In a recent appeal, the U.S. Court of Appeals for the Federal Court vacated an International Trade Commission (ITC) decision and reiterated that a trademark owner may exclude imports of its own goods into the United States, including those goods manufactured in the United States by the trademark owner exclusively for sale abroad. However, the Court emphasized that such power to exclude is not unfettered. Bourdeau Bros., Inc. v. International Trade Commission, Case No. 04-1588 (Fed. Cir. Mar. 30, 2006) (Clevenger, J.).
In this case, Deere manufactured a certain European version of its forage harvesters (European harvesters) in the U.S. exclusive for sale in Europe. The appellants procured used European harvesters that they then sought to import and sell in the U.S. Deere filed a complaint with the ITC that claimed such import and domestic sale of used harvesters infringes on Deere’s federally registered trademarks and amounts to a violation of 19 U.S.C. §1337 (Section 1337). Deere specifically asserted that the European harvesters constituted "gray market goods" that were materially different from the 5000 series forage harvesters authorized for sale in the U.S. (domestic harvesters) due to variable safety features. Consistent with the Administrative Law Judge’s (ALJ) initial determination and recommendation, the ITC ultimately issued general exclusion and cease and desist orders. The appellants appealed.
Section 337 prohibits the import of, inter alia, "gray market goods." A successful exclusion claim against gray market goods must establish (1) difference(s) between the foreign and domestic goods, (2) that such asserted difference(s) are material, and (3) that all or substantially all of the trademark owner’s authorized domestic sales of goods bearing the trademark incorporate the asserted material difference(s). The crux of this gray market analysis, the materiality of the asserted difference(s), is the issue consumer significance, that is, the likelihood that consumers will consider the asserted difference(s) significant when purchasing the product. The importance of the third factor is centered on the potential for consumer confusion that could erode the goodwill of the trademark owner’s domestic source and products thereof.
In dismissing the appellants’ arguments, the Court discounted the importance of the place of manufacture (i.e., domestic manufacture versus foreign manufacture) and the trademark owner’s authorization of foreign use of the trademark on the goods. The Court reaffirmed the ALJ’s finding that the European and domestic harvesters featured materially different safety features, such as differences in lighting functions, seatbelts, hitch mechanisms, warning labels, safety decals and warranty services. However, the Court found that the ALJ had not considered whether Deere established the final component of its prima facie case, i.e., that all or substantially all of its domestic sales incorporated the asserted differences. This omission was especially significant because the appellants alleged that Deere was aware that authorized dealers had imported and sold European harvesters in the United States, sometimes with the assistance of its corporate employees. Deere countered that these unauthorized transactions involved only a small number of dealers and that, upon knowledge of same, it ordered them to cease.
Ultimately, the Federal Circuit vacated the ITC decision and remanded the case for the ITC to determine whether Deere could establish, by a preponderance of the evidence, its burden that all or substantially all of the authorized domestic sales incorporated the asserted material differences. The Court stated that even if Deere could not establish that U.S. sales of European harvesters were unauthorized, it could prevail by showing that substantially all sales were of domestic harvesters.
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