AU-TOMOTIVE GOLD v. Volkswagen of America

• Decision Date: 06 May 2010
• Docket Number: No. 08-16005.,08-16005.
• Citation: 603 F.3d 1133
• Parties: AU-TOMOTIVE GOLD INC, Plaintiff-counter-defendant-Appellant, v. VOLKSWAGEN OF AMERICA, INC.; Audi of America, Inc; Volkswagen Aktiengesellschaft; Audi Aktiengesellschaft; Continental Enterprises, Defendants-counter-claimants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

603 F.3d 1133

AU-TOMOTIVE GOLD INC, Plaintiff-counter-defendant-Appellant, v. VOLKSWAGEN OF AMERICA, INC.; Audi of America, Inc; Volkswagen Aktiengesellschaft; Audi Aktiengesellschaft; Continental Enterprises, Defendants-counter-claimants-Appellees.

No. 08-16005.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 4, 2009.

Filed May 6, 2010.

Henry Kenneth Kudon, Potomac, MD, Dennis A. Rosen, Tucson, AZ, for the appellant.

Gregory Eugene Good, Good Law, P.C. Tucson, AZ, Thomas R. Lee, Gregory R. Phillips, Scott R. Ryther, Howard Phillips & Andersen, Salt Lake City, UT, for the appellees.

Before: JOHN T. NOONAN and W. FLETCHER, Circuit Judges, and KEVIN THOMAS DUFFY,^* District Judge.

WILLIAM A. FLETCHER, Circuit Judge:

We are asked to decide whether the sale by Au-Tomotive Gold ("Auto Gold") of marquee license plates bearing Volkswagen badges purchased from Volkswagen constitutes trademark infringement, or whether the sale of the plates is protected by the "first sale" doctrine. In Au-Tomotive Gold, Inc. v. Volkswagen of America, Inc. ("Auto Gold I"), 457 F.3d 1062 (9th Cir.2006), we concluded that Auto Gold's production and sale of automobile accessories bearing Volkswagen's trademarks created a sufficient likelihood of confusion to constitute trademark infringement. Id. at 1078. We remanded to the district court to address Auto Gold's "first sale" and other defenses. Id. On remand, the district court granted summary judgment and a permanent injunction to Volkswagen.

We affirm. We hold that the "first sale" doctrine does not provide a defense because Auto Gold's marquee license plates create a likelihood of confusion as to their origin.

I. Facts and Proceedings Below

Auto Gold produces and sells automobile accessories for specific makes of cars. Volkswagen and its subsidiary Audi are car manufacturers with well-known trademarks. The trademark at issue in this appeal is the familiar Volkswagen logo consisting of the letters "VW" inside a circle.

Beginning in the 1990s, Auto Gold produced and sold products bearing Volkswagen and Audi trademarks without permission from Volkswagen or Audi. It sold four products: license plates, license plate frames, key chains, and marquee license plates. The first three products used replicas of the companies' trademarks. However, the marquee license plates used actual VW badges purchased on the open market from a Volkswagen dealer. Auto Gold asserts its "first sale" defense only as to the marquee plates.

The marquee license plates are plain silver or black plates on which Auto Gold has mounted the VW badges. These badges are sold by Volkswagen and are ordinarily used as replacements for the badges found on the hoods or trunks of Volkswagen vehicles. Auto Gold purchased the badges, altered them by removing prongs and (in some cases) goldplating them, and mounted them on the marquee plates. The plates were packaged with labels that explained that the plates were not produced or sponsored by Volkswagen.

Both parties accept for purposes of this appeal that Volkswagen had knowledge of Auto Gold's products as early as January 1999. In September 1999, a Volkswagen representative sent a letter to Auto Gold requesting that it cease using the trademarks. When Auto Gold refused to do so, a Volkswagen representative sent a second letter in October 1999. A Volkswagen representative sent a third letter in February 2001.

On April 19, 2001, Auto Gold filed suit seeking a declaratory judgment that its activities did not constitute an infringement or dilution of Volkswagen or Audi trademarks. Volkswagen and Audi counterclaimed, alleging federal trademark counterfeiting and infringement under § 32 of the Lanham Act, 15 U.S.C. § 1114, false designation under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), trademark dilution under § 43(c) of the Lanham Act, 15 U.S.C. § 1125(c), and related state-law claims. Both parties moved for summary judgment.

The district court granted summary judgment to Auto Gold on all claims, holding that under the doctrine of "aesthetic functionality" the trademarks were "functional" and therefore not protected by trademark law. We reversed. Auto Gold I, 457 F.3d at 1064. We held that "the use of Volkswagen and Audi's marks is neither aesthetic nor independent of source identification." Id. at 1073. Rather, we held, consumers buy Auto Gold products because of the products' identification with the companies' brands. Id. at 1073-74. We further held that Volkswagen and Audi had established an affirmative case for an infringement claim under § 32 of the Lanham Act. Id. at 1074-78. We noted that "this case presents an easy analysis in terms of likelihood of confusion." Id. at 1076. We then remanded to the district court for consideration of Auto Gold's "first sale" and other related defenses. Id. at 1078.

Auto Gold asserted two defenses on remand. It argued that the marquee license plates are protected under the "first sale" doctrine because the plates use lawfully acquired VW badges and because their packaging disclaims any association with Volkswagen. It also argued that Volkswagen's claims are barred by laches.

The district court rejected Auto Gold's "first sale" and laches defenses and granted Volkswagen summary judgment and a permanent injunction. Auto Gold timely appealed.

II. Standard of Review

We review a district court's grant of summary judgment de novo, viewing the evidence in the light most favorable to the non-moving party. See Universal Health Serv., Inc. v. Thompson, 363 F.3d 1013, 1019 (9th Cir.2004).

III. Discussion

A. "First Sale" Defense

Auto Gold argues that because it purchased actual VW badges from a Volkswagen dealer for use on the marquee license plates, the "first sale" doctrine protects the sale of the plates. We hold that the "first sale" doctrine does not provide a defense because the plates create a likelihood of confusion as to their origin. We do not base our holding on a likelihood of confusion among purchasers of the plates. Rather, we base it on the likelihood of post-purchase confusion among observers who see the plates on purchasers' cars.

1. Background

The "first sale" doctrine was first introduced in an opinion by Justice Holmes in Prestonettes, Inc. v. Coty, 264 U.S. 359, 44 S.Ct. 350, 68 L.Ed. 731 (1924). Prestonettes purchased toilet powder and perfumes produced and trademarked by Coty. Prestonettes incorporated the Coty products into its own products by combining the powder with a binder to create a cream and by rebottling the perfumes into smaller bottles. Id. at 366-67, 44 S.Ct. 350. The Supreme Court held that Prestonettes did not violate trademark law. "The defendant of course by virtue of its ownership had a right to compound or change what it bought, to divide either the original or the modified product, and to sell it so divided." Id. at 368, 44 S.Ct. 350.

The Court further held that Prestonettes could identify the components of its products as being Coty trademarked products so long as its labels were not misleading. Id. For example, Prestonettes could place a label on the perfume bottles stating, "Prestonettes, Inc., not connected with Coty, states that the contents are Coty's... independently rebottled in New York." Id. at 367, 44 S.Ct. 350. It rejected Coty's argument that Prestonettes should not be allowed to use the Coty trademark in its description of the product because Prestonettes's products might be inferior. It wrote, "If the compound was worse than the constituent, it might be a misfortune to Coty, but Coty would have no cause of action, as Prestonettes was exercising the rights of ownership and only telling the truth. The existence of a trademark would have no bearing on the question." Id. at 368, 44 S.Ct. 350. The Court relied on the fact that consumers would not be confused about the manufacturer of the product. "A trade-mark only gives the right to prohibit the use of it so far as to protect the owner's good will against the sale of another's product as his." Id.

Application of the "first sale" doctrine has generally focused on the likelihood of confusion among consumers. In Sebastian Int'l, Inc. v. Longs Drug Stores Corp., 53 F.3d 1073, 1077 (9th Cir.1995), we held that the "first sale" doctrine protected Longs when it purchased Sebastian hair products from a distributor and sold them in its own store despite Sebastian's efforts to allow only "Sebastian Collective Members" to sell the products. We recognized the principle that "the right of a producer to control distribution of its trademarked product does not extend beyond the first sale of the product." Id. at 1074. We emphasized that this rule "preserves an area of competition by limiting the producer's power to control the resale of its product," while ensuring that "the consumer gets exactly what the consumer bargains for, the genuine product of the particular producer." Id. at 1075.

We also applied the "first sale" doctrine in Enesco Corp. v. Price/Costco Inc., 146 F.3d 1083, 1084-85 (9th Cir.1998), in which Costco purchased porcelain figurines manufactured by Enesco, repackaged them in allegedly inferior packaging, and sold them in its own stores. We held that Costco could repackage and sell the Enesco figurines, but that it was required to place labels on the packages that disclosed to the public that Costco had repackaged Enesco's original product. Id. at 1086 (citing Prestonettes, 264 U.S. at 367-69, 44 S.Ct. 350). We rejected Enesco's argument that it would be harmed, even with this disclosure, because of the poor quality of the packaging. "The critical issue is whether the public is likely to be confused as a result of the lack of quality control." Id. at 1087.

A number of district courts have applied the "first sale" doctrine in cases where the defendants incorporated the trademarked product into a new product. See, e.g., Alexander Binzel Corp. v. Nu-Tecsys Corp., 785 F.Supp. 719 (N.D.Ill. 1...