Societe Des Produits Nestle, S.A. v. Casa Helvetia, Inc.

• Citation: 982 F.2d 633,25 USPQ2d 1256
• Decision Date: 16 September 1992
• Docket Number: No. 92-1032,92-1032
• Parties: , 25 U.S.P.Q.2d 1256 SOCIETE DES PRODUITS NESTLE, S.A., et al., Plaintiffs, Appellants, v. CASA HELVETIA, INC., et al., Defendants, Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 633

982 F.2d 633

61 USLW 2452, 25 U.S.P.Q.2d 1256

SOCIETE DES PRODUITS NESTLE, S.A., et al., Plaintiffs, Appellants, v. CASA HELVETIA, INC., et al., Defendants, Appellees.

No. 92-1032.

United States Court of Appeals, First Circuit.

Heard Sept. 16, 1992.

Decided Dec. 29, 1992.

David W. Plant, with whom Vincent N. Palladino and Fish & Neave were on brief, for plaintiffs, appellants.

Wilma E. Reveron Collazo, for defendants, appellees.

Before SELYA, Circuit Judge, CAMPBELL, Senior Circuit Judge, and BOUDIN, Circuit Judge.

SELYA, Circuit Judge.

This bittersweet appeal requires us to address the protection that trademark law affords a registrant against the importation and sale of so-called "gray goods," that is, trademarked goods manufactured abroad under a valid license but brought into this country in derogation of arrangements lawfully made by the trademark holder to ensure territorial exclusivity. As we explain below, the scope of protection turns on the degree of difference between the product authorized for the domestic market and the allegedly infringing product. In the case before us, the difference is sufficiently marked that the domestic product warrants protection. ¹

I. BACKGROUND

PERUGINA chocolates originated in Italy and continue to be manufactured there. They are sold throughout the world and cater to a sophisticated consumer, a refined palate, and an indulgent budget. Societe Des Produits Nestle, S.A. (Nestle S.P.N.) owns the PERUGINA trademark. ²

For many years, defendant-appellee Casa Helvetia, Inc. was the authorized distributor of PERUGINA chocolates in Puerto Rico. On November 28, 1988, however, Nestle S.P.N. forsook Casa Helvetia and licensed its affiliate, Nestle Puerto Rico, Inc. (Nestle P.R.), as the exclusive Puerto Rican distributor.

At this point, the plot thickened. Nestle S.P.N. had previously licensed an independent company, Distribuidora Nacional de Alimentos La Universal S.A. (Alimentos), to manufacture and sell chocolates bearing the PERUGINA mark in Venezuela. ³ The Venezuelan sweets differ from the Italian sweets in presentation, variety, composition, and price. In March 1990, without obtaining Nestle S.P.N.'s consent, Casa Helvetia began to purchase the Venezuelan-made chocolates through a middleman, import them into Puerto Rico, and distribute them under the PERUGINA mark.

This maneuver drew a swift response. Charging that Casa Helvetia's marketing of the Venezuelan candies infringed both Nestle S.P.N.'s registered trademark and Nestle P.R.'s right of exclusive distributorship, Nestle S.P.N. and Nestle P.R. (hereinafter collectively "Nestle") sued under the Lanham Trade-Mark Act of 1946, codified as amended, 15 U.S.C. §§ 1051-1072, 1091-1096, 1111-1121, 1123-1127 (1988). ⁴ They claimed that Casa Helvetia's use of the PERUGINA label was "likely to confuse consumers into the mistaken belief that the Venezuelan chocolates are the same as the Italian chocolates and are authorized by Nestle for sale in Puerto Rico." And, they asserted that, because the PERUGINA name in Puerto Rico is associated with Italian-made chocolates, the importation of materially different Venezuelan chocolates threatened to erode "the integrity of the PERUGINA trademarks as symbols of consistent quality and goodwill in Puerto Rico."

The district court consolidated the hearing on preliminary injunction with the hearing on the merits, see Fed.R.Civ.P. 65(a)(2), and, after taking testimony, ruled in the defendants' favor. See Societe Des Produits Nestle, S.A. v. Casa Helvetia, Inc., 777 F.Supp. 161 (D.P.R.1991). It held that the differences between the Italian-made and Venezuelan-made candies did not warrant injunctive relief in the absence of demonstrated consumer dissatisfaction, harm to plaintiffs' good will, or drop-off in product quality. Id. at 166-67. This appeal followed.

II. THE LANHAM TRADE-MARK ACT CLAIMS

We first remark the policies that underlie the Lanham Trade-Mark Act and the implications of those policies for the parallel importation of trademarked goods. We then turn to the three specific statutory provisions which the plaintiffs invoke.

A. The Philosophy of the Lanham Trade-Mark Act.

Two amaranthine principles fuel the Lanham Trade-Mark Act. One aims at protecting consumers. The other focuses on protecting registrants and their assignees. These interlocking principles, in turn, are linked to a concept of territorial exclusivity.

1. Animating Principles. Every product is composed of a bundle of special characteristics. The consumer who purchases what he believes is the same product expects to receive those special characteristics on every occasion. Congress enacted the Lanham Trade-Mark Act to realize this expectation with regard to goods bearing a particular trademark. See S.Rep. No. 1333, 19th Cong., 2d Sess., reprinted in 1946 U.S.Code Cong.Serv. 1274. The Act's prophylaxis operates not only in the more obvious cases, involving the sale of inferior goods in derogation of the registrant's mark, but also in the less obvious cases, involving the sale of goods different from, although not necessarily inferior to, the goods that the customer expected to receive. See Truck Equip. Serv. Co. v. Fruehauf Corp., 536 F.2d 1210, 1216 (8th Cir.) (finding a Lanham Act violation even though plaintiff's and defendant's goods were "of equal quality"), cert. denied, 429 U.S. 861, 97 S.Ct. 164, 50 L.Ed.2d 139 (1976); see also 1 J. Thomas McCarthy, Trademarks and Unfair Competition § 3:4, at 113 (2d ed. 1984) (explaining that trademark law embodies consumers' expectations of consistent quality "whether that quality is high, low or mediocre"). By guaranteeing consistency, a trademark wards off both consumer confusion and possible deceit.

The system also serves another, equally important, purpose by protecting the trademark owner's goodwill. See Keds Corp. v. Renee Int'l Trading Corp., 888 F.2d 215, 218 (1st Cir.1989); see also S.Rep. No. 1333, supra, 1946 U.S.Code Cong.Serv. at 1274 ("where the owner of a trade-mark has spent energy, time, and money in presenting to the public the product, he is protected in his investment from its misappropriation by pirates and cheats"). Once again, this protection comprises more than merely stopping the sale of inferior goods. Even if an infringer creates a product that rivals or exceeds the quality of the registrant's product, the wrongful sale of the unauthorized product may still deprive the registrant of his ability to shape the contours of his reputation. See Jordan K. Rand, Ltd. v. Lazoff Bros., 537 F.Supp. 587, 597 (D.P.R.1982).

2. Territoriality. In general, trademark rights are congruent with the boundaries of the sovereign that registers (or recognizes) the mark. Such territoriality reinforces the basic goals of trademark law. Because products are often tailored to specific national conditions, see Lever Bros. Co. v. United States, 877 F.2d 101, 108 (D.C.Cir.1989), a trademark's reputation (and, hence, its goodwill) often differs from nation to nation. See Osawa & Co. v. B & H Photo, 589 F.Supp. 1163, 1173 (S.D.N.Y.1984) ("a mark may have not only a separate legal basis but also a different factual significance in each separate country where the local mark owner has developed an independent goodwill"). Because that is so, the importation of goods properly trademarked abroad but not intended for sale locally may confuse consumers and may well threaten the local mark owner's goodwill. It is not surprising, then, that the United States Supreme Court long ago recognized the territoriality of trademark rights. See, e.g., A. Bourjois & Co. v. Aldridge, 263 U.S. 675, 44 S.Ct. 4, 68 L.Ed. 501 (1923) (per curiam); A. Bourjois & Co. v. Katzel, 260 U.S. 689, 43 S.Ct. 244, 67 L.Ed. 464 (1923). These cases bear scrutiny.

In Katzel, the plaintiff, a United States corporation, purchased the American trademarks and goodwill of a French face powder manufacturer. Thereafter, it continued to sell the imported French powder in the United States, taking pains to conduct its sales efforts in a fashion "suitable for the American market." Katzel, 260 U.S. at 691, 43 S.Ct. at 245. The Court held that the defendant's sale of the same French powder, similarly packaged, within the United States infringed plaintiff's trademark rights, notwithstanding that defendant's merchandise, purchased in France, was "the genuine product of the French concern." Id. The Court explained that defendant's use of the trademark misrepresented the goods' origin because, in the United States, the label "indicates in law ... that the goods come from the plaintiff although not made by it," and the name "stakes the reputation of the plaintiff upon the character of the goods." Id. at 692, 43 S.Ct. at 245. In Aldridge, a case involving similar circumstances, the Supreme Court reaffirmed the protection due domestic trademark holders against imported merchandise that is genuine abroad. See Aldridge, 263 U.S. at 676, 44 S.Ct. at 4.

Of course, territoriality only goes so far. By and large, courts do not read Katzel and Aldridge to disallow the lawful importation of identical foreign goods carrying a valid foreign trademark. See, e.g., NEC Elecs., Inc. v. Cal Circuit Abco, 810 F.2d 1506 (9th Cir.), cert. denied, 484 U.S. 851, 108 S.Ct. 152, 98 L.Ed.2d 108 (1987). Be that as it may, territorial protection kicks in under the Lanham Act where two merchants sell physically different products in the same market and under the same name, see, e.g., Lever Bros., 877 F.2d at 107, for it is this prototype that impinges on a trademark holder's goodwill and threatens to deceive consumers. Indeed, without such territorial trademark protection, competitors purveying country-specific products could exploit consumer confusion and free ride on the goodwill of domestic trademarks with impunity. Such a scenario would frustrate the underlying goals of the Lanham Trade-Mark Act, the "plain language and general...