April 2002, SKF USA filed a complaint at the Commission against fourteen respondents, alleging they violated § 337 by (1) infringement of various registered trademarks in violation of section 32 of the Lanham Act, 15 U.S.C. § 1114(1)(a); (2) infringement of common law trademarks; (3) false representation of source in violation of section 43(a)(1)(A) of the Lanham Act, 15 U.S.C. § 1125(a)(1)(A); (4) dilution of registered and common law trademarks in violation of section 43(c)(1), 15 U.S.C. § 1125(c)(1); and (5) false advertising in violation of section 43(a)(1)(B) of the Lanham Act, 15 U.S.C. § 1125(a)(1)(B).

In April 2003, an Administrative Law Judge ("ALJ") issued an initial determination, finding that four of the respondents — Bohls Bearing and Transmission Service, CST Bearing Company, Bearings Limited, and McGuire Bearings Company — had violated § 337 by infringement of SKF USA's registered and common law trademarks and making a false designation of source. In re Certain Bearings & Packaging Thereof, Inv. No. 337-TA-469 (Dep't Commerce Apr. 10, 2003) ("Initial Determination"). The ALJ applied the "material differences" test set forth in Gamut Trading Co. v. International Trade Commission, 200 F.3d 775 (Fed.Cir.1999), and found that there were no physical material differences between the bearings that SKF USA sold or authorized for sale and those bearings that were imported and sold by the respondents. However, the ALJ determined that this court has not expressly required that material differences be physical in nature. Instead, he determined that the existence and extent of technical and engineering services may constitute material differences in terms of § 337 trademark liability despite not being physical characteristics, consistent with the test set forth in Gamut. Initial Determination, slip op. at 64.

SKF USA employs a number of "industry specialists," engineers who have expertise in equipment used in particular fields, to provide on-going technical and engineering assistance to its customers. Id., slip op. at 77. Those services consist of on-site services and "hotline" support. Its specialists receive extensive and on-going training each year, and they perform such tasks as troubleshooting, technical support, installation supervision, and end user training. Id. The ALJ found that "SKF USA will provide post-sale customer support to customers who buy SKF bearings from SKF USA authorized distributors regardless of where the SKF bearings came from." Id., slip op. at 78. He determined that even if "SKF bearings came from the gray market," "SKF USA will provide post-sale customer service support." Id. The ALJ also found that SKF USA provided hotline support as another method of customer service. He heard testimony that SKF USA, through its hotline, dealt with such problems as maintenance, installation, and lubrication of its products. Id., slip op. at 79. He determined that SKF USA took reasonable steps to prevent purchasers of SKF bearings from nonauthorized sources from using its hotline services. Id.

The ALJ determined that the SKF USA bearings and the gray market bearings differed materially in the post-sale technical services offered with them, particularly on-site services and hotline support. Because SKF USA presented evidence that customers would likely be confused as to the degree of post-sale technical and engineering services to which they were entitled, and because "the evidence of record [was] devoid of comparable services by Respondents," id., slip op. at 77, the ALJ found that "there [was] a likelihood of confusion and therefore a violation of Section 337," id., slip op. at 80. The ALJ thus held that the four respondent companies violated § 337 by infringing SKF USA's registered and common law trademarks and by falsely designating the origin of the ball bearings. The ALJ, however, determined that SKF USA had not carried its burden of proving false advertising or trademark dilution. Id., slip op. at 239.

Thereafter, SKF USA, the four respondents, and the Commission's investigative attorney filed a joint petition for review by the full Commission, each contesting various aspects of the ALJ's initial determination. Upon review, however, the Commission determined that additional information was needed and remanded the case for further fact-finding in August 2003. Specifically, the Commission requested information relating to SKF USA's sales through "alternate" channels of distribution, including sales on the surplus market and the vehicle service market, and the warranties, product recall procedures, and post-sale technical services passed on to the end user relating to those sales. The ALJ completed that additional fact finding in December 2003, and the case was returned to the full Commission in January 2004.

In May 2004, the Commission issued its final decision reversing the ALJ's initial decision. First, it agreed with the ALJ that the question whether material differences can be found in a gray market case based solely on nonphysical differences is a matter of first impression for the Commission and an issue not yet specifically addressed by this court. The Commission further noted that this court did not hold in Gamut that a material difference must be a physical one in order to show gray market trademark infringement, and it declined to create a per se rule that material differences must be physical in nature. Final Determination, slip op. at 25-26.

The Commission concluded that the post-sale services did not accompany certain of SKF USA's bearing sales, particularly through the alternate channels of distribution consisting of $324 million by Chicago Rawhide, SKF USA's business unit relating to the vehicle service market; $19 million by Roller Bearing Company/Tyson Bearing Company; $4 million to gray market distributors; approximately $3 million to the surplus market; and $62 million by nonauthorized distributors to end users. Id., slip op. at 39, 42, 55. Such alternate channels of distribution totaled $412 million; the total amount of SKF USA bearings in the relevant period was approximately $3.265 billion, so that the alternate channels sales amounted to 12.6% of the total. Id., slip op. at 39. Despite the undisputed 87.4% of SKF USA bearing sales to authorized distributors that were supported by post-sale services, the Commission determined that the 12.6% of SKF USA's total sales was sufficient to defeat SKF USA's argument that the material difference accompanied all or substantially all of its marked bearings.

The Commission considered SKF USA's assertion that "a trademark owner's non-adherence to its policies or practices with respect to some of its sales does not defeat a claim of infringement if those `non-conforming' sales are insignificant." Id., slip op. at 57. SKF USA argued that in Warner-Lambert Co. v. Northside Development Corp., 86 F.3d 3 (2d Cir.1996), a preliminary injunction was granted even...