Gamut Trading Co. v. U.S.

• Decision Date: 27 December 1999
• Citation: 200 F.3d 775
• Parties: (Fed. Cir. 1999) GAMUT TRADING COMPANY, GAMUT IMPORTS, BAY IMPLEMENT COMPANY, CASTEEL FARM IMPLEMENT COMPANY (MONTICELLO, ARKANSAS), CASTEEL FARM IMPLEMENT COMPANY (PINE BLUFF, ARKANSAS), CASTEEL WORLD GROUP, INC., and TRACTOR SHOP, Appellants, v. UNITED STATES INTERNATIONAL TRADE COMMISSION, Appellee, and KUBOTA TRACTOR CORPORATION, KUBOTA MANUFACTURING OF AMERICA, and KUBOTA CORPORATION, Intervenors.. 97-1414 DECIDED:
• Court: U.S. Court of Appeals — Federal Circuit

Page 775

200 F.3d 775 (Fed. Cir. 1999)

GAMUT TRADING COMPANY, GAMUT IMPORTS, BAY IMPLEMENT COMPANY, CASTEEL FARM IMPLEMENT COMPANY (MONTICELLO, ARKANSAS), CASTEEL FARM IMPLEMENT COMPANY (PINE BLUFF, ARKANSAS), CASTEEL WORLD GROUP, INC., and TRACTOR SHOP, Appellants, v. UNITED STATES INTERNATIONAL TRADE COMMISSION, Appellee, and KUBOTA TRACTOR CORPORATION, KUBOTA MANUFACTURING OF AMERICA, and KUBOTA CORPORATION, Intervenors..

97-1414

United States Court of Appeals for the Federal Circuit

DECIDED: December 27, 1999

Appealed from: United States International Trade Commission MANUFACTURING OF AMERICA, and KUBOTA CORPORATION, United States Court of Appeals for the Federal Circuit

Lloyd W. Walker, II, Bischoff & White, P.C., of Fayetteville, Georgia, argued for appellants. With him on the brief was Lloyd W. Walker, of Twin Falls, Indiana.

Shara L. Aranoff, Attorney-Advisor, U.S. International Trade Commission, of Washington, DC, argued for appellee. With her on the brief were Lynn M. Schlitt, General Counsel, and James A. Toupin, Deputy General Counsel.

Rory J. Radding, Pennie & Edmonds, LLP, of New York, New York, argued for intervenors. Of counsel on the brief were Darren W. Saunders, and Katherine E. Smith. Also on the brief was Marcia H. Sundeen, Pennie & Edmonds, LLP, of Washington, DC.

Before RICH,^* Circuit Judge, SMITH, Senior Circuit Judge, and NEWMAN, Circuit Judge.

NEWMAN, Circuit Judge.

This action for violation of '337 of the Tariff Act of 1930, 19 U.S.C. '1337, was initiated at the United States International Trade Commission ("ITC") on the complaint of the Kubota Corporation, a Japanese company ("Kubota-Japan"), owner of the registered United States trademark "Kubota," and its United States affiliated companies Kubota Tractor Corporation ("Kubota-US") and Kubota Manufacturing of America ("KMA"). Kubota-US is the exclusive licensee of the "Kubota" trademark in the United States, by agreement with Kubota-Japan which provides that the United States trademark and associated goodwill remain the exclusive property of Kubota-Japan.

The respondents are Gamut Trading Company and other entities (collectively "Gamut") that import from Japan and resell in the United States various models of used tractors of under 50 horsepower, all manufactured in Japan by the Kubota Corporation, used in Japan, and bearing the mark "Kubota" that had been properly affixed in Japan. Gamut was charged with violation of '337 of the Tariff Act of 1930, 19 U.S.C. '1337, which provides for exclusion of product bearing infringing marks and other remedies, based on asserted infringement of the United States trademark "Kubota":

19 U.S.C. '1337 Unfair practices in import trade

(a)(1)(C) The importation into the United States, the sale for importation, or the sale within the United States after importation by the owner, importer, or consignee, of articles that infringe a valid and enforceable United States trademark registered under the Trademark Act of 1946.

Describing this case as one of "gray-market goods," the ITC issued a General Exclusion Order against importation of used Japanese tractors bearing the "Kubota" trademark, and Cease and Desist Orders against sale of such tractors that had already been imported into the United States. The principle of gray market law is that the importation of a product that was produced by the owner of the United States trademark or with its consent, but not authorized for sale in the United States, may, in appropriate cases, infringe the United States trademark.

On Gamut's appeal, we now affirm the decision of the ITC.¹

BACKGROUND

Kubota-Japan manufactures in Japan a large number of models of agricultural tractors, for use in Japan and other countries. Various tractor models are custom-designed for a particular use in a particular country. For example, tractor models that are designed for rice paddy farming are constructed for traction and maneuverability under wet, muddy conditions; these tractors have smaller tire separation in order to make tight turns in rice paddies, and are designed to function with rice paddy tillers, which contain narrow, light-weight blades. No corresponding model is designed for export to the United States.

In contrast, some tractor models that are intended to be used in the United States are specially constructed for lifting and transporting earth and rocks, and to function with rear cutters that contain heavy blades capable of cutting rough undergrowth; these models do not have a direct Japanese counterpart. The tractor models intended for sale and use in the United States bear English-language controls and warnings, and have English-language dealers and users manuals. They are imported by Kubota-US and sold through a nationwide dealership network which provides full maintenance and repair service and maintains an inventory of parts for these specific tractor models. Kubota-US conducts training classes for its dealership employees, instructing them on service and maintenance procedures.

Gamut purchases used Kubota tractors in Japan and imports them into the United States. The majority of the imported tractors are described as between 13 and 25 years old. All bear the mark "Kubota." The Kubota companies state that the importation and its extent came to their attention when United States purchasers sought service and repair or maintenance from Kubota-US dealerships.

The Gray Market

The term "gray market goods" refers to genuine goods that in this case are of foreign manufacture, bearing a legally affixed foreign trademark that is the same mark as is registered in the United States; gray goods are legally acquired abroad and then imported without the consent of the United States trademark holder. See K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 286-87, 6 USPQ2d 1897, 1899-00 (1987) (discussing various gray-market conditions); 4 McCarthy on Trademark and Unfair Competition '29.46 (4th ed. 1997). The conditions under which gray-market goods have been excluded implement the territorial nature of trademark registration, and reflect a legal recognition of the role of domestic business in establishing and maintaining the reputation and goodwill of a domestic trademark.

Until the Supreme Court's decision in A. Bourjois & Co. v. Katzel, 260 U.S. 689 (1923), the prevailing rule in the United States was that the authorized sale of a validly trademarked product, anywhere in the world, exhausted the trademark's exclusionary right; thus the holder of the corresponding registered United States trademark was believed to have no right to bar the importation and sale of authentically marked foreign goods. However, in the Bourjois case the Court recognized the territorial boundaries of trademarks, stressing that the reputation and goodwill of the holder of the corresponding United States mark warrants protection against unauthorized importation of goods bearing the same mark, although the mark was validly affixed in the foreign country. In Bourjois the foreign-origin goods were produced by an unrelated commercial entity and imported by a third person, although the goods themselves were related in that the United States trademark owner bought its materials from the foreign producer. See Id. at 692.

Since the Bourjois decision, the regional circuits and the Federal Circuit have drawn a variety of distinctions in applying gray market jurisprudence, primarily in consideration of whether the foreign source of the trademarked goods and the United States trademark holder are related commercial entities and whether the imported goods bearing the foreign mark are the same as (or not materially different from) the goods that are sold under the United States trademark, applying a standard of materiality suitable to considerations of consumer protection and support for the integrity of the trademarks of domestic purveyors, all with due consideration to the territorial nature of registered trademarks in the context of international trade.

Gamut directs our attention to cases in which the courts have refused to exclude gray market goods. For example, in NEC Electronics v. CAL Circuit Abco, 810 F.2d 1506, 1 USPQ2d 2056 (9th Cir. 1987) the court held that the importation of genuine NEC computer chips by the defendant, an entity unrelated to any NEC company, did not constitute infringement of the United States "NEC" trademark when there was no material difference between the NEC product imported by the defendant and the NEC product imported by the NEC United States subsidiary; the court distinguished Bourjois on the ground that in Bourjois the United States trademark owner could not control the quality of the unaffiliated foreign producer's goods, whereas when the companies are commonly controlled there is a reasonable assurance of similar quality. Id. at 1510, 1 USPQ2d at 2059.

A similar refusal to exclude was reached in Weil Ceramics & Glass, Inc. v. Dash, 878 F.2d 659, 11 USPQ2d 1001 (3d Cir. 1989), wherein the court held that the United States trademark "Lladro" was not infringed by importation and sale of authentic "Lladro" figurines by one other than the trademark holder. The court reasoned that there is no need to protect the consumer against confusion when the goods imported by the defendant are identical to the goods imported by the United States trademark holder. Id. at 672, 11 USPQ2d at 1012. The court also reasoned that when the foreign manufacturer and the United States trademark holder are related companies, there is no need to protect the domestic company's investment in goodwill based on the quality of the trademarked goods, for the foreign manufacturer has control over their quality and the goods (porcelain figurines) are unchanged from their original quality.

However, when there are material differences between the domestic product and the foreign product bearing the same mark, most of the courts that have considered the issue have excluded the gray goods, even...