Original Appalachian Artworks, Inc. v. Granada Electronics, Inc.

• Decision Date: 07 April 1987
• Docket Number: No. 519,D,519
• Citation: 816 F.2d 68,2 USPQ2d 1343
• Parties: , 1987-1 Trade Cases 67,523, 2 U.S.P.Q.2d 1343 ORIGINAL APPALACHIAN ARTWORKS, INC., Appellee, v. GRANADA ELECTRONICS, INC., Appellant. ocket 86-7670.
• Court: U.S. Court of Appeals — Second Circuit

Page 68

816 F.2d 68

8 ITRD 2361, 1987-1 Trade Cases 67,523,

2 U.S.P.Q.2d 1343

ORIGINAL APPALACHIAN ARTWORKS, INC., Appellee, v. GRANADA ELECTRONICS, INC., Appellant.

No. 519, Docket 86-7670.

United States Court of Appeals,

Second Circuit.

Argued Dec. 8, 1986.

Decided April 7, 1987.

Noel W. Hauser, Haas, Greenstein, Hauser, Sims, Cohen & Gerstein, P.C., New York City, for appellant.

Gerard F. Dunne, Wyatt, Gerber, Shoup, Scobey & Badie, New York City (Bruce N. Proctor, Eliot S. Gerber, New York City; William H. Needle, Atlanta, Ga.; Stanley F. Birch, Jr., Atlanta, Ga., of counsel), for appellee.

Before OAKES, CARDAMONE and WINTER, Circuit Judges.

OAKES, Circuit Judge:

This appeal involves a suit by a registered trademark owner in the United States against the importer of so-called "gray goods," here Cabbage Patch Kids dolls, bearing the owner's trademark but manufactured abroad under a restrictive license from the trademark owner. The license restriction defined the territory in which the dolls could be sold, limiting sales essentially to Spain. The Spanish "Kids," although duly bearing the appropriate trademark, nevertheless differ from Kids manufactured in the United States because their "adoption papers" are in Spanish. The United States District Court for the Southern District of New York, William C. Conner, Judge, found that sale of the Spanish dolls in the United States infringed the owner's trademark and granted a permanent injunction against the importer and distributor of the dolls. Original Appalachian Artworks, Inc. v. Granada Electronics, Inc., 640 F.Supp. 928 (S.D.N.Y.1986). We affirm.

This action was brought by Original Appalachian Artworks, Inc. (OAA), the Georgia maker and licensor of the well-known Cabbage Patch Kids dolls, against Granada Electronics, Inc. (Granada), who imported and distributed Cabbage Patch Kids dolls in the United States. Granada's dolls were made in Spain by Jesmar, S.A. (Jesmar), under a license from OAA (through a licensing agent) which permitted manufacture and distribution of the dolls in Spain, the Canary Islands, Andorra, and Ceuta Melilla. Under the license Jesmar agreed not to make, sell, or authorize any sale of the licensed products outside its licensed territory and to sell only to those purchasers who would agree not to use or resell the licensed products outside the licensed territory. The boxes containing the Jesmar dolls bear the "Cabbage Patch Kids" trademark displayed in English on all panels of the box except the bottom. Also printed in English are the words "The World Of" preceding the trademark on the rear panel of the box and the name of OAA and its United States address in small print in the copyright notice. The rest of the wording on the box, however, is in Spanish.

OAA makes hand-sewn soft-sculpture Cabbage Patch Kids dolls in Cleveland, Georgia, and markets them through what it calls "adoption centers" located primarily in specialty stores and finer department stores. Purchasers of the dolls receive "birth certificates" and "adoption papers" to be filled out by the "parent" or owner of the doll, who takes an "oath of adoption." The adoption papers are returned to OAA, and the information is entered into the OAA computer so that on the first anniversary of the adoption the adopting parent receives a "birthday card" from OAA. Judge Conner found that this adoption process is an "important element of the mystique of the [Cabbage Patch Kids] dolls, which has substantially contributed to their enormous popularity and commercial success." 640 F.Supp. at 930.

Through an intermediary licensing agent, OAA also licenses Coleco Industries, Inc., of Hartford, Connecticut, to manufacture, promote, and distribute Cabbage Patch Kids dolls within the United States. Unlike the OAA dolls, the Coleco dolls are smaller, with vinyl heads. They are mass-produced, packaged in boxes, and sold at a retail price less than half that of the OAA soft-sculpture dolls. Nevertheless, the Coleco dolls are also accompanied by birth certificates and adoption papers and by English-language instructions suggesting the return of completed adoption papers in a preaddressed envelope to a processing center in the United States. The instructions also permit a purchaser "legally" to change the name of the doll if desired, and the doll's We note that OAA did cause its trademark to be recorded with the United States Customs Service, the regulations of which require the listing "of each foreign person or business entity authorized or licensed to use the trademark and a statement as to the use authorized." 19 C.F.R. Sec. 133.2(c) (1986). Jesmar was listed on the application for recordation by OAA and pursuant thereto the Customs Service sent its agents a letter authorizing Cabbage Patch Kids dolls made by Jesmar to pass through Customs. Parenthetically it should be noted that this court recently held that these regulations were not contrary to statute and that the Customs Service as a matter of "enforcement discretion" and by virtue of inherent "administrative difficulties" may authorize the admission of so-called gray market goods. Olympus Corp. v. United States, 792 F.2d 315, 320 (2d Cir.1986), petition for cert. filed, 55 U.S.L.W. 3372 (U.S. Nov. 6, 1986) (No. 86-757); accord Vivitar Corp. v. United States, 761 F.2d 1552, 1569-70 (Fed.Cir.1985), cert. denied, --- U.S. ----, 106 S.Ct. 791, 88 L.Ed.2d 769 (1986). But see Coalition to Preserve the Integrity of American Trademarks v. United States, 790 F.2d 903, 916-17 (D.C.Cir.1986) (customs regulations allowing importation of gray goods inconsistent with statute governing entry of trademarked goods), cert. granted, --- U.S. ----, 107 S.Ct. 642, 93 L.Ed.2d 699 (1986). It is important to point out, however, that although we held in Olympus that Customs could permit entry of gray market goods, we also indicated that this does not limit the reach of protection of section 526 of the Tariff Act of 1922, as reenacted in 1930 and codified at 19 U.S.C. Sec. 1526 (1982). As we stated, "The markholder still has rights under the statute: he may pursue private remedies against the importer under section 526(c), notwithstanding Customs' failure to exclude the goods." Olympus Corp., 792 F.2d at 320. This is precisely such a case, that is, one in which the markholder is pursuing its private remedies against the importer. Cf. Osawa & Co. v. B & H Photo, 589 F.Supp. 1163 (S.D.N.Y.1984) (granting preliminary injunction in private infringement action against the importation of goods genuinely marked abroad), cited with approval and disapproval in Olympus Corp., 792 F.2d at 319.

parent gets a suitable-for-framing birth certificate as well as a birthday card on the first birthday of the doll. Coleco, with tremendous sales, has invested millions of dollars in advertising the dolls during the last three years and had spent approximately $2.9 million in the first two quarters of 1986. The district court found that, indeed, the Cabbage Patch Kids trademark has become famous and associated with Coleco by virtue of its advertising expenditures and television commercials. 640 F.Supp. at 931.

DISCUSSION

As Judge Conner noted below, 640 F.Supp. at 932, OAA's registration of the Cabbage Patch Kids trademark is prima facie evidence of its validity and of OAA's exclusive right to use the trademark, the validity of which has not been challenged here. As he also noted, section 32 of the Lanham Trademark Act of 1946, 15 U.S.C. Sec. 1114(1)(a) (1982), prohibits the unauthorized sale of goods bearing a registered trademark where there is a likelihood of confusion, mistake, or deception of purchasers. See, e.g., Syntex Laboratories, Inc. v. Norwich Pharmacal Co., 437 F.2d 566, 568 (2d Cir.1971); S.Rep. No. 1333, 79th Cong., 2d Sess. 1, reprinted in 1946 U.S.Code Cong.Serv. Applying this standard, the district court found that Jesmar's Cabbage Patch Kids dolls with their Spanish-language birth certificates, adoption papers, and instructions are materially different from the Coleco dolls with English-language papers. The court also concluded, on the basis of numerous letters from parents and child doll owners or "parents," that the sale in the United States of the Spanish-language dolls with the prominent English-language trademark causes the public to confuse or mistake the Spanish dolls for the Coleco dolls that they expect to be for sale. Together, these findings led the district court to hold Granada's sale of Jesmar dolls in the United States actionable under 15 U.S.C. Sec. 1114(1)(a). 640 F.Supp. at 933 (citing Bell & Howell: Mamiya Co. v. Masel Supply Co., 719 F.2d 42 (2d Cir.1983)).

Granada's principal argument is that the central purpose of a trademark is to identify the owner of the trademark as the source of the goods. Accordingly, the argument runs, the role of trademark laws is to prevent an infringer from passing off its goods as being those of another. There would thus be no infringement here because Jesmar's Cabbage Patch Kids dolls bear a genuine trademark that accurately portrays OAA as the originator, or in this case licensor, of the product. To back this line of reasoning, Granada cites three cases in this circuit as standing for the proposition that the unauthorized sale of authorized goods does not give rise to a claim for trademark infringement. Unfortunately for Granada, however, we do not find that these cases support its interpretation of the Lanham Act.

For example, in DEP Corp. v. Interstate Cigar Co., 622 F.2d 621 (2d Cir.1980), this court upheld the dismissal of a Lanham Act claim by a United States distributor of an English soap against a gray goods importer because the distributor had no property interest in the trademark. In dicta the court noted that it would be "anomalous" if the sale of genuine goods could support an infringement action. Id. at 622 n. 1. But the court also noted that A. Bourjois & Co. v. Katzel, 260 U.S. 689, ...