Pattishall IP Blog

March 19, 2013

Supreme Court’s Wiley Gray Goods Decision Does Not Foreclose Trademark Options Against Gray Market Goods

Filed under: Copyright, Gray Market — Tags: , , , — Pattishall, McAuliffe, Newbury, Hilliard & Geraldson LLP @ 4:51 pm

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By Jonathan S. Jennings, Partner

The U.S. Supreme Court decided today that copyright law would not protect against most gray market works.[1]  It is important to remember, however, that U.S. federal and state trademark and unfair competition laws still provide effective remedies against the importation, sale and distribution of gray market goods.

In most cases, a brand owner in the U.S. must establish that it owns a valid trademark here in the United States, or is an exclusive licensee, and that there are material differences between the authorized domestic product and the gray market product that bear the mark.  Trademark law protects consumers from confusion when they encounter a product with the same trademark, but that has materially different components, functionality, or health and safety information or warnings.  Federal courts have restricted the sale of gray market goods under trademark and unfair competition law involving a wide variety of goods from soft drinks and packaged foods, to pharmaceutical and cosmetic products, among others.  In many cases, the gray market good is not appropriate for sale in the U.S. because it is tailored to the tastes, preferences, conditions and laws of another country, and not the U.S.  The Tariff Act as well, and, to a lesser extent because of a labeling exception, the U.S. Customs and Border Protection’s Lever Rule may provide additional protections against gray market goods.  Finally, for famous brands, anti-dilution laws may provide a remedy.

The Court’s decision in Wiley does not impact these trademark and unfair competition remedies, as it is limited to copyright protection.  Therefore, when faced with a gray market goods problem, a brand owner should explore remedies available under trademark and unfair competition laws, notwithstanding this copyright decision.

 *     *     *

Jonathan S. Jennings is a partner with Pattishall, McAuliffe, Newbury, Hilliard & Geraldson LLP, a leading intellectual property law firm based in Chicago, Illinois.  Pattishall McAuliffe represents both plaintiffs and defendants in trademark, copyright, and unfair competition trials and appeals, and advises its clients on a broad range of domestic and international intellectual property matters, including brand protection, Internet, and e-commerce issues. Mr. Jennings counsels clients on a variety of trademark, copyright and unfair competition cases, has handled over 50 successful gray market goods trademark and unfair competition suits, and is the former Chair of INTA’s Parallel Imports Committee. 


October 12, 2011

District Court Denies Preliminary Injunction because Plaintiff Failed to Introduce Evidence of Irreparable Harm – Declares Presumption of Irreparable Harm in Trademark Cases Dead

Filed under: Copyright, Gray Market, Litigation — Tags: , , , , — Pattishall, McAuliffe, Newbury, Hilliard & Geraldson LLP @ 10:16 am

Categories:  Gray Market, Litigation, Copyright
Tags: Preliminary Injunction, Gray Market, Software, Copyright, Phillip Barengolts

By Phillip Barengolts, Trademark Attorney

AFL Telecommunications LLC (“AFL”) sells FUJIKARA fusion splicers[1] in the U.S. under an exclusive license from Fujikura Ltd., a Japanese manufacturer of fiber optic equipment.  AFL also is a wholly-owned subsidiary of Fujikara.  SurplusEQ.com, Inc. and friends (“SurplusEQ”) import FUJIKURA fusion splicers intended for sale outside the U.S. and sell them over the Internet to U.S. consumers.  In other words, SurplusEQ sells gray market FUJIKARA fusion splicers.

AFL sued SurplusEQ and moved for a preliminary injunction over these sales, claiming unfair competition, false advertising, and copyright infringement.[2]  SurplusEQ moved to dismiss.  The Court denied AFL’s motion for preliminary injunction because AFL failed to provide evidence of irreparable harm under the standard announced in eBay v. MercExchange L.L.C., 547 U.S. 388 (2006)[3] and Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7 (2008). It also denied SurplusEQ’s motion to dismiss, except for a common law unfair competition claim that AFL did not properly articulate.  AFL Telecomm. LLC v. SurplusEQ.com, Inc., 11-01086 (D. Ariz. Sep. 14, 2011).[4]

The facts here are relatively straightforward: 1) the parties dispute whether the U.S. market splicers are materially different from the foreign market splicers sold by SurplusEQ, which allegedly alters them in some way; and 2) the copyrighted software that operates the splicers is made abroad originally, so it falls within the type of claim allowable under Omega S.A. v. Costco Wholesale Corp., 541 F.3d 982, 985 (9th Cir. 2008), aff’d per curiam, 131 S. Ct. 565 (2010). (more…)

April 27, 2010

Supreme Court to Examine Application of Copyright Law’s First Sale Doctrine to Importation of Gray Market Goods

Filed under: Copyright, Gray Market — Tags: , , — Pattishall, McAuliffe, Newbury, Hilliard & Geraldson LLP @ 9:18 pm

by Uli Widmaier, Trademark Attorney

Does copyright law’s first sale doctrine apply to imported goods manufactured abroad that are not intended for the United States market?  That is the question on which the Supreme Court recently granted certiorari in Costco Wholesale Corp. v. Omega, S.A., No. 08-1423 (Apr. 19, 2010).  Costco purchased genuine Omega “Seamaster” from an entity that acquired the watches outside the U.S. and imported them into the U.S. without Omega’s authorization.  Costco ultimately sold the watches to consumers at 35% below the price Omega normally charged in the U.S.  To stop this practice, Omega engraved a small design on the back of these watches, registered it with the U.S. Copyright Office, and then sued Costco for copyright infringement in the Central District of California, alleging violations of Sections 106(3) and 602(a) of the Copyright Act, 17 U.S.C. §§ 106(3), 602(a).  The district court entered summary judgment in Costco’s favor, but the Ninth Circuit Court of Appeals reversed.  Omega S.A. v. Costco Wholesale Corp., 541 F.3d 982 (9th Cir. 2008). (more…)

July 7, 2009

Second Circuit enjoins sale of colognes without UPC codes in chain drugstores

Filed under: Counterfeiting, Gray Market — Tags: , , — Pattishall, McAuliffe, Newbury, Hilliard & Geraldson LLP @ 1:00 pm

By Daniel Hwang, Trademark Attorney

Davidoff markets COOL WATER, a prestige brand of cologne that Davidoff only permits luxury retailers to sell.  When Davidoff declined to permit CVS to sell the product, CVS obtained COOL WATER from unauthorized channels with the UPC codes removed that it then sold through its stores.  Davidoff brought suit for trademark infringement, arguing that CVS’s sales of COOL WATER products without UPCs (“decoded products”) hinders Davidoff from guarding against counterfeits and from protecting the reputation of its brand.  CVS denied that the products were counterfeit, instead arguing that removing the UPCs and selling gray market goods was not illegal.  The district court preliminarily enjoined CVS from selling any Davidoff trademarked products with the UPCs removed and the Second Circuit affirmed.

The Second Circuit affirmed based on the importance of UPCs to both Davidoff’s counterfeit protection program and its quality controls.  CVS raised as a defense that the decoded products are gray market goods and thus genuine goods.  The Second Circuit stated “[t]he fact that the goods in question may be gray-market goods does not furnish CVS with a valid defense.” Rather, the injunction was justified on the basis of interference with Davidoff’s trademark rights. (more…)

June 25, 2009

Tenth Circuit prevents eBay auctions of radar detectors stripped of their serial numbers

Filed under: Counterfeiting, Gray Market, Internet — Tags: — Pattishall, McAuliffe, Newbury, Hilliard & Geraldson LLP @ 1:00 pm

By Jake Linford, Trademark Attorney

Beltronics made radar detectors, which two Beltronics distributors stripped of their serial number labels and sold in violation of their distributorship agreements to retailer Midwest.  Midwest sold the radar detectors as “new” on eBay.  Irate consumers complained when Beltronics refused to provide warranty coverage and other services for the radar detectors purchased from Midwest because they had no serial number labels.  The District Court for the District of Kansas granted Beltronics motion for a preliminary injunction to stop Midwest sales and Midwest appealed.  Midwest claimed its sale of the Beltronics radar detectors was protected by the first sale doctrine, which allows consumers to resell items they have purchased without triggering trademark liability.  Midwest argued in the alternative that the district court erred in finding that its disclosures to consumers were insufficient to prevent confusion.

The Tenth Circuit followed a line of gray market goods cases to conclude that differences in warranty protection or service commitments constituted a material difference.  As removal of the serial numbers voided Beltronics’s warranty, the products sold by Midwest were materially different from genuine radar detectors.  Thus, the Tenth Circuit found the first sale doctrine did not protect Midwest’s activities.  Midwest argued that the court’s interpretation would permit any trademark owner to eliminate the unauthorized resale of its goods and shut down secondary markets by limiting warranty coverage and service commitments to those who buy from authorized outlets.  The Tenth Circuit rejected this argument, because the Lanham Act—the federal trademark statute—only proscribes those sales that are likely to confuse consumers, and vendors who sell materially different goods but take sufficient steps to prevent consumer confusion, like fully disclosing the material differences, would not trigger liability under the Lanham Act.

The Tenth Circuit found Midwest’s attempted disclosures insufficient.  While Midwest stated on its auction page that it was retaining the serial number label because the detectors it sold were not covered by Beltronics’ warranty, there were also material differences regarding product and service assistance, product use information, software upgrades, rebates and recalls that Midwest did not endeavor to correct.  Thus, the Tenth Circuit upheld the injunction.

Beltronics USA, Inc. v. Midwest Inventory Distribution, LLC, No. 07-3340 (10th Cir. 2009)

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