Beltronics Usa v. Midwest Inventory Distribution, No. 07-3340.

• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)
• Writing for the Court: Tacha
• Citation: 562 F.3d 1067
• Parties: BELTRONICS USA, INC., Plaintiff-Appellee, v. MIDWEST INVENTORY DISTRIBUTION, LLC; I-Net Distributors, LLC; Audio Video Man; Kevin Burke; Steve Webb, Defendants-Appellants.
• Docket Number: No. 07-3340.
• Decision Date: 09 April 2009

562 F.3d 1067 BELTRONICS USA, INC., Plaintiff-Appellee,
v.
MIDWEST INVENTORY DISTRIBUTION, LLC; I-Net Distributors, LLC; Audio Video Man; Kevin Burke; Steve Webb, Defendants-Appellants. No. 07-3340. United States Court of Appeals, Tenth Circuit. April 9, 2009.

[562 F.3d 1069]

Derek T. Teeter (Maxwell Carr-Howard, with him on the briefs), Husch Blackwell Sanders LLP, Kansas City, MO, appearing for Appellants.

Brett A. Schatz (Thomas W. Flynn, with him on the brief), Wood, Herron & Evans, L.L.P. Cincinnati, OH, appearing for Appellee.

Before TACHA, BRISCOE, and O'BRIEN, Circuit Judges.

TACHA, Circuit Judge.

Defendants-Appellants are a consumer electronics company, its owners, and its trade names (collectively, "Midwest"). Plaintiff-Appellee ("Beltronics") is a provider of aftermarket vehicle electronics, including radar detectors. Midwest appeals the district court's order preliminarily enjoining it from selling Beltronics equipment not bearing an original Beltronics serial number label. See Lanham Act, § 34(a), 15 U.S.C. § 1116(a). We have jurisdiction under 28 U.S.C. § 1292(a)(1) and AFFIRM.

I. BACKGROUND

As early as 2003, Beltronics began selling electronics equipment under its Beltronics trademark. At all times relevant to this case, Beltronics sold its equipment to at least two authorized distributors who agreed to sell the products for a specified minimum price. Apparently in violation of their distribution agreements, those distributors sold Beltronics radar detectors to Midwest, which in turn resold them as "new" on the internet auction site eBay. To prevent Beltronics from discovering that Midwest's inventory had been supplied by the two distributors, the distributors either replaced each radar detector's original serial number label with a phony label or removed the original label altogether before shipping equipment to Midwest. On rare occasions, when the distributors supplied Midwest with a radar detector bearing an original serial number label, Midwest removed the label prior to resale.

It is Beltronics's policy that only those who purchase Beltronics radar detectors bearing an original serial number label are eligible to receive certain products and services, including software upgrades, rebates, product use information, service assistance, warranties, and recalls. Beltronics learned that its radar detectors were being sold without original serial labels when Midwest's purchasers contacted Beltronics with warranty requests for detectors that had phony serial numbers. A Beltronics customer service manager submitted an affidavit stating that those purchasers were confused, thinking that they were entitled to a warranty from Beltronics. The customer service manager further stated that the customers expressed their belief that they did not receive what they thought they had purchased and that Beltronics had deceived them. He explained that they became irate when they learned their radar detector was not covered by Beltronics's warranty and did not come with other services such as recalls and product upgrades, and that this is extremely harmful to Beltronics's reputation and goodwill.

In September 2007, Beltronics filed this action against Midwest. The complaint asserted (1) counterfeiting and federal trademark infringement under 15 U.S.C. § 1114; (2) false designation or origin under

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15 U.S.C. § 1125; and (3) trademark infringement, unfair competition, and passing off in violation of state law. Beltronics also sought a preliminary injunction.¹ Following an evidentiary hearing on October 31, 2007, the district court determined that Beltronics had satisfied all of the necessary requirements for a preliminary injunction and enjoined Midwest from selling or offering for sale any Beltronics products that do not bear an original serial number label. Midwest filed a timely notice of interlocutory appeal.² See 28 U.S.C. § 1292(a)(1); Fed. R.App. P. 4(a)(1)(A).

II. DISCUSSION

A. Preliminary Injunction Standard of Review

To prevail on a motion for a preliminary injunction, the movant must establish that four equitable factors weigh in its favor: (1) it is substantially likely to succeed on the merits; (2) it will suffer irreparable injury if the injunction is denied; (3) its threatened injury outweighs the injury the opposing party will suffer under the injunction; and (4) the injunction would not be adverse to the public interest. See Westar Energy, Inc. v. Lake, 552 F.3d 1215, 1224 (10th Cir.2009). On appeal, Midwest challenges only the district court's determination that Beltronics has a substantial likelihood of prevailing on the merits of its claim for trademark infringement. See Lanham Act, § 32, 15 U.S.C.A. § 1114.

We review the grant of a preliminary injunction for an abuse of discretion. See Pac. Frontier v. Pleasant Grove City, 414 F.3d 1221, 1231 (10th Cir.2005). "A district court abuses its discretion when it commits an error of law or makes clearly erroneous factual findings." Wyandotte Nation v. Sebelius, 443 F.3d 1247, 1252 (10th Cir.2006). Moreover, "because a preliminary injunction is an extraordinary remedy, the right to relief must be clear and unequivocal." Greater Yellowstone Coal. v. Flowers, 321 F.3d 1250, 1256 (10th Cir.2003); see also United States ex rel. Citizen Band Potawatomi Indian Tribe of Okla. v. Enter. Mgmt. Consultants, Inc., 883 F.2d 886, 888-89 (10th Cir.1989) (stating that a preliminary injunction "constitutes drastic relief to be provided with caution ... [and] should be granted only in cases where the necessity for it is clearly established."); Gen. Motors Corp. v. Urban Gorilla, LLC, 500 F.3d 1222, 1226 (10th Cir.2007) ("In general, a preliminary injunction ... is the exception rather than the rule.") (quotations omitted).

We have also explained that injunctions that disrupt the status quo are disfavored and "must be more closely scrutinized to assure that the exigencies of the case support the granting of a remedy that is extraordinary even in the normal course." Schrier v. Univ. of Colo., 427 F.3d 1253, 1259 (10th Cir.2005) (quotations omitted). An injunction disrupts the status

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quo when it changes the "last peaceable uncontested status existing between the parties before the dispute developed." Id. at 1260. In such instances, the district court may not grant a preliminary injunction unless the plaintiff "make[s] a strong showing both with regard to the likelihood of success on the merits and with regard to the balance of harms." O Centro Espirita Beneficiente Uniao Do Vegetal v. Ashcroft, 389 F.3d 973, 976 (10th Cir.2004) (en banc). This heightened standard accords with the historic purpose of the preliminary injunction, which is to "preserve the relative positions of the parties until a trial on the merits can be held." Univ. of Tex. v. Camenisch, 451 U.S. 390, 395, 101 S.Ct. 1830, 68 L.Ed.2d 175 (1981). See also O Centro, 389 F.3d at 977 (stating that the purpose of a preliminary injunction "is to assure that the non-movant does not take unilateral action which would prevent the court from providing effective relief to the movant should the movant prevail on the merits").

Midwest argues that the district court's injunction disrupted the status quo between the parties because it compelled Midwest to cease selling Beltronics products on eBay. It thus contends that the district court was required to examine with extra scrutiny whether Beltronics is substantially likely to prevail on the merits of its trademark infringement claim. We need not decide this question, however, because even assuming the heightened standard applies in this case, Beltronics has met its burden.

B. Trademark Infringement Claim

Under § 32 of the Lanham Act, "[t]he unauthorized use of any reproduction, counterfeit, copy, or colorable imitation of a registered mark in a way that is likely to cause confusion in the marketplace concerning the source of the different products constitutes trademark infringement." First Sav. Bank, F.S.B. v. First Bank System, Inc., 101 F.3d 645, 651 (10th Cir. 1996) (citing 15 U.S.C. § 1114(1)(a)). Thus, the central inquiry in a trademark infringement case is the likelihood of consumer confusion. See Team Tires Plus, Ltd. v. Tires Plus, Inc., 394 F.3d 831, 832 (10th Cir.2005); see also Australian Gold, Inc. v. Hatfield, 436 F.3d at 1238 ("The party alleging infringement has the burden of proving likelihood of confusion."). Midwest argues that the district court erred both legally and factually in determining that Midwest's sale of Beltronics radar detectors is likely to cause confusion in the marketplace. First, Midwest claims that its sale of radar detectors under the Beltronics trademark is protected by the first sale doctrine and the district court committed an error of law in concluding otherwise. Alternatively, Midwest argues that even if the first sale doctrine does not apply, the district court's determination that its disclosure to consumers was insufficient to alleviate confusion involved errors of both law and fact. We evaluate each of these claims in turn.

1. First Sale Doctrine

Those who resell genuine trademarked products are generally not liable for trademark infringement. See Davidoff & CIE, S.A. v. PLD Int'l Corp., 263 F.3d 1297, 1301 (11th Cir.2001); NEC Elecs. v. CAL Circuit Abco, 810 F.2d 1506, 1509 (9th Cir.1987). "The reason 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., 810 F.2d at 1509 (citing Prestonettes, Inc. v. Coty, 264 U.S. 359, 368-69, 44 S.Ct. 350, 68 L.Ed. 731 (1924)). See also United States v. Giles, 213 F.3d 1247, 1252 (10th Cir.2000)

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("`[T]he purpose of trademark law is ... to guarantee that every item sold under a trademark is the genuine trademarked product, and not a...