Scotch Whisky Association v. Barton Distilling Company

• Decision Date: 12 November 1973
• Docket Number: No. 71-1631.,71-1631.
• Citation: 489 F.2d 809
• Parties: The SCOTCH WHISKY ASSOCIATION et al., Plaintiffs-Appellees, v. BARTON DISTILLING COMPANY (now known as Barton Brands, Inc.), Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

489 F.2d 809 (1973)

The SCOTCH WHISKY ASSOCIATION et al., Plaintiffs-Appellees, v. BARTON DISTILLING COMPANY (now known as Barton Brands, Inc.), Defendant-Appellant.

No. 71-1631.

United States Court of Appeals, Seventh Circuit.

Argued October 27, 1972.

Decided November 12, 1973.

COPYRIGHT MATERIAL OMITTED

Edgar Bernhard, Merrill A. Freed, Selwyn Zun, Robert W. Gettleman, Chicago, Ill., for defendant-appellant.

Beverly W. Pattishall, Robert M. Newbury, David C. Hilliard, Chicago, Ill., for plaintiffs-appellees.

Before HASTINGS, Senior Circuit Judge, and FAIRCHILD and PELL, Circuit Judges.

FAIRCHILD, Circuit Judge.

Two of plaintiffs are producers of Scotch whisky in Scotland, marketed throughout much of the world, including Panama and the Canal Zone. Plaintiff Association was formed to promote the interests of distillers and merchants in Scotland. Defendant Barton is a Delaware corporation which produces and markets alcoholic beverages in the United States and elsewhere. One of defendant's products is Scotch whisky sold under the trademark House of Stuart. This action concerns a product distributed under the "House of Stuart Blended Scotch Whisky" label in Panama, which reached the Canal Zone as well.

In 1964, as amended in 1965, defendant made an agreement appointing a Panamanian corporation, Diers & Ullrich, its exclusive distributor in Panama. Defendant supplied Diers & Ullrich with House of Stuart labels and bottles, shipped from the United States, and vatted Scotch malts, shipped from Scotland. Diers & Ullrich mixed the Scotch malts with locally produced spirits and sold the product under the House of Stuart label. It appears without dispute that the House of Stuart label indicates that the product has its origin in Scotland, and that when applied to the Diers & Ullrich product there was a false designation of origin.

15 U.S.C. § 1125(a), part of the Lanham Trademark Act of 1946, provides in part that one who affixes or uses in connection with any goods a false designation of origin and causes the goods to enter into commerce shall be civilly liable to a person doing business in the locality falsely indicated.

Plaintiffs alleged that defendant conspired in the use of labels indicating origin in Scotland on spurious Scotch whisky, but the district court found no more than that defendant knew, or should have known, of the practice of Diers & Ullrich. The district court, 338 F.Supp. 595, concluded that the use of the label was a false designation of the place of origin in violation of 15 U.S.C. § 1125(a) and certain provisions of the International Convention of Paris for the Protection of Industrial Property; and that defendant was responsible for the use of the label. Judgment was entered enjoining defendant from using the words "Scotch whisky" or its House of Stuart trademark or otherwise indicating origin in Scotland in connection with a product similar to the one involved, and awarded plaintiffs reasonable attorneys' fees.

On appeal, defendant contends: (1) that the district court lacked jurisdiction over the subject matter; (2) that under the circumstances an injunction was unnecessary and should not have been issued; and (3) that the award of attorneys' fees was unwarranted.

(1) Jurisdiction.

The essence of defendant's position is that the goods bearing the challenged label were produced in Panama and caused to enter into the commerce of Panama, not the interstate or foreign commerce "which may lawfully be regulated by Congress." See 15 U.S.C. § 1127, so defining "commerce" and providing "The intent of this chapter is to regulate commerce within the control of Congress by making actionable the deceptive and misleading use of marks in such commerce . . . ."

It is true that it was the labels and bottles supplied by defendant which were transported from within the United States to Panama. Although defendant's agreement gave it the power to control the ingredients of the product, and thus defendant was properly charged with responsibility for the blending and labeling, this process did not happen within the United States. We think, however, that so literal a concept of entering into commerce is untenable. No principle of international law bars the United States from governing the conduct of its own citizens upon the high seas or even in foreign countries when the rights of other nations or their nationals are not infringed. Congress has the power to prevent unfair trade practices in foreign commerce by citizens of the United States, although some of the acts are done outside the territorial limits. The question is whether Congress intended the Act to apply to a situation of this type. Steele v. Bulova Watch Co., 344 U.S. 280, 285-286, 73 S.Ct. 252, 97 L.Ed. 252 (1952).

In Steele, the Supreme Court construed another section of the act, 15 U. S.C. § 1114(1), which creates a civil cause of action against one who uses an infringing mark "in commerce." The Court upheld a broad concept of "commerce."

Steele was a United States citizen who registered the trademark "Bulova" in Mexico. He imported parts from the United States and assembled and sold watches in Mexico. Plaintiff Bulova Watch Company manufactured, advertised, and sold watches in the United States and elsewhere, using a trademark registered in the United States. Defective spurious Bulova watches filtered back to the United States and were brought to jewelers for repair by dissatisfied owners. In deciding that the Act applied, the Court considered both the purchase of parts in the United States, and the advent of some watches in the United States, as well as the adverse reflection Steele's goods could have on plaintiff's reputation both in the United States and elsewhere.

Defendant correctly points out that there are factual differences between Steele and the case at bar. Steele personally sold watches in Mexico under an infringing mark while defendant sold mislabeled whisky in Panama only vicariously; Steele's Bulova trademark was ultimately nullified by Mexican decree while here it has not been demonstrated that Diers & Ullrich violated any Panamanian law; some of Steele's watches did come into the United States and damage the American owner of the trademark in this country while the Diers & Ullrich product appears to have reached only Panama and the Canal Zone, and damaged the Scotch plaintiffs only in those markets. None the less, viewing the entire course of business and the responsibility found on the part of defendant, we think the "commerce" involved began with defendant's acts in the United States and continued to the ultimate distribution of the whisky.

In Steele, the Supreme Court emphasized the invalidation of the Mexican trademark registration because of the danger otherwise of affront to Mexican sovereignty: the extraterritorial application of the United States trademark laws would...